美國醫院公司 (HCA) 2021 Q2 法說會逐字稿

Hello, and welcome to the HCA Healthcare Second Quarter 2021 Earnings Conference Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead, sir.

All right. Thank you, Katherine. Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we will take questions.

Before I turn the call over to Sam and Bill, let me remind everyone that should today's call contain any forward-looking statements, they're based upon management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings.

On this morning's call, we may reference measures such as adjusted EBITDA which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare is included in today's release.

This morning's call is being recorded and a replay of the call will be available later today.

With that, I'll now turn the call over to Sam.

Good morning, and thank you for joining us. With the effects of the pandemic moderating in the second quarter, we experienced a strong rebound in demand for our services. COVID admissions in the quarter were down to 3% of total as compared to 10% in the first quarter. Volumes across all categories grew significantly compared to last year, and notably, we grew inpatient admissions and outpatient surgeries over 2019. The growth was supported by an improved payer mix, which resulted from an increase in commercial volumes.

On a year-over-year basis, revenues grew 30% to $14.4 billion. Inpatient revenues increased 20%, driven by a 17.5% admission growth. Outpatient revenues grew an impressive 59%, reflecting the resurgence in outpatient demand across most categories. To highlight a few areas, outpatient surgeries were up 53%, emergency room visits grew 40%, cardiology procedures increased 41% and urgent care visits were up 82%.

Compared to 2019, overall inpatient admissions grew almost 3% with commercial admissions growing 8%. Outpatient surgeries grew approximately 3.5%. Emergency room visits were only down 5.5% with the month of June basically flat. Acuity, however, in our emergency rooms was up, with moderate growth in the most acute categories. We were able to leverage the increased revenue into higher margins. Adjusted EBITDA margin improved compared to last year, excluding the government stimulus income and sequentially in comparison to the first quarter.

Diluted earnings per share, excluding losses and gains on sales of facilities and losses on retirement of debt increased 35% to $4.37. As noted in our release, EPS in the second quarter of 2020 included a $1.73 per diluted share benefit from government stimulus income. This benefit was reversed in the third quarter of 2020 as a result of the decision we made to return our entire share of provider relief funds from the CARES Act. Once again, our teams delivered on our operating agenda. I want to thank them for their dedication and hard work.

As we look to the rest of the year, we have raised our annual guidance to reflect the performance of the company over the first half of the year and the belief that the current levels of demand should prolong over the remainder of the year. We continue to invest aggressively in our strategic plan, which revolves around building greater clinical capabilities to serve our communities, while also developing more comprehensive enterprise resources to support caregivers and differentiate our local networks. We believe this operating model will continue to create value for our patients, deliver market share growth and produce solid returns for our shareholders.

Thank you, and now I'll turn the call over to Bill for more details.

Great. Thank you, Sam, and good morning, everyone. I will discuss our cash flow and capital allocation activity during the quarter, then review our updated 2021 guidance.

As a result of the strong operating performance in the quarter, our cash flow from operations was $2.25 billion as compared to $8.7 billion in the second quarter of 2020. In the prior year period, cash flow from operations was positively impacted by approximately $5.8 billion due to CARES Act receipts. And this year, we had approximately $850 million more income tax payments in the quarter than the prior year due to the deferral of our second quarter 2020 estimated tax payments.

Capital spending for the quarter was $842 million, and we have approximately $3.8 billion of approved capital in the pipeline that is scheduled to come online between now and the end of 2023.

We completed just under $2.3 billion of share repurchases during the quarter. We have approximately $5 billion remaining on our authorization. And consistent with our year-end discussion, we are planning on completing the majority of this in 2021, subject to market conditions. Our debt to adjusted EBITDA leverage was 2.65x, and we had approximately $5.6 billion of available liquidity at the end of the quarter.

During the quarter, we closed on the acquisition of Meadows Regional Hospital in Vidalia, Georgia. We also closed on the Brookdale home health and hospice transaction as of July 1, 2021. We have a number of other development transactions in our pipeline to expand our regional delivery networks, including over 15 surgery center additions through both de novo development and acquisitions as well as a number of urgent care and physician practice acquisitions. We also anticipate the closing of our previously announced facility divestitures in Georgia later this quarter, and we plan to use the proceeds from this transaction for other capital allocation purposes.

As noted in our release this morning, we are updating our full year 2021 guidance as follows: We now expect revenues to range between $57 billion and $58 billion. We expect full year adjusted EBITDA to range between $12.1 billion and $12.5 billion. We expect full year diluted earnings per share to range between $16.30 and $17.10 per share. And our capital spending target remains at approximately $3.7 billion.

As Sam mentioned, our revised guidance considers the strong results in the first half of the year and our belief in the company's ability to continue this performance for the remainder of the year.

With that, I'll turn the call over to Mark and open it up for Q&A.

All right. Sam, Bill, thank you so much. Katherine, I think we're ready for questions now. (Operator Instructions) Thank you.

(Operator Instructions) And your first question comes from the line of Brian Tanquilut with Jefferies.

Congratulations. Solid quarter. I guess, Bill, I'll follow up here on the last part of your comment on the guidance. So you're expecting continuation of the trends that we saw in Q2. So how are you thinking about the Delta variant coming up? And just in terms of the backlog that you're seeing in terms of procedures that were delayed on the elective side from last year?

Yes. Brian, it's Bill. I'll take that. I mean, obviously, our guidance factors in a lot of variables. We believe overall, our volume as indicated in the second quarter, will return to 2019 levels and perhaps moderately above that. We think we can maintain the acuity levels even though that some lower acuity may come back into the system in the balance of the year. And overall, the overall payer mix, I think, will remain strong.

Relative to COVID, as we mentioned in our year-end results, we anticipate and anticipated serving COVID throughout part of the year and indeed, we're seeing that. As Sam mentioned in his comments, roughly 3% of our admissions were COVID in the second quarter compared to 10% in the first quarter. And I think we've proven the ability to manage through different cycles as they present themselves. And so we factored a number of variables into our guidance and believe again in the performance of the company to be able to deliver that.

Your next question comes from the line of Pito Chickering with Deutsche Bank.

Great job here in the quarter. In 2021, guidance now brackets consensus for 2023. I understand it's way too early to think about 2022, but the new guidance begs that question a little bit. So if we think about the mid-2021 guidance of $12.3 billion and we back out $600 million of government spending from sequestration, HRSA and other COVID payments, it's about $11.7 billion. Is that the right launchpad for 2022? And if we assume a 4% EBITDA growth to get us to $12.2 billion for 2022, is that the right way to think about next year?

Well, Pito, let me start it out, Sam. I think it's a little early to put math to 2022 numbers. We obviously have some puts and takes going out through 2021. You are correct, we anticipate the government stimulus to approximate $600 million for full year. But it's really too early to start putting numbers to 2021. We do feel confident in the general direction that the company is seeing. And so again, we'll reserve comments on specific guidance for 2022 at this standpoint.

And Pito, this is Sam. I want to add to Bill's comments there. I think when you think about the near term, and we're not defining that as '22, we're defining it as over a reasonable period of time. Post this year, we do believe that demand growth for health care services over the near term is going to remain solid. And we think with the differentiated portfolio of markets that we have inside of HCA Healthcare, that helps support that particular belief.

The second belief we have is that our provider system model has unique strength and will allow us to compete effectively for market share. We also had a number of initiatives that we believe are appropriate in creating better services and more value for our stakeholders, and we think these will create opportunities for us as well.

And then as Bill alluded to in his comments, our capital investment strategy, our balance sheet flexibility really provides us support also for near-term objectives. And so we will get through the next quarter, and hopefully, by that time, have some perspective as we have in the past, on how we see the upcoming year. But this is more of our near-term belief, and we think these are reasonable for the operations of our company.

Your next question comes from the line of Kevin Fischbeck with Bank of America.

Great. So impressive beat on margins. I guess how should we think about the normalized margin for you guys? And we're hearing more and more about labor pressure. So how are you thinking about specifically how labor might impact margins in the coming years?

Who wants to take it?

Well, this is Sam. Let me speak to our labor agenda in general. First of all, our employees, over the past 18 months, have been just incredible. They've stepped up. They've shown up. They've delivered on our mission. They've delivered for their communities and they've delivered for their patients. Obviously, as other industries are experiencing, we are in a difficult labor market. I will tell you that we have numerous initiatives underway to improve our overall position. We have invested significant amounts of resources into our recruitment functions. We have advanced our expansion of our Galen School of Nursing.

And then we have put in compensation adjustments, some of which were in our numbers this quarter and some of which will show themselves in the future. What we are encouraged by is each month this year, we've seen sequential improvement in overall labor metrics with respect to turnover, with respect to recruitment. And so we're encouraged by our efforts up to this point.

I will also tell you that our labor cost from the second quarter to the -- from the first quarter, rather, to the second quarter are essentially stable, which gives us some confidence that our efforts are working. Obviously, there's still uncertainty with respect to inflation. We will be focused on doing the right thing for our employees as we move forward in managing through this period. And we think, again, we have a number of initiatives that can help address some of these pressures that might evolve.

Your next question comes from the line of Justin Lake with Wolfe Research.

Wanted to follow up on Kevin's question. Just talking specifically on margins, they're up 200 basis points versus 2019 and what you guided to originally pre-COVID in 2020. So just wondering if you could break that down maybe between the better acuity you've seen, better payer mix, the cost cutting you've done, maybe some of the government program dollars and just talk about the sustainability there. And then I apologize if I missed this, Bill, but if you could run us the acuity numbers, that would be great as well.

Yes. So Justin, obviously, a lot of factors go into the margins. You see in our guidance, we're raising our margin expectations compared to our original discussion as we went into the year. And I think that's reflective of all the variables. Clearly, margin's being driven by the volume returns to 2019 levels, the favorable acuity as well as the favorable payer mix. And then we continue to have a number of cost initiatives that we're managing through. So as we think about where we stand today in the balance of the year, the margins reflect more like our average that we've experienced over the past 4 quarters.

The acuity, we still saw some growth in 2020. It was about 2% growth over 2020, about 5% growth over 2019 levels, so that's continuing to show strength. And so we will have to see where that falls out for the balance of the year. But overall, we feel reasonably confident on the margin projections we have. And I think our guidance reflects a pretty significant increase in the margin expectations compared to where our original expectations were as we turn the calendar.

Your next question comes from the line of A.J. Rice with Credit Suisse.

Impressive quarter across the board, really. I guess I'll just try to drill down a little bit more on what you're seeing volume-wise. I know the market share of third-party statistics come in with the delay, but I'm assuming you have some sort of local assessments you do. How much of the volume rebound -- because it's stronger than I would have thought. Certainly, to be ahead of '19 levels is impressive. How much of that do you think is -- you're picking up margin, either the way you responded to COVID, your investments you've done on the CapEx side? And how much is the underlying market?

And you're expressing confidence about the back half of the year. You have any -- I mean, I guess you have some scheduling of procedures that you can look at and what the physicians are telling you and you own a lot of physicians. So maybe just something about why you're confident on the volume sort of having that sustainability as opposed to this being a spike that then moderates.

All right, A.J., thank you. Sam, Bill?

Yes. This is Sam, A.J. Thank you for that question. We have had fits and starts over the last 3 or 4 quarters with a couple of months here, a couple of months there, then we went into COVID surges and it had created difficulties in our ability to judge precisely where we were in the market. So we've had essentially 4 solid months, March, April, May and June, where we've been able to judge the market with some level of confidence.

And what we see is, as I mentioned, the ability to move market share. I don't know that we moved it in this last quarter necessarily because we don't have the data. But if you look at our progression over time, you've seen a pattern of market share growth. And again, I think that speaks to the model. I think it speaks to the resource allocation that we put forth and it speaks to the execution by our teams in the field, and so we're really proud of that.

At the beginning of 2011, we had 23% market share. At the end of that decade, we had over 27%. We have continued to see annual growth in our most recent data points. So we believe that system capability still exists and is possibly showing itself in the second quarter but we need more time to fully judge that. But these 4 months have given us a reasonable perspective on what's happening in the markets, job growth, more people insured with the Affordable Care Act, investments that we're making, execution on our physician and program development strategy and continuing to manage the network, most effectively, we think, gives us reasonable visibility into the last half of the year, and that's why we're judging that the demand is going to endure over the remaining 2 quarters.

So we don't have anything other than our analysis of these 4 months, A.J., that would suggest it. But we believe with our study, we just concluded all of our midyear reviews with our division team. That's been reinforced in our discussions with them around what they're seeing in their individual markets. So that's the reason for the guidance.

Your next question comes from the line of Scott Fidel with Stephens.

Wanted to just ask a follow-up question around the planned capital investments that you highlighted, that well north of $3 billion through 2023. And specifically just interested if you can talk about the mix of those investments as they relate to inpatient versus, let's call it, outpatient and tertiary and other investments. Just interested in as you look sort of historically at the mix of investments, how those may be evolving as we've seen some shifts in site of care clearly playing out post pandemic?

All right. Sam?

Yes, this is Sam. We -- just so you have a sense of our networks today, we have roughly 185 hospitals, and then we have over 2,000, almost 2,200 outpatient facilities. So think about our network, it's almost 11:1, outpatient to hospital. Now the capital intensity in the 185 hospitals is clearly more than the outpatient facilities. So as Bill mentioned in his comments, we have a significant amount of capital going to ambulatory surgery centers, but an ambulatory surgery center per unit is only $10 million or $12 million in order to get it an investment done. An urgent care center is a couple of million. A freestanding emergency room is a $10 million investment.

So these are small dollar unit investments but they add to our network capability and then support our hospitals in a way that ultimately create, hopefully, a closed loop where a patient can stay inside of one of our systems because of the services and so forth that we offer. As it relates to our capital investment, our hospitals will always consume more of the capital just because of the intensity that it requires to have, the brick-and-mortar associated with them, the heavy clinical equipment and such.

But we have plenty of capacity in our spending, allowing us to invest aggressively in our outpatient network to support our facilities. So we're adding beds to our facilities in many markets because we're still running at very high occupancies. I think our occupancy in the second quarter was 73%. We have 41,000 beds in HCA operational, and we're running north of 30,000 patients a day inside of those facilities.

And then as we speak to building out our capabilities, we are investing in many outpatient and ambulatory facilities, creating a more convenient, easier to access offering for our patients at a better price point so that it fits within our overall network configuration. But those investments, again, will not overcome the amount of inpatient investments that we make.

Additionally, we are investing in our technology platforms and we continue to invest in technology. We see a real opportunity in the future to advance technology and enable the company even more significantly than we do today, delivering what we believe to be an opportunity for much better care, do it in a more engaging way with our patient population and then ultimately achieve efficiencies as a result of those investments. So we're very excited about that platform. More to come on that in the future, but we see opportunities there as well.

Your next question comes from the line of Ralph Giacobbe with Citi.

So you guys mentioned commercial up, I think, 8% over 2019. Can you maybe just give us a sense of volume trends for Medicare and Medicaid? And then any way to gauge population growth, particularly in your Texas and Florida markets and maybe how much that's aided the payer mix stats at this point?

All right. Thank you, Ralph.

Yes. Ralph, this is Bill. I think we saw recovering volume in every payer class and that includes Medicare. Our Medicare volume was just under 4% below '19 levels and that compares to where we have been running 8% to 10% below. So we see recovering volume in the Medicare class as well. Obviously, it's more favorable in the commercial and managed care, so that's resulting in a strong overall payer mix area.

In terms of overall demand, I don't have information on that. We're generally a couple of quarters in arrears to see that, so we're going to have to just wait to see when that data comes out. Our belief just looking and hearing the markets as we see demand recovering, as the economy and markets are opening back up, we'll have to see what that actually yields in terms of the percentage of demand that we're seeing. But it's our belief we're starting to see demand recover throughout most of our markets.

Your next question comes from the line of Joshua Raskin with Nephron Research.

Just the ED visits, I know running 5.5% below 2019 in the quarter. I think you said June was almost flat. Are those stabilizing in your view? Is that the new normal level? Do you think EDs have actually fully recovered back to pre-pandemic levels? And then are you seeing any change in the percentage of those ED visits that are getting admitted, that are becoming actual admissions and maybe even any differences by payer segment?

Sam?

Well, 1 month, June doesn't necessarily suggest a pattern, although we think the second quarter is more likely reflective of activity in the ER than previous quarters when we were down 15% to 20%. We knew there would be some recovery in the emergency rooms. And we haven't seen the effects of schools going back yet either, so that is an area, our pediatric activity where we've seen significant shortfalls by comparison to 2019 still even in the second quarter. So that would provide some potential support as kids get back to school and engage in their normal activities.

As it relates to the acuity of our emergency room population throughout 2020 and on into the first half of 2021, we have continued to see in our emergency rooms more acute patient populations. That has, in fact, yielded admission growth in our emergency rooms. Our admissions grew in the second quarter of '21 over '19 as a result of that acuity. And we anticipate that, that will also endure throughout the remainder of the year.

Your next question comes from the line of Jamie Perse with Goldman Sachs.

I wanted to go back to the EBITDA margin piece and your guidance for the rest of the year. Looks like the second half guidance implies a lower margin rate than the first half of the year, so I wanted to get any specific incremental pressures you see for the balance of the year. On a related note, just premium labor utilization and premium labor rates, are those continuing to come down relative to recent trends?

Yes. Let me start with margins. As I tried to talk about before, as we kind of project the balance of the year, there's a lot of variables that go into that. And I think you'll see that our margin that we're projecting is a pretty significant increase from our original projection and more looks like our margin average for the past 4 quarters.

And we'll just have to see how the various variables play out. We don't have anything specific we're calling out on that. We know we're running a little high in the first half. I think some of our first quarter COVID volume maybe contributed to that. But our margins for the full year are really reflective of our past 4 quarter average. On the premium labor, Sam?

Well, we did have more premium labor utilization in the second quarter than we did in the first quarter, and that put a little pressure on our labor costs. We were able to absorb that with the volume and the outpatient activity that we mentioned. We anticipate, again, that our labor agenda for recruitment, retention, compensation adjustments and so forth will start to moderate that pressure over the remainder of the year, but we continue to be mindful of that particular item. But obviously, we're having to staff the volume that we've got in some instances, many instances actually, we're having to use premium labor at this point.

And your last question comes from the line of Lance Wilkes with Bernstein.

Great quarter. Can I just ask about impacts of value-based care on the business, in particular, impacts on volumes? Just interested if that's causing any pressure in any particular markets where you're seeing the rise of some of those risk-bearing primary care or if it's, in fact, helping you if you're taking more of that share. And maybe just a quick cleanup question on Medicaid volume relative to 2019. Have you seen that up or down?

We've spoken to value-based programs over the years, and nothing has really changed in our estimation over the past year, 1.5 years with respect to those. In many markets, we have to respond to the dynamics in those markets. I mean South Florida is probably the most advanced managed care market in the country. We have 24%, 25% market share in that particular region, with many investments underway to improve our position overall. So our ability to navigate in some of the deepest and most complex managed care markets, I think, has been proven over time.

We nuance our strategy from one market to the other to respond to what our payers feel they need to be responsive to their customer base. We have great relationships, great partnerships in many instances with the various payers. We're in a great position as it looks to 2022 with respect to our contracting. And so I think from that standpoint, nothing material is out there, either influencing demand in any significant way nor putting us in a position where we don't feel like we're appropriately positioned with the payers' objectives in allowing them to push forward on whatever agenda they think appropriate.

And Lance, this is Bill. On your Medicaid question, we're up about 4% over 2019 on a year-to-date basis. We're relatively flat first quarter and we were up just under 9% in the second quarter.

Okay. All right. We want to thank everyone for joining us this morning. Obviously, we're excited about the quarter. I'm around if you have any additional questions for the rest of the week, and just feel free to give me a call. Thank you so much.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.