Q4 2020 HCA Healthcare Inc Earnings Call
And the.
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Welcome to the HCA healthcare fourth quarter, 'twenty and 'twenty earnings Conference call today's call is being recorded other.
Line, but often and your life and introductions I'd like to turn the call over to Vice President of Investor Relations. Mr. Mark Kimbrough. Please go ahead Sir.
Good morning, and thank you Nora and welcome to everyone on today's call.
With me. This morning is our CEO, Sam Hazen, and CFO, Bill Rutherford, Sam and Bill.
We will provide some prepared remarks, and then we will take questions before I turn the call over to Bill and Sam Let me remind everyone that should today's call contain any forward looking statements are based upon managements 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 the non-GAAP financial measure of.
Table, providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. Is included in today's release.
This mornings 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.
In the face of the highest surge yet of the COVID-19 pandemic. We finished the year with strong financial results and the fourth quarter.
These results were driven once again by highly acute inpatient volumes, coupled with solid cost management.
And the quarter, our hospitals, providing care to 56000, and COVID-19 and patients.
A 40% increase over the third quarter.
Since March we have delivered care to 122000 in patients with the virus, representing 8% of total admissions and currently our hospitals continue to treat many patients with COVID-19 census levels. Fortunately have begun to decline over the past few weeks.
And.
Revenues in the fourth quarter grew by 770 million or five 7% over the prior year.
This increase was driven by growth and inpatient revenues, which were up 12% revenue per admission grew 16% while admits were down three 4%.
As mentioned the acuity within our inpatient business was higher as reflected in both case mix index.
The increased almost 7% and length of stay which grew by 6%.
Outpatient revenue continued to lag as the volume decline across most categories.
We attribute many of these declined to the swell and COVID-19 activity across the communities, we serve causing many patients to defer care.
Outpatient revenues were down 4%.
On the cost side, our teams continue to perform well adjusted EBITDA margin for the company grew on a year over year basis.
And the quarter, we experienced some upward pressure on labor costs due to challenges related to nurse staffing, which were caused mostly by demands related to the COVID-19 surge that occurred across most hospitals and the country.
With respect to supply costs, we incurred increased drug cost related to the growing utilization of rooms disappear and personal protective equipment costs.
Diluted earnings per share increased 33, 7% and the quarter to $4 13.
For the year diluted earnings per share, excluding losses and gains on sales as well as losses on debt retirement grew 10, 6% over 2019 to $11 and 61.
Before I provide our outlook on 2021 I want to reflect on 2020.
Just like many other others. This past year was clearly a remarkable year for HCA healthcare on multiple fronts.
For us however, I believe it will be seen also as a pivotal year across many dimensions, we improved our enterprise capabilities, which should allow us to support our local heart health systems, better and enhance their abilities to provide higher quality care with greater efficiency.
More importantly, we demonstrated and organizational ability to respond quickly and effectively to possibly the greatest challenge the company has ever experienced.
And now I believe we are emerging on the backside of this of that stronger and better positioned to grow and drive value for our stakeholders.
We did this while staying true to our mission throughout the process and we could not have made these improvements without the unwavering commitment and excellent execution shown by the 285000 colleagues and 50 thousands of physicians, who make up HCA healthcare.
I want to thank them for their tremendous work compassion and service to our patients and others and their communities.
Currently our teams are working diligently to vaccinate as many people connected to our health system as possible.
To date, we have vaccinated approximately 200000 colleagues physicians first responders and other individuals' critical to the delivery of healthcare services.
As we push forward into 2021.
Our overall outlook for the year remains generally consistent with the early perspectives, we provided last quarter.
While many aspects of our business, including the impact of the pandemic remain difficult to predict we believe the guidance that we're providing today is reasonable.
We also believe that together our growth plan and capital deployment plan, which was announced in today's earnings release should enhance long term shareholder value.
Because of the decisive actions, we took at the onset of the pandemic and the solid results. We produced in 2020 R.
Of our company is now and a stronger financial position the strength allows us to deploy sufficient capital resources to both plans, while still maintaining ample balance sheet capacity to use for other strategic opportunities that may develop including acquisitions.
As part of our growth plan, we continue to find ways to strengthen our position locally and nationally some.
Some highlights are as follows this past year, we acquired of 40% interest and a telemedicine company, which we believe has capabilities that can accelerate our program.
We have committed significant capital to develop new and expanded inpatient rehab bed capacity, and Florida, which recently eliminated certificate of need requirements and this service.
And finally, we are partners.
And in many instances with more key physicians across the company to grow programs horizontally and vertically and key services.
Our objective is still to be the provider system of choice and the communities we serve.
Our strategic approach to accomplishing this goal has two overarching components.
First developed comprehensive health systems locally that deliver high quality convenient care to our patients.
And second support these networks with our unique enterprise capabilities and economies of scale.
This blended model supported with strong execution has served us well over the past few years as market share has reached an all time high using the most recently available data.
But we are pushing for more we have constructed a set of strategic initiatives that are underway and designed to deliver a better experience for our patients and improve the company's future performance.
These efforts include seeking ways to utilize our network and expand into upstream or downstream business opportunities, including identifying different approaches to optimizing our portfolio of assets.
We are investing more and technology to enhance quality outcomes for our patients advance our operational effectiveness and drive efficiencies.
And finally, we are finding ways to capitalize on the diverse footprint that we have by partnering with other companies to accelerate these initiatives.
One example of our efforts to partner is the recent announcement, we made to invest and a domestic PPE production company, which will be based in Asheville, North Carolina. This entity will supplement other supply chain sources, we have for procuring sufficient PPE for our colleagues and.
And 2021, we plan to increase our capital spending by approximately $850 million.
This step up is expected to mostly support our growth plans.
Additionally, we have approximately $3 3 billion.
Of other growth projects under construction that we expect to be operational this year or next.
And this pipeline includes capacity expansion projects at various hospitals, two new hospitals and additional outpatient facilities.
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To round out our capital plan, our board of directors approved reinstating the quarterly dividend at <unk> 48 per share while also increasing the authorization for our share buyback program.
Al will provide more details on these items and the others in his comments.
We are incredibly proud of our colleagues and the company's accomplishments in 2020, which included returning or repaying early over $6 billion of cares Act funds to the federal government.
Our performance this past year gives us greater confidence to believe that we will be able to navigate successfully through future challenges as well.
As we continue to honor our mission, we will remain focused on delivering high quality care to our patients.
Supporting our colleagues and and physicians responding to the vital role we play and the communities, we serve and creating value for our shareholders and now I will turn the call over to Bill.
Thank you Sam and good morning, everyone I'm going to walk through our 2000 and 'twenty one guidance and then touch on our capital allocation plan, including our announcement this morning to reinstate our dividend and share repurchase program.
The 2000, the 'twenty one guidance outlined in our release. This morning is consistent with our broader commentary we provided on our third quarter call.
We anticipate our inpatient admissions to grow approximately 2% to 4% over 2020 as reported results and this would equate to about a 1% to 3% below 2019 levels.
We expect our outpatient volumes to grow from 2020 levels, but to track below 2019 as well.
And we expect our revenue per equivalent admission to be flat to down slightly with our 2020 level. This is mainly driven by expected declines and COVID-19 activity throughout the year and loss of supplemental Covid funding.
We expect adjusted EBITDA margin to be consistent with our as reported 2020 full year level and range between 19 and 20%.
Our adjusted EBITDA guidance is between $10 3 billion and $10 9 billion for 2021.
Earnings per share is expected to range between $12 10, and $13 10 for 2021.
Also we expect interest expense of approximately $1 6 billion and then the effective tax rate of approximately 23%.
I would like to share a couple of other thoughts regarding our 2000 and 'twenty one guidance as we think about our 2020 performance and results the.
The COVID-19 pandemic and the various searches we have seen had a significant effect on our operating results throughout the year as.
And as we've mentioned previously we expect to continue to sort of COVID-19 patients throughout 2021, and while it is difficult to predict how the future cycles of this pandemic will occur at this point, we anticipate our COVID-19 volume to be heavier and the first half of the year and then hopefully will decline and the second half of the year is broader.
Segments of the population receive of vaccination.
We do expect some recovery of demand and deferred volume as the COVID-19 activity lessons.
It is difficult to predict the progression of the pandemic during 2021, but we believe our baseline assumptions are reasonable at this point.
Let me speak briefly this from cash flow and balance sheet metrics, along with our capital allocation decisions.
First as the result of numerous measures we took in 2020, the cash flow liquidity and balance sheet position of the company are in a very strong position.
We finished 2020 with cash flow from operations of $9 2 billion.
After our capital spend of $2 8 billion, the first quarter dividend of $150 million and non controlling interest distributions of $625 million, our free cash flow was $5 6 billion for the year of.
Our debt balance declined $2 7 billion from our year end 2019 levels and we have approximately $1 8 billion of cash on the balance sheet.
Our debt to adjusted EBITDA ratio was 3.0 times at the end of the year after netting out the available cash.
All of this is after returning or repaying early over $6 billion of.
Provider relief funds and accelerated Medicare payments that we discussed on our third quarter call.
Our 2020 cash flow metrics were benefited by deferred payroll taxes of approximately $700 million, which will begin to be repaid and later 2021 as well as great working capital management by our teams.
The 2000 and for 2021, we anticipate cash flow from operations to range between seven 5 billion and $8 billion.
As we evaluated our 2021 financing plan and considered our capital allocation strategies, we recognized our current position and outlook for 2021 presents an opportunity to find the optimum balance of investing capital to drive growth.
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We anticipate capital spending to approximate $3 7 billion and 2021. This represents an approximately $850 million increase over 2020.
Our board of directors declared a <unk> 48 dividend to be paid and the first quarter. This represents over and 11% increase from the quarterly dividend level that we suspended and the second quarter of 2020 due to the Covid pandemic.
Our board of Directors also authorized a new $6 billion share repurchase program.
We had approximately $2 8 billion remaining on our prior authorization as the result, the company currently has eight 8 billion and total authorization.
Consistent with our past programs, we have no defined time period to execute on the share repurchase authorization.
But we anticipate executing over the next 12 to 18 months with the majority of expected to be completed in 2021 subject to market conditions.
In addition to these actions we are making an adjustment to our historical leverage target.
Since 2013, we've had a stated leverage target to operate at a leverage ratio of between three five times and four five times.
Given our current level of leverage position is below that range and with our outlook going forward. We are lowering our expected leverage target to be between three times and four times and we expect to run at the mid to low end of this range and the foreseeable future.
We believe all of these actions represent a balanced capital philosophy that allows the company to continue to invest and our existing facilities to drive growth.
Positioned as well to explore strategic acquisitions as they may become available and provides the opportunity to drive long term value.
So with that I'll turn the call over to Mark and open it up for Q&A.
Okay. Thank you Sam and Bill nor of would you give directions on getting into the Q&A and remind everyone. Please to ask one question.
Yes.
And then ladies and gentlemen, ethane and Linda and guys. Good luck and you'll need to press star one on the telephone and can be done question. Thanks dependency.
Please standby will be compiled the cannula.
The other question from the line of Kevin Fischbeck with Bank of America. Your line is open.
Okay, great. Thanks, Alright.
Alright.
Get a little bit more color and how you were thinking about.
Thanks, Bob volume normalize the <unk>.
Margins look on that volume returning just because it's true.
The benefit and the Washington, and benefited from higher acuity payer mix benefited the volumes return and theyre going to be lower acuity worst payor mix and how you're thinking about other.
But all of them together.
The incremental margin of our volume.
Kevin and thank you Kevin This is bill let me take first stab of that we recognize we've been running high.
High margins and the.
The last half of the year and as you stated and as we've said previously.
Largely due to the acuity that we've seen the higher COVID-19 activity and a favorable payer mix going forward.
We said in my commentary that we expect margins to range between 19, and 20 of the midpoint, obviously would be 19, and a half which is where we finished full year 2020.
We do believe as Covid declines throughout the year and we began to see return of our historical volumes that that will settle out and we.
We see that and our revenue per adjusted admission commentary that I gave as well. So it really is a matter of timing of when that occurs but as we look forward and this year, we've been benefited by the acuity and the payer mix in terms of our commercial volume.
Declined slower than our Medicare volumes, I think that will eventually settle out and return to maybe what our historical norms of bin.
Let me add to that comment that this is Sam Kevin and I think one thing as I mentioned, we're pushing for more with respect to growth. We're also pushing ourselves with respect to resiliency and finding ways again to leverage economies.
Economies of scale inside of HCA.
Giving us the opportunities possibly to sustain this thats our management challenge of we're obviously not there yet, but we have opportunities. We believe inside of our financial resiliency program to advance debt initiative. The second thing I would tell you.
As our investments and our advancing of technology is another opportunity for us to find more profitability within our existing revenue base. We have a lot of variation we had a lot of opportunities to create more timely decisions and ultimately drive more efficiency and better patient outcome.
And so technology and economies of scale continue to present opportunities for us to improve profitability across the organization I don't know exactly where that lands to Bill's point, but we do see.
Certain initiatives, yielding certain value for us overtime.
Kevin Thank you nor will take next question.
Your next question comes from the line of Gary Taylor Jpmorgan. Your line is open.
Hey, Gary.
Mute.
Yes, Okay and then.
Your line is open.
Okay.
I'm sorry can you hear me now, yes, yes, okay. Okay.
And then ask two questions of the case that strike out on the first one the.
The one I wanted to get after it. So if you had any comments on.
Just the EBITDA progression for the year, whether debt looks like sort of what we're used to normal kind of first quarter and fourth quarter being.
The highest honestly I listen to your comments about margin and how COVID-19 might normalize.
If I don't get anything on that I, just wanted to ask about.
On the Labor front, if you had any views on how the bite administration.
Plan to raise the minimum wage and how that might impact you and if any of that was was incorporated and the guidance or could be accommodated and the guidance. Okay.
Okay, Let me Gary of the sand with the swing and Miss on your first one because of like Bill said, we were trying to judge the pandemic and the implications of the pandemic and its been variable as you have seen over 2020, and we expect more variability with it our belief is generally speaking the latter part of the year.
Or will hopefully the situation, where we have a rebound and normal.
Care and that some of the deferral of care, which we know has taken place over the past year will start to surface and.
And a more noticeable way with respect to minimum wage HCA has a living wage policy that is implemented approximately two years ago, we're actually advance two years ago, where we have.
Different levels of minimum wage.
Established based upon the cost of living so for example, and San Jose, California. The cost of living is much greater R minimum wage threshold and that particular market would be well north of $15 per hour, but in El Paso, Texas as an example, it's lower because the cost of living.
And El Paso, Texas is much lower than San Jose and our floor on that program is $12 50 per hour adjusted again to local market conditions. So we have a number of markets that are above $15 per hour already and others that are approaching it but our floor for everybody is $12 50.
In addition to that.
We obviously have to be competitive with the marketplace as it relates to service workers of whatever the case may be and are competitive wage program and our compensation programs are embedded in that and in many instances. They are above the floor also as it relates to a global $15 per hour.
Federal policy on the wages.
It's a minimal impact on the company because of the program that we already have in place.
Alright. Thanks.
Thanks, so much.
Laura.
And next question is from Frank Morgan with RBC capital markets. Your line is open.