Q2 2021 HCA Healthcare Inc Earnings Call
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 percentage 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.
The growth was supported by the improved payer mix, which resulted from an increase in commercial volume.
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% of.
Emergency room visits grew 40%.
The 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%.
The emergency room visits were only down 5.5% with the month of June basically flat acuity. However, in our emergency rooms, whats up with moderate growth in the most acute categories.
We were able to leverage the increased revenue into higher margin adjust.
Adjusted EBITDA margin improved compared to last year, excluding the government stimulus income and sequentially and comparisons of 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 on our relief 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, we will continue to create value for our patients.
The liver 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 and then review our updated 2021 guidance as a result.
Of the strong operating performance in the quarter, our cash flow from operations was $2, 2.5 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 payer.
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Capital spending for the quarter was $842 million and we have approximately $3.8 billion of approved capital in the pipeline of 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 265 times 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 and viability of Georgia. We also closed on the Brookdale home health in the 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 to divestitures and 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 $6.16.30, 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.
I'd say on bill. Thank you so much Katherine I think we are ready for questions now if you could given struction to the callers on the queue.
Please limit yourself to 1 question. So that we can try to get as many of as possible. Thank you.
Ladies and gentlemen, just as a R.
The minor if you would like to ask a question. Please press star and then the number 1 on your telephone keypad. Once again that is and the number 1 and we will pause for just the amendments.
And your first question comes from from the line of Brian Tim Quillin with Jefferies.
Hey, good morning, guys congratulations on quarter.
The Bill I'll follow up.
Last part of your comment on the guidance so.
Youre expecting the continuation of the trends that we saw in Q2. So how are you thinking about the delta coming up in just in.
Sales of the backlog that you're seeing in terms of the procedures that were delayed on the ILEC.
The slide from last year.
Yes, Brian of spill off the I'll take that I mean, obviously of 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 of the balance of the year and overall of the overall.
Payer mix I think will remain strong relative to COVID-19 as we mentioned in our year end results, we anticipate an anticipated serving COVID-19 throughout part of the year and indeed, we're seeing that as Sam mentioned in his comments roughly 3% of our admissions for COVID-19 in the second quarter compared to 10% and the <unk>.
First quarter and I think we've proven the ability to manage through different cycles as they present themselves and so we factor.
A number of variables into our guidance and believe again and the performance of the company to be able to deliver that.
Your next question comes from the line of Peter Chickering with Deutsche Bank.
Good morning, guys. Thanks for taking my question great job here in the quarter and 'twenty 'twenty, 1 guidance not brackets consensus for 2023 I understand it's weighted really to think about 2022 for the new guidance begs the question a little bit. So if we think about the midpoint of 2020 on guidance.
Of $12.3 billion, and we back out $600 million of <unk>.
Government spending from sequestration.
<unk> and other COVID-19 payments of about $11.7 billion is that the right launch pad for 2022, and if we assume a 4% EBITDA growth to get us the $12.2 billion of $12.2 billion for 2022 is that the right way of thinking about next year.
Well, Peter let me start on our Sam I think it's a little early to put math to 2022 numbers we are on.
Obviously, you 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 of the company has seen and so again, we will reserve comments on.
Vic.
Guidance for 2022 at the standpoint.
Peter This is Sam I want to add to bills comments, there I think when you think about the near term and we're not defining that as 22.
Where we're defining it as over a reasonable period of time post. This year, we do believe that demand growth for healthcare 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.
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.
Number of initiatives that we believe are appropriate.
And creating a better service as the 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 balanced 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.
The upcoming year, but this is more of our near term beliefs and we think these are a reasonable for.
The operations of our company.
Thank you Peter.
Katherine your net.
Next question comes from the line of the Kevin Fischbeck with Bank of America.
Okay great.
Great. Thanks so.
Perhaps a beat on margin I guess.
How should we think about the normalized margin for you guys.
And we're hearing more and more about labor pressures for how you think you might specifically help lever might impact margins in the coming years.
Well this is Sam let me speak to our labor agenda in general first of all our employees over the past 18 months.
It had been just incredible they stepped up they've shown up they've delivered on our ambition. They delivered further other communities in the delivered for their patients on.
Of the asleep as other industries are experiencing we are in a difficult labor market.
I will tell you that we have numerous initiatives.
Under way to improve our overall position we have invested a.
Significant amounts of resources into our recruitment functions, we have advanced our expansion of our Galen school of nursing.
And then we have putting 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.
Our recruitment and so we're encouraged by our efforts up to this point I will also tell you that our labor costs from the second quarter 2 of 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 is still uncertainty with respect to inflation.
We will be.
Focused on doing the right thing for our employees as we move forward and 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.
Alright, Thank you Kevin.
Your next question comes from the line of Justin Lake with Wolfe Research.
Thanks, Good morning.
1 of the follow up on Kevin's question, just talking specifically on margins. They were up 200 basis points versus 2019, and you guided to originally pre Covid and 2020. So I'm just wondering if you could break that down maybe between the.
Better acuity of seeing better payer mix the cost part of your Bob and maybe some of the government program and just talking about the sustainability of there and then I apologize if I missed this bill, but if you could 1 of the the acuity numbers that'd be great as well thanks.
Yes, so just and obviously a lot of factors go into the margin you see in our guidance or Asian or margin expectations compared to our original discussion as we went into the year and I think thats reflective of all of the variables clearly margin being driven by the volume returns to 2000.
The 19 levels, the favorable acuity as well as the favorable payer mix and then we continue to have a number of.
Our cost initiatives that were managing through so.
As we think about where we stand today and the balance of the year of the margins reflect more of like our average that we've experienced over the past 4 quarters the.
The acuity, we still saw some growth in 2020 was about 2% growth over 2020 of about 5% growth over 2019 levels. So that's continuing to show strength.
So we will have to see where that falls out for the balance 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 for as we as we turn the calendar.
Alright, Justin Thank you so much.
Yes.
Yes, Sir your next question comes from the line of AJ Rice with credit Suisse.
Hi, everybody and impressive quarter across the board really.
I guess I was just trying to drill down a little bit more on what you're seeing volume wise I know the market share.
Third party statistics come in with the delay, but I am assuming you have some sort of local assessments you do.
Much of the volume rebound from the stronger than I would've thought.
Certainly.
Ahead of 19 levels is impressive.
How much of that do you think is you are picking up market either of the way you responded to Covid. Your investments are done on the Capex side and how much is the underlying market and.
And youre expressing confidence about the back half of the year do 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 on your you own a lot of physicians. So maybe just something about why you are confident on the volume sort of having that sustainability as opposed to this being a spike of moderates alright.
All right a J. Thank you.
Sam Bill this is Sam HCA. Thank you for that question.
We have had fits and starts over the last 3.
3 or 4 quarters with a couple of months here a couple of months. There then we went into COVID-19 surges in it it had Cree.
Create of difficulties and our ability to judge.
Precisely where we were in the market. So we've had essentially for solid months March April may and June where we've been able to judge.
The market with some level of confidence in what we see is as I mentioned.
The ability to move market share I don't know that we moved 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.
Through 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 possibly shown itself in the second quarter, but we need more time to fully judge debt, but these for months have given us a reasonable.
Perspective on.
What's happening in the markets job growth.
More people insured with the affordable Care Act.
The investments that we're making execution on our position 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 quarter.
So we don't have anything other than the art analysis of these for months AJ that would suggest it but we believe with our study. We just concluded all of our midyear reviews with our division teams that's been reinforced in our discussions with them around what they're seeing in their.
The markets. So that's the reason for the guidance.
Hey, Jay Thank you for the question.
Catherine.
Your next question comes from the line of Scott Fidel with Stephens.
Hey, Scott.
Hi, Thanks, good morning.
Wanted to just ask the follow up question around the the planned capital investments that you highlighted that well north of about $3 billion.
Through 2023, and specifically just interested if you can talk about the mix of those investments as they relate to inpatient.
Let's call it outpatient and tertiary and other investments just interested in as.
Look sort of historically at the mix of investments.
On how those may be of all being ads as we've seen some shifts on site to site of care clearly playing out plus capex. Thanks.
Alright, Sam Yes is the Sam we just so you have a sense of our networks today, we have roughly 185 hospitals and the.
We have over.
2000, almost 2200 outpatient facilities. So think about our network is almost 11% to 1 outpatient to hospital now of 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.
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Out of the capital going to ambulatory surgery centers, but the ambulatory surgery center per unit is only $10 million to $12 million in order to get it on investment on an urgent care center is a couple of million of freestanding emergency room of $10 million investment. So these are small dollar unit investment 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 1 of our systems because of the services and so forth that we offer as it relates to our capital investment of our hospitals will always consume more of the capital just because of the intensity that it requires to have the brick and mortar of.
Associated with them, the heavy clinical equipment and such but we.
We have plenty of capacity in our spending allows.
The allowing us to invest aggressively in our outpatient network to support our facilities. So we're adding.
On.
Debt to our facilities in many markets because we are still running at very high Occupancies I think our occupancy in the second quarter was 73%, we have 41000 beds and HCA operational and we're running north of 30.
30000 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, we will not overcome the amount of inpatient investments that we make additionally, we are investing in our technology platforms, and we will continue to invest in technology.
We see a real opportunity in the future to advanced 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.
Scott. Thank you for your question.
Catherine next question please.
Yes, Sir your next question comes from the line of Ralph Giacobbe with Citi.
Hey, Ralph Okay. Thanks, good morning.
You guys mentioned commercial up I think 8% of 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 aided the the payer mix stats at this point.
Okay, Alright, thank you Ralph.
Ralph This is bill I think we saw recovering volume on 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 recovery volume in the Medicare class as well, obviously, it's more favorable in the commercial.
Managed care. So thats the result in them and a strong overall payor 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 or the.
Belief just looking in here in 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 for starting to see demand recover throughout most of our markets.
Alright, thanks, so much.
Your next question comes from the line of Joshua Raskin with Nephron research.
Hey, good morning, Hey, good morning.
On the EDI visits I know running 5.5% below 2019 in the quarter. I think you said June was almost flat or those stabilizing in your view is that the new normal level do you think eds of actually fully recovered back to pre pandemic levels. And then are you seeing any change in the percentage of those visits that are getting admitted that it would be.
Actual admissions and maybe any differences by payer segment.
Well 1 month of 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, but 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 the schools going back yet either so that is an area of our pediatric activity, where we've seen significant share.
Short falls by comparison to 2019 still even in the second quarter. So that would provide some potential supportive as kids get back to school and engaged 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.
The admission growth in our emergency rooms R. Admissions grew in the second quarter of 'twenty..1 over 19 as a result of that acuity and we anticipate that that will also.
Endure throughout the remainder of the year.
Alright, Josh. Thank you so much for your question.
Your next question comes from the line of Jamie Paris with Goldman Sachs.
Hey, Good morning, guys I wanted to go back to EBITDA margin piece in your guidance for the year it.
It looks like the second half guidance implied a lower margin rate from the first half of the use the I wanted to get any specific incremental pressures you see for for the balance of the year on a related note premium the labor utilization and premium labor rates and the continued to come down relative to recent trends.
Yes, let me start with margins as I tried to talk about before is we kind of project the balance of the year Theres a lot of variables that go into that and I think youll see that our margin net we're projecting as the as a pretty significant increase from our original projection and more looks like our margin average for the past 4 quarters and we will just have to see how the various for 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 contribute to that but our margins for the full year really reflective of our past 4 quarter average on the premium labor.
Sam.
Have more premium of later labor utilization in the second quarter than we did in the first quarter.
And that put a little pressure on our labor cost, 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.
All right Jamie Thank you so much.
And your last question comes from the line of Lance Wilkes with Bernstein.
The last yeah, Hey, How're, you doing great great quarter.
Can you just ask about impacts of the value based care on on the business in particular impacts on volume just interested of beds.
Any pressure on any particular markets, where you're seeing.
The the rise of some of these risk bearing primary care, where if it's in fact, helping you as you are.
More of that share and maybe just a quick clean up question on <unk>.
Medicaid volume relative to 2019 have you seen that up or down okay. Atlanta some of the group.
Thanks, Jeff. Thank you. Thank you.
We've spoken to value based programs over the years and nothing has really changed in our estimation over the past year year and a half with respect to those in many markets. We have to respond to the dynamics in those markets in the 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 on some of the deepest and most complex. The managed care markets I think has been proven over time.
The nuance of our strategy from 1 market to the other to respond to what our payers field.
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 of 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.
Hey, Atlantis of Bill on your Medicaid question were up about 4% over 2019 on a year to date basis. We are relatively flat first quarter and were up just under 9% in the second quarter.
Okay.
Alright.
We want to thank everyone for joining us. This morning, obviously we are.
We're excited about the quarter I'm around if you have any additional questions for the rest of the week.
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.
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The team.