HCA Healthcare, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. HCA operates hospitals and related health care businesses; at quarter-end its affiliates operated 182 hospitals, 126 freestanding surgery centers and 22 freestanding endoscopy centers in 20 states and England.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $15.861 billion | $14.820 billion | $31.452 billion | $29.765 billion |
| Net income attributable to HCA | $1.193 billion | $1.155 billion | $2.556 billion | $2.428 billion |
| Diluted EPS | $4.29 | $3.90 | $9.14 | $8.05 |
| Operating cash flow | $2.475 billion | $1.630 billion | $4.278 billion | $2.975 billion |
- Q2 revenue grew 7.0%; same-facility revenue grew 6.2%. Equivalent admissions increased 4.0% consolidated and 3.7% same-facility, while revenue per equivalent admission rose 2.9% and 2.4%, respectively.
- For the six months, revenue increased 5.7% and HCA-attributable net income increased 5.3%. Equivalent admissions rose 5.3%, while revenue per equivalent admission rose 0.4% consolidated.
- Q2 salaries and benefits were 45.9% of revenue (45.8% prior year); supplies were 15.6% (15.5%); and other operating expenses were 19.2% (18.3%). HCA-attributable net margin was 7.5% versus 7.8% in Q2 2022.
- Adjusted segment EBITDA, a non-GAAP measure, was $3.056 billion for Q2 versus $3.042 billion, and $6.228 billion for the six months versus $5.986 billion. Its approximate margin was 19.3% for Q2 (20.5% prior year) and 19.8% for the six months (20.1% prior year).
- Six-month capital expenditures were $2.438 billion, versus $1.941 billion. Operating cash flow less capital expenditures was approximately $1.840 billion, versus $1.034 billion.
Liquidity, debt and capital allocation
- At June 30, cash was $862 million, total debt was $38.932 billion and long-term debt due within one year was $2.395 billion. Working capital was $2.343 billion, down from $3.741 billion at year-end, primarily reflecting the increase in debt due within one year. The current ratio was approximately 1.20.
- Interest expense rose to $485 million in Q2 and $964 million for the six months. Average debt interest rates were 5.0% in both 2023 periods, compared with 4.5% for Q2 2022 and 4.6% for the prior-year six months.
- In May, HCA issued $3.25 billion of senior notes at coupons of 5.200%, 5.500% and 5.900%, with maturities in 2028, 2033 and 2053; proceeds repaid asset-based revolving borrowings. Available capacity under senior secured credit facilities was $6.875 billion at June 30.
- HCA repurchased 6.651 million shares for $1.761 billion in the first six months and had $2.825 billion remaining under its current authorization. It paid $339 million in dividends and declared a $0.60-per-share quarterly dividend payable in September.
Outlook, risks and unusual items
- Management expected 2023 capital expenditures of approximately $4.7 billion; projects under construction had an estimated $4.8 billion of additional costs over the next five years. Management said operating cash flow, credit-facility availability and anticipated debt-market access should meet foreseeable liquidity needs.
- Management cited continuing inflationary pressure, higher professional fees and labor-market uncertainty. Contract, overtime and premium-rate labor costs had declined from the prior year, but further declines were uncertain. Management also warned that changes to state Medicaid supplemental-payment programs could reduce or eliminate payments; the financial impact could not be estimated.
- HCA disclosed a July 2023 data-security incident involving a list that may include information for approximately 11 million patients. It reported no clinical, payment or highly sensitive identifiers in the list and no disruption to operations; multiple purported class actions had been filed. The investigation was ongoing, and management did not expect a material business or financial impact based on information then available.
- HCA faces routine litigation and regulatory inquiries and is defending a qui tam lawsuit concerning Texas Medicaid uncompensated-care funding in Harris County. The company said it could not predict the lawsuit’s effect. IRS examinations and other tax audits are ongoing; the company could not estimate the possible range of changes in unrecognized tax benefits.
- Other period comparability items include Q2 2022 facility-sale losses of $32 million and debt-retirement losses of $78 million; neither debt-retirement losses nor comparable facility-sale losses were recorded in Q2 2023. Six-month 2023 earnings included an $85 million tax benefit from employee equity-award settlements.
- Management stated that COVID-19’s future effect could not be estimated. The filing reported no material changes to previously disclosed risk factors and stated disclosure controls were effective at June 30, 2023.
Important facts for investors to verify
- Whether volume growth and revenue per equivalent admission remain sufficient to offset expense inflation and pressure on operating margins.
- Debt maturities, refinancing costs, interest-rate exposure and the effect of rising interest expense on cash available for investment and distributions.
- Execution of the $4.7 billion 2023 capital-spending plan and the funding needs of projects under construction.
- Developments in the patient data incident and related litigation, the Texas Medicaid lawsuit, tax examinations and state Medicaid supplemental-payment programs.
- Working-capital trends and cash conversion, given the decline in working capital and the contribution of working-capital changes to first-half operating cash flow.