HCA Healthcare, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. HCA operates hospitals and related healthcare entities. At June 30, 2021, its affiliates operated 187 hospitals, 122 freestanding surgery centers and 21 freestanding endoscopy centers in 20 states and England. This summary covers the quarter and six months ended June 30, 2021; comparisons are with 2020.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $14.435 billion | $11.068 billion | $28.412 billion | $23.929 billion |
| Income before taxes | $2.117 billion | $1.560 billion | $4.090 billion | $2.370 billion |
| Net income attributable to HCA | $1.450 billion | $1.079 billion | $2.873 billion | $1.660 billion |
| Diluted EPS | $4.36 | $3.16 | $8.50 | $4.84 |
| Adjusted segment EBITDA | $3.219 billion | $2.666 billion | $6.271 billion | $4.866 billion |
| Operating cash flow | Not separately shown for Q2 in the cash-flow statement | Not separately shown for Q2 in the cash-flow statement | $4.239 billion | $10.098 billion |
Revenue increased 30.4% in Q2 and 18.7% for the six-month period. HCA-attributable net income margin was 10.0% in Q2 2021 versus 9.8% in Q2 2020, and 10.1% for the first half versus 6.9%. Adjusted segment EBITDA margin was approximately 22.3% and 24.1% for Q2, and 22.1% and 20.3% for the respective six-month periods. Adjusted segment EBITDA is a non-GAAP measure; the filing cautions that it may not be comparable across companies.
Q2 same-facility revenue rose 30.1%, with equivalent admissions up 26.8% and revenue per equivalent admission up 2.6%. Admissions increased 17.5%; outpatient surgeries rose 52.5% on a same-facility basis, and emergency department visits rose 40.5%.
Operating costs in Q2 included salaries and benefits of $6.385 billion (44.2% of revenue), supplies of $2.380 billion (16.5%) and other operating expenses of $2.473 billion (17.2%). Salaries and benefits were 44.6% of first-half revenue, versus 47.8% a year earlier; supplies were 16.2% in both periods. First-half interest expense was $770 million, down from $816 million.
At June 30, cash was $1.120 billion, total debt was $32.572 billion and working capital was $3.860 billion. Net debt, calculated as total debt less cash, was approximately $31.452 billion. Available capacity under senior secured credit facilities was $5.620 billion. First-half capital expenditures were $1.496 billion; operating cash flow less capital expenditures was approximately $2.743 billion.
Material changes versus the prior comparable period
- Management attributed the sharp Q2 volume and revenue improvement in part to a strong rebound from pandemic-affected 2020 activity as COVID-19 effects moderated and some restrictions eased. The prior-year comparison is also affected by 2020 stimulus and Medicare advance-payment accounting.
- Q2 2020 included $822 million of Provider Relief Fund stimulus income and $60 million of employee retention payroll tax credits. HCA said it reversed the $822 million stimulus income in Q3 2020 and had announced plans to return approximately $1.6 billion of its Provider Relief Funds; approximately $4.4 billion of Medicare accelerated payments were repaid in Q4 2020.
- First-half operating cash flow fell $5.859 billion year over year. The 2020 figure included $4.999 billion of deferred revenue, primarily Medicare accelerated payments, and the $822 million stimulus income. HCA also cited adverse working-capital movements, mainly higher receivables, and higher income-tax payments.
- First-half share repurchases were $3.814 billion, versus $441 million in 2020. HCA repurchased 19.738 million shares in the first half at an average $193.21 per share; $4.987 billion remained under the February 2021 authorization at quarter-end.
- Debt increased from $31.004 billion at December 31, 2020 to $32.572 billion at June 30, 2021. In June, HCA issued $2.350 billion of senior secured notes and refinanced credit facilities and term loans; it recorded a $12 million pretax debt-retirement loss.
Outlook, risks and contingencies
- HCA forecast 2021 capital expenditures of approximately $3.7 billion. Projects under construction were expected to require approximately $3.6 billion more to complete and equip over the next five years. Management said operating cash flow, facility availability and anticipated debt-market access should meet liquidity needs over the next 12 months. No earnings or revenue guidance is provided in the supplied filing text.
- Management said the duration and financial effects of COVID-19 remained uncertain. Risks include future patient-volume changes, virus variants, labor and supply costs, workforce disruptions, payer mix and uninsured or underinsured patients.
- HCA is highly leveraged. Other identified exposures include changes to Medicare, Medicaid and state supplemental-payment programs, reimbursement and regulatory changes, litigation and government investigations, and tax disputes. Supplemental Medicaid payments in Texas were $148 million in Q2 2021, compared with $186 million a year earlier; management could not estimate the effect of possible program changes.
- HCA reported a qui tam lawsuit alleging violations of federal and Texas false-claims laws related to the Texas Medicaid waiver program in Harris County. The governments declined to intervene; HCA disputes the allegations and is defending the case. The company said it could not predict the outcome.
- The IRS was examining HCA’s 2016–2018 federal returns. Unrecognized tax benefits were $606 million, including accrued interest; the company could not estimate the range of possible changes over the next 12 months. HCA also disclosed that legal and regulatory matters could materially affect results, financial position or liquidity.
- Management reported effective disclosure controls as of June 30, 2021 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported growth and margin improvement reflects sustainable demand and operating performance versus the pandemic-affected comparison base and prior-period items.
- Whether labor-rate inflation, supply costs and staffing availability continue to pressure margins as volumes normalize.
- Cash conversion and receivables: first-half operating cash flow was materially below 2020, and accounts receivable increased to $7.636 billion from $7.051 billion at year-end.
- Debt levels, refinancing costs and liquidity after substantial share repurchases; also confirm the remaining repurchase authorization and the effect of future buybacks on leverage.
- Potential changes to Texas and other state Medicaid supplemental-payment programs, and developments in the Harris County litigation, tax examinations and other government inquiries.
- COVID-19-related volume trends and the effect of ongoing reimbursement, regulatory, labor and supply-chain developments.