HCA Healthcare, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. HCA operated 183 hospitals and related outpatient facilities across 20 states and England. Figures are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $15,276 | $13,311 | $43,688 | $37,240 |
| Income attributable to HCA | $2,269 | $668 | $5,142 | $2,328 |
| Diluted EPS | $7.00 | $1.95 | $15.43 | $6.79 |
| Adjusted segment EBITDA | $3,224 | $2,053 | $9,495 | $6,919 |
| Operating cash flow | $2,277 | $2,717 | $6,516 | $12,815 |
- Q3 revenue grew 14.8%; same-facility revenue rose 15.0%. Equivalent admissions increased 8.4% consolidated and 9.3% same facility; revenue per equivalent admission rose 5.9% and 5.2%, respectively.
- Q3 adjusted segment EBITDA margin was approximately 21.1% of revenue, versus 15.4% a year earlier. Nine-month margin was approximately 21.7%, versus 18.6%. These are non-GAAP measures as defined by HCA.
- Q3 salaries and benefits were 46.4% of revenue, up from 45.8%; supplies were 16.1%, versus 16.0%. Same-facility labor rates rose 8.0% in Q3, with contract, overtime and premium labor costs cited as drivers.
- Cash and equivalents were $1,027 at September 30, down from $1,793 at year-end 2020. Working capital was $3,624. Long-term debt, including amounts due within one year, was $32,299; average debt rates were 4.9% for the quarter and nine months.
Material changes and unusual items
- Reported earnings benefited materially from $1,047 of Q3 gains on facility and other asset sales, including a $655 gain on four Georgia hospitals. The nine-month gain was $1,057. Q3 2021 diluted EPS included $2.43 from these gains, net of tax, according to management.
- The Q3 2020 comparison included an $822 reversal of previously recorded government stimulus income, equivalent to $1.72 per diluted share, net of tax. Accordingly, year-over-year earnings growth reflects unusual items in both periods as well as operating changes.
- Nine-month operating cash flow declined to $6,516 from $12,815. The 2020 figure included $6,123 of stimulus and accelerated Medicare payment-related liabilities; approximately $6 billion was returned or repaid in Q4 2020. 2021 cash flow was also pressured by a $2,350 net working-capital impact, mainly higher receivables.
- HCA issued $2,350 of secured notes and refinanced credit facilities in June 2021, using proceeds in part to retire term loans. The company repurchased 29.343 million shares for $6,143 in the first nine months; $2,658 remained under its repurchase authorization at quarter-end.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of approximately $3.7 billion; projects under construction had an estimated $3.6 billion of additional costs over the next five years. Management said operating cash flow, available credit facilities and anticipated debt-market access should cover expected liquidity needs over the next 12 months.
- COVID-19 admissions resurged in Q3 and used capacity that otherwise would have supported inpatient surgeries. Inpatient surgeries declined 5.3% consolidated and 4.9% same facility year over year, while emergency department visits increased 28.9% and 31.2%, respectively. HCA said the pandemic’s duration and financial impact could not be estimated.
- Labor availability and costs, supply expenses, payer mix, reimbursement and government supplemental payment programs are key uncertainties. Texas Medicaid supplemental payments were $151 in Q3 and $437 for the first nine months; HCA could not estimate the impact of possible program changes.
- HCA disclosed substantial indebtedness and related refinancing and interest-rate risks. It reported variable-rate debt fully covered by swaps at quarter-end. Expected net professional-liability claim payments over the next 12 months were approximately $476.
- Legal proceedings include a False Claims Act and Texas Medicaid Fraud Prevention Act qui tam case concerning a Texas Medicaid program; HCA is defending the case and cannot predict its effect. The IRS was examining tax years 2016–2018; the company could not estimate the range of possible changes in unrecognized tax benefits.
Important facts for investors to verify
- Separate recurring operating performance from facility-sale gains and the prior-year stimulus reversal when evaluating earnings growth.
- Monitor whether elevated labor costs, inpatient surgery constraints and COVID-19 patient volumes persist, and how these affect margins and capacity.
- Track receivables, working capital and operating cash conversion; compare cash generation with capital spending, debt service, dividends and repurchases.
- Review debt maturities, credit-facility availability, refinancing terms and the company’s substantial leverage.
- Assess exposure to changes in Medicare, Medicaid and supplemental payments, as well as the outcome of the disclosed litigation and tax examinations.