HCA Healthcare, Inc. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022. HCA operates hospitals and related healthcare businesses; at quarter-end its affiliates operated 182 hospitals, 124 freestanding surgery centers and 21 freestanding endoscopy centers in 20 states and England. Unless noted, figures are in U.S. dollars.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $14.945 billion | $13.977 billion; up 6.9% consolidated and 7.8% same facility |
| Income before taxes | $1.814 billion | $1.973 billion; down 8.1% |
| Net income attributable to HCA | $1.273 billion | $1.423 billion; down 10.6% |
| Diluted EPS | $4.14 | $4.14; unchanged |
| Adjusted segment EBITDA | $2.944 billion | $3.052 billion; down 3.5% |
| Operating cash flow | $1.345 billion | $1.988 billion |
| Capital expenditures | $861 million | $654 million |
HCA’s net income margin was 8.5% of revenue, compared with 10.2% a year earlier; income-before-tax margin was 12.1%, versus 14.1%. Adjusted segment EBITDA margin was approximately 19.7%, versus 21.8%. These ratios are calculated from reported figures.
Operating cash flow less capital expenditures was approximately $484 million, versus $1.334 billion in Q1 2021; this is a simple calculation, not a company-defined free-cash-flow measure. The year-over-year operating cash flow decline was primarily attributed to $492 million of negative working-capital changes, including a $344 million payment of deferred 2020 payroll taxes, and lower net income.
At March 31, cash and equivalents were $2.371 billion, current assets $15.006 billion and current liabilities $10.518 billion; reported working capital was $4.488 billion. Total debt was $37.696 billion, compared with $34.579 billion at year-end 2021. Cash less total debt was approximately $35.325 billion. HCA reported $6.435 billion available under its secured credit facilities at March 31. Stockholders’ equity attributable to HCA was a deficit of $2.033 billion.
Changes and operating trends
- Revenue growth reflected a 3.2% increase in equivalent admissions and a 3.6% increase in revenue per equivalent admission. Same-facility equivalent admissions rose 5.0%; same-facility revenue per equivalent admission rose 2.7%. Management said lower COVID-19 patient acuity weighed on revenue per equivalent admission.
- Consolidated admissions were nearly flat, up 0.1%; surgeries rose 4.3% and emergency department visits rose 11.7%. Same-facility emergency visits rose 14.6%.
- Salaries and benefits increased to 46.4% of revenue from 45.1%; same-facility salaries and benefits per full-time equivalent employee rose 7.7%. Management cited continued use of contract, overtime and other premium-rate labor.
- Other operating expenses increased to 18.5% of revenue from 17.4%. Management reported inflationary pressure. Supplies decreased as a share of revenue to 15.5% from 15.9%.
- Diluted EPS stayed level despite lower HCA-attributable earnings, alongside a reduction in weighted-average diluted shares to 307.374 million from 343.321 million. HCA repurchased 8.375 million shares for $2.101 billion during the quarter.
- Cash provided by financing activities was $425 million, compared with $2.104 billion used in Q1 2021. The quarter included $6.0 billion of senior secured note issuance, part of whose proceeds repaid revolving credit facilities.
Outlook, risks and unusual items
- Management expected 2022 capital expenditures of approximately $4.2 billion; projects under construction had an estimated $4.5 billion of additional costs to complete and equip over the next five years. HCA expected to fund capital spending with internally generated and borrowed funds.
- Management said operating cash flows, credit-facility availability and anticipated debt-market access should meet expected liquidity needs for the next 12 months. HCA also described itself as highly leveraged.
- In April 2022, HCA redeemed $1.25 billion of 4.75% secured notes due 2023 and elected to redeem another $1.25 billion of 5.875% notes due 2023. It expected approximately $80 million of aggregate pretax debt-retirement losses in Q2 2022.
- Texas’s CMS-approved directed payment program contributed $244 million of revenue and $90 million of related provider-tax expense for September–December 2021, recognized in Q1. Elsewhere, the filing states that $385 million of revenue related to the program for September 2021 through March 2022. These figures cover different stated periods; investors may wish to reconcile them.
- Key risks include COVID-19 uncertainty, labor and supply-cost inflation, substantial debt and refinancing exposure, changes to government reimbursement and supplemental-payment programs, payer mix and uninsured patient collections, and litigation, regulatory investigations and tax disputes. The government program reimbursing treatment of uninsured COVID-19 patients stopped accepting claims in March 2022.
- HCA disclosed a False Claims Act qui tam case concerning the Texas Medicaid program in Harris County; the governments declined to intervene and HCA is defending the case. The filing states that the outcome cannot be predicted. The IRS was examining federal returns for 2016–2018 and one affiliated partnership’s 2019 return; the possible range of changes in unrecognized tax benefits was not estimable.
- Uncompensated care’s estimated cost was $792 million, versus $778 million a year earlier. HCA reported no material change in previously disclosed risk factors and stated disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Reconcile the Texas directed-payment revenue disclosures ($244 million for September–December and $385 million for September–March) and assess sustainability of the program.
- Track labor expense and premium staffing, inflation, patient acuity and volume, and whether revenue growth translates into margin recovery.
- Monitor operating cash flow, working-capital movements, capital spending and the company’s ability to fund investment while servicing debt and returning capital.
- Review debt maturities, refinancing terms, the April 2022 redemptions and expected Q2 debt-retirement charges.
- Follow the Harris County litigation, tax examinations and potential changes to government reimbursement programs.