HCA Healthcare, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. HCA operates hospitals and related healthcare businesses; at quarter-end, affiliates operated 182 hospitals and 125 freestanding surgery centers in 20 states and England.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $14.971B | $15.276B | $44.736B | $43.688B |
| Net income attributable to HCA | $1.134B | $2.269B | $3.562B | $5.142B |
| Diluted EPS | $3.91 | $7.00 | $11.97 | $15.43 |
| Adjusted segment EBITDA | $2.902B | $3.224B | $8.888B | $9.495B |
| Operating cash flow | $3.020B | $2.277B | $5.995B | $6.516B |
Q3 net income attributable to HCA was 7.6% of revenue, versus 14.9% a year earlier; nine-month results were 8.0% versus 11.8%. These comparisons are materially affected by 2021 facility-sale gains: $1.047B in Q3 and $1.057B for the first nine months, compared with facility-sale losses of $3M and $25M, respectively, in 2022. Nine-month 2022 results also include a $78M pretax loss on debt retirements.
Revenue declined 2.0% in Q3 but increased 2.4% for the nine-month period. Q3 consolidated equivalent admissions rose 1.3%, while revenue per equivalent admission fell 3.2%; same-facility revenue fell 1.3%. Management attributed lower year-over-year revenue per equivalent admission in part to higher COVID-19 volumes in Q3 2021. For the first nine months, consolidated equivalent admissions increased 0.9% and revenue per equivalent admission increased 1.4%.
Q3 salaries and benefits were 46.1% of revenue (46.4% in 2021), supplies 15.5% (16.1%), and other operating expenses 19.1% (16.6%). For the first nine months, those ratios were 46.1%, 15.5% and 18.6%, respectively, versus 45.3%, 16.2% and 17.0%. Other operating expense growth reflected, among other things, state directed-payment program costs, professional fees and utilities. Interest expense was $446M in Q3 and $1.288B for nine months, up from $398M and $1.168B.
Cash, debt and liquidity
- Cash and cash equivalents were $999M at September 30, 2022, down from $1.451B at year-end 2021. Working capital was $3.697B, versus $3.960B.
- Nine-month operating cash flow was $5.995B, down $521M year over year. Capital expenditures were $3.072B; investing cash outflow was $2.596B. Cash used in financing was $3.818B, including $5.481B of share repurchases, $497M of dividends and $550M of distributions to noncontrolling interests.
- Total debt was $37.710B, including $218M due within one year. Debt increased from $34.579B at December 31, 2021. Average debt was $37.243B for the first nine months; average effective interest rate was 4.6%.
- Credit-facility availability was $3.885B at September 30 and $3.995B at October 31, 2022. Management said operating cash flows, available facilities and anticipated debt-market access should meet expected liquidity needs for at least 12 months.
- About $3.950B of debt bore variable rates. Management estimated that a hypothetical 1% rate increase could reduce annualized pretax earnings by approximately $40M.
Outlook, risks and unusual items
- Planned 2022 capital expenditures were approximately $4.2B. Projects under construction were expected to require about $4.5B in additional costs over the following five years.
- Management expects inflationary pressure to continue affecting labor and other operating costs. It intends to reduce premium-rate labor use and rates, but timing depends on labor-market conditions.
- HCA said COVID-19’s duration and effects remain difficult to forecast. Other cited risks include substantial indebtedness and refinancing, changes to Medicare and Medicaid and supplemental-payment programs, staffing constraints, inflation, payer mix and uninsured patient collections, litigation and government investigations, and tax disputes.
- In March 2022 HCA issued $6.0B of notes and used part of the proceeds to repay revolving borrowings. It redeemed $2.5B of 2023 notes in Q2. Following an investment-grade rating event, guarantees and collateral for senior secured notes were released; guarantees and collateral for senior secured credit facilities were not affected.
- HCA received $614M of net proceeds on September 30 from the sale of a controlling interest in a group purchasing organization subsidiary; the sale became effective October 1, 2022. A $0.56-per-share dividend was declared October 20, payable December 28, subject to the stated terms.
- Legal and regulatory matters include a False Claims Act qui tam suit concerning Texas Medicaid supplemental payments in Harris County; HCA is defending the case and cannot predict its effect. Tax authorities were examining specified federal returns; the company could not estimate the range of possible changes to unrecognized tax benefits.
Most important facts for investors to verify
- Underlying operating trend excluding prior-year facility-sale gains, especially EBITDA, margins and revenue per equivalent admission.
- Whether labor inflation, premium staffing and other operating-cost pressures ease as management expects.
- Debt growth, refinancing terms, interest-rate exposure and ongoing capacity for capital spending, dividends and buybacks.
- Future changes to Medicaid supplemental-payment programs and the financial implications of the Texas qui tam litigation and tax examinations.
- Whether the expected capital expenditures and construction commitments remain consistent with cash generation and liquidity.