HCA Healthcare, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. HCA operates hospitals and related healthcare businesses; at quarter-end it owned and operated 183 hospitals, 126 freestanding surgery centers and 22 freestanding endoscopy centers across 20 states and England.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $16.213B | $14.971B | $47.665B | $44.736B |
| Income before taxes | $1.630B | $1.704B | $5.361B | $5.278B |
| Net income attributable to HCA | $1.079B | $1.134B | $3.635B | $3.562B |
| Diluted EPS | $3.91 | $3.91 | $13.07 | $11.97 |
| Adjusted segment EBITDA | $2.880B | $2.902B | $9.108B | $8.888B |
Q3 revenue rose 8.3% (7.9% same-facility), reflecting higher revenue per equivalent admission (+3.6%) and equivalent admissions (+4.5%). Q3 HCA-attributable net income fell 4.9%; its share of revenue declined to 6.7% from 7.6%. Nine-month revenue increased 6.5%, while attributable net income rose 2.0%. Adjusted segment EBITDA is a non-GAAP measure defined by the company.
Q3 salaries and benefits were 46.6% of revenue (46.1% prior year); supplies were 14.9% (15.5%); other operating expenses were 20.8% (19.1%). Nine-month ratios were 46.0%, 15.4% and 19.5%, respectively. Q3 interest expense increased to $483M from $446M; the average effective debt rate was 4.9% versus 4.6%.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $6.757B, up from $5.995B, primarily due to $847M of favorable working-capital changes. In Q3 alone, operating cash flow declined to $2.479B from $3.020B, primarily due to $480M of negative working-capital changes.
- Nine-month investing cash outflow was $3.720B, including $3.585B of property and equipment purchases. Financing cash outflow was $3.055B. Cash at September 30 was $891M, versus $908M at year-end 2022.
- Total debt was $39.346B; debt due within one year was $2.553B, up from $370M at December 31, 2022. Working capital was $1.887B, down from $3.741B, largely reflecting the increase in current debt maturities.
- Credit-facility availability was $6.455B at September 30 and $6.615B at October 23. Management said operating cash flow, credit facilities and expected debt-market access should meet foreseeable liquidity needs. HCA described itself as highly leveraged.
Changes, outlook and notable items
- Q3 admissions rose 2.8% and equivalent admissions 4.5%; same-facility equivalent admissions rose 4.1%. Emergency visits and surgeries also increased year over year. Uninsured admissions rose 3.2% consolidated and 3.3% same-facility in Q3.
- Q3 results included a $105M pretax loss from a hospital-based physician staffing joint venture in which HCA acquired a controlling interest in Q2; the loss primarily reflected revenue below expectations.
- Professional liability provisions were $145M in Q3 versus $89M a year earlier, and $433M for nine months versus $374M. Expected net professional-liability claim payments over the next 12 months were approximately $527M.
- Florida’s Medicaid hospital directed-payment program contributed $397M of revenue in the 2023 program year, versus $266M in the prior program year. HCA cautioned that government review or restructuring of state supplemental-payment programs could reduce or eliminate payments; the impact is not estimable.
- Planned 2023 capital expenditures were approximately $4.7B; projects under construction were expected to require another $4.5B over five years. HCA issued $3.25B of senior notes in May, with proceeds used to repay revolving-credit borrowings.
- Management cited continuing inflationary pressure, elevated labor and other operating costs, and higher professional fees and directed-payment costs. No specific earnings guidance was provided in the supplied filing text.
- Risks include substantial debt and refinancing, labor and supply costs, payer and reimbursement changes, uninsured collections, litigation and government investigations, tax disputes, natural disasters, and cybersecurity incidents, including a data-security incident disclosed in July 2023. HCA is defending a whistleblower case involving Texas’s Medicaid uncompensated-care program; its outcome is uncertain. The company reported no material change to previously disclosed risk factors.
- The board declared a $0.60-per-share quarterly dividend payable December 28, 2023, subject to debt-agreement limitations on future dividends. HCA repurchased 10.818M shares for $2.901B during the first nine months; $1.685B remained under its authorization at quarter-end.
Key facts investors should verify
- Whether admission and revenue-per-admission growth continues to offset higher labor, insurance and other operating costs.
- How the physician staffing joint venture performs after its $105M Q3 pretax loss.
- Debt maturities, interest costs, refinancing access and the effect of ongoing buybacks and dividends on liquidity.
- Actual capital spending versus the $4.7B 2023 plan and funding needs for the construction pipeline.
- Developments in Medicaid supplemental-payment programs, Texas litigation, tax examinations and professional-liability claims.
- Uninsured volumes, uncompensated-care costs and collection trends; estimated uncompensated-care cost was $975M in Q3 and $2.705B for nine months.