HCA Healthcare, Inc. quarterly report, Q1 FY2021

HCA Healthcare, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; unaudited. HCA operates hospitals and related healthcare entities. At quarter-end, its affiliates operated 186 hospitals, 121 freestanding surgery centers and 21 freestanding endoscopy centers in 20 states and England.

Financial performance and liquidity

Metric	Q1 2021	Q1 2020
Revenue	$13.977 billion	$12.861 billion
Net income attributable to HCA	$1.423 billion	$581 million
Diluted EPS	$4.14	$1.69
Adjusted segment EBITDA	$3.052 billion	$2.200 billion
Cash from operating activities	$1.988 billion	$1.375 billion
Capital expenditures	$654 million	$853 million

Revenue grew 8.7% overall and 9.0% on a same-facility basis. Adjusted segment EBITDA margin was approximately 21.8% of revenue, versus 17.1% a year earlier; this is a non-GAAP measure.
HCA’s net income margin was approximately 10.2%, versus 4.5%; income before taxes was $1.973 billion, versus $810 million.
Cash and cash equivalents were $1.030 billion at March 31, down from $1.793 billion at December 31, 2020. Working capital was $3.394 billion, down from $3.629 billion.
Total debt was $31.072 billion, including $234 million due within one year; long-term debt, net of issuance costs and discounts, was $30.838 billion. The average debt life was 8.6 years and the stated average rate was 5.0%. HCA reported $5.590 billion available under senior secured credit facilities at March 31.
Financing activities used $2.104 billion, including $1.527 billion of share repurchases, $169 million of dividends and $234 million of distributions to noncontrolling interests. Cash declined by $763 million during the quarter.

Changes versus the prior-year quarter

Equivalent admissions fell 6.4% overall and 6.5% same-facility, while revenue per equivalent admission rose 16.1% and 16.6%, respectively. Management attributed revenue growth despite lower volumes to favorable payer mix and higher patient acuity.
Admissions declined 4.1%; emergency department visits fell 18.7%. Outpatient surgeries increased 2.2%, while inpatient surgeries declined 5.6%.
Salaries and benefits rose to $6.301 billion from $6.118 billion, but fell to 45.1% of revenue from 47.6%. Salaries and benefits per equivalent admission increased 10.0%; same-facility labor rates rose an average 6.1%.
Supplies increased to $2.224 billion from $2.123 billion, but declined to 15.9% of revenue from 16.5%. Supply costs per equivalent admission rose 11.9%.
Interest expense decreased to $384 million from $428 million; management cited lower average debt balances. Q1 2020 included a $295 million pretax loss on debt retirement. Q1 2020 revenue also included a $55 million prior-period Medicare outlier settlement.
Operating cash flow increased $613 million year over year, primarily reflecting higher income and income-tax-related cash flows, partly offset by $311 million of negative working-capital changes, mainly increased receivables.

Outlook, risks and unusual items

Management expected 2021 capital expenditures of approximately $3.7 billion and estimated about $3.0 billion of remaining costs to complete and equip projects under construction over the next five years. It expected to fund capital spending with operating cash and borrowings.
Management said operating cash flow, available credit facilities and anticipated debt-market access should meet expected liquidity needs for the next 12 months. HCA provided no specific revenue or earnings guidance in the supplied filing text.
Management could not estimate the duration or extent of COVID-19 effects. Risks cited include changing patient volumes and acuity, labor and supply costs, workforce and supply disruptions, payer mix, government responses and reimbursement, and possible future pandemic effects.
HCA is highly leveraged and exposed to refinancing, interest-rate and capital-market risks. Approximately $1.238 billion of long-term debt was variable-rate; a hypothetical 1% rate increase was estimated to reduce annual pretax earnings by about $12 million.
Potential changes to Medicaid supplemental-payment programs are a risk; Texas Medicaid supplemental payments were $138 million in Q1 2021, versus $115 million. HCA said it could not estimate the effect of possible program changes.
HCA is defending a qui tam lawsuit concerning Texas Medicaid waiver uncompensated-care payments in Harris County; the federal and state governments declined to intervene. The company said it could not predict the outcome. The filing also describes routine legal and regulatory exposure and IRS examinations of 2016–2018 returns; the possible change in unrecognized tax benefits could not be estimated.
Uncompensated care’s estimated cost declined to $778 million from $937 million. HCA noted that uninsured admissions were affected by pandemic-related volume declines and reimbursement provisions that resulted in some COVID-19 patients being classified as insured.
The board authorized an additional $6 billion share-repurchase program in February 2021. HCA repurchased 8.477 million shares for $1.527 billion at an average $180.11 per share; $7.274 billion of authorization remained at quarter-end. A $0.48-per-share dividend was declared in April, payable June 30, subject to board and debt-agreement limitations.

Important facts for investors to verify

Whether revenue-per-admission gains and favorable acuity and payer mix persist as patient volumes recover or change.
How COVID-19 developments, labor inflation and rising supply costs affect margins, volumes and cash generation.
Debt maturities, variable-rate exposure, credit-facility availability and cash needs alongside planned capital spending and shareholder returns.
The sustainability and policy terms of Medicaid supplemental payments, particularly in Texas, and the impact of any changes.
Developments in the Texas qui tam matter, tax examinations and other legal or regulatory contingencies.
That Q1 2020’s debt-retirement loss, Medicare settlement and pandemic-affected comparison period complicate year-over-year comparisons.