Yahoo Finance HCA Healthcare, Inc. (NYSE:HCA) Q4 2023 Earnings Call Transcript
HCA Healthcare, Inc. (NYSE:HCA) Q4 2023 Earnings Call Transcript January 30, 2024
HCA Healthcare, Inc. beats earnings expectations. Reported EPS is $5.9, expectations were $5.05. HCA Healthcare, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the HCA Healthcare Fourth Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir.
Frank Morgan: Good morning, and welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn the call over to Sam, let me remind everyone that should today's call contain any forward-looking statements that are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings. On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure.
A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded and a replay of the call will be available later today. With that, I'll now turn the call over to Sam.
Sam Hazen: All right. Good morning to everybody, and thank you for joining the call. We finished 2023 better than expected across most dimensions of our business. In the quarter, we experienced strong demand for services across our diversified portfolio of markets, facilities and service lines. This growth, coupled with improved cost trends drove solid financial performance in the fourth quarter. Diluted earnings per share, excluding gains on sales were $5.90, which represented a 27% increase over prior year. We are encouraged by these results and believe the operational momentum we have created should position us well for 2024. As mentioned at our recent Investor Day, the staying power of HCA Healthcare was on display again throughout the year.
Diluted earnings per share excluding gains and losses on sales and debt retirement for the year grew almost 13% as compared to 2022. As a management team, we pride ourselves on the following: first, owning our realities, whatever they are; next, making a big company small so we can adjust timely; and third, being disciplined in thought, resource allocation and execution, helping us to accomplish our mission. Once again, I believe our people have impressively demonstrated these traits in the face of new challenges and delivered positive outcomes for our patients, the communities we serve and our other stakeholders. I often refer to them as can do people. And again, this past year, I think they proved it. I want to thank them for their hard work and everything they do for our company.
Same-facility volumes across the company were strong in the fourth quarter. Admissions grew 3% year-over-year. Equivalent admissions were up 4%, emergency room visits grew 2%. Inpatient and outpatient surgery volumes increased approximately 1%. Most of our other volume categories, including cardiac procedures and rehab admissions had solid growth metrics in the quarter also. All domestic divisions had equivalent admissions growth in the quarter. Additionally, payer mix and acuity levels in the quarter improved year-over-year. These factors, along with certain enhancements in a couple of states' Medicaid supplemental programs helped produce same facilities revenue growth of 11% in the quarter. Bill will provide more detail on revenue in his comments.
Operating margins improved in the quarter as we were able to generate solid operating leverage across the company on the increased revenue we produced as compared to the prior year, but even more impressively when compared sequentially to the third quarter. We executed well over the year on our people agenda. In the quarter, we saw further progress on key metrics as evidenced by solid employee engagement results, stable turnover trends and reductions in contract labor utilization. As we have detailed in the past, we have implemented a comprehensive human resources plan. We expect to make further progress on it as we move into 2024. Our plan will remain a top organizational priority with significant investments in workforce development and trainings, which includes expansions in both Galen College of Nursing and our centers for clinical advancement.
With respect to hospital-based physician costs in the quarter, we slowed the rate of growth. As it pertains to Valesco, our physician staffing joint venture, we reduced the operating loss in the fourth quarter, more in line with our expectations. As indicated at our Investor Day, we expect to invest significantly this year in our long-term plans, which we designed to take our company from strength to strength and achieve the growth potential we see in our core business. These investments revolve around three distinct opportunities. The first one includes continued network expansion in facilities, services and workforce to meet the demand growth that we expect in our markets while also supporting our efforts to increase market share. In 2024, we have over $2 billion of new capital projects scheduled to come online that will increase capacities.
Additionally, we expect to integrate a number of newly acquired hospitals and outpatient facilities that should complement our networks. The second opportunity includes a robust agenda designed to advance digital capabilities across the company and unlock the embedded value we see in our operations. As high performing as we are today, we believe there is more operational potential inside our company with evolving technological tools we are investing to unlock this value. We believe this initiative, together with our care transformation and innovation program will enhance quality, drive further efficiencies through our financial resiliency program and improve overall operational management capabilities, including integrating our revenue cycle and case management functions better.
The third area of opportunity pertains to the flexibility we have to use our balance sheet position and strong cash flow production to invest heavily in our business and in our people while also allocating capital to our shareholders. In 2024, we plan to increase capital spending to over $5 billion and enhance our share repurchase program to around $5 billion. We continue to believe this strategic plan will produce more winning play for our organization, allowing us to deliver better services for patients while also creating value for other stakeholders. Let me close with this, the constants in our organization consists of three principles: giving our patients what they deserve whenever they need services, partnering with our physicians to deliver high-quality outcomes and leveraging the distinct elements of HCA Healthcare to improve performance.
Our approach to delivering on these core values comes from what we term the HCA way. That is supporting our local provider systems with value-added enterprise-level capabilities coupled with disciplined and detailed oriented management teams that relentlessly focus on execution. This operating philosophy has helped us navigate different economic cycles, adapt to changes in the industry and address challenges such as the COVID pandemic. As we look to the future, we have designed our next-generation growth plan to build upon the strengths we have developed over the years and take advantage of the opportunities in front of us. I am proud of HCA Healthcare and I'm even more proud of our people. We will move into 2024 in the years ahead with greater purpose with a renewed agenda to drive sustained growth and with confidence in our ability to deliver value and positive outcomes for our stakeholders.
With that, I'll turn the call to Bill, and he will discuss in more detail the quarter's results and 2024 guidance.
Bill Rutherford: Okay, great. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter and year and then discuss our 2024 guidance. We highlighted at our recent Investor Day that our formula of combining strong operational performance with a disciplined and balanced allocation of capital has a long track record of generating value over time. Our results for 2023 and our guidance for 2024 reflect a continuation of this formula. Sam provided many of our fourth quarter indicators in his comments. So let me take a moment to review some of our results for the full year 2023. We have strong top line growth. For the year, our same facility admissions grew 3.3% over prior year, equivalent admissions grew 4.8%, emergency room business grew 4.7% and total surgical cases were up 2.3%.
We maintained our strong acuity trends with case mix index increasing and payer mix improved with managed care and other admissions growing 6% for the full year on a same-facility basis. Revenue per equivalent admission grew 2.7% on a same facility basis. This contributed to same-facility revenue growing 7.6% and 7.9% on a consolidated basis for the full year 2023. We coupled top line strength with strong management of operating costs. Salaries, wages and benefits as a percentage of revenue improved 60 basis points on a consolidated basis compared to prior year. Contract labor declined 20% for the year and equated to 5.3% of those SMEB in the fourth quarter. Our teams continue to do a great job managing the supply costs, which improved 40 basis points as a percentage of revenue for the full year.
As we have mentioned throughout the year, we are managing through pressures on professional fees and hospital-based physician costs. But we saw an improvement in the sequential rate of growth in both the third and fourth quarter. Sam mentioned, we also saw an improvement in our Valesco joint venture, which was in line with our expectations. We are confident in our plans to continue working through what we believe are industry-wide pressures in this area. The result of this is we produced solid margins of 19.6% in line with our range of expectations on a consolidated basis and adjusted EBITDA growth of 5.5% on an as reported basis for the full year 2023. So as a management team, we are very pleased with the operational performance of the company during the year.
Let me briefly discuss our results in the fourth quarter. Adjusted EBITDA grew just under 14% in the quarter as compared to the prior year. This is primarily due to strong revenue growth and solid expense management during the quarter. In addition to our strong core business trends, we recognized a year-over-year adjusted EBITDA increase of approximately $250 million related to our supplemental payment programs. This includes the new North Carolina program and certain favorable adjustments within the Texas program. Additionally, based on our experience with the program to date, we began accruing the Florida program in the quarter, whereas previously, we had recognized this program on an annual lump sum basis. Our recently acquired entities, as well as facilities divested in the prior year, resulted in about $90 million less adjusted EBITDA in the quarter, with roughly half of this decline from the Valesco joint venture.
In summary, the quarter was the strongest operational performance of the year. And with the additional benefit from the supplemental programs and impact of new and divested facilities, we are very pleased with the year-over-year growth we were able to produce. So next let me speak to capital allocation. We deployed a balanced allocation of capital in 2023. For the full year, our cash flow from operations was $9.4 billion compared to $8.5 billion in the prior year or just under 11% growth. Capital expenditures were just above $4.7 billion for the year, which was in line with our expectations. We purchased approximately $3.8 billion of our outstanding shares and paid approximately $660 million of dividends during the year. Our debt-to-adjusted EBITDA leverage remains near the low end of our stated guidance range of three to four times, so we believe we are well positioned going into 2024.
And with that, let me speak to our 2024 guidance for a moment. As noted in our release this morning, we are providing full year 2024 guidance as follows. We expect revenues to range between $67.75 billion and $70.25 billion. We expect net income attributable to HCA Healthcare to range between $5.2 billion and $5.6 billion. We expect adjusted EBITDA to range between $12.85 billion and $13.55 billion. And expect diluted earnings per share to range between $19.70 and $21.20. And finally, we expect capital spending to range between $5.1 billion and $5.3 billion. So let me provide a little additional commentary on our guidance. First, let me note the $145 million payer settlement we reported in the first quarter of 2023. Our guidance assumes a growth in equivalent admissions between 3% and 4% and revenue per equivalent admission between 2% and 3%.
Regarding state supplemental programs, I want to highlight that these programs are complex and most have multiple attributes that impact the timing and amounts we receive. So this results in some variability of the timing of recognizing the impact of these programs during the year. For 2024, we are anticipating benefit from a new program in Nevada. But based on current assumptions, we expect some modest headwinds when we aggregate the impact of all of these supplemental programs and we believe this could range between $100 million and $200 million for the year. We expect full year margins to be within our historical trends, and cash flow from operations to range between $9.5 billion and $10 billion. Depreciation is estimated to be about $3.2 billion.
And interest expense is projected to be around $2 billion. Finally, our fully diluted shares are expected to be around 264 million for the year. Also noted in our release this morning, our Board of Directors has authorized a new $6 billion share repurchase program. This will be in addition to the approximately $300 million remaining on our prior authorization. In addition, our Board declared an increase in our quarterly dividend from $0.60 to $0.66 per share. With that, let me turn the call back over to Sam.
Sam Hazen: All right, thank you, Bill. As you saw in our press release, Bill Rutherford has decided to retire after 34 years with the company, 10 years as CFO, and Bill had a tremendous career with HCA. And then in my communication to our colleagues throughout the company I indicated that is impressive as the results were financially with the company during his tenure. Bill's legacy with the company will be remembered by the many people in the company has positively impacted with his leadership, mentorship and the way he embraced our mission and culture. And so Bill, congratulations on your retirement, and thank you very much on behalf of the Board and the senior team for everything you've done for the organization. Now part of Bill’s legacy is creating a really deep financial team inside our organization.
We pride ourselves on having the capabilities to build talent and then replace talent and we are fortunate to have Mike Marks as our next CFO. Mike has been with the company for 28 years. He has had various roles most of which were in the National Group as the Group’s CFO for the National Group for 10 years, and then he has been in the Senior Vice President and Financial Operations role for the last few years. He is a proven HCA executive, he understands and appreciates our culture, he knows how to execute and get results and I know he's going to be an exceptional CFO for HCA. And I am eager for many of you to get to meet him. So Mike, congratulations. So with that Frank, we will go into questions.
Frank Morgan: Thank you, Sam. And thank you, Bill. As a reminder, please limit yourself to one question so we might give as many as possible in the queue, an opportunity to ask a question. Greg, you may now give instructions to those who would like to ask a question.
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