HCA Holdings (



Q2 2011 Earnings Call

July 25, 2011 10:00 a.m. ET


Richard Bracken - Chairman and CEO

Milton Johnson - President and CFO

Sam Hazen - President of Operations

Victor Campbell - Senior VP

Mark Kimbrough - Chief Investor Relations Officer


John Rex - JP Morgan

Darren Lehrich - Deutsche Bank

Tom Gallucci - Lazard Capital Markets

Justin Lake - UBS

Ralph Giacobbe - Credit Suisse

Frank Morgan - RBC Capital Markets

A.J. Rice - Susquehanna Financial Group

Christine Arnold - Cowen & Company

Gary Lieberman - Wells Fargo

Jake Hindelong - Ticonderoga Securities

Gary Taylor - Citi

John Ransom - Raymond James

Adam Feinstein - Barclays Capital

Doug Simpson - Morgan Stanley

Sheryl Skolnick - CRT Capital Group



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Good day a welcome to the second quarter 2011 earnings release conference call. At this time I'd like to turn the conference over to Mr. Vic Campbell. Please go ahead sir.

Victor Campbell

Thank you operator. Good morning everyone. Mark Kimbrough, our chief investor relations officer, and I would like to welcome you on today's call, including those of you listening to our webcast. Here this morning with me are Chairman and CEO Richard Bracken, President and CFO Milton Johnson, and Sam Hazen, president of operations. And there are a number of other members of the HCA senior management team here with us today as well.

Before I turn the call over to Richard, let me remind everyone that should today's call contain any forward looking statements, they 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. Many of the factors are listed in today's press release and in our various SEC filings.

Many of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the significant uncertainties inherent in any forward looking statements, you should not place undue reliance on those statements. The company undertakes no obligation to revise or update any forward looking statements whether as a result of new information or future events.

This morning's call is being recorded. Replay will be available later today. With that, I'll turn the call over to Richard.

Richard Bracken

All right. Thank you Vic, and good morning to all. We do appreciate your participation on our call this morning. Let me begin today by sharing with you some comments on the quarter.

Clearly, our results for the second quarter were very mixed. While it was a quarter marked by continued favorable patient volumes, stable expense management, and favorable cash flow, these positive trends were offset by an unfavorable service mix, negatively affecting earnings. These, of course are the issues that we will address this morning.

So let me start with volume. For the quarter, patient volumes, including our newly acquired facilities, were positive and continue to align with recent favorable trends. Reported admissions for the quarter were up 3.2% and reported equivalent admissions increased 3.4%. Similarly, on a same-facility basis, reported admissions and equivalent admissions grew 1.8% and 1.9% respectively.

We have now experienced 15 quarters in a row of positive equivalent admissions growth. On a year-over-year basis, reported admission and equivalent admission growth were also favorable at 2.6% and 3.6%.

Also, consistent with strong admission growth, we continued our favorable trends in same-facility emergency visit growth with a 4.5% growth rate for the second quarter and a 7.8% rate on a year to date basis.

And I think that you're generally aware that we believe this growth reflects not only favorable facility locations in areas with favorable growth dynamics, but also an operating agenda that seeks to improve the efficiency in which we process patients through our system. And we remain committed to this strategy as a way to not only improve efficiency but to improve the patient experience and clinical outcomes as well.

From an earnings perspective, however, the favorable volume performance that we did experience in the quarter did not convert to revenues as favorably as they previously have. We believe that this is primarily due to a shift that was experienced in service mix. That is, from more complex cases, significantly surgical cases, to less-acute medical cases.

Importantly, our same-facility cash revenue for equivalent admission increased only 1.2% in the second quarter, down from 2% growth in the first quarter of 2011. We believe this service mix shift accounts for the majority of variance in our quarterly earnings performance.

As a net result, our company reported revenues for the quarter totaling $8.06 billion, compared to $7.76 billion last year. Cash revenues, net revenue less bad debt, were up 4.6% for the quarter while same-facility cash revenue grew 3.1% in the quarter.

On the expense side of the equation, same-facility cash expenses for equivalent admission rose 2.9% for the quarter compared to the prior year. This was consistent with our expectations and reflective of the favorable expense trends in our facilities. And Milton and Sam are going to comment on all of this in more detail in just a moment.

So as we roll this up for the quarter, adjusted EBITDA totaled $1.42 billion, down 4.7% from the $1.49 billion we reported in the second quarter of the prior year. For the first 6 months of 2011, our adjusted EBITDA is $3.01 billion compared to $3.064 billion in the similar time period of the prior year. Our more favorable performance in Q1 has been offset by less favorable performance in Q2 of this year.

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