01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
HCA Healthcare's 2019 10-K shows a company still growing revenue and volume at a strong clip, though earnings per share declined from 2018 because 2018 included a large one-time gain on the Oklahoma hospital sale and a tax benefit.
Revenue rose 10.0% to $51.336 billiona, driven by a 6.6% increase in equivalent admissions and a 3.2% increase in revenue per equivalent admission. Net income attributable to HCA fell 7.4% to $3.505 billion, or $10.07 per diluted share, versus $10.66 in 2018. Operating cash flow improved 12.4% to $7.602 billion, and capital spending rose to $4.158 billion.
The balance sheet remains highly leveraged. Total debt was $33.722 billionb, and stockholders' deficit improved to $(565) million from $(2.918) billion, mainly because of retained earnings growth and noncontrolling interests. Management plans 2020 capital expenditures of roughly $4.0 to $4.2 billion, and it returned capital through $1.031 billion of buybacks and $550 million of dividends, with a quarterly dividend raised to $0.43.
The company also adopted the new lease standard (ASU 2016-02) in 2019, which added about $1.8 billionc of operating lease assets and about $1.9 billion of operating lease liabilities. Key risks for investors are concentrated in Florida and Texas, which generated about 48% of revenue, and in ongoing uncertainty about the Affordable Care Act, Medicaid supplemental payments, site-neutral payment policy, and the 340B drug pricing litigation.
A qui tam False Claims Act suit tied to the Texas Medicaid waiver program in Harris County is pending, though the company says it is vigorously defending it. Uncompensated care rose to an estimated $3.733 billiond in 2019 from $3.318 billion in 2018, a sign of growing pressure from uninsured patients.
02—Key points
Key Highlights
- Revenue grew 10.0% to $51.336 billion, with equivalent admissions up 6.6% and revenue per equivalent admission up 3.2%.
- Net income attributable to HCA fell 7.4% to $3.505 billion ($10.07 diluted EPS), largely because 2018 included a $428 million gain on facility sales and a $67 million tax benefit.
- Operating cash flow rose 12.4% to $7.602 billion, while capital expenditures increased to $4.158 billion.
- Total debt of $33.722 billion gives HCA a highly leveraged capital structure. Average interest rate on long-term debt was 5.3%, and interest expense rose to $1.824 billion.
- Stockholders' deficit narrowed to $(565) million from $(2.918) billion, and the board authorized a new $2 billion buyback. Repurchases in 2019 totaled $1.031 billion, and quarterly dividends were $0.40 per share, rising to $0.43 for 2020.
- Florida and Texas accounted for about 48% of 2019 revenue across 91 hospitals, which concentrates regulatory and competitive exposure.
- Estimated uncompensated care cost rose to $3.733 billion from $3.318 billion, reflecting higher uninsured admissions (up 5.8%).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $51.34B$46.68B | +10.0% |
| Operating Expenses | $46.09B$41.34B | +11.5% |
| Interest Expense | $1.82B$1.75B | +3.9% |
| Net Income | $3.50B$3.79B | −7.4% |
| EPS (Basic) | $10.27$10.90 | −5.8% |
| EPS (Diluted) | $10.07$10.66 | −5.5% |
| Shares Outstanding (Basic) | 341.21M347.30M | −1.8% |
| Shares Outstanding (Diluted) | 348.23M355.30M | −2.0% |
05—Questions
Frequently Asked Questions
How did HCA's 2019 earnings compare with 2018, and why did EPS decline?
Diluted EPS was $10.07 in 2019, down from $10.66 in 2018. The decline came mainly because 2018 included a $428 million gain on facility sales (largely the Oklahoma hospitals) and a $67 million tax benefit. The 2019 results also carried $211 million of debt-retirement losses, or $0.47 per share. Operating performance improved, with revenue up 10% and pre-tax income excluding these items growing.
Is HCA's balance sheet a concern for investors?
Leverage is high. Total debt is $33.722 billion against $45.058 billion of assets, and the stockholders' deficit is still negative at $(565) million. Management says cash flow from operations, its credit facilities, and debt market access will cover needs for the next twelve months. Interest expense of $1.824 billion absorbs a large share of operating cash flow, so debt reduction and refinancing terms matter.
What are the biggest regulatory risks to HCA's revenue?
Medicare and Medicaid represented about 41.5% of 2019 revenue. Key risks include the 2% sequestration cuts through 2029, site-neutral payment expansion for off-campus clinic visits, the 340B drug payment reduction litigation, potential changes to Medicaid supplemental payments (including Texas's $416 million in waiver payments), and continuing uncertainty about the Affordable Care Act.
Does HCA face any material legal exposure disclosed in the filing?
The filing discloses a qui tam False Claims Act lawsuit, unsealed in May 2019, related to the Texas Medicaid waiver program as operated in Harris County. The federal and state governments declined to intervene, and HCA is vigorously defending the case. The company says it cannot predict the outcome. HCA also reports ongoing government inquiries at certain facilities, and says its professional liability reserves total $1.827 billion.
What is HCA's capital allocation plan for 2020?
Planned 2020 capital expenditures are $4.0 to $4.2 billion. The board authorized up to $2 billion in new share repurchases in January 2020, and the quarterly dividend was set at $0.43 per share, up from $0.40. Acquisitions cost $1.682 billion in 2019, including a seven-hospital North Carolina system.
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