01—Abstract
Summary
Summary of the 10-K filed February 18, 2022. Cited figures are marked; the original filing is the authoritative source.
HCA Healthcare's 2021 10-K shows a company that rebounded strongly from the pandemic-hit 2020.
Revenues rose 14.0% to $58.75 billiona, driven by a 6.8% increase in revenue per equivalent admission and a 6.8% increase in equivalent admissions. Net income attributable to HCA reached $6.956 billion, or $21.16 per diluted share, up from $3.754 billion ($10.93) in 2020. Results were boosted by $1.620 billion in pretax gains on sales of facilities, chiefly the sale of five Georgia hospitals, so underlying earnings growth was smaller than the headline figure suggests.
Outpatient surgeries rose 14.2% and emergency room visits rose 13.8%, while inpatient surgeries were roughly flat. Cash flow and capital allocation were central to the year. Operating cash flow was $8.959 billionb, down slightly from $9.232 billion because of a $1.781 billion working capital drag, mainly higher accounts receivable.
Capital expenditures were $3.577 billionc, and planned 2022 capex is about $4.2 billion. HCA repurchased 37.8 million shares for $8.215 billion, and in January 2022 the board authorized an additional $8 billion buyback. The quarterly dividend was restored in 2021 at $0.48 per share and raised to $0.56 for 2022.
The key risks for investors are leverage and regulation. Total debt was $34.6 billiond at year-end, with interest expense of $1.566 billion. Florida and Texas account for 49% of revenues, and Medicare and Medicaid together account for 41.3% of revenues.
Pending issues include the Texas Medicaid waiver extension, sequestration cuts to Medicare, a qui tam FCA lawsuit related to the Harris County Medicaid program, and nurse labor cost pressure. The Supreme Court's January 2022 decision reinstating the CMS vaccine mandate nationally also affects staffing.
02—Key points
Key Highlights
- Revenue grew 14.0% to $58.752B (from $51.533B), with same-facility revenue up 14.4%, driven by a 6.8% rise in revenue per equivalent admission and a 6.8% rise in equivalent admissions.
- Diluted EPS was $21.16 versus $10.93 in 2020, but this includes $1.620B of pretax gains on facility sales ($3.69 per diluted share), so the underlying improvement is smaller than the headline.
- Operating cash flow was $8.959B, down $273M year over year, due to a $1.781B negative working capital swing led by a $962M increase in accounts receivable; days revenue in AR rose to 49 from 45.
- Capital returns were heavy: $8.215B spent on buybacks in 2021 (37.8M shares at about $217), $624M in dividends, and an additional $8B buyback authorized in January 2022.
- Total debt was $34.579B at year-end, and interest expense was $1.566B; the company describes itself as highly leveraged, with 4.6% average rates on debt.
- Concentration risk remains high: Florida and Texas represent 49% of revenues, and Medicare plus Medicaid represent 41.3% of revenues, with Texas Medicaid waiver renewal uncertainty through 2022.
- Labor and regulatory pressure is rising: wage pressures were significant (same-facility labor rate increases averaged 7.5%), and the CMS and OSHA vaccine mandates threaten staffing availability.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 18, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $58.75B$51.53B | +14.0% |
| Operating Expenses | $48.92B$46.10B | +6.1% |
| Interest Expense | $1.57B$1.58B | −1.1% |
| Net Income | $6.96B$3.75B | +85.3% |
| EPS (Basic) | $21.52$11.10 | +93.9% |
| EPS (Diluted) | $21.16$10.93 | +93.6% |
| Shares Outstanding (Basic) | 323.31M338.27M | −4.4% |
| Shares Outstanding (Diluted) | 328.75M343.61M | −4.3% |
05—Questions
Frequently Asked Questions
How much of the 2021 earnings growth came from one-time items?
A large share. Gains on sales of facilities added $1.620B pretax (about $3.69 per diluted share), mainly from selling five Georgia hospitals. Other items partly offset this, including a $0.20 per share benefit from lower professional liability provisions and a $0.36 per share benefit from employee equity award tax settlements. Excluding the facility gains, earnings growth was materially lower than the 85% headline increase in net income.
Is HCA's debt load a concern for investors?
Leverage is high. Total debt is $34.6B, roughly 4.5x 2021 adjusted segment EBITDA of $12.6B by a simple estimate, and interest expense of $1.566B consumes a meaningful share of operating income. The company's senior secured credit facilities contain maintenance covenants and cash-sweep features in the ABL facility. Management believes cash flow and available facilities are sufficient for the foreseeable future, but the filing warns that refinancing and rate risk could grow if conditions deteriorate.
What are the main regulatory risks to revenue?
Medicare and Medicaid are 41.3% of revenues. Key risks include the scheduled 2% sequestration cut resuming in July 2022 (with an additional 4% PAYGO reduction delayed to 2023), the uncertain renewal of the Texas Medicaid 1115 waiver (expiring September 2022 absent an extension, with $534M of 2021 supplemental waiver payments), potential changes to supplemental Medicaid payments, and value-based purchasing penalties.
Why did operating cash flow decline even though net income rose sharply?
Cash flow was reduced by working capital. Accounts receivable increased $962M and inventories and other assets rose $540M, while accounts payable and accrued expenses added $999M. Net income was boosted by non-cash facility gains, which are excluded from operating cash flow. Days revenue in accounts receivable at 49 days (versus 45 in 2020) suggests slower collections, which management attributed to the post-COVID catch-up.
How is HCA returning capital to shareholders, and is the dividend sustainable?
HCA repurchased $8.215B of stock in 2021 and paid $624M in dividends, after suspending its dividend in 2020. The quarterly dividend was raised from $0.48 to $0.56 in 2022, and an additional $8B buyback was authorized in January 2022. Dividend capacity depends on cash flow, debt covenants, and board discretion. The filing notes that buybacks and dividends are funded largely from operating cash and borrowings, so continued large repurchases would depend on sustained cash generation and access to debt markets.
06—Continue