HCA Holdings, Inc. (HCA)

HCA 
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HCA Holdings, Inc. (HCA)

Q3 2011 Earnings Conference Call

November 1, 2011 9:00 AM ET

Executives

Victor Campbell - SVP
Mark Kimbrough - Chief IR Officer
Richard Bracken - Chairman and CEO
Milton Johnson - President and CFO
Sam Hazen - President of Operations

Analysts

Ralph Giacobbe - Credit Suisse
Justin Lakes – UBS
Sheryl Skolnick - CRT Capital
Adam Feinstein - Barclays Capital
Christine Arnold - Cowen And Company
Tom Gallucci - Lazard Capital Markets
Gary Lieberman - Wells Fargo Securities
A J Rice - Susquehanna Financial Group
Frank Morgan - RBC Capital Markets
Kevin Fischbeck – Bank of America Merrill Lynch

Presentation

Operator

Good day ladies and gentlemen and welcome to the HCA third quarter 2011 earnings release conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call conference over to the Senior Vice President Mr. Vic Campbell. Please go ahead sir.

Victor Campbell

Carla, thank you and good morning everyone. Mark Kimbrough, our Chief Investor Relations Officer is here with me this morning and we would like to welcome everyone on today's call, also to those of you that are listening to the webcast. Here in the room with me this morning are Chairman and CEO Richard Bracken, President and CFO Milton Johnson, Sam Hazen, President of Operations, and then we have a cast of other characters here, senior officers of the company that can help us during the Q&A.

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 that are listed in today's press release are included 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 these 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. A replay will be available starting later today. With that, I'll turn the call over to Richard Bracken.

Richard Bracken

All right. Thank you Vic, and good morning to all. We do appreciate your participation on our call this morning. This has been a very busy quarter for all of us at HCA, so we have a lot to comment on this morning. Before we get started, let me thank many of you for the meetings over the last month as we provided commentary on the company and market dynamics.

So, let’s get started. First Earnings, for the quarter we reported adjustment EBITDA growth of 4% or $1.412 billion, well this does include revenues for meeting Stage 1 Meaningful Use requirements, excluding both HITECH revenues and expenses, our adjusted EBITDA grew 1.3% over last year’s third quarter. From an operations perspective, our earnings were achieved primarily due to strong patient volumes and expense control despite a continued softness in revenues per unit.

During the quarter we continued on track for a successful rollout of our electronics health records initiative consistent with meeting Stage 1 Meaningful Use requirements.

As delineated in our release this morning, we recorded both Medicare and Medicaid incentive revenues as certain of our hospitals completed their attestation process. During the fourth quarter we will continue the process of attestation and we expect that most all of our remaining hospitals will also meet performance standards.

We are quite satisfied with our performance in this regard. I believe this could be a major accomplishment for our organization, albeit only a first step in a long process. It represents solid execution by our operating quality performance in IT&S [ph] teams and is an important foundational step in our ability to create a digitalized medical record to a system providing cost efficient and effective healthcare services.

Our review indicates that at this point only a fraction of all US hospitals are expected to attest in 2011, we are proud to be part of this group. Also during the quarter our finance team has been exceedingly active in the quarter, we refinanced approximately $7 billion of existing indebtedness that net will lower our annual interest expense and strengthen our balance sheet. These transactions coupled with the financing activities in the second quarter are expected to generate annual interest savings of approximately $350 million next year and we expect the EPS impact to be accretive by approximately $0.47 in 2012.

Additionally, on September, 21st, recall that we were successful in repurchasing more 80 million shares of our common stocks from Bank of America. This repurchase represented a buyout of their equity interest and resulted in the termination of any governance rights they had. We estimate this repurchase of nearly 16% of our outstanding shares will be accretive to EPS by approximately $0.46 in 2012.

And finally shortly after the quarter ended, we completed the purchase of the remaining 40% of our HealthONE Joint Venture in the Denver market for $1.45 billion. We are very pleased with the opportunity to purchase this remaining equity percentage. We have appreciated our association with the Colorado Health Foundation over the past years. Look forward to continuing the very solid performance that our partnership had achieved and to serving the Denver community for many years to come. We do estimate that this acquisition will be accretive to EPS by approximately $0.12 in 2012.

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