HCA Reports Third Quarter 2014 Results

HCA Holdings, Inc. (NYSE: HCA) today announced financial and operating results for the third quarter ended September 30, 2014.

Key third quarter metrics (all percentage changes compare 3Q 2014 to 3Q 2013 unless noted):

• Revenues increased 9.0 percent to $9.220 billion
• Net income attributable to HCA Holdings, Inc. totaled $518 million, or $1.16 per diluted share
• Adjusted EBITDA increased 14.0 percent to $1.828 billion
• Cash flows from operations increased 25.3 percent to $1.128 billion
• Same facility equivalent admissions increased 4.1 percent, while same facility admissions increased 2.8 percent
• Same facility revenue per equivalent admission increased 3.8 percent

“Results for the Company’s third quarter reflect a continuation of solid volume trends and improving payor and service mix,” stated R. Milton Johnson, HCA President and CEO.

The HCA Holdings, Inc. Board of Directors has also authorized a share repurchase program for up to $1 billion of the Company’s outstanding common stock. Repurchases will be made in accordance with applicable securities laws from time to time in the open market, through privately negotiated transactions, or otherwise.

Revenues in the third quarter increased to $9.220 billion, compared to $8.456 billion in the third quarter of 2013. Net income attributable to HCA Holdings, Inc. totaled $518 million, or $1.16 per diluted share, compared to $365 million, or $0.79 per diluted share, in the third quarter of 2013. Third quarter 2014 results include losses on sales of facilities of $12 million, or $0.02 per diluted share. Adjusted EBITDA totaled $1.828 billion compared to $1.603 billion in the third quarter of 2013. Adjusted EBITDA is a non-GAAP financial measure. A table reconciling net income attributable to HCA Holdings, Inc. to Adjusted EBITDA is included in this release.

During the quarter ended September 30, 2014, HCA recorded two changes in estimates which had the net effect of increasing revenues $26 million. The Company recorded $94 million of Medicare revenues as the estimated settlement amount for certain claims denied by Recovery Audit Contractors (“RAC”) entities conducting reviews on behalf of the Centers for Medicare & Medicaid Services (“CMS”) and currently in the pending appeals process. CMS is offering an administrative agreement to providers willing to withdraw their pending appeals in exchange for a timely partial payment (generally 68 percent of the claim amount, subject to certain adjustments). The Company also recorded a $68 million reduction to Medicaid revenues related to the Texas Medicaid Waiver Program. On October 1, 2014, the Texas Health and Human Services Commission (“THHSC”) issued a notice to hospitals participating in the Texas Medicaid Waiver Program. According to the notice, a review conducted by CMS identified certain local government/hospital affiliations it believes may be inconsistent with the waiver. As a result of these findings, CMS notified THHSC that it is deferring the federal portion of the Medicaid payments associated with these affiliations while it completes its review.

Same facility revenue per equivalent admission increased 3.8 percent in the third quarter of 2014 compared to the third quarter of 2013, reflecting improved payor mix and growth in case mix, or acuity, of 2.0 percent on a same facility basis in the quarter.

Same facility equivalent admissions increased 4.1 percent in the third quarter of 2014 compared to the prior year period. Same facility admissions increased 2.8 percent compared to the prior year period. Same facility emergency room visits increased 7.3 percent in the third quarter of 2014, compared to the prior year period. Same facility inpatient surgeries increased 1.4 percent, while same facility outpatient surgeries increased 1.9 percent in the third quarter of 2014 compared to the same period of 2013.

During the third quarter of 2014, salaries and benefits, supplies and other operating expenses totaled $7.438 billion, or 80.7 percent of revenues, compared to $6.937 billion, or 82.0 percent of revenues, in the third quarter of 2013.

Nine Months Ended September 30, 2014

Revenues for the nine months ended September 30, 2014 totaled $27.282 billion compared to $25.346 billion in the same period of 2013. Net income attributable to HCA Holdings, Inc. was $1.348 billion, or $2.98 per diluted share, compared to $1.132 billion, or $2.44 per diluted share, for the first nine months of 2013. Results for the nine months ended September 30, 2014 include losses on retirement of debt of $226 million, or $0.32 per diluted share, gains on sales of facilities of $20 million, or $0.03 per diluted share, and legal claim costs of $78 million, or $0.11 per diluted share. Results for the nine months ended September 30, 2013 include losses on sales of facilities of $13 million, or $0.02 per diluted share, and losses on retirement of debt of $17 million, or $0.02 per diluted share.

Balance Sheet and Cash Flows from Operations

As of September 30, 2014, HCA Holdings, Inc.’s balance sheet reflected cash and cash equivalents of $515 million, total debt of $28.470 billion, and total assets of $29.825 billion. During the third quarter of 2014, capital expenditures totaled $569 million, excluding acquisitions. Cash flows provided by operating activities in the quarter totaled $1.128 billion compared to $900 million in the third quarter of 2013. The $228 million increase in cash flows from operating activities related primarily to the combined impact of a $144 million increase in net income and a $58 million benefit from changes in income taxes for the third quarter of 2014 compared to the third quarter of 2013.

As of September 30, 2014, HCA’s leverage ratio as measured by Total Debt/Adjusted EBITDA was 3.96x, compared to 4.32x as of December 31, 2013. As of September 30, 2014, HCA operated 165 hospitals and 113 freestanding surgery centers.

In October 2014, HCA Inc. completed a $2 billion bond offering consisting of $1.4 billion 5.25% senior secured notes due 2025 and $600 million 4.25% senior secured notes due 2019. Net proceeds will be used to redeem the Company’s existing $1.4 billion 7.25% senior secured notes due 2020, to pay related fees and expenses and for general corporate purposes.

Today, the Company also announced the signing of an agreement to acquire CareNow, a privately-held company with 24 urgent care centers in the Dallas – Fort Worth area. Terms of the agreement were not disclosed. HCA expects to complete the transaction in the fourth quarter of this year.

2014 Guidance

On October 15, 2014, the Company raised its previously issued financial guidance ranges for 2014.

The revised guidance assumes (1) benefit to Adjusted EBITDA from the Patient Protection and Affordable Care Act (Health Reform Law) in 2014 of approximately 4 percent of Adjusted EBITDA, (2) the inclusion of adjustments to revenues from the indigent care component of the Texas Medicaid Waiver Program and Medicare RAC settlements, (3) estimated electronic health record incentive income assumptions in a range of $110-$130 million and EHR expenses in a range of $110-$130 million, and (4) estimated increases in share-based compensation expense to approximately $160 million from $113 million in 2013. Guidance excludes the impact of items, if applicable, that are non-operational in nature including items such as, but not limited to, gains or losses on sales of facilities and businesses, gains or losses on early debt retirement and impairments of long-lived assets. This guidance is also subject to certain risks including those as set forth below in the Company’s “Forward-Looking Statements”.

Earnings Conference Call

HCA will host a conference call for investors at 9:00 a.m. Central Daylight Time today. All interested investors are invited to access a live audio broadcast of the call via webcast. The broadcast also will be available on a replay basis beginning this afternoon. The webcast can be accessed at: https://event.webcasts.com/starthere.jsp?ei=1043273 or through the Company’s Investor Relations web page, www.hcahealthcare.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include statements that do not relate solely to historical facts. Forward-looking statements can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the effects related to the implementation of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Health Reform Law”), possible delays in or complications related to implementation of the Health Reform Law, the possible enactment of additional federal or state health care reforms and possible changes to the Health Reform Law and other federal, state or local laws or regulations affecting the health care industry, (3) the effects related to the continued implementation of the sequestration spending reductions required under the Budget Control Act of 2011 (the “BCA”), and related legislation extending these reductions, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (4) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (5) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (6) possible changes in the Medicare, Medicaid and other state programs, including Medicaid upper payment limit programs or waiver programs, that may impact reimbursements to health care providers and insurers, (7) the highly competitive nature of the health care business, (8) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under managed care agreements, the ability to enter into and renew managed care provider agreements on acceptable terms and the impact of consumer driven health plans and physician utilization trends and practices, (9) the efforts of insurers, health care providers and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (13) changes in accounting practices, (14) changes in general economic conditions nationally and regionally in our markets, (15) the emergence and effects related to infectious diseases, including Ebola, (16) future divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and any future tax audits, appeals and litigation associated with our tax positions, (20) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) our ongoing ability to demonstrate meaningful use of certified electronic health record technology and recognize income for the related Medicare or Medicaid incentive payments, and (22) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2013 and our other filings with the Securities and Exchange Commission. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

All references to “Company” and “HCA” as used throughout this release refer to HCA Holdings, Inc. and its affiliates.

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