HCA Healthcare, Inc. Q2 FY2025 earnings call

• The company's financial results for the second quarter were strong with a 24% increase in diluted earnings per share as adjusted to $6.84 and 6.4% revenue growth. • The company increased its guidance for 2025 due to the positive demand environment, effectiveness of strategic initiatives, and momentum in the business. • The company improved quality outcomes, throughput in emergency rooms, and patient satisfaction. • Addressed the federal policy environment, noting that the adverse impacts of the Medicaid component in the One Big Beautiful Bill Act over the next few years are manageable and working on resiliency programs for exchange provisions and expiring premium tax credits. • Capital allocation in the second quarter of 2025 included $1.2 billion in capital expenditures, $2.5 billion in share repurchases, and $171 million in dividend.

The company's second - quarter financial results were strong. Revenue grew by 6.4%. Adjusted EBITDA grew 8.4% over the prior year quarter. Equivalent admissions increased 1.7% for the quarter and 2.3% for the year. Medicare grew 3%, slightly below expectation. Medicaid was down slightly and self - pay was up slightly. Salary and benefits, along with other operating expenses, both improved as a percentage of revenue. Same - facility contract labor improved 1% from the prior year quarter and represented 4.3% of total labor costs in Q2 2025 versus 4.6% in Q2 2024. Supply expense increased slightly as a percentage of revenue due primarily to increased spending on cardiac - related devices.

• Updated full - year 2025 guidance: revenues are expected to range between $74 billion and $76 billion; net income attributable to HCA Healthcare ranges between $6.11 billion and $6.48 billion; adjusted EBITDA ranges between $14.7 billion and $15.3 billion; diluted earnings per share ranges between $25.50 and $27; capital spending is expected to be approximately $5 billion. • Projected growth in equivalent admissions for the full year 2025 is between 2% and 3%. • Supplemental payment full - year net benefit is anticipated to be between flat and $100 million favorable year - over - year. • The increase in earnings guidance is equally weighted between the updated net benefit from state supplemental payment programs and the improvement in overall portfolio operational performance, including hurricane - impacted markets.

• The Medicaid component in the One Big Beautiful Bill Act may have adverse impacts over the next few years. • Some people may lose insurance coverage due to exchange provisions in the Act. • The enhanced premium tax credits are scheduled to expire at the end of the year, and there is uncertainty about their extension, with a need to develop resiliency programs to offset adverse impacts if they expire.

Q: Just maybe just asking around the guidance update. So you raised your EBITDA guidance, adjusted EBITDA by about $300 million at the midpoint. I think that's roughly the amount of outperformance that you saw -- seen so far year - to - date in the first half. Just a couple of questions around that. Obviously, you now have the Tennessee DPP program. Is that -- should we think of that as reflected in this updated outlook? And then second, I know you're making a modest tweak on the admissions number down. You're not alone in that. Some of your peers have already reported have done that. Any commentary on what you're seeing in terms of underlying demand on the volume front?

A: Let's talk about guidance first. So if I think about the $300 million increase in guidance at midpoint, as I noted in my comments, about half of that is from state supplemental payment programs, and that does reflect the approval of the new Tennessee program. We expect to receive -- start receiving cash in that here in the back half of the year and probably a material chunk of that in the third quarter likely. It also reflects some just better visibility as we always have here at midyear about the rest of our programs. So that's about half of the increase. If I think about the other half of our guidance increase, it really relates to our portfolio. And again, as I mentioned in my opening statement, about $150 million of that increase is related to the portfolio. And I would size that for you as follows: it's about $100 million better in our hurricane - related markets. And you'll recall that we originally guided that to be flat to prior year. So that's $100 million of it. We have a couple of markets that are underperforming, roughly in the $50 million range of impact. So those 2 markets are offsetting some of the hurricane market improvements. And then really, the rest of our portfolio is performing better than anticipated. So the net combined effect of our combined portfolio, including the hurricane markets, really results in the other half. I might mention, though, just so that you guys can think through this as you prepare your comments. But I think third quarter, the guidance -- the earnings growth will be a little bit lower and fourth quarter is likely going to be a little bit higher in terms of growth rate compared to that midpoint of the guidance. And that's largely related to both the timing of supplemental payment program payments and specifically to fourth quarter, you may recall that we received onetime payments fourth quarter of last year that do not repeat. And then we believe our hurricane markets, the recovery that we're showing is largely going to be in fourth quarter, if not entirely. So a couple of notes on that. So on volume, let me start and then, Sam, please feel free to jump in. I know you will. When I think about our volume year - to - date through June of 2.3% equivalent admission growth, and I compare that to our original 3% to 4% guidance coming into the year, there are a couple of moving parts that I would mention. The first is that Medicaid for June year - to - date, Medicaid is down 1.2% to prior year. And we originally believed and built into our guidance the notion that Medicaid would flatten out this year, if not even show a bit of growth coming off of the Medicaid redetermination program. And then our self - pay charity volumes are only up 1.5% June year - to - date, and we had believed originally that they would at least grow at the overall rate of volume growth. And just for context, our self - pay volumes were up almost 7% in '24 over '23. So the combined of Medicaid and self - pay being below our expectations explain about half of the difference of our current year - to - date volume growth versus our 3% to 4% original guidance. And really, the other half is Medicare. We originally expected Medicare to grow a bit faster than it is, although I would note that a 3% growth in Medicare year - to - date through June is still pretty robust. So those are the 2 main categories of our volume that are trailing our original expectation of 3% to 4%. And Sam, I don't know if you have.

Q: Can you just provide more details on your resiliency programs? I think the Street really at this point, doesn't believe that the subsidies will be extended. How much of the headwind do you think you can offset in 2026? Is any of this benefit embedded in your 2025 guidance? Or will it all be incremental to 2026? And any other incremental details about what type of cost savings you'll be doing, that would be great.

A: So let me kind of summarize our thinking about the One Big Beautiful Bill Act, the EPTCs and how we're thinking about our resiliency program. And then, Ann, as I mentioned in my comments, we will comment further and provide more details related to this in our fourth quarter '25 earnings call when we give guidance for 2026. First, let me start with the act itself. I do believe in the near term that our finance resiliency program should offset the exchange provisions in the act. In the longer term, as it relates to the act specifically, with both the delayed start and the phased - in nature of these provider tax and state - directed payment reimbursement reforms, along with the potential for the approval of the submitted supplemental payment applications, we believe HCA will be able to generally manage these impacts with our resiliency efforts without material impact to our long - term guidance. Specific to EPTCs, at this point, we do not know what the outcome will be. As noted, we are working to develop our resiliency programs to offset as much as possible any adverse impact should they expire. And again, the potential approval of the grandfathered applications would certainly help. We will comment further as noted, when we do our 2026 guidance. Suffice it to say, our resiliency efforts, as we continue to work through them, and we've been working on them as you -- as we've talked about over the last year, in a very diligent way, address both benchmarking our corporate departments and shared service organizations against best practices and finding operational improvement opportunities. We are deep in the middle of our field - based resiliency efforts, many of which we commented on before from length of stay and improvement opportunities with our case management operations through significant opportunities around both our automation and our digital transformation agenda. And our labor and supply - related resiliency plans are also very developed and mature. We will give more updates on that, Ann, when we get to the fourth quarter call, but hopefully, that helps.