Columbia HCA Q2
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Columbia HCA Q2
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Columbia HCA Healthcare Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> UNION CITY, Ca., August 7, 1996/FOOLWIRE/ --- Columbia/HCA Healthcare Corporation today announced operating results for Q2 1996. For Q2, revenues totaled $4.9 billion, up 13% from last year's $4.4 billion. Operating income for the quarter totaled $1.1 billion, up 16% from last year's $909 million. Earnings per share rose 16% from $0.70 per share (excluding merger and facility consolidation costs and extraordinary charges) in Q2 1995 to $0.81 per share in Q2 this year.
Revenues totaled $9.9 billion for the six months ended June 30th, up 13% from last year's $8.7 billion. Operating income for the first half of 1996 totaled $2.2 billion, up 15% from last year's $1.9 billion. Earnings per share rose 15%, from $1.50 per share last year to $1.73 in 1996.
The company is now seeing more than 100,000 patients every day and have already seen 20 million patients this year. Their focus is figuring out how to meet and exceed their customers' expectations and that is why they feel they have been successful. Some of the things that show that they have had very good market share gains -- same facility admissions were up 4%, same facility surgeries were up 9%, same facility net revenues were up 10%. The company achieved a 2% improvement in their same facility EBITDA margins -- the best improvement in the history of the company.
They continued to broaden their services, growing dramatically on the outpatient side. Their outpatient revenues grew 22% in Q2. A year ago their outpatient revenues were only 36% of their total and today they are approximately 39% of total revenue. They are continuing to expand their outpatient services this year and have already added 50 skilled nursing, psychiatric, and rehab units in their hospitals.
The other area where they've seen significant growth is managed care. Managed care now represents about 32% of their admissions, up from 27.9% a year ago. The whole focus on building first local, then regional and statewide delivery systems and working on a win-win basis with managed care organizations is paying off. Even though they have continued to increase the amount of managed care they have over the years, they have been able to increase their admissions this quarter. They are up, in terms of revenue per day, 2.4%.
Eleven more of their hospitals have recieved JCAHO's highest quality commendation rating this year which gives them 81 hospitals of commendations this year --23% of their hospitals where the national average is 3-4%. Seven of their hospitals have received perfect scores. That is on top of having thirty of the top 100 hospitals on Mercer APIA Top 100 Hospitals earlier this year.
On the development side they are continuing to grow. They have acquired and joint-ventured 24 hospitals so far this year. These facilities generate a little over $1 billion worth of revenues. They have letters of intent or signed definitive agreements for another 15 acquisitions or joint ventures which would generate another $1.4 billion. They hope to get all of those accomplished this year.
Even though none of these transactions are easy, and as they do bigger and bigger joint ventures with tax exempt organizations, etc. it gets harder and harder to do them. But the company is very consistent in being able to accomplish pretty much all of the transactions that they enter into letter of intents on. The opportunities they are seeing today are generally larger, tax exempt systems such as Sharp, MUSC, Samaritan, HealthOne and things like that.
A partnership with Methodist in San Antonio was recently featured in an article in the Houston Chronicle. It was a very successful transaction for both parties. Columbia retired all of Methodist's debt, set up $40 million cash in a foundation on top of that and Methodist owns 50% of the assets and gets half of the cash flow. Columbia's profits this year have already doubled from when Methodist operated it -- so they are making as much being a 50% owner as they did as a 100% owner.
The transaction with the Catholic system in Cleveland OH, Canton, and Columbia SC has gone very well. They now have their second joint venture with the Catholic system in Parkersburg WV which they believe will go very well. Later this year they have Sharp with $450 million in revenues and Medical University of South Carolina with $270 million.
They now have about 40 hospitals that they operate in some sort of joint venture and in every case they have met or exceeded their partners' expectations from a quality standpoint, a patient satisfaction standpoint, and from a cost standpoint.
The other thing they find significant is that even though they continue to grow very aggressively they have improved their balance sheet. Their debt-to-capital ratio is 46% now. Their interest coverage for the last quarter was at 8.3 times, up from 7.5 times a year ago. So they are continuing to improve their balasnce sheet, which they believe will be important going forward.
They are building a sales and marketing culture and have a lot of things that are helping move volume to their facilities and change the healthcare industry from being an industry of order takers to an industry where they are out trying to attract patients for their facilities. They now have a Senior Friends organization with 275,000 members. They opened up their call center. They have changed all their physician referral phone numbers to one telephone number -- 1-800-COLUMBIA. They opened up their own call center in the Dallas/Ft.Worth area. They believe that offers a big opportunity on directing more patients to the physicians at the core dump facilities as well as directing patients to their programs -- wellness programs, etc. at the facilities.
They have a 32-page quarterly health magazine that goes out to 4 million households. They have an Internet site. Their whole focus on the Internet is figuring out ways they can provide health information to individuals through the Internet. They are up to 130,000 hits per week now and their goal by the end of the year is more than 1 million per week. They have weekly physician chats. They are on America Online and Compuserve. On America Online you can now send in medical and health questions for physicians and within a set period of time a physician will respond. They view that as a big opportunity to provide information and direct patients to their facilities and their physicians.
They are the healthcare providers for the Republican Convention in San Diego and hopefully will also be the healthcare provider for the Democratic Convention in Chicago.
As far as their branding campaign, they are changing their hospitals, home health and surgery centers to operate under the Columbia name. Their national campaign to spread that word starts on August 19th. They think it will have a very positive impact. The focus for the ad campaign is to communicate the fact that the company is nation-wide, have comprehensive services, are more focused on measuring outcomes, etc.
From an operations perspective this was a great quarter for Columbia in a variety of categories. Every operating category fell in line with their expectations or was better than what they expected. Their market share gains accelerated over what they thought were very good Q1 results and has really established their facilities as the leaders in the industry in this area.
The same with hospital admission growth which was up 4%. This is better than the 3% growth they saw in Q1 and is significantly above the national trends reported by the AHA which were down about 0.5% through April. Their same facility surgeries were up 9%. This includes both in-patient and out-patient surgeries at their hospitals and surgery centers.
But clearly, their sales activities and their ability to go out and have managed care players and all the other customers that are utilizing their facilities, means that customers are coming in to Columbia sites over those of competitors.
They had 3.2 million home health visits in the quarter which generated $250 million in revenues, up from almost nothing a year ago. In total, their same facility net revenue grew 10% in Q2, up from 8% growth in Q1. Their market share gains have been exceptional. In El Paso they were up 22%, in Houston they were up 14%, in Southwest Florida they were up 14%, in South Florida they were up 12%, in New England they were up 8%, in Tampa and Louisiana they were up 7%, in California they were up 5.5%, in North Florida they were up 5%, and were up 4.5% in Virginia. They had 5 or more divisions where admissions were only up 2% or less, but their outpatient volumes led to double-digit same facility net revenue growth. In Corpus Christi -- up 16%, San Antonio, Oklahoma, and Las Vegas -- up 13%, and in Georgia they were up 11%.
From a cost perspective they probably had their best quarter as well. Their same facility EBIDTA margin improved by 200 basis points in the quarter. Labor improved 140 basis points while supplies improved 130. Bad debts were up a little bit, 20 basis points, but as expected other operating expenses rose 50 basis points at the same facility level. Not all this margin improvement came through on their consolidated income statement. Similar to Q1, their operating expenses rose primarily associated with some of their outsourcing in home health agencies and some of the psychiatric management units theat are putting in many of their facilities. They had 10 divisions or markets which improved their EBIDTA margin by more than 300 basis points. The top 5 in that area were Oklahoma, Nashville, Utah, Georgia, and Virginia. And, Houston and Louisiana were very close to that.
They have 47 managed care contracts signed year-to-date. The San Jose acquisition they had in January has proven to be an outstanding opportunity for them. The EBIDTA is about $4 million ahead of where they thought they would be at this time. And, the California network is going to get much stronger in the second half of this year when they expect to complete their joint ventures with the Sharp system of four hospitals and two other large tertiary facilities in Southern California. By the end of 1996, California will probably be the largest division with a network of over 21 hospitals, 12 surgery centers and anticipated annual revenues in excess of $1.5 billion.
Their Denver partnership that took effect in October of last year is going great guns. They now are the leading healthcare network in Denver with ten hospitals and three surgery centers and an extensive home care and primary care operation. In Q2, their Denver operation generated about $215 million of net revenues. This market is an equity joint venture, it is not part of Columbia's consolidated revenues. Since the partnership began they have improved their EBITDA margins more than 600 basis points to more than 20% and during the quarter they signed 7 new managed care contracts, three which were exclusive.
They are continuing to proceed with the Blue Cross transaction in Ohio. They have put the proxy out in late July and the proxy vote is within two weeks. The policyholders have to approve it, the Department of Insurance has to approve it, and then they have to get the approval of the Blue Cross national association. It is not critical, but they think it is very positive in terms of where they are going as a company long-term. They think there is a great opportunity working with Blue Cross in Northern Ohio. They want to look at these relationships market by market.
They are creating longer and longer term relationships with managed care organizations on a win-win basis and this is very similar. They have got to, and insurance companies have got to, sell a quality product where people get quality healthcare at the places they like to go at prices they can afford. Whether Columbia does that by working on a contractual basis with insurance companies, or a joint venture basis with insurance companies, it will depend market by market what they do. The positive is that their focus on quality and on patient satisfaction has given them the opportunity to sell themselves much better every day to individuals, physicians, employers, managed care companies, and the government. They are getting new opportunities every day.
One of the things they have recognized over the last three years of putting the company together is that they have accomplished their goal of putting together a provider network and having the locations available that people feel comfortable using. At the same time, they recognize that they have to provide the kind of pricing necessary to do that. They believe that has been accomplished and their same facility growth is being recognized for that. That doesn't come without quality and service. The quality orientation they are emphasizing with JCAHO accreditation and commendation and all the other things they are doing from a service standpoint are important. 95% of their customerse are satisfied or very satisfied with the services they are delivering within their facilities and that is done by independent survey from the Gallup organization.
The Kassenbaum bill has passed and they believe it is positive and shows where government regulation and legislation is going to go. They believe we will continue to see incremental reforms, probably no major restructuring, because it is probably the only way legislation will pass. But, they look at that as very positive and believe there are some new opportunities there.
Their goal is to be a very consistent grower in earnings per share and to grow earnings per share 15%+. At the same time they are in this for the long term and they are making investments in their branding concepts, sales culture, marketing, looking at new products, focusing on product line management, and a number of things. All of those are investments they are making today to create earnings going forward and to put them in a position where, as the industry becomes an industry dominated by larger players, they will be the player people want to work with. Probably the biggest area they are investing in is information systems. They believe that, over time, it will be very difficult for competitors to compete with them because there is no one in the industry that is putting the capital they are putting into information systems. Their information systems are being built to provide information to allow them to provide better care for managed care companies, to control costs and provide better care for employers, to control their costs and all the things that follow. On the MIS side, they are spending annually in new capital somewhere between $150-175 million. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |