HCA Healthcare (NYSE:HCA) reported first-quarter financial results on Friday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
HCA Healthcare reported a 4.3% increase in revenue and a nearly 2% increase in adjusted EBITDA for Q1 2026, with diluted earnings per share rising by approximately 11%.
The company experienced a reduction in respiratory-related volumes due to a milder season and winter storms, which affected admissions by 70 basis points and ER visits by 140 basis points.
State supplemental programs provided a net benefit of $200 million to adjusted EBITDA, offsetting some of the volume shortfalls.
Strategic initiatives included a focus on digital transformation and AI, with new key initiatives rolled out to more facilities, and continued investments in network development, expanding sites of care by 4%.
The company reaffirmed its full-year guidance, expecting volume growth of 2-3% for the rest of the year and maintaining its outlook for the impact of health insurance exchanges on adjusted EBITDA.
Full Transcript
Operator
Ladies and gentlemen, welcome to HCA Healthcare’s first quarter 2026 earnings conference call. Today’s call is being recorded at this time for opening remarks and introductions. I would like to turn the call over to Vice President of Investor Relations, Mr. Frank Morgan. Please go ahead, sir.
Frank Morgan (Vice President of Investor Relations)
Good morning and welcome to everyone on today’s call. With me this morning is our CEO Sam Hazen and CFO Mike Marks. Sam and Mike will provide some prepared remarks and then we’ll take questions. Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward looking statements, they’re 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. More information on forward looking statements and these factors are listed in today’s press release and in our various SEC filings. On this morning’s call, we may reference measures such as adjusted EBITDA, which is a non GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling net income attributable to HCA Healthcare Inc. Is included in today’s release. This morning’s call is being recorded and a replay of the call will be available later today.
Sam Hazen
With that, I’ll now turn the call over to Sam. Good morning and thank you for joining the call. First, I want to recognize our colleagues for continuing to demonstrate a remarkable ability to adapt to changing conditions and deliver positive results for our patients, communities and stakeholders. The start of the year presented a dynamic environment for HCA Healthcare. From a volume perspective, we did not experience the typical lift related to seasonal respiratory conditions compared to the first quarter of last year. Our respiratory related admissions were down 42% and our respiratory related emergency room visits were down 32%. Additionally, the storm that hit a few of our markets adversely impacted our volumes in the quarter. On the positive side, however, we experienced a greater net benefit than anticipated from state supplemental programs. As a reminder, these programs are complex, they’re variable and difficult to predict. This benefit mostly offset impact from the shortfall in volumes. Regarding payer mix for the quarter, the underlying shifts resulting from the changes in the health insurance exchanges were generally in line with our expectations. This area remains fluid. As we stated in our fourth quarter call, we have considered a range of potential scenarios as the effects continue to evolve. As mentioned, over the last several quarters, our teams have been focused on a broad resiliency plan designed to generate cost savings where appropriate, enhance network execution and strengthen organizational capabilities. I’m pleased with our resiliency efforts to date and we expect they will continue to help offset some of the expected impact from the payer mix shift. Additionally, we were pleased with the volume results exiting the quarter. The respiratory related and winter storm impacts were mostly contained to January with February and March volumes rebounding nicely. For the first quarter. Revenue increased 4.3% compared to the first quarter last year. Adjusted EBITDA increased almost 2% and diluted earnings per share as adjusted increased approximately 11% versus the prior year period. We continue to deliver for our patients in important metrics including improved quality measures, increased patient satisfaction and reductions in average length of stay. I remain excited about our digital transformation program and AI agenda. They progressed during the quarter with rollout of some key initiatives to more facilities. Our clinical teams continue to advance efforts to enhance quality, safety and services to our patients with progress on broad initiatives across nursing care, hospital based physician services and support functions. We continue to invest significantly in network development with our capital spending and with selective outpatient facility acquisitions as compared to the first quarter. Last year, our networks expanded their overall sites of care by more than 4%, increased hospital beds through capital spending by almost 1% and added 4% to emergency room capacity. To summarize, we view the respiratory related volume shortfall and the increase in supplemental payment net benefits as first quarter events. As such, we believe our assumptions for the remainder of the year related to volumes, payer mix and costs continue to remain in line with our original guidance. HCA Healthcare has an impressive capability to remain disciplined in dynamic environments. This is a resounding strength of our teams and what they have built over time. It is rooted in our culture and it helps us to execute on our mission to provide high quality care to our patients while delivering strong financial results. With that, I will turn over the call to Mike for more details on the quarter.
Mike Marks (Chief Financial Officer)
Thank you Sam and good morning everyone. Let me start by providing same facility volume comparisons for the first quarter of 2026 versus the first quarter of 2025. Admissions increased 0.9%, equivalent admissions increased 1.3%, inpatient surgeries were down 0.3% and outpatient surgeries declined 1.7%. ER visits increased 0.3%. As Sam mentioned, we had a much milder respiratory season in the quarter. This produced a drag on our quarterly volume growth in admissions and ER visits of 70 basis points and 140 basis points respectively. In addition, the winter storm in January impacted a wide swath of our markets including Texas, Tennessee, North Carolina and Virginia, reducing admissions and ER visits by an estimated 30 basis points and 50 basis points, respectively. The impact of these two factors was consistent across all payer categories and in total adversely impacted adjusted EBITDA by an estimated $180 million. Regarding payer mix, commercial equivalent admissions excluding exchanges increased 0.6%, Medicare increased 1.9%, and Medicaid increased 0.3%. We believe the variance in volume relative to our expectations was almost entirely driven by the respiratory season and winter storm. We view these factors as being temporal and not structural. Overall, taking all of this into consideration, our volume growth in the quarter was generally in line with our 2 to 3% volume growth assumption for the year, albeit at the lower end of the range. Adjusted EBITDA margin decreased 50 basis points versus prior year. Quarter salaries and benefits as a percentage of revenue improved 30 basis points and supplies improved 20 basis points. Other operating expenses as a Percentage of revenue increased 90 basis points, primarily due to an increase in costs related to the Medicaid state supplemental payments, professional fees, and technological investments. As Sam noted in his comments, volumes continued to improve throughout the quarter and we noted a similar progression of operating leverage and cost trends regarding Medicaid supplemental payment programs. While we expected an increase in net benefit of $80 million, we realized an increase in net benefits of approximately $200 million to adjusted EBITDA versus the prior quarter. This was primarily due to the grandfathered approval of Georgia, the reinstatement of the ATLAS program in Texas, and the year over year benefit of the Tennessee program that was Approved in the third quarter of 2025. We are adjusting our full year range to reflect a decline in supplemental payment program net benefit between $50 million to $250 million versus prior year. This updated guidance does not include any potential impacts from additional approvals of grandfathered applications. We continue to monitor the ongoing developments related to these programs and particularly Florida. We continue to feel positive about the prospects for the approval of the Florida program which covers the period of October 1, 2024 to September 30, 2025. If approved, we believe it should result in additional revenues which may be significant. Now let me provide additional information regarding the exchange environment. As we stated in our fourth quarter call, the complexity of the exchanges is significant and we’re tracking several areas within the company for the quarter. We estimate our same facility exchange equivalent adjusted emissions declined approximately 15% versus prior year quarter. This represents our comprehensive evaluation of patients that presented with exchange coverage but ultimately will not be covered for their episodes of care. Using the same analysis, we estimate same facility uninsured equivalent missions increased approximately 16% versus versus prior year quarter. Over half of this implied increase relates to the movement from exchanges and normal uninsured growth. The remaining portion reflects a slowdown of conversions to Medicaid from patients who were not willing to fill out applications. We estimate the adjusted EBITDA impact from the exchanges to be approximately $150 million in the first quarter of 2026 versus the prior year quarter. Given our experiences today, we still believe our full year range of $600 million to $900 million expected impact on adjusted EBITDA is appropriate. However, the exchange environment remains dynamic and has not fully settled. We will continue to track the fluid nature of this reform and will provide further commentary on our second quarter call moving to capital allocation capital expenditures total $1.1 billion in the quarter. Additionally, we purchased 1.57 billion of our outstanding shares and we paid 183 million in dividends for the quarter. Cash flow from operations was $2 billion in the quarter, representing a 22% increase in the first quarter of 2026 versus the prior year quarter. Our debt to adjusted EBITDA leverage remains in the lower half of our stated target range and we believe our balance sheet is strong and well positioned for the future. As noted in our release, we are reaffirming our estimated guidance races for 2026. I will now hand the call back to Frank Morgan for questions.
Abby
Thank you. Mike. As a reminder, please limit yourself to one question so that we might give as many as possible in the queue an opportunity to ask a question. Abby, you may now give instructions to those who would like to ask a question. Thank you. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. If you’re called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is Star one to join the queue and our first question comes from the line of Ben Hendricks with RBC Capital Markets. Your line is open.
Ben Hendricks (Equity Analyst)
Thank you very much. I appreciate the color on the Respiratory STP and other components. Maybe you could just give us a rundown broadly of how your results compared to your internal expectations for the quarter.
Mike Marks (Chief Financial Officer)
Thanks, Ben, this is Mike. I mean, our results were a bit short in terms of adjusted EBITDA to our internal expectations. You know, I would size our internal expectations as being pretty consistent with the midpoint of Our guidance in terms of growth, pretty consistent actually with consensus coming into the call. Really two main drivers in terms of the shortfall to internal expectations. The first one is this kind of shortfall in the seasonal volume uplift from respiratory and the winter storms, which was mostly offset by the net benefit from the supplemental payment programs. A little detail here on the on seasonal volumes that fall. You know, I’ve already kind of quantified the volume side of that, so let me talk about the expense side. As we were, as we were coming into January, our respiratory season was actually strong at the beginning of the year. However, later in January, it became apparent that the respiratory season was was actually ending abruptly and we were then hit with a significant January winter storm across several of our states. Both the quick ramp down of the respiratory volume as well as the winter storm delayed our ability to flex down our seasonal cost in the quarter. We were ultimately able to do so as we move through the quarter, but there was a delay. So let me switch now to the supplemental payment program activity. The as noted, you know, Medicaid supplemental payments net benefits was better than expected as we came into the quarter. We did anticipate an increase in the supplemental payment net benefit in Q1 of $80 million, largely due to the increase in the Tennessee program that was approved in Q3 of 2025. So the $200 million in net benefit in the first quarter was about $120 million higher than our internal expectations in the quarter and again resulted from the approval of the Grandfather Georgia program as well as the reinstatement of the Atlas program in Texas. So in summary, Ben, when I think about first quarter, you know, largely we were just a bit short in total. But when you take the temporal factors of the lack of the seasonal volume uplift and the pickup in net benefit supplemental payments, those are really the main drivers in the quarter.
AJ Rice (Equity Analyst)
Thanks. Appreciate that color. And then kind of as a quick follow up, can you just give us an update on the moving pieces that kind of get you back to the initial guide? You know, maybe walk us through the components of the EBITDA bridge as you see them today after such a dynamic first quarter. Thanks. Sure. You know, if you go back to the release, you know, the really only change to our key assumptions for the 2026 guidance relates to the supplemental payment programs. We estimate that the Georgia approval and the reinstate Atlas program previously discussed will provide approximately $200 million of incremental net benefit for the full year that was not originally included in our guidance. I would note that, you know, the $120 million Georgia and Texas that we talked about for first quarter had a prior period impact in it. And so, you know, the component that applied the first quarter and for the full year of 26 really make up that $200 million. And so, you know, that’s why we’re adjusting our assumption for full year net benefit to now be a decline of 50 million to $250 million. And just to note, that assumption does not include any additional approvals of grandfathered applications. When I think about the rest of our assumptions, Ben, if you think about the impact of the exchanges, we still believe that that 600 to $900 million range is appropriate based on what we’ve learned in first quarter, our resiliency assumptions that we’re in guidance also we believe are still reasonable and appropriate. And so, you know, at the end of the day, we just felt like that it was, it was appropriate not to change our total guidance ranges even with the $200 million improvement in first quarter. You know, a chunk of that really goes back to this, this temporal nature of the headwinds that we saw in first quarter being related to the seasonal volume impacts in the winter storm and the related cost impacts. And so as we think about how we progress through the quarter, you know, Sam mentioned that, you know, as we exited the calling, exited the quarter in March, there are volumes. We’re improving largely back to our original plan. We also saw the same thing in our cost structure as we got through March. Our cost trends really reflected good performance in March and were largely on plan. And so that’s the walkthrough on guidance. Thank you very much. And our next question comes from the line of AJ Rice with ubs. Your line is open.
Mike Marks (Chief Financial Officer)
Hi everybody. Just to put a fine point on what we’re just going, all the numbers flying back and forth is the right way. Am I hearing you say you basically had 180 million of negative impact from flu and weather in the first quarter. …
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