Good day. And welcome to the HCA Healthcare Fourth Quarter 2018 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 Chief Investment Relations Officer, Mr. Mark Kimbrough. Please go ahead, sir..

Thank you, April. Good morning and welcome to all of you on today's call or webcast. With me this morning is our CEO, Sam Hazen and Bill Rutherford, our CFO which will provide comments on the company's results and 2019 guidance provided in today's earnings release.

Before I turn the call over to Sam, let me remind everyone that today's call containing forward-looking statements. They are based on management's current expectations. Numerous risk, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.

Many of these factors are listed in today's press release and in our various SEC filings. Several 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. Company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future results.

On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc., excluding losses, gains on sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc.

is to adjust EBITDA is included in today's fourth quarter earnings release. This morning's call is being recorded and replay of the call will be available later today. I'll now turn the call over to Sam..

Good morning. Thank you for joining us today. We finished the year with the strong quarter and ahead of our expectations. Solid volume increases and strong revenue growth drove this quarter's results, which were consistent with all 2018. In patient admissions and equivalent admissions on a same facility basis grew almost 2% respectively in a quarter.

Volume growth was broad based across most service category and balanced across our diversified portfolio market. Revenues on a same facility basis grew by 6.4% were almost $700 million. Our strategy to deliver services that are more complex supported this growth along with the good payer mix and stable commercial pricing.

Revenue per equivalent admission grew by 4.4%. The growth in revenue translated into strong earnings quarter with diluted earnings per share of $3.01. Adjusted EBITDA grew by 6.2% to slightly over $2.5 billion with adjusted EBITDA margin at 20.4%. Cash flows were also very strong and ahead of our expectations.

Bill will provide more details on these metrics and 2019 guidance in his comments. 2018 was another strong year for HCA Healthcare. We have now grown our same facilities inpatient admissions in 19 consecutive quarters.

The strategic investments in our business to expand our network and improve our clinical capabilities are making it easier for patients to get high quality, convenient patient care in an HCA facility. We have an excess of $3.5 billion of capital spending in the pipeline that should come online over the next two years.

These investments will create additional inpatient and outpatient capacity within our local healthcare systems. As I stated in last quarter's call, we believe that fundamentals in our markets are strong with growing demand for healthcare services.

That's coupled with the continual improvement in the competitive positioning of our local healthcare systems gives us confidence as we move into 2019. Inpatient market share in 2018 grew by 45 basis points as compared to 2017 reflecting this improvement.

As indicated in our earnings release, our Board of Directors has authorized an additional share repurchase program for up to $2 billion of the company's outstanding shares. Additionally, the Board declared a quarterly cash dividend of $0.40 per share which is an increase of 14%.

Lastly, we are excited about the expected closing at the end of January on the acquisition of Mission Health which is the large successful Health System in Asheville, North Carolina. This system will add to the already strong portfolio of markets that we have inside of HCA Healthcare. With that, let me turn the call over to Bill for more details..

Great, thanks Sam, and good morning, everyone. I will cover some additional information relating to the fourth quarter results, and review our 2019 financial guidance. Then we'll open the call for questions. Sam mentioned, we are pleased with the fourth quarter results, as well as for the full year.

Volume, intensity and great expense management led to a solid quarter and a strong finish to the year. For the quarter, adjusted EBITDA increased 6.2% to $2.508 billion, up from $2.362 billion last year. We believe this was a solid result considering the strength of the fourth quarter of 2017.

As noted in our release, we did have some hurricane activity that impacted our results in the quarter. First, we estimate the impact of Hurricane Michael which unfavorably impacted our Florida Panhandle facilities, mostly Gulf Coast Medical Center and Panama City Beach to be about $31 million in the quarter.

Also, we recorded a $49 dollar benefit to adjusted EBITDA from settling our insurance coverage related to hurricane Harvey business interruption that personally affected our Houston market in the third quarter of 2017. So let me cover some volume stats. In the fourth quarter, our same facility admissions increased 1.9% over the prior year.

And same facility equivalent admissions increased 1.9% as well. We estimate the impact of hurricane Michael and decline in flu activity from last year had a 50 basis unfavorable impact on same facility admissions in the quarter. For the year, both same facility admission and equivalent admission grew 2.5% over the prior year.

During the fourth quarter, same facility Medicare admissions and equivalent admissions increased 2% and 2.5% respectively. This included both traditional and managed Medicare. Same facility Medicaid admissions increased 0.8% and equivalent admissions declined 0.7% in the quarter.

Our commercial admissions increased 1.1% and equivalent admissions increased 1.6% on a same facility basis in the fourth quarter compared to the prior year. Same facility self pay and charity admissions increased 7.4% in the fourth quarter compared to the prior year.

Same facility emergency room visits decreased 2.1% in the fourth quarter compared to the prior year. We attribute about 60 basis points to last year's full season. Additionally, when we look at the changes by equity level, all of the fourth quarter declines are in level one through three visits.

Our higher equity level four and five visits grew 1.1% over the prior year. In addition, admissions in the emergency room grew 1.9% over the prior year. Same facility revenue for equivalent admission increased 4.4% in the quarter and was up 3.9% for the year.

We are pleased with the overall rate trends we experienced in 2018 as we saw continued growth in equity, good payer mix, as well as the incremental Medicare update in the fourth quarter. We also believe we are well positioned in our commercial contracting segment as we look forward to 2019. We don't expect any major changes in this environment.

We have good visibility into our 2019 commercial contracts where we are 80% contracted in rates consistent with our recent trends. Now turning to expenses. We are pleased with the overall management of expenses.

Adjusted EBITDA margins in the fourth quarter were 20.4% as reported and our same facility margins increased 10 basis points over the prior year.

For full year 2018, our same facility adjusted EBITDA margins increased 70 basis points with labor improving 30 basis points, supply cost improving 30 basis points and our other operating cost improving 10 basis points. So let me take a moment to talk about earnings per share and cash flow.

As reported, diluted earnings per share in the fourth quarter excluding gains and losses on sale facility and losses on retirement of debt was $2.99 versus $1.30 in the fourth quarter of last year.

Year-to-date as reported diluted earnings per share excluding the impact on gains and losses on sale facilities and losses on retirement of debt was $9.77 versus $6 in 2017.

In addition to the solid operating performance of the company, the decrease in our income tax provision was contributor to the diluted earnings per share increases both for the fourth quarter and the year. As Sam mentioned, cash flow was very strong for the company.

In the fourth quarter, cash flow from operations was $2.18 billion versus $1.73 billion in the fourth quarter of last year. For full year 2018, cash flow from operations was $6.76 billion or an increase of $1.33 billion from $5.43 billion last year. Capital spending for the year was $3.57 billion in line with our expectation.

Cash flow from operations of $6.671 billion, less capital spending of $3.573 billion and distributions to non-controlling interest of $441 million and our dividend payments of $487 million resulted in free cash flow of $2.260 billion in 2018.

Also during the year, we completed approximately $1.5 billion of share repurchases and had $272 million remaining on our previous authorization as of December 31st, 2018. At the end of the quarter, we had $2.7 billion available on our revolving credit facilities and our debt-to-adjusted EBITDA ratio was 3.7x.

This cash flow and balance sheet metrics continue to be an important strength of the company. So with that I'll move into the discussion of our 2019 guidance.

We highlight our 2019 guidance in our earnings release this morning and noted our guidance does include the anticipated impact of the Mission Health acquisition which we expect to close on January 31st, 2019. We estimate our 2019 consolidated revenue should range from $50.5 billion to $51.5 billion.

We expect adjusted EBITDA to be between $9.35 billion and $9.75 billion. With our revenue estimate we estimate same facility equivalent admission growth to range between 2% and 3% for the year. And same facility revenue for equivalent admission growth to range between 2% and 3% for 2019 as well.

We anticipate same facility operating expense per adjusted admission growth of approximately 2.5% to 3%. Our average diluted shares are projected to be approximately 352 million shares for the year and earnings per diluted share guidance for 2019 is projected to be between $9.60 and $10.20.

There are several items affecting our year-over-year diluted EPS comparisons including the third quarter impact of professional liability reserve adjustment of $0.15. Hurricane Harvey settlement of $0.11.

And adjustment to our deferred tax balances of $0.19 and the expected differences in the benefit of excess equity reward settlement of $0.35 in 2018 versus $0.23 estimated in 2019. Adjusted for these items, our diluted earnings per share guidance reflects an approximate 8% growth at the midpoint.

Relative to other aspects of our guidance, we anticipate cash flow from operations between $6.5 billion and $7 billion. We anticipate capital spending of $3.7 billion in 2019 which includes anticipated capital spending from Mission.

We estimate depreciation and amortization to be approximately $2.5 billion and interest expense to be approximately $1.9 billion. Our effective tax rate is expected to be approximately 23%. Sam mentioned in his comments, we also announced an increase of our quarterly dividend of $0.40 per share and authorized a new $2 billion share repurchase program.

Both of these are reflection of management's belief in the long-term performance of the company. The confidence we have in the strength of our cash flow and our commitment to a balanced allocation of capital. So that concludes my remarks. And I'll turn the call over to Mark to open it up for questions..

Thank you, Bill. [Operator Instructions] April, you may now give instructions to those who want to ask questions..

[Operator Instructions] And we will take first question Justin Lake from Wolfe Research. Please go ahead..

Thanks. Good morning. So given the solid quarter and all the detail, the question I had here was just on 2019. And two things, one, year-over-year your EBITDA growth that you talked about in the third quarter expected the growth to be about similar to 2018.

The guidance is very much in line with kind of what you talked about in the third quarter but doesn't appeared to be fully reflect the upside that you saw in Q4 from really strong results.

So I just wanted to see if you could kind of give us any thoughts there in terms of, did that carry forward or should it in the guidance? And then can you tell us anything about the revenue and EBITDA impact you expect from Mission in 201? Thanks..

Justin, this is Bill. I'll take that call. So as we look at our 2019 guidance, we believe it's consistent what we talked about on our third quarter call. Obviously reflecting our continued strong performance and the core operation of the companies along with the expected improvements and the performance of our acquisitions.

So let me just give you few more details. First, if you look at the midpoint of our adjusted EBITDA guidance roughly $9.55 billion that equation almost a 7% on as reported basis that we finished 2018.

And then in 2018, if you adjust for the $70 million positive malpractice adjustment and the $49 million insurance settlement that we don't think we will repeat, if you adjust for these items we were 8.2% at the midpoint for 2018 guidance.

About 3% of this growth is from our acquisitions with 2% from our 2017 and 2018 acquisition and Mission coming about 1% of that growth. So that leads a little above 5% of the balance in the expected same facility growth as we continue to anticipate volume to demand capital investments, strategy execution and so forth.

So we think all of that is reflected in our 2019 guidance..

We will move on to our next question from Pito Chickering from Deutsche Bank. Please go ahead..

Good morning, guys. Thanks and great quarter. I just follow up adjustment I want -- just try to back into the strong same store margin leverage that you guys are talking about. Growth for 2019 of 4% to 6%, same store expense growth is 2.5% to 3.5%.

Can you just sort of help us think about sort of what you guys need from same store revenue perspective to maintain your margins, where you got need to grow and kind of how should we be thinking about excess of the maintenance growth sort of how to converse to margin leverage for 2019..

Pito, thanks. Let me make a stab at that and so we are all pleased with the margin growth as I said the same facility margin growth for the year is up 70 basis points. I think that's a continued reflection of our operating leverage. We said for sometime within the 46% kind of same facility revenue range we are on high end of that.

We do anticipate some margin leverage and we are seeing that. We saw that in the fourth quarter with 10 basis points increase on a same facility basis. So we feel generally comfortable with that as we roll up our consolidated or our acquisitions are put a little pressure on the as reported margin.

So we do anticipate some margin expansion if we can achieve at the top end of that revenue range. And I think again we are very pleased with our performance through 2018. And we will see what 2019 holds..

Yes. This is Sam. The only thing I would add to that is as we look into 2019, we are not seeing any unusual pressures on any category of expenses. And so if we are able to achieve the volume expectation that we've guided toward that can yield I think the operating leverage that Bill was alluding to. So that's the good news on the expense side.

There is not any excessive pressures in any category of our overall spending..

We will take our next question from A.J. Rice from Credit Suisse. Please go ahead..

Thanks. Hi, everybody. Maybe just drill down on the capital spending that's been part of the story for the last couple years. Can you just comment couple aspects? Any evolving areas of spending that are different that we've seen in the last two years? And your commercial business really sort of seemed to pick up this year.

Is that you think more company specific because of these capital spending or is that underlying market improvement?.

This is Sam A J. Let me take those two questions. First, I think our capital program is fairly consistent when you look at 2018, you look at 2017 and then you look at what's coming online in 2019 and 2020. I think in general it's consisting of adding capacity and facilities where we have constraint in our operating at a high level of utilization.

So that could be inpatient bed, critical care bed, operating room suites and so forth. And just to give you a metric of company finished the year almost 73%, well over 72% occupancy for our hospital beds which is a very high number. And that's over and above where we were at 2017. And we also had a few additional beds that came online in 2017.

The second component of our spending is around building our network in our outpatient capabilities so that we are very convenient and easy to access. So we've added surgery centers.

We've added three standing emergency room, urging care centers, clinics and other diagnostic capabilities to really support a comprehensive opportunity for patients to access an HCA Healthcare system. Those are small dollar capital items and they don't consume a huge amount of our budget. So they are very efficient from that standpoint.

The final component of our investments, I think that really geared towards our growth are centered around technology, clinical technology that our physicians want.

And the more we can add clinical technologies that support our practices and our physicians' need, it allows us to grow the complexity of our services, have a very capable clinical technology platform for our physicians to take care of our patients.

And we think the combination of all of those are helping us respond to the marketplace and drive market share growth. On the commercial side, through the first six months of 2018, commercial demand was modestly down.

But HCA picked up significant commercial market share to the tune of probably more growth over the last nine months than we've seen in the recent past. And so our commercial growth is more function of market share gain globally across the company than it is necessarily overall demand.

Although in a number of our markets we've seen commercial demand lift a little bit over where it was but as a total for the company was modestly down. Not significantly by any means not like it was in the previous year.

But it was not growing significantly but the company through these programmatic efforts through our capital spending, I think through being more responsive to our physicians and medical staff dynamics, we've been able to take care of more patients and take care of them more effectively. A J I think --.

And we will take our next question from Whit Mayo from UBS. Please go ahead..

Hey, thanks. Just want to go back to the expense question for a minute. You've been operating and you are in an environment for sometime now with what I would characterize is fairly low inflation entering the cost structure.

Can you maybe just elaborate a little bit more on trends and expectations specifically for contract labor, premium pay, professional fees? And, Sam is there anything that surprises you as you reflect back on 2018 as it relates to your ability and your team's ability to manage expenses so tightly?.

Yes. Whit, this is Bill. I'll start and then Sam can add answer. So if you look at the overall cost structure, you said we remained very pleased with the trends we're seeing there, 2.5% to 3% range. If you start with labor, very pleased with the labor trends.

We've had some benefits or reduced contract labor as you mentioned as our teams continue to focus on reducing our turnover. I think our nursing turnover is at low 4s and that has proven the benefit us on the premium labor side. And that's flowing through as some favorable trends on the salary costs.

But we see generally wage rates in line with our expectation. So, I've always and continue to characterize as fairly consistent trends right now. We see the same going into 2019. We continue to be very pleased with the team's execution on the supply cost agenda.

As I mentioned, we were 30 basis points down on same facility on supply cost as we continue to see great efforts by HPG and the contract team and our supply team is focusing and partnering with our clinical teams on supply utilization. So very pleased with both of those.

And as we turn the calendar into 2019, we think largely those trends should continue and I think Sam mentioned earlier, we don't see any really singular undue pressure point right now. We are always subject to some cyclical trends. But we feel very pleased with how we are turning the calendar on the cost side..

This is Sam. On the last question there, Whit, I mean the management teams of HCA are incredible. I mean I am constantly amazed by what our teams out in the field do. They continue to add to our agenda to improve our patient care. They continue to add to add to our agenda to improve relationships with physicians.

And they continue to find ways to grow and manage their metrics at the highest level. And I think that's something that's unique about HCA. We have what I call can do management team out in the field. They relentlessly pursue execution and performance. And I think it shows in the overall consistency of the company's performance.

As I mentioned in my prepared remarks, we've grown our admissions over the last 19 quarters consecutively. And I don't remember the exact number but if you go back over time, we continue to grow our volume very consistently and really navigate through different kind of market dynamics, competitive dynamics, cyclical changes and so forth.

And continue to grow the company. So I am really pleased with what our management team have done and what I know they will continue to do as we look forward..

And we'll take our next question from Steve Tanal with Goldman Sachs. Please go ahead..

Good morning, guys. Thanks for the question. So hoping you could maybe just give us a little bit more color maybe parse out the drivers of the acceleration at revenue per adjusted admit, especially the Medicare rate, as you know that update was positive.

And then any color on why that would be decelerate somewhat meaningfully like in the outlook right 140 and 240 bps I suppose for Q2 to the full year with so much of the commercial book contracted. Any color there would be helpful..

Yes. Let me attempt it. So we are pleased with how we finished the year on revenue per admit. And if you look at year-to-date, we are at 3.8% on a same facility basis. We were benefited by the Medicare update in the fourth quarter. And as we've said before, a continuing benefit built into 2019.

So and we do have good visibility into the commercial contract team. We expect to see continued growth in equity and good payer mix. So I think this year we are helped by the strong commercial volume the Sam talked to, continued growth in equity. And that's led us to be a little bit above our 2% to 3% kind of expectations.

We will see what 2019 has but we don't really see any major changes going in the payer environment. So maybe but somehow we can continue those trends going forward. But just in terms of our planning, we would plan in that 2% to 3% range.

And then hopefully with the continued growth of equity, good payer mix, we can be on the top side if not exceed that..

And we will take our next question from Matthew Borsch with BMO Capital Markets. Please go ahead..

Maybe I could just pickup on the thread you were just talking to and ask you about Medicare advantage rate and pricing, which obviously are not necessarily tied directly to the Medicare fees schedule.

How are you approaching that as that program is continuing to grow so rapidly?.

So about 38%, 37% of our Medicare book if you will is managed. We've seen that grow pretty steadily over the past several quarters. From a contracting perspective, the rates and terms are really consistent with what the Medicare rates in terms are. So we equalize that. So we've been dealing with growing M&A in most of our market.

So we think it will continue to grow. And we don't really see a pricing differential between traditional and the managed book. Generally it is around utilization management is where factors come into the managed care book. So if something that we have and is continue to grow on. So I don't think it's a headwind or tailwind either way for us..

Most of our contracts are paid identically to what a traditional Medicare beneficiary would pay us for the same service. So we move in locked step for the vast majority of our Medicare advantage contract in the same manner is the traditional program does.

Is that good?.

Well, I though it could.

It just get start just one more which is how do you look at the sustainability of the Medicare unit pricing relative to commercial? So, it's sort of, you don't mind, it's kind of related question just because the question out there in the industry is there at some point going to be unwillingness of commercial payer to subsidize Medicare? Do you see that as much as some others in the industry do?.

Well, I think that's been an ongoing issue that the commercial book of business tends to subsidize the uninsured. It tends to subsidize the under funding that exist with Medicaid program. And it's somewhat on subsidizes the under funding that exists with Medicare. I mean that's always been a pressure point and always been an issue.

I don't see anything necessarily influencing that materially in the intermediate run. And so from that standpoint, we try to make sure our commercial pricing is competitive within the market, and is meeting the needs of our payer, partners just as much as it's meeting our needs.

We're successful as Bill alluded to in that roughly 80 plus percent of our contracts for 2019 are already accomplished with consistent pricing terms and consisting network configuration terms and so forth. We're about 60% contracted at a similar trend for 2020 and slightly contracted for 2021.

So I understand the discussion, but I just don't see at this particular point time any significant movement in that. What we are trying to do is show to the payers how much value we can add to their organization, to their membership through convenient offerings at different price points.

That's why we build out our network to include different price points, whether it's urgent care. Whether it's ambulatory surgery centers and so forth. We're also executing on a very robust clinical agenda which we think is driving value for our payers, eliminating infections by targeting certain difficult conditions and so forth timely.

So that we can react to the patient and get them out of the hospital in a timely manner. All of these things are value add that we believe we are offering in addition to competitive pricing.

So our approach is let's produce a value proposition for the payers that ultimately accomplishes what their membership wants, what their membership needs and what our payers need. And we think that's a durable model..

And we'll take our next question from Michael Newshel with Evercore ISI. Please go ahead..

Hi. Is there anything to take away from the fact that the EBITDA guidance range is wider than past years? Is there anything in particular with higher degree of uncertainty? Is it just the base getting bigger and the --.

I think simply it ensures the EBITDA will be getting a lot bigger as we go forward. So we kind of range our midpoint on either side of that and turns out to be $400 million or range that we give..

Got it.

And as the guidance assume that Medicaid DSH cut to take effect in October for not delay it again or is it small to fit in the range either way since it's only one quarter?.

Yes. It's pretty small in one quarter. We do anticipate with a new year that we go back to kind of traditional inflationary rates on Medicare. We don't really anticipate any rate increases on the Medicaid book either..

Yes.

And then just lastly real quick, in the 2019 guidance can you just confirm how much of incremental Medicare dish payments or in the guidance is it like in the $100 million zone?.

It's closely -- I characterize is about 1% of growth for us, in terms of the year-over-year..

And we'll take our next question from Sarah James with Piper Jaffray. Please go ahead..

Thank you.

Can you update us on how you're thinking about the equity mix trending in 2019? And how do you think about actively managing that mix? Because it sounded like most of the $3.5 billion capital deployment was earmarked for footprint and capacity, but I'm wondering if part of the strategy is ramping up spending on high equity services and if there are certain service areas where HCA would really like to increase exposure over time?.

This is Sam. That's a great question. What I would tell you is that we have been on this journey over the past five or six years to increase the complexity of service offerings within our networks. And in that journey has yielded case-mix index growth, I think, over the last three years or so north of 3% in each of those years.

And just to give you an example of that in 2018, our bone marrow transplant volume, we have six programs in the U.S., one in the UK, but our six domestic programs grew their bone marrow transplant program volume by 17%. That growth in my opinion was driven by the fact that we have consistent clinical protocols.

We have consistent patient navigation protocols and the outcomes from those are very positive and our price point tends to be better than some of the marquee program that are out there. And so patient care closer to home at a high level is a very powerful model. That's just one example. Our trauma volume in 2018 grew by 7%.

Another example of where HCA is taking a programmatic approach to a very high-end community need program and yielding value for the patients, value for the community and we think value for our company. And so those are two examples of how we are doing that. I will tell you that we still have opportunities to add programs.

Whether it's deeper capabilities in certain service lines like electrophysiology, where we have opportunities to create a company-wide collaborative in electrophysiology and deeper capabilities in our cardiac programs to in many instances adding more sophisticated service lines.

Whether like I said, it's critical care medicine in some instances, all of this allows us to generate a higher revenue per patient on the same fixed cost platform that we otherwise would have had. And the combination of that is a very positive mix of business and it contributes to the margin expansion that Bill alluded to.

So we think we have market share opportunities. Our physician strategies are geared toward re-sourcing these programs with physicians capability and so forth. And then we have investments that are geared like I said earlier, to really positioning these programs for success. Whether it's with facility capabilities or clinical technology and so forth.

The final thing I would say on our sort of high equity business is that we have a very sophisticated rural outreach capability inside of HCA.

Whether it's through telemedicine; whether it's through affiliations with rural hospitals; whether it's through EMS relationships or in some instances actually owning a rural hospital because the channel is so important.

We've been able to drive downstream business into our hospital that typically is more acute as one would imagine with the fact that they can't get that type of care in a rural hospital. So our relationships with the rural market has allowed us to grow or market share on that front. And that has contributed I think to the case-mix growth as well.

So we see this journey continuing. We do not believe we're in the late stages of it. And as our markets continue to grow which they are, we see opportunities for us to add and at the same time pick up market share in many instances..

We'll take our next question Matthew Gillmor with Robert Baird. Please go ahead..

Hey, thanks. I wanted to ask about the performance and your expectations for the 2017 and 2018 acquisitions. Those hospitals are obviously a headwind to EBITDA this year. There'll be a tailwind next year.

So how do they perform in the quarter and how should we think about the cadence of those hospitals moving to breakeven? Will that be more back half weighted or have they already turned the corner?.

Yes, Matt. This is Bill. Good question. So as we talked about throughout the year we anticipated getting the acquisition to a breakeven or better by the end of the year. And indeed we did that fourth quarter that group was profitable for us. For the full year of 2018 it did create a headwind. We've talked about that roughly $80 million or so.

And it's going to provide as I said earlier in my comment about an additional 1% of our EBITDA coming from that growth. So year-over-year there's about a 2% of our growth factor from the 2017 and 2018 acquisition. So we're anticipating nice turn for that group.

I think it will continue to ramp and we think most of these will take several years to bring them up to reasonable margin levels for HCA. So we think there's continued growth in those classes even beyond 2018.

But part of our growth and as I mentioned earlier almost full 2% is going from the headwind in 2018 to providing some contribution for us in 2019..

And we'll take our next question from Frank Morgan with RBC Capital Markets. Please go ahead..

Good morning. I noticed in your recent debt offering you up size that deal. So I'm just curious between up sizing that deal announcing another acquisition recently. Do you see --are you seeing more opportunities today in terms of bigger system acquisition opportunities? So just any commentary on that would be appreciated.

And then just to go back on the guidance the last question asked, hit on this shortly but in terms of any other special cadence considerations as we think about the annual guidance, obviously, you're going to have 11 months of Mission.

You've got the DSH coming but any other when we think about the cadence of over the course there any other considerations that we should be thinking about? Thanks..

So, Frank, I'll start this and maybe Sam can give you some broader commentary on the acquisition market. So, yes, we were very pleased with the debt offering that we completed a week or two ago. We did up size it from our original because of demand.

Obviously that was primarily intended for our Mission financing and so we did a $1.5 billion financing last week very successful and very pleased with that also we have a lot of liquidity. We finished the year with as well. So we've got a lot of flexibility on the balance sheet, markets continue to be receptive to HCA.

In terms of the cyclical guidance, there's really nothing specific I would call out on there. Yes, our acquisitions will continue to improve throughout the year, but when you overlay that on HCA broad base, I think you can go with our historical quarterly trends as a good baseline.

In terms of the broader acquisition landscape, we did have some press on it, New Hampshire smaller acquisition for this. And I think Sam can give some commentary on the broader kind of acquisition pipeline..

Well, I think if you look at the last 2017, 2018, 2019, clearly the company has made a couple of --a number of acquisitions that we think are going to be good acquisitions for us over the long term.

Whether it's adding to existing markets like we did in Houston or creating new market opportunities like Savannah and Mission, both of which are really market makers we believe, they will ultimately be in a position if not already which Mission is to deliver what we call the HCA way in a particular market.

So my instincts are that we will see more activity whether or not it's systems that are prepared to go the distance and make a strategic decision like Mission has done, we'll just have to wait and see. My sense is though that there is a need to be a part of something bigger. There's a need to be able to leverage learnings across an organization.

There's a need to have diversification and HCA brings all three of those to many different systems. And so we will continue to showcase what we can do inside of this great organization. And we're hopeful that will yield future acquisitions similar to what we think the Mission acquisition is going to do for us.

That is a uniquely successful system and we think integrating that into HCA is going to present some unique benchmarking for others to consider as they go through the same kind of deliberations..

And we'll move on to our next question from Scott Fidel with Stephens. Please go ahead..

Hi, thanks.

Can you give us an update on whether what type of trends you saw in the UK market in the fourth quarter and then what you're assuming in the guidance for 2019 in terms of the ongoing turnaround there?.

This is Sam. The UK had a decent quarter compared to maybe the first nine months of the year where they had continued struggles. I think it's important to understand that for HCA the UK division represents less than 1.5% of the company's sort of overall EBITDA. It's a very small component of our organization. We like the market.

We think we have a great position. We've made a lot of investments in the past. I won't say we're fully invested, but we're largely invested in the necessary capacity and in the certain programs that we have.

We have some contingency plans around what the Brexit dynamic may mean to us in certain areas of our business, and how are we going to respond to that. But we think we're starting to turn the corner and as we look at 2019, we have modest growth built into our plan.

And I think that modest growth is going to be driven from the development of a more capable outpatient platform, urgent care platform and really continuation of our cancer service line capability that we think will yield some modest growth for us in 2019. Obviously, if the Brexit occurs, it could modify some of our assumptions there.

But we don't see that as a very material issue for us in 2019 as we look at our performance over there..

And we'll move on to our next question from Brian Tanquilut from Jefferies. Please go ahead..

Hey, thank you, good morning. Just a question Sam on the macro front. How are you thinking about uncompensated care for 2019? And then you touched on commercial growth earlier and how that's under pressure broadly speaking.

So what are your views there and how do you plan to strategize, to keep gaining sharing and how much opportunity do you think are left to gain in your regions?.

Our market share today is only 25%. So I'd like to think we have 75% opportunity. So that's sort of how I fundamentally think about. Obviously, we have really formidable competitors in many different markets.

The competitive landscape for HCA is very fragmented because we don't compete against the same system from one market to the other in most instances. So that we think create advantage. I think the consistency of our model, our approach to being the provider system of choice has been a very workable model for us.

Our fundamental believe is that the portfolio of market that HCA has is very strong, and that is going to yield growth in overall inpatient demand, as well as outpatient demand.

And as we continue to execute on our investment strategy, our program strategy which I spoke of a minute ago, and the continued development of our capabilities, our nursing initiative, our clinical agenda, our efficiency agenda, all of those are responding to our patients in a way that's producing a better outcome for them.

And we think that's still has legs and we believe that we can continue to grow the company organically through that model. Yes, there maybe some uninsured pressure here and there. I think like Bill said it, our overall uninsured volumes grew a little bit mid single digits this year. That doesn't put that much pressure on our business.

There are some states that are considering how they maybe expand Medicaid, they are not Texas or Florida, and they are smaller state. But nonetheless that could be a positive for us.

And then as we continue to focus our efforts around how do we gain share in the commercial segment or how do we gain share in this high equity businesses, we think those approaches can yield a very positive outcome for the company. So we remain focused on that.

And I think this focus if you look back is what has allowed us to deliver very consistently over the last five or six years. And given that our market place is tend to move at a pace that's noticeable.

And by that mean I am not too fast and what's happening, we can make adjustments as we need to in order to respond and continue I think the growth pattern that the company has had. So overall demand growing. Our position competitively improving. Our capabilities as an organization better.

We think the combination of all those should yield a solid result. And that if we can wrap around that programmatically and very selectively, high caliber acquisition opportunities like Mission, we think that's a very powerful model..

And we will take our next question from Ana Gupte with SVB Leerink. Please go ahead..

Hi, thanks, good morning. Following up on that question and your commentary, congrats on the quarter and the consistency that you are bringing to guidance and EBITDA growth.

I was looking to see if you had any thoughts on based on the quarter and the last four quarter, if you will for 2018, does that change in your mind anything on your normalized guidance? I think a year ago you had said 2% to 3% volume growth, no market share gain, 2% to 3% pricing growth, flat margin.

Your assets and capabilities as you say, built them out and you continue to your capacity utilization I am assuming is going up. Do you see it skew more towards one or the other more of a trajectory on margin expansion? Will share add to the 3%? And then on markets, you talked about cyclicality.

Are you comfortable that if we go into economic downturn as a nation that the markets that fairly defensive, either securely or combination of secular and competitive position on that guidance..

Bill?.

So, let me try and Sam can add in on macros. So you are right we've been in this 2% to 3% volume guide for sometime, 4% to 6% EBITDA guide. We know there could be period where we are on the high end that we are very pleased with the momentum that we've got that we talked about throughout the call.

But we know healthcare is cyclical mainly there is just macro issue but we think our continuing capital investments, our continued acquisitions opportunities will still provide growth for the company. Clearly, our optimism into 2019 and hopefully we will continue to be beyond that. So right now we are still in this 2% to 3% kind of volume guide.

When we look at demand, market share capital, we think that's a pretty good number. When we look at our long-term CAGR, we land right in the middle of that. Fortunately, we are in the period. We've been on the high side of that. And hopefully that will continue so. We need a few more reporting periods and data points before I think we adjust that.

We are very comfortable with our long-term guidance of 4% to 6% now we also recommend we've been on a high end of that for 2018 and 2019. But, again, I think as we think about the building blocks, strength of the core operations between volume and pricing and cost management, the acquisition opportunities, the capital investment programs.

I think that will continue to contribute to the growth of HCA for the long run. And I don't think we see any macros that are going to change that in a major way in this short run..

This is Sam. I want to add that. We had in 2018, one of the strongest overall portfolio performances we've seen in the company. We had almost 80% of our hospitals grew their EBITDA year-over-year. 70% of our hospitals grew their admission year-over-year. 65% of our hospitals grew their outpatient surgery year-over-year.

This is an incredible portfolio performance. And I think it speaks to again the clarity of our approach in the marketplaces. Our re-sourcing of the agenda and then finally the execution of our team is broad based as I mentioned in my prepared comments.

And I think the performance metrics that I just shared with you, which are best overall performance we've seen since 2015 is very remarkable and something we are very proud of..

And we will take our next question from Ralph Giacobbe with Citi. Please go ahead..

Good morning, hi. On past calls, you've given us commercial yield or managed care revenue per adjusted admission and CMI as well. Hoping you could do that for the fourth quarter as well. And then just on the payer mix, you maybe can you give us that revenue mix? I know you give us the volume but the total revenue on year-over-year basis as well.

Thanks..

Not sure I was clear on that..

Say that again, Ralph? Yes. You lost me..

Sure. In previous calls I think you've given commercial yield or managed care revenue per adjusted admission and the CMI as well. So I was hoping we can get that for the fourth quarter and then the payer mix, hoping you can give the revenue piece or the revenue percentages of the payer mix as opposed to just the volume. Thanks..

Let me just start with that, Ralph, for the quarter, commercial case mix was up 2.1%. Year-to-date were up 3.5%. We had a really strong fourth quarter of 2017. So that was the case mix. On revenue per adjusted admission on year-to-date basis were about 3% after we adjust for some reporting procedures about 2% in the fourth quarter.

But that's really a function if you go back and look at fourth quarter 2017; it was extremely strong commercial pricing for us 6.8%. So as we mentioned in my remarks, it's really the commercial we see that being pretty stable.

We don't see any major changes going on there, but again good intensity, 3.5% CMI growth in the commercial book on a year-to-date basis..

And we will take our last question from Gary Taylor with JP Morgan. Please go ahead..

Well, thank you. Long time listeners, first time caller. So following on Frank's question, I want to ask just a little bit more about acquisition and CapEx strategy. And specifically, I want to ask Sam.

Is your approach different, more aggressive, and less aggressive than Milton's? And could you please include international and physician groups as part of the answer? Thanks..

I wouldn't say I am any different than Milton. But, I mean obviously I have been part of our decision making over the past few years in conjunction with Milton, and it's usually a team analysis that we go through.

I think it's just the environment, when the environment is presenting opportunities for us to make sizeable acquisitions, I think some of these are once in a lifetime type opportunities and it's important for the company to consider them, I think very carefully. We have and will continue to pursue outpatient acquisitions.

We've recently made a large ambulatory surgery center acquisition in Austin, Texas. We have other markets where we are looking at acquisition of ambulatory surgery centers. Certain urgent care companies and so forth that are complementary to existing networks. I think we will be more domestic than international in our pursuit on acquisitions.

Obviously, we will look at other markets outside the US but I think the opportunities for HCA more compelling domestically at this particular point in time than they are internationally. Simply because we can bring more synergies to the system with our capabilities in the state versus buying into macros per se in the international market.

But that doesn't mean we won't look and consider and if there is a right opportunity we will pursue it. As it relates to physician practices, yes, we continue to use acquisitions of our physicians group as a way to add to our capabilities.

Whether it's with more convenient offerings for our patients or for strategic reasons to support certain service line or facility need. So all of that is there. We don't talk about those in any significant way because they are small individually but they add up to support for our overall network positioning.

And they support our overall growth agenda in a way that is productive we believe and it has been something that we've been doing over the past five or six years I think very systematically.

So I wouldn't say there is any change in our mindset other than we maybe entering a cycle where we are going to have more opportunities to look at systems that we think are unique opportunity. End of Q&A.

All right, Gary. Thank you for questions. April, I think we are going to close the queue here. I want to thank everybody on the call today. And we look forward to talking with you if you are leaving follow -up following the call. Thank you so much..

This concludes today's presentation. We thank you for your participation. You may now disconnect..