Ladies and gentlemen, welcome to the HCA Third 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 Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.

April, thank you very much, and good morning, everyone. Mark Kimbrough, our Chief Investor Relations Officer and I would like to welcome all of you on today's call and also those of you listening to the webcast. With me here this morning our Chairman, CEO, Milton Johnson; Sam Hazen, President and Chief Operating Officer; and Bill Rutherford, CFO. Before I turn the call over to Milton, let me remind everyone that should today's call contain any 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, losses on retirement of debt and legal claim cost, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. to adjusted EBITDA is included in the company's third quarter earnings release. As you heard the call is being recorded and replay will be available later today. With that, let me turn the call over to Milton.

All right, thank you, Vic, and good morning to everyone joining us on the call or the webcast. Before we go into details about the quarter, I'd like to take a few moments to talk about our response to Hurricanes Florence and Michael which have recently affected our facilities and colleagues in the Southeast U.S. On September 14, Hurricane Florence made landfall in South Carolina and on October 10 hurricane Michael made landfall in Panama City, Florida. Immediately before and after the storms, we evacuated several hundred patients to other facilities and without patient harm. Both storms had a devastating effect on the communities we serve in Florida and the Carolina's and where our HCA colleagues live and work. Throughout these events, our colleagues in the affected areas and across the enterprise have supported our emergency operations efforts, our patients and each other. Our robust disaster preparedness plans give us confidence when facing weather disasters like this, but it's the teamwork and patient-centered commitment of our HCA Healthcare colleagues that make those plans work so well. I'm very proud of that teamwork and professionalism. Now let me provide some comments on third quarter results. Overall, we are very pleased with third quarter results. Consistent with recent results, we saw solid volume and rate growth, increased intensity of service and excellent expense management which resulted in solid adjusted EBITDA growth for the quarter. This morning, we also favorably revised our earnings guidance ranges to reflect results for the nine months ending September 30 and expectations for the remainder of the year. More on this later in my comments. Revenues in the third quarter totaled $11.451 billion, up 7.1% from the previous year's third quarter. Net income attributable to HCA Healthcare Inc. increased 78% to $759 million or $2.15 per diluted share…

Thank you. Good morning everyone. I feel like I should pause there just for a moment, recognize your leadership and the example you've set for all of us. So as Milton mentioned, we are pleased with our results as the company reported a solid third quarter. On an as-reported basis our adjusted EBITDA was $2.096 billion or an 18% increase from our $1.776 billion reported in the third quarter of last year. There are a few items I would like to discuss that impacted the year-over-year comparisons. First is the hurricane impact we experienced in the third quarter of 2017 where both hurricane Harvey and Irma impacted our prior-year results. You will recall we estimated a loss of revenues and additional expenses of approximately $140 million or $0.24 per diluted share in last year's third quarter. During the third quarter of this year hurricane Florence hit the Carolinas. Due to a mandatory evacuation order we had to evacuate all of our patients from our Myrtle Beach Grand Strand Hospital. We estimate that we had an approximately $9 million impact associated with Florence in this quarter. Second, the results for the third quarter of 2017 also included a negative impact to operating results related to the final settlement amounts for the program year ended September 30, 2017 for the Texas Medicaid Waiver Program of approximately $80 million or $0.08 per diluted share. And third, as noted in our release this morning, based on the receipt of updated actuarial information we recorded a reduction to the company's reserves for professional liability risk of $70 million or $0.15 per diluted share in this year's third quarter. Finally, as we have noted in our previous quarters based on its contribution last year we estimate the sale of our Oklahoma facilities had a negative impact…

All right. Good morning, everyone. I'm going to provide more detail on our volume performance for the quarter as compared to the third quarter of last year. In general, our volume growth in the quarter was consistent with the prior two quarters growth. Additionally, we continued to demonstrate broad-based growth across the company's divisions and across our various service lines. My comments will focus on our same facility, domestic operations. 12 of 14 divisions had growth in both admissions and adjusted admissions. 5 of 14 divisions had growth in emergency room visits. Freestanding emergency room visits grew 11%, while hospital-based emergency room visits declined 1.8%. Once again, higher acuity visits grew while lower acuity visits declined. Admissions through the emergency room, as Bill indicated, grew by 3.3%. Trauma and EMS volumes grew by 4.9% and 1.5% respectively, reflecting the higher acuity visits we are seeing in our emergency rooms. In-patient surgeries were up 1.8%. Surgical admissions were 27.3% of total admissions in the quarter generally consistent with the prior year. Surgical volumes continued to be strong in cardiovascular vascular and orthopedic service lines. 11 of 14 divisions had growth in in-patient surgeries. Outpatient surgery showed strong growth. Hospital-based surgeries were up 5%. And our freestanding ambulatory surgery centers were up 3.8%. 13 of 14 divisions had growth in outpatient surgeries. Behavioral health admissions grew 2.4%. Rehab admissions grew 8.3%. Cardiology procedure volumes, both inpatient and outpatient combined, were up 2.3%, driven mostly by growth in electrophysiology services. Births were down 1.2% and neonatal admissions were down 1.6%. Urgent care visits for the company were down 2.8% on a same facilities basis. They were up however, 12% on a consolidated basis reflecting the growth in the number of overall centers. HCA has now grown same-facility admissions in 18 consecutive quarters. Before…

All right. Thank you, Sam, and everyone. With that April, if you will open the queue for questions. And I do encourage each of you to limit your questions to one because I think we have several in the queue.

Thank you. We'll take our first question from Justin Lake from Wolfe Research. Please go ahead.

Thanks. Good morning. First, let me just first say goodbye to Milton. It's been a good run, and Sam, congratulations on the new role, well-deserved. And thank you very much for providing that 2019 viewpoint. I know everyone appreciates it. So that's, my question is going to be around that. Specifically, Sam, you said growth for 2019 should be in the range of 2018. 2018, obviously, had a lot of moving parts in terms of good guys and bad guys, but the reported number looks like about 7%. So I just want to confirm that that's what your – that's the number we should kind of focus on there for expected growth year-over-year in EBITDA?

Yeah, Justin this is Bill. Our midpoint of our guidance, you're right would suggest just under a 7% as reported year-over-year growth.

Okay. And your – that's – there's no other moving parts we should kind of expect a range, kind of midpoint of a range, for next year could be about that 7%? Is that what you're (23:14) implying?

Well, I don't want to give percentage, we obviously – yeah, I don't want to give specific percentages on there. As we look at the factors, we look at the trends around the core growth, we look at – capital continue to come online. We look at the turn of the trend on acquisitions and all of those together, believe that we should be within a reasonable range of this year's growth rate.

Okay. And if I could just follow-up with the – for Q4, your implied guidance seems to have a core growth rate in the 3.5% range. So I'm curious if there are any moving parts I should be thinking about there, maybe there's hurricane weakness in that Q4 given the hurricanes down South or any other kind of moving parts, obviously, it seems like there's a little bit of a difference between 3.5% and 7% for next year.

Yeah. So let me call out a couple points when you're looking at our guidance and then what the expected range of growth for this year's fourth quarter is. First, just remind everybody, the fourth quarter of 2017 was an extremely strong quarter for us. We posted a little north of 7% growth over the prior year in that quarter. Second, when we look at the sequential Q3 to Q4 growth, our estimate would be similar, somewhat exceed what we typically see. We've studied the seasonality and we've factored that into our guidance. Third, as you mention, we do have some uncertainty regarding the Q4 impact of Hurricane Michael on our Florida Panhandle operations. We tried to factor a reasonable estimate into that for the quarter into our guidance. And finally, when I really look at our updated guidance as you see at the midpoint we've increased approximately $50 million at the midpoint. It's basically accounting for the professional liability pickup we had this quarter offset by some impact of Michael in the quarter as well. So that's really the factors that went into our overall guidance for the balance of the year.

All right, thanks for all the questions.

All right, thank you, Justin.

Yes.

And, Milton's really not going away.

I am.

I was going to say one thing on 2019 guidance just to be clarified too, it does not include acquisitions such as Mission. That is not included in the range that Sam stated, just to make that clear as well.

Thanks again.

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

Good morning, and congratulations, Milton, and best wishes. I guess, to follow-up on that capital deployment and acquisition question. I'm just curious, is there anything that we should expect to be different with regard to just the cadence of capital deployment that might affect sort of how your volume growth plays out over the next year? And then on the topic of Mission Health any thoughts around you specifically would fund that transaction? Thanks.

Yes. Frank I'll start with the latter. We're still in the process with the Mission Health acquisition. Likely that would be a public market event, but we'll evaluate that just as we get closer and have visibility of a close date. Regarding capital next year and impact, obviously we'll talk about that further when we give, when we complete our planning process and give full year 2019 guidance with specifics. The capital will be a factor that will help contribute the growth trajectory of the company.

Yes, this is Sam, Frank. I mean we have about $4.5 billion to $5 billion of capital in our pipeline. We will have a little bit more come online in 2019 than we had in 2018. It comes online at different points in the year, so it will have different impacts if you will on our volume. But I don't think it's going to materially change our volume trends or expectations as we finish up this year and go into next year. We are seeing improving demand in our markets as I mentioned in our call, I mean in my comments rather, and we've seen that now for roughly three or four straight quarters. So we are encouraged by that. And then as I mention, we are starting to see market share gains again which is encouraging with what we're doing in the marketplaces around our growth agenda.

All right, thank you Frank.

And we'll take our next question from Peter Costa with Wells Fargo Securities. Please go ahead.

Thanks guys. And congratulations to both on the transition in management. My question is regarding the, is HCA entering into a new phase of your growth? You talked about, I know you talked about the 7%-ish growth in EBITDA for next year as being next year, but your long-term guidance of 4% to 6% that's above that and then we start looking at acquisitions and you're starting to see some acquisitions outside your markets of significant hospital systems, whether it be Savannah or Ashville. So are we approaching a new phase of growth for you guys in terms of new markets?

This is Sam. I think Ashville and Savannah uniquely offered up opportunities for the company that met our criteria. Both of those systems are fundamentally market-makers in the sense that they can execute on their own what we believe to be the right provider system strategy. So we're still going to remain selective around those criteria that we use to determine whether or not an acquisition fits our model. I would hope that we would see continued opportunities for new markets. Obviously, our interest is primarily inside of our existing portfolio, but to the extent we see a new market that presents a system that has the wherewithal to go the distance if you will, we would be very interested in that. Now obviously those systems come up when they come up. We can't really forecast that, but we will continue to be opportunistic around those situations when they present themselves.

Pete, thank you.

Is there some change that's causing that, them to show up now as opposed to over the last decade?

Well the story around Savannah and Mission are totally different. Savannah was in a desperate situation, needed more capital, needed professional management and so forth. Mission, conversely is a very successful system, well manage, great physicians, great financial results and so forth. They just viewed the need for scale as being very significant at least in their thinking and their board made a decision to go down that path with us. So it just depends on the circumstances. Obviously, we believe Savannah has incredible long-term potential and the size of that healthcare market is about one million people when you consider the rural market, which is very similar to the Ashville market in the Western North Carolina rural markets combined. So those kind of situations are really dependent upon the individual circumstances and the strategic analysis that each of the board's take. So I don't know, if there's anything today that's materially different that would suggest there's going to be more, but we'll just have to wait and see how that goes. I think the company is poised to take on more both from a balance sheet standpoint as well as an organizational capacity standpoint. And we think over time these are going to be very productive healthcare systems for the company. Thank you.

Thank you.

Thank you, Pete.

We'll take our next question from Brian Tanquilut from Jefferies. Please go ahead.

Hi. Good morning. And congrats to both of you guys. Bill, just a couple quick questions for you. As I think about the DNA accrual for the quarter it ticked up year-over-year and sequentially, anything to call out there? And then just back to the question on funding for Mission. Are you thinking of using unsecured notes on that one? And also what are your thoughts on investment grade? Thanks.

Yeah. Thanks. On the depreciation that growth is really just factor of our same store as well as new acquisitions that are fueling that and pretty much in line with what we anticipated on there. Relative to Mission financing and the specific metrics, too early to call, we'll evaluate that at the time, what the market conditions are, and we'll look at. In terms of our pursuit of investment grade, we haven't stated that as a specific financial goal but I think as we continue to demonstrate consistent performance, strong balance sheet, great cash flow that hopefully over time we'll be recognized for those trends.

All right. Thank you.

Thanks, Brian.

Yeah.

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

Thanks. Since the last call the Medicare IPPS rules finalized for fiscal 2019. So, could you just quantify how much better you think that will be for you than the recent trend and whether there was an incremental Medicare reimbursement factored into the guidance for this calendar year for fourth quarter?

Bill, are you going to take that?

Yeah, I'll cover that. Thanks for the question. So we are getting a favorable update as we assess it now our update will range between 2.5% to 2.8% growth in our Medicare update. That is compared to approximately 1% we received in recent past. So that's an incremental 1.5% to 1.8% on the Medicare update. We believe we have accommodated for this within the context of our overall guidance range and perhaps will be a factor for us as we look towards 2019 as well.

All right. Thank you.

Thank you.

Thanks, Michael.

We'll take our next question from A.J. Rice from Crédit Suisse. Please go ahead. A.J. Rice - Credit Suisse Securities (USA) LLC: Thanks. Hi, everybody. Congratulations to Sam and Milton. Wish you the best. I was looking, back of the envelope, looks like the stock is up almost three times since you were named Chairman so that's quite a run in five years, so congratulations on that. I guess my question would be a lot of the improvement in margin this quarter and the last few quarters has been driven by the top line performance, strong volumes, strong pricing. I wonder if you guys could spend a minute just talking about what's happening on the individual expense line. I know there was a little of that in the prepared remarks. But is there any area where you're seeing the expenses, whether it's labor supplies, other, in and of themselves opportunities for improvement or any place where you're facing a headwind on the cost side?

A.J., this is Sam. We are very pleased with the performance of the company operationally over the past year or so. Our teams have stepped up, especially on the human resources side of the equation and had a dramatic impact on our nursing performance. Our nursing contract labor on a year-over-year basis is down significantly. We've been able to increase our hiring as a result of our nursing agenda and human resources agenda. So at this particular point in time on the labor front, we're not anticipating any unusual headwinds as we turn the calendar into 2019. We will continue to execute on the core elements of what we're trying to get done with being a very productive employer and at the same time a great employer for our employees and we think that's going to yield some dividends as we move forward. Obviously, it's important that we grow our volume simply because we get the operating leverage from that growth given the fixed cost structure of the company. On the other two categories, I would say that the trends are generally consistent. We're not seeing anything unusual at this particular point in time on either the supply line item or the other operating expenses. We have been able to manage our physician costs effectively in this particular quarter. I think our physician costs as a percent of revenue were consistent with the previous years. So we haven't seen any dramatic shift there as well. So as we turn into 2019 again, we'll have to get through all the details of our planning over the next 60 days or so but we're not anticipating any material swing in any of the cost trends.

All right. A.J., thank you very much. A.J. Rice - Credit Suisse Securities (USA) LLC: Okay. Thank you.

And, we'll move on to our next question from Ralph Giacobbe from Citi. Please go ahead.

Thanks. Good morning. Just quickly wanted to go back. Mission, are you willing to give us an EBITDA run rate? I think we had thought about sort of $130 million to $140 million, I don't know if you want to sort of comment on sort the baseline there? And then my question was really on, you called out hospital-only, same facility revenue per adjusted admission of the 4.8% within managed-care. Is there a reason you make the distinction of hospital only? And then, if I take that percentage in the adjusted admission number that you had provided, the 4%, it would suggest managed-care revenue up close to 9%. It seems like a pretty hefty number, maybe just some commentary on kind of factors driving that aside from just the easier comp. Thanks.

All right, yeah. Let me start with that. We give the hospital-only managed care just as you look at the consolidated number gets affected by physician practice, urgent care, and other. So, we just tried to provide some clarity on there. We remain pleased with managed-care number; there is clearly an intensity driver of that as well as pricing factor of that. We're pleased with our contracting efforts. We've got good visibility into 2019 and 2020 as well pretty consistent terms and condition that we have experienced. There are potentially, when you look at the quarter-over-quarter results, some hurricane impact as a result as you had recovery of some hospital-based outpatient surgeries this year as well. So, again, overall pleased. That 4.8% is pretty consistent on that stat with what we've seen year-to-date running about the same number. So it's been pretty stable trends for us on that managed-care book.

And did you want comment on the Mission run rate at this point in time or not?

Yeah. I think honestly, it's too early for us to give some commentary on that. As we get into our 2019 guidance and we get closer visibility into that transaction, we'll give you guidance on what we expect the contribution of Mission will be.

Good. Okay.

Thank you, Ralph.

We'll move on to our next question from Steven Valiquette from Barclays. Please go ahead.

Thanks. Good morning everyone. Thanks for taking the question. My question I guess is somewhat similar to one that was just asked, but just to kind of stick with that topic a little bit, I mean, the strength in same-store revenue per admission, it definitely seems to be a common theme really within the overall hospital industry this quarter. You got some nice reacceleration as well. But just curious if you could remind us again how much that's driven by raw pricing benefits or perhaps some acceleration of the mix to, a mix shift to greater acuity in the in-patient setting which has really been talked about a lot about this year. Just want to get more color on that last part in particular. Thanks.

Bill you want that one?

Well, there is clearly an intensity driver of that as we continue to focus our strategic efforts of growing our high intensity business. That's driving that statistic as well. It's why we give you our case mix number, we've seen that grow, pretty consistent in the three to four, sometimes north of that over the past several quarters. And that's really just a function I think of our strategies and new capital and focus on program development is the main driver of that. And as we've seen continue growing demand in the market too, all of those are driving higher in-patient growth that's fueling that revenue per adjusted admission number as well.

And then just to give you some color. This is Sam again. I mentioned in my prepared comments that our trauma volumes were up four-plus-percent. Just to give you another example, bone marrow transplants inside of HCA in the quarter were up 16%. Our orthopedic surgical volumes, which carry a higher revenue per case than average, were up significantly. Cardiovascular services also carrying a higher revenue per case. Those are contributing factors to this. I think when you look fundamentally at the pricing component of our business we're achieving what we thought we would both on the commercial side as well as the governmental side. And then as you look at the strategic agenda of the company which is to create more clinical capabilities, those additional clinical capabilities allow us to take care of more acute patients, provide more complex procedures and that drives our revenue up. Again that's a very powerful model for us, because it's on the same platform of fixed cost. And if we can increase the acuity in our facilities, deliver the higher revenue per patient, put that on top of the same fixed cost that produces decent margin lift for the company. So that's been our strategy. We continue to execute on it. We think we have headroom in it. As we build out our outpatient facilities in each of our markets we think that opens up the gateway if you will to an HCA provider system. And then when our patients need more complex care we can provide it to them somewhere else in the system. That's fundamentally what we've been about for the past five or six years and we continue to believe that's adding value to the company.

All right, thanks, Steve.

Okay. That's helpful color. Thanks.

We'll take our next question from Josh Raskin from Nephron Research. Please go ahead. Josh please go ahead.

Josh you're there? All right. Let's move on.

We'll move on to our next question from Ana Gupte from Leerink Partners. Please go ahead.

Hey. Thanks. Good morning. Congrats Milt. Congrats Sam. Look the question is about the managed care payer mix which continues as you state to show improvement. And last time I think you talked a little bit about the labor market data by your various markets. Can you give us any market specific color on what's going on? Your surgical volumes are really strong for a generally, seasonally, weak quarter. And then on the ED side, at what point do you think this might turn potentially even inflect into a positive? At what point, even the level three ED visits stop kind of mix shifting to urgent care or freestanding?

Ana, that was pretty good. You just snuck three questions in. We'll give you a break.

Again, we had broad-based performance across a lot of our markets in the quarter. And I think that's a continuation of what we've seen in the first half of the year. But in particular, we had strong performance in our DFW market. We had strong performance in our Austin Texas market. Our north Florida markets were very strong in the quarter. So, very powerful results across this wonderful portfolio that we have of markets. And it's broad-based. It's not just in admission activities. It's in other categories of our business which is encouraging and again reflects the strength of HCA's portfolio not only from a market standpoint, but from a service line standpoint given that we provide so many different services. As it relates to the emergency room, we have seen growth for the year. It's modest. I mean we're up about 1% for the year. Clearly we benefited earlier in the year from flu activity. We have seen somewhat of a slowdown in supply in our markets with respect to freestanding emergency rooms and certain urgent care center development. So maybe over the long-term, we could possibly start to see some rebound in the emergency room volume. Again what we are soft in are the lower revenue elements of our emergency room business. Our higher levels of acuity are producing much more revenue per visit than do the lower levels obviously in how we price. And so the profitability impact of it is not as material as one would think. Nonetheless, we have seen some softness. Some of that could possibly be cannibalized by our own urgent care center development which we think is a very strategic element of what we're trying to do in being comprehensive in the offerings of provider system capability and convenience for our patients as well as having different price points if you will for our payer partners. And so from that standpoint, we may be cannibalizing a little bit of our own business. But long term, we think it's strategic to building out the provider capabilities that we think are necessary for us to be responsive to the marketplace.

Super helpful, thank you.

All right.

Thank you Ana.

We'll move to our next question from Josh Raskin from Nephron Research. Please go ahead.

I think he must have gotten cut off cause Josh is more verbal than this. All right, anyone else in there?

Go to the next one.

All right. Next question

We'll move on to Kevin Fischbeck from Bank of America. Please go ahead.

Great, thanks. Just wanted to go back to the Q4 guidance commentary because it's still, trying to square that one out, I guess the last quarter I think you said that the guidance did not include DISH (45:16) which we were kind of estimating was going to be like a $50 million or $60 million boost. So I would've thought that the guidance would have raised by at least that much but then to your point about the liability adjustment minus the hurricane. So why isn't the guidance raised more like $100 million than the $50 million number?

Yes, Kevin. This is Bill. I think your number is a little higher when we equate it to the percentage growth than, I don't think we're seeing that $50 million to $60 million, it's probably more in the $35 million to $40 million level for us. And I do think that as you look at our range of guidance that it could potentially put us on a higher to the midpoint. So I think the range is wide enough to accommodate for that Medicare update.

Okay. So you kind of feel like that could get you to the higher end of the range?

Potentially, obviously, we got a lot of revenue. There's a lot of pluses and minuses that flow through in any given time. But again, I think, we feel comfortable with where our guidance is today given all the factors that we're looking at.

I think the business dynamics, we're not anticipating any dynamic change as we go from the third quarter to the fourth quarter. I mean, it's – some of this is we think encouraging with respect to how our volumes have sustained themselves over the year. So we're optimistic that the trends of the company will continue on into the fourth quarter and into 2019 like we mention. So there is a lot of moving parts in our business and, but nonetheless, the key elements are pretty consistent with how we've been operating.

All right.

Okay. So basically this is an in line quarter for you guys, an in line guidance. The only changes were some of these outside of the core performance metrics?

I think that's right, Kevin. Yeah.

I think that's fair. All right. Any other questions remaining?

All right. April, I think we're good. And I thank everyone for dialing in and look forward to talking to you (47:27). Thank you very much. Thanks April.