HCA Healthcare, Inc. (HCA) Earnings Call Transcript & Summary

Good day, and welcome to the HCA Healthcare Annual Meeting Conference Call. [Operator Instructions] I would now like to turn the conference over to John Franck, Secretary of HCA Healthcare. Please go ahead, sir.

Yes. Thank you so much, and good afternoon, and welcome. I'm John Franck, and I'll be serving as Secretary of HCA Healthcare's 2020 Annual Meeting of Stockholders. In light of the ongoing public health impact of the COVID-19 pandemic and to support the health and well-being of the company's stockholders, employees and their families, we're holding this meeting virtually via webcast. All of us here at HCA Healthcare truly hope you're staying safe and healthy during these challenging times. A meeting program is available on the meeting website at www.virtualshareholdermeeting.com/hca2020 as well as the rules of procedure for today's meeting. Mr. Thomas Frist III, HCA Healthcare's Chairman, will call the formal meeting to order and introduce our director nominees. Then we'll move on to the proposals described in detail in the proxy statement, which are: the election of 9 directors; two, the ratification of the appointment of Ernst & Young as HCA Healthcare's independent registered public accounting firm; three, an advisory vote to approve the compensation of our named executive officers; next, the approval of the 2020 stock incentive plan for key employees of HCA Healthcare and its affiliates; next, the approval of an amendment to the company's amended and restated certificate of incorporation to allow certain stockholders to request special meetings of stockholders; and finally, the consideration of and voting on a stockholder proposal regarding stockholders' ability to act by written consent. Until the voting is closed following the discussion of all the proposals, you may vote your shares using the vote function of the meeting website, if you've not already done so. If you have a question or comment that relates to a proposal being presented today, please submit it through the meeting website as soon as possible and prior to the discussion of the proposal to permit the Chairman time to discuss and address the question. [Operator Instructions] Following the close of voting, we'll announce the results and adjourn the meeting. Other appropriate questions submitted through the meeting website will be addressed in the Q&A session after the adjournment of the meeting, time permitting. [Operator Instructions] Now it's my pleasure to introduce Mr. Thomas Frist III.

Thanks, John. It's my pleasure to welcome you to HCA Healthcare's 2020 Annual Meeting of Stockholders and to call the meeting to order. I'd like to introduce a few people. In addition to John, here with me is Sam Hazen, our Chief Executive Officer; and Bill Rutherford, our Executive Vice President and Chief Financial Officer. Now let me introduce our director nominees who are in attendance virtually. Meg Crofton, Ms. Crofton is the retired President of The Walt Disney Company's Parks & Resorts operations, U.S. and France; Robert Dennis. Mr. Dennis is Executive Chairman and former CEO of Genesco; Nancy-Ann DeParle, Ms. DeParle is a founding and managing partner of Consonance Capital Partners and a health care policy expert; William Frist, Mr. Frist is a principal of Frist Capital LLC and son of our founder, Thomas Frist Jr.; Samuel Hazen, Mr. Hazen is the Chief Executive Officer of HCA Healthcare; Charles Holliday Jr. Mr. Holliday is the Chairman of Royal Dutch Shell and Former Chairman and CEO of DuPont; Michael Michelson, Mr. Michelson is a retired member of KKR Management LLC whose history with the company predates our IPO; Dr. Wayne Riley, Dr. Riley is President of SUNY Downstate Health Sciences University, an internist by training and also a health care policy expert; and finally, myself, Thomas Frist III, I am founder and managing member of Frist Capital, LLC, and also a son of Thomas Frist, Jr. I would like also to acknowledge and express my appreciation to Mr. Geoff Meyers and Dr. Jack Rowe who are retiring as HCA Healthcare Board members today. Mr. Myers has been a director of the company since our initial public offering in 2011 and has been an invaluable member of the Board, contributing his thoughtful leadership and financial and accounting expertise and serving as Chair of the Audit and Compliance Committee and is a member of the Compensation Committee. Dr. Rowe has been a director of the company since 2014 and has provided our Board with thoughtful leadership and clinical expertise while serving as a member of both the Patient Safety and Quality of Care Committee and the Nominating and Corporate Governance Committee. On behalf of the Board, I would like to express our sincere appreciation for the leadership and many important contributions that Mr. Meyers and Dr. Rowe have made to the company, and to wish them all the best. Next, I'd like to introduce Jim Parrott of Ernst & Young, LLP, HCA Healthcare's independent registered public accounting firm. He will be available to answer any questions you may wish to ask later in the meeting. We are being assisted with the tabulation of proxies and ballots by a representative Broadridge Financial Solutions. And now John, please give us your report.

Thank you, Mr. Chairman. The company has appointed Peter Scheibelein of Broadridge Financial Solutions to serve as inspector of election of this annual meeting. He has been duly sworn and has taken and signed an oath to faithfully execute his duties with strict impartiality and to the best of his ability. The inspector has presented his preliminary report to me, indicating the presence of a quorum. I have a certified list of the stockholders of record at the close of business on March 9, 2020, the record date for this meeting. This list has been available for inspection, and will remain available during this meeting for inspection by stockholders. On or about March 20 and April 14, notice of the availability of proxy materials for this meeting was mailed to each stockholder of record as of the record date. I have affidavits serving to find that proper notice was provided to each of these stockholders. These affidavits will be filed with the minutes of the meeting. At the close of business on the record date, there were approximately 338 million voting shares issued and outstanding. As of noon today, approximately 312 million shares were virtually present or by proxy at this meeting. This represents approximately 92% of the company's outstanding voting stock.

Thanks, John. I declare a quorum present, and we'll now take up the business of the meeting. The matters to be acted upon today will be considered in the order set out in the proxy statement. The polls are open for these proposals. The report of the inspector of election with respect to the votes cast will be given at the conclusion of the vote on all items. There may be stockholders virtually attending the meeting who have not already voted by proxy or who wish to change their previous proxy vote. If there's anyone in either of these categories, please submit your vote through the meeting website. The first order of business is the election of 9 directors to hold office until the annual meeting of stockholders in 2021 or until their successors are duly elected and qualified. I've already introduced the nominees, and additional information about them is available in the proxy statement. The Board of Directors recommends that you vote for each of the director nominees. I will now pause to address any questions submitted regarding the director nominees. The company has not received timely notice of any other nominations by a stockholder as required under our amended and restated Certificate of Incorporation and our second amended and restated bylaws. Therefore, I declare the nominations closed. If anyone is voting through the meeting website, please submit your vote now on Proposal #1. After voting has been completed on all matters on the agenda, the votes for each item will be counted. [Voting]

Let's now proceed to the second item of business on the agenda. The ratification of Ernst & Young as the company's independent registered public accounting firm. The Audit and Compliance Committee and the Board of Directors recommend that you vote for the ratification of the appointment of Ernst & Young as the independent registered public accounting firm of the company for the year ending December 31, 2020. I will now pause to address any questions submitted regarding the ratification of Ernst & Young as the company's independent registered public accounting firm. There being no further questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on Proposal #2. [Voting]

The third item of business on the agenda is an advisory nonbinding vote on the compensation of the company's named executive officers as described in the company's proxy statement. The Board recommends a vote for the proposal. I will now pause to address any questions submitted regarding the advisory nonbinding vote on the compensation of the company's named executive officers. There being no questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on Proposal #3. [Voting]

The fourth item of business on the agenda is the approval of the 2020 stock incentive plan for key employees of HCA Healthcare, Inc. and its affiliates. As set forth in the proxy statement, the Board recommends a vote for the proposal. I will now pause to address any questions submitted regarding the approval of the 2020 stock incentive plan for key employees of HCA Healthcare, Inc. and its affiliates. There being no questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on Proposal #4. [Voting]

The fifth item of business on the agenda is the approval of an amendment to the company's amended and restated Certificate of Incorporation to allow certain stockholders to request special meetings of stockholders as more fully described in the proxy statement. The Board recommends a vote for the proposal. I will now pause to address any questions submitted regarding the approval of an amendment to the company's amended and restated Certificate of Incorporation to allow certain stockholders to request special meetings of stockholders. There being no questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on Proposal #5. [Voting]

The final item of business on the agenda is a stockholder proposal proposed by Mr. John Chevedden, requesting the Board of Directors take steps necessary to allow stockholders to act by written consent as described in the company's proxy statement. The proponent will have up to 2 minutes to present the proposal. The Board has considered the proponent's proposal and recommends a vote against the proposal. I will now ask Mr. Chevedden to present his proposal.

Hello, this is John Chevedden. Can you hear me okay?

Yes, we can hear you.

Proposal 6, adopt a new shareholder right, written consent. Shareholders request that our Board of Directors take the steps necessary to a written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon are present and voting. Written consent is a means to select a new director. This may be of greater interest now since Robert Dennis was rejected by 32% of HCA shareholders at the 2019 Annual Meeting. A director who is rejected by 32% of shares should not serve on any important Board committee. And Mr. Dennis also received the most negative votes of any HCA Director in 2018. This proposal is apparently already successful because it seems to have triggered the Chair of the Corporate Governance Committee to put Proposal 5 on the ballot as a lesser means for shareholders to have some right to act between annual meetings. Management Proposal 5 is somewhat of stealthy proposal because shareholders have to wade through 1,500 words on Proposal 5 to see the major limitation that it has to exclude from participation all shares not held for less than 1 year continuously. In spite of this severe limitation, shareholders should, nonetheless, vote in favor of Proposal 5 and also Proposal 6. Proposal 6, on the other hand, does not exclude all shares held for less than 1 continuous year. Voting for both Proposal 5 and Proposal 6 tells management that shareholders are in favor, at least a baby step, in modernizing the governance of the company and, additionally, ask management to do more to modernize the governance of the company. Hundreds of major companies enable shareholder action by a written consent. This proposal topic won majority shareholder support at 13 large companies in a single year. This included 67% support at both Allstate and Sprint. This proposal topic also won 63% support at Cigna in 2019. This proposal topic would have received higher votes at these companies if more shareholders had access to independent proxy voting advice. The right for shareholders to act by a written consent is gaining acceptance as a more important right than the right to call a special meeting. This also seems to be the conclusion of the Intel Corporation's shareholder vote at the 2019 Intel Annual Meeting. The directors at Intel apparently thought they could divert shareholder attention away from written consent by making it less difficult for shareholders to call a special meeting. However, Intel shareholders responded with greater support for written consent in 2019 than in 2018. Written consent also won 45% support at the Bank of New York Mellon in 2018. In response to the 45% vote at the Bank of New York Mellon, the bank said it adopted written consent in 2019. Please vote yes, adopt a new shareholder written consent, Proposal 6.

Thank you, John, for your thoughtful and thorough explanation of your proposal. Included in the company's proxy statement, beginning on Page 55, is a more complete description of the Board's reasoning behind its opposition to this stockholder proposal. I will now pause to address any questions submitted regarding the stockholder proposal, requesting that the Board of Directors take steps necessary to allow stockholders to request special meetings of stockholders. There being no further questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on Proposal #6. [Voting]

That concludes the voting on the proposals set forth in the proxy statement. I will pause briefly to allow shareholders to submit any final votes. [Voting]

I now declare the polls to be officially closed for all matters. The secretary has presented the preliminary inspector of election report to me, which is as follows: the 9 nominees named in the proxy statement have been elected as directors until the 2021 Annual Meeting or until their successors are duly elected and qualified, the appointment of Ernst & Young as HCA Healthcare's independent registered public accounting firm has been ratified, the advisory vote to approve our executive compensation has been approved; the 2020 stock incentive plan for key employees of HCA Healthcare, Inc. and its affiliates has been approved, the amendment to the company's amended and restated Certificate of Incorporation to allow certain stockholders to request special meetings of stockholders has been approved and the stockholder proposal requesting that the Board of Directors take steps necessary to allow stockholders to act by written consent has not been approved. The final inspector of election report will be available within 4 days of the meeting. This concludes today's virtual meeting, and the meeting is adjourned. We are now happy to address any stockholder questions submitted through the meeting website. Mark, are there any questions?

There are some questions, yes. The first question is when will elected procedures return.

This is Sam Hazen, CEO of HCA Healthcare. As we indicated previously on our earnings call, we don't have full visibility into the recovery that would follow COVID-19. There are restrictive policies and directives from different states that are now being relaxed somewhat, and we are hopeful that the restart period, if you will, for the company will end by the end of the second quarter, but it's still too early to really call when those elective procedures will ultimately come back. Thank you for the question.

The next question is how much was spent on share repurchase in 2019.

Yes. This is Bill Rutherford, CFO of HCA. In 2019, the company spent just over $1 billion in share repurchase program as was reported in our year-end financial results.

Thank you, Bill. The next question, will the profit decline in the second quarter be similar to the profit decline in the first quarter of 2020?

I think as we indicated on our earnings call last week, it is too early to make any forecast around the second quarter results due to the COVID-19 pandemic.

Okay. Thank you, Bill. The last question, is there a 5-year rotation regarding the company's auditors? John?

Yes, Mark. This is John Franck, Corporate Secretary. There is a 5-year rotation on the lead audit partner, but there is not one on the firm.

Those are all the questions.

Thank you, Mark. That concludes our Q&A session. If you are a stockholder, please remember that Mark Kimbrough in our Investor Relations department is always available to answer stockholders' questions. We want to thank everyone who participated in today's virtual meeting, and thank you for your continuing interest in HCA Healthcare.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.