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    Universal Health Services Inc (UHS)

    New Share Buyback Program

    Business Description

    Universal Health Services, Inc. (UHS) is a healthcare company that owns and operates a network of acute care hospitals, outpatient facilities, and behavioral health care facilities across the United States, the United Kingdom, and Puerto Rico . The company provides a wide range of medical services, including general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services, and behavioral health services . UHS's revenue is primarily derived from its acute care and behavioral health care segments, with additional support services such as capital resources and management services provided to its facilities .

    1. Acute Care Services - Operates acute care hospitals and outpatient facilities offering services such as general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, and pharmacy services.
    2. Behavioral Health Services - Manages behavioral health care facilities providing comprehensive mental health services, with significant operations in the United States and the United Kingdom.
    3. Support Services - Provides capital resources and management services, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing, and public relations to its facilities.

    Q3 2024 Summary

    Initial Price$186.05July 1, 2024
    Final Price$224.66October 1, 2024
    Price Change$38.61
    % Change+20.75%

    What went well

    • UHS is improving margins through enhanced cost management, with decreasing salaries as a percentage of revenues contributing to margin recovery in the acute care segment.
    • Strategic expansion of the care continuum, including investments in ambulatory surgery centers, freestanding imaging, and freestanding emergency departments, along with strong physician alignment initiatives, positions UHS for future growth.
    • Significant investments in technology within the behavioral health segment, such as implementing Electronic Medical Records (EMRs) in 25-30 facilities by early next year, are leading to operational efficiencies and higher quality of care.

    What went wrong

    • Slower than expected recovery in behavioral health volumes: UHS has acknowledged that the recovery in behavioral health patient volumes has taken longer than anticipated due to staffing challenges, issues at specific residential facilities, and the impact of Medicaid disenrollments. This suggests ongoing operational difficulties within this segment.
    • Anticipation of moderating behavioral health pricing: The company expects that behavioral health pricing, which has been a significant driver of revenue growth, will moderate from historically high levels. This potential slowdown in pricing growth could impact future revenues in the behavioral segment.
    • Normalization of acute care volume growth limiting future prospects: UHS does not foresee elevated acute care volume growth, as volumes have begun to resemble pre-pandemic patterns. This normalization could limit growth prospects in the acute care segment moving forward.

    Q&A Summary

    1. 2025 Tailwinds and Medicaid Payments
      Q: What are the major headwinds and tailwinds for 2025?
      A: Steve Filton expects continued margin recovery in 2025 and highlighted significant potential tailwinds from Medicaid supplemental programs in Tennessee, the District of Columbia, and Nevada. UHS will open two new facilities: one in West Henderson, Las Vegas, and another in the District of Columbia, but neither is expected to significantly impact EBITDA. He also mentioned potential new or expanded programs in California and Florida that could be effective next year.

    2. Outlook for Acute Care Growth
      Q: What's the outlook for acute care volume growth?
      A: Filton anticipates acute care growth returning to pre-COVID levels, with same-store revenue growth in the 6% to 7% range, split evenly between price and volume. Year-to-date metrics show adjusted admissions up 3% and revenue per adjusted admission up 5%. He doesn't expect incremental benefits from the Two-Midnight rule change and hasn't seen evidence of structural changes leading to elevated volume growth.

    3. Physician Expenses and Labor Costs
      Q: How are physician expenses and labor costs trending?
      A: Pressures on physician expenses were driven by billing changes like the No Surprises Act rather than physician scarcity. Physician recruitment has remained stable over the last several years. Labor trends have stabilized in both business segments, with premium pay decreasing and salaries as a percentage of revenues coming down, contributing to margin recovery.

    4. Behavioral Health Volumes and Pricing
      Q: What are the trends in behavioral health volumes and pricing for 2025?
      A: UHS expects to exit the fourth quarter with 3% patient day growth in behavioral health. For 2025, they anticipate same-store revenue growth in the 6% to 8% range, with pricing growth of 4% to 5% and volume growth of 3% to 3.5%. While behavioral pricing has been strong, it may moderate but should remain within the 4% to 5% range.

    5. Managed Care Payer Behavior
      Q: Have you seen changes in managed care payer behavior like denials or downgrades?
      A: Since late 2022, there's been more aggressive behavior from managed care payers regarding denials and patient status changes. However, there was no dramatic change in the current quarter. On the Two-Midnight rule, UHS has been focused on appropriate coding and hasn't seen significant changes from recent CMS clarifications.

    6. Higher Corporate Expenses
      Q: Why were corporate expenses higher this quarter?
      A: The higher corporate expenses were due to a $5 million loss on debt extinguishment from refinancing and another $5 million in settlements of miscellaneous smaller lawsuits. These $10 million expenses are characterized as nonrecurring.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Acute Care Hospital1,973.5322,003.0792,017.32,087.098,0812,185.0812,173.4092,245.5
    Behavioral Health1,490.4891,542.1941,542.71,615.626,1911,656.0671,731.3091,714.9
    Other3.4972.8652.80.84102.4342.8862.6
    Total Revenue3,467.5183,548.1383,562.83,703.5414,2823,843.5823,907.6043,963.0
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    UK Revenue-190.114202.994-761.1207.796212.706230.153
    Acute Care----8,081.4---
    Behavioral Health----6,190.9---
    - UK Revenue----761.1---
    Total Revenue3,467.5183,548.1383,562.7743,703.5714,282.03,843.5823,907.6043,963.027
    KPIs - MetricFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    **Net Revenue per Adjusted Admission Change (%)**-7.5%1.3%0.4%3.7%-4.6%3.5%7.0%
    **Net Revenue per Adjusted Patient Day Change (%)**-1.5%2.0%3.3%5.0%-5.8%5.3%6.5%
    **Inpatient Admissions (Acute Care)**-79,10080,07482,918-83,58181,85881,731
    **Adjusted Admissions Change (Acute Care %)**10.5%7.7%6.8%5.6%-4.5%3.4%1.5%
    **Patient Days (Acute Care)**392,589384,373384,348403,117-415,327390,433393,521
    **Adjusted Patient Days Change (Acute Care %)**3.7%6.9%3.8%4.3%-3.4%1.6%2.0%
    **Average Length of Inpatient Stay (Days)**5.14.94.8--5.04.84.8
    **Occupancy Rate (Acute Care %)**67.8%66%64.3%67.4%-70.4%68.3%66.0%

    Executive Team

    NamePositionStart DateShort Bio
    Marc D. MillerChief Executive Officer and PresidentJanuary 1, 2021Marc D. Miller has been serving as the Chief Executive Officer and President of UHS since January 1, 2021. He has been a Director since 2006 and served as President starting in May 2009. He has held various positions within the Acute Care Division since 2000. He is the son of Alan B. Miller, the Executive Chairman of UHS .
    Alan B. MillerExecutive Chairman of the BoardJanuary 1, 2021Alan B. Miller has been a Director of UHS since its inception in 1978. He served as the Chief Executive Officer from 1978 until he stepped down on January 1, 2021, at which point he became Executive Chairman. He was previously the President, Chairman, and CEO of American Medicorp, Inc. .
    Steve G. FiltonExecutive Vice President, Chief Financial Officer, and Secretary2003 (CFO), 1999 (Secretary)Steve G. Filton has been the Executive Vice President, Chief Financial Officer, and Secretary at UHS. He became CFO in 2003 and Secretary in 1999. He was elected Executive Vice President in 2017 and has been with UHS since 1985 in various roles .
    Matthew J. PetersonExecutive Vice President, President of Behavioral Health DivisionSeptember 2019Matthew J. Peterson joined UHS in September 2019 as Executive Vice President and President of the Behavioral Health Division. He previously worked at UnitedHealth Group for 11 years and serves in the Air National Guard, U.S. Air Force, recently promoted to Brigadier General .
    Edward H. SimExecutive Vice President, President of Acute Care DivisionDecember 5, 2022Edward H. Sim began his role as Executive Vice President and President of the Acute Care Division at UHS on December 5, 2022. Before joining UHS, he was the Chief Operating Officer at Centura Health and held senior leadership roles at Baptist Health for 11 years .

    Questions to Ask Management

    1. Given your previous statements about cost management efforts in preparation for moderating volumes , could you elaborate on how your strategies have evolved in response to the faster-than-expected moderation in acute care volumes, and how confident are you in achieving EBITDA and margin expansion under these circumstances?

    2. With the aggressive behavior from managed care payers, including increased patient denials and status downgrades , how is this impacting your revenue cycle management, and what specific actions are you taking to mitigate these pressures, particularly related to the Two-Midnight rule?

    3. In light of higher liability reserves and issues at certain psychiatric facilities , are you considering a shift in your strategic direction or operational focus within the behavioral health segment, and how do you plan to address the risks associated with these challenges?

    4. Considering the potential capacity constraints in your acute and behavioral hospitals, with occupancy in behavioral facilities running at higher levels despite overall occupancy in the low 70s , how are you balancing capital expenditures between building new beds and optimizing existing capacity to drive admission growth?

    5. As you continue with significant capital expenditures and share repurchases , could you provide clarity on your capital allocation strategy going forward, including your appetite for M&A opportunities versus returning capital to shareholders, especially in the context of expanding services like outpatient care and telehealth in behavioral health?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJuly 2024
    End Date/DurationNo expiration
    Total additional amount$1.0 billion
    Remaining authorization amount$1,073.981 million
    DetailsNo expiration date

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Behavioral Health Segment: Expected same-store revenue growth in the mid- to upper single digits (6% to 8%), with pricing contributing 4% to 5% and volume contributing 3% to 3.5% .
      2. Acute Care Segment: Expected same-store revenue growth in the 6% to 7% range, split evenly between price and volume .
      3. Medicaid Supplemental Programs: Potential incremental benefits from new or expanded Medicaid supplemental programs in Tennessee, Washington D.C., and Nevada .
      4. Corporate Expenses: Nonrecurring corporate expenses in Q3 2024, including a $5 million loss on debt extinguishment and $5 million in lawsuit settlements .
      5. New Facilities: Two new facilities expected to open in 2025, with no significant drag on EBITDA anticipated .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Earnings Per Share (EPS): Increased midpoint of 2024 EPS guidance by 17% to $15.80 per diluted share .
      2. Adjusted Admissions Growth: Acute care segment expected growth in the 3% to 4% range for the second half of the year .
      3. Behavioral Health Patient Day Growth: Aiming for 3% patient day growth by the end of 2024 .
      4. Supplemental Payments: Potential benefit in Tennessee estimated between $42 million and $56 million annually and in Washington, D.C., between $80 million and $90 million annually .
      5. Revenue Growth: Same-store revenue growth trajectory of 5% to 6%, split evenly between price and volume, in the acute business .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Behavioral Health Segment: Expected patient day volumes to gradually improve, aiming for around 3% growth .
      2. Acute Care Volumes: Anticipated moderation but robust compared to historical levels .
      3. Medicaid Supplemental Payments: Potential upside to initial forecasts .
      4. Margins: Expected recovery of margins that deteriorated during the pandemic .
      5. Premium Pay: Goal of reducing premium pay to around $50 million per quarter .
      6. Capital Expenditures: Continued investment in acute and behavioral segments .
      7. Guidance Revision: Possible revision if trends continue positively in Q2 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Expected in the acute care segment to be around 5% to 6%, split evenly between price and volume .
      2. Volume and Pricing: Anticipated moderation in volumes with increased acuity and pricing .
      3. Physician Expenses: Expected to grow by the overall inflation rate .
      4. Labor Costs: Continued improvement in premium pay labor trends .
      5. Supplemental Revenues: Additional $140 million of Nevada supplemental revenues .
      6. Behavioral Health: Forecasts same-store adjusted patient day growth to exceed 2.1% .
      7. Margins: Cautious about margin expansion due to past volatility .
      8. Medicaid Supplemental Payments: Importance acknowledged with potential capping by CMS .

    Latest news

    Recent developments and announcements about UHS.

    Financial Actions

      New Share Buyback Program

      ·
      Oct 1, 2024, 12:00 AM

      Universal Health Services, Inc. (UHS) has announced a new buyback program. The key details are as follows: UHS has authorized the repurchase of up to $500 million of its outstanding common stock. This program is set to be executed over the next 12 months and will be funded through a combination of cash on hand and cash generated from operations. The buyback program is intended to enhance shareholder value by reducing the number of shares outstanding, thereby increasing the ownership stake of remaining shareholders .