Universal Health Services, Inc. (NYSE:UHS) Q4 2022 Earnings Call Transcript

Universal Health Services, Inc. (NYSE:UHS) Q4 2022 Earnings Call Transcript February 28, 2023

Steve Filton: I'm Steve Filton. Marc Miller is joining us this morning. Welcome to this review of Universal Health Services results for the Fourth Quarter Ended December 31, 2022. During the conference call, we'll be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2022. We'd like to highlight just a couple of developments and business trends before opening the call up to questions.

As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $2.43 for the fourth quarter of 2022. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, primarily an asset impairment charge associated with an acute care hospital in Las Vegas, our adjusted net income attributable to UHS per diluted share was $3.02 for the quarter ended December 31, 2022.

Marc Miller: During the fourth quarter, our acute care hospitals experienced a decrease in the number of patients with a COVID diagnosis treated in our hospitals as compared to the prior year quarter. As a percentage of total admissions, COVID diagnosed patients made up 7% of our admissions in the fourth quarter of 2021, but only about half of that percentage of admissions in the fourth quarter of 2022. This decline in COVID patients resulted in reduced revenues due to the lower acuity and less of the incremental government reimbursement associated with COVID patients. While overall surgical volumes tended to recover to pre-pandemic levels, there was a measurable shift from inpatient to outpatient, resulting in further overall revenue softness.

Meanwhile, the amount of premium pay in the quarter, which declined from a peak of $153 million in the first quarter was $85 million in the fourth quarter, similar to what it was in the third quarter. In total, there was insufficient revenue growth to offset the accelerated rate of wage increases and other inflationary pressures, leading to an acute EBITDA result in the quarter below our internal forecasts. At the same time, this decline in COVID activity allowed our behavioral hospitals to continue to reduce their labor vacancies, resulting in a reduction of the capping of bed capacity. The effect of the increased revenue largely offset higher labor costs, leading to a behavioral EBITDA result in the quarter more in line with our internal forecasts.

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Steve Filton: We also note that the fourth quarter included approximately $10 million of losses related to start-up facilities. Our cash generated from operating activities was $297 million during the fourth quarter of 2022 as compared to $322 million during the same quarter in 2021. The decline was largely due to the opening of new facilities and the timing of receipt of certain supplemental reimbursements. We spent $734 million on capital expenditures during 2022. Reaction to the earnings softness experienced during the year, we reduced the pace of our capital expenditure spend by about one quarter from our original plans for the year. Similarly, we moderated the trajectory of our share repurchases. For the full year of 2022, we acquired $811 million of our own shares pursuant to our share repurchase program.

Since the inception of the current share repurchase program in 2014, we have repurchased more than 20% of the company's outstanding shares. As of December 31, 2022, we had $886 million of aggregate available borrowing capacity pursuant to our $1.2 billion revolving credit facility.

Marc Miller: Our 2023 operating results forecast, which was provided in last night's release, Envision's 2023 as a year of continued transition into a post-pandemic world. We anticipate that volumes in both segments and acuity in our acute business will continue their recovery trajectory and gradually begin to resemble the patterns we experienced before the pandemic. Similarly, we expect to be able to reduce premium pay by about one-third in 2023 from 2022 levels as we continue to increase hiring rates and reduce turnover as a result of multiple recruitment and retention programs that have been implemented over the last few years. Again, we've assumed these improvements will occur incrementally during the year. But will be partially offset by wage pressures created by a continued shortage of nurses and other clinical personnel and by broader inflationary pressures affecting our other expenses.

We note that in our Acute segment, physician subsidy expense is specifically anticipated to increase by a substantial amount. Other headwinds that are reflected in our 2023 forecast are approximately $100 million in COVID-related reimbursement received in 2022, but phased out in 2023 as well as a reduction of about $30 million in supplemental reimbursement payments as disclosed in our 10-K. Finally, we will incur a significant increase in interest expense in 2023. About three quarters of which was due to rising interest rates and the remainder to increased borrowings. Despite these challenges, we note that some of the operating indicators in early 2023 have been encouraging, especially in our behavioral health business. During the pandemic, we have found the pace of recovery from several of the aforementioned challenges has often been slower than we originally anticipated and have reflected that gradual cadence of recovery in our forecast.

However, we remain confident in the fundamental strength of both our business segments, given our well-positioned hospital franchises around the country. We are pleased to answer questions at this time.

Operator: Thank you. Our first call comes from the line of Andrew Mok with UBS. Your line is now open.

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