UNIVERSAL HEALTH SERVICES INC Q4 FY2024 earnings call

• Reimbursements: Aggregate net incremental reimbursements of approximately $50 million were recorded in Q4 2024, including $31 million from the Nevada state directed payment program. These exceeded earnings guidance projections. - Reserves: A $35 million increase in reserves for self-insured professional and general liability claims was recorded in Q4 2024, with a full-year 2024 increase of $79 million. - Capital Expenditures: $944 million was spent on capital expenditures in 2024, consistent with the forecast. West Henderson Hospital in Las Vegas was opened in late 2024, and Cedar Hill Medical Center in DC is planned to open soon, forecasted to be EBITDA positive in 2025. - Share Repurchase: $599 million of own shares were repurchased in 2024; since 2019, over 29.2 million shares (32% of outstanding) have been repurchased. - Operational Trends: Wage inflation and premium pay have moderated, operating expenses are well managed, and the company continues to invest in outpatient presence and continuum of care.

Acute Care Hospitals: In the fourth quarter of 2024, same-facility adjusted admissions increased 2.2%. Same-facility net revenues rose 8.7%, driven by a 5.3% increase in net revenue per adjusted admission. For the full year 2024, strong Acute Care revenues combined with effective expense controls led to a 13% increase in EBITDA even after excluding Medicaid supplemental payments. Behavioral Health Hospitals: Same-facility revenues in Q4 2024 increased by 11.1% primarily due to an 8.7% increase in revenue per adjusted patient day. Excluding year-over-year growth in Medicaid supplemental payments, same-facility revenue grew by 7.4%.

• 2025 EBITDA guidance ranges from 5% to 11% growth, based on historical trends and stable operations. - Behavioral same-facility adjusted patient day growth in the US is forecasted to be in the 2.5% to 3% range. - Acute division mid-single digit revenue growth, split evenly between price and volume. - Insurance subsidiary expected to contribute approximately $200 million to revenue.

• Uncertainty in Medicaid reimbursement, including potential changes in programs like state-directed payment programs. - Volatility in malpractice reserves and legal cases related to behavioral litigation. - Impact of political environment and potential changes in provider taxes or tariffs affecting supply expenses.

Q: Andrew Mok asks about the 2025 EBITDA guidance range and why it's wider than usual.

A: Steve Filton states the wider range is due to uncontrollable factors like government reimbursement changes and a need for conservatism.

Q: Ben Hendrix inquires about the decrease in DPP and its drivers.

A: Steve Filton says the decline is mainly due to prior period payments recognized in 2024.

Q: Ann Hynes asks about behavioral same-store patient days and drivers.

A: Steve Filton explains transient factors like holidays and winter weather affected Q4, but expects 2.5%-3% growth in 2025.

Q: Pito Chickering asks about leverage ratios and share repurchases.

A: Steve Filton mentions targeting high twos leverage, using free cash flow for repurchases, with potential to lever up.

Q: Joanna Gajuk asks about wage growth and DPP.

A: Steve Filton discusses wage moderation and DPP components, including prior period items and program-specific declines.

Q: Sarah James asks about behavioral portfolio expansion.

A: Steve Filton talks about expanding outpatient continuum, opioid disorder space integration.

Q: A.J. Rice asks about insurance revenue and hospital openings.

A: Steve Filton explains insurance subsidiary contribution and potential cannibalization impact of new hospitals on same-store numbers.

Q: Michael Ha asks about flu season impact and margin return.

A: Steve Filton says flu season has minimal impact and margin return is expected but faces structural hurdles.

Q: Benjamin Raskin asks about premium pay and tariffs.

A: Steve Filton discusses premium pay moderation and supply contract protections against tariffs.

Q: Scott Fidel asks about DPP, insurance revenue, and legal accruals.

A: Steve Filton provides DPP payment details, insurance revenue drivers, and legal accrual updates.

Q: Ryan Langston asks about labor trends and share repurchases.

A: Steve Filton discusses labor improvement and programmatic share repurchase approach.

Q: Jamie Perse asks about commercial payers and behavioral growth.

A: Steve Filton says behavioral pricing remains strong but payer behavior is challenging.