Universal Health Services, Inc. Q2 FY2025 earnings call

• Net income attributable to UHS per diluted share was $5.43 for Q2 2025, and adjusted net income per diluted share was $5.35. - In acute care hospitals, same-facility net revenues increased despite surgical volumes being down due to factors like West Henderson Hospital's impact, and operating expenses were well managed. - Behavioral health hospitals saw net revenue growth excluding the Tennessee program impact, with revenue per adjusted day and adjusted patient days increasing. - Cash generated from operating activities decreased in the first half of 2025. - Capital expenditures in the first half of 2025 totaled $505 million, with 25% related to new/replacement facilities in California and Florida. - Repurchased 1.9 million shares at a total cost of approximately $332 million since 2019. - Discussed the impact of the One Beautiful Bill Act on Medicaid programs and its potential effect on future net benefit. - West Henderson Hospital had a cannibalization impact on acute care volumes and revenues. - Behavioral health division has de novo growth with new hospitals and joint ventures.

In the second quarter of 2025, for the acute care hospital segment, on a same-facility basis, adjusted admissions to acute care hospitals increased 2.0% year-over-year, while surgical volumes were slightly down. However, same-facility net revenues increased by 5.7% compared to last year's second quarter after excluding the impact of the insurance subsidiary. West Henderson Hospital, which opened in late 2024, had a cannibalization impact on the division's same-facility volumes and revenues. Other operating expenses on the same-facility basis increased 3.1% over last year's second quarter, and same-facility EBITDA increased by 10%. For the behavioral health hospitals segment, excluding the impact of the Tennessee Medicaid directed payment program, same-facility net revenues increased by 5.4% during the second quarter of 2025, driven by a 4.2% increase in revenue per adjusted day and a 1.2% increase in adjusted patient days compared to the prior year's second quarter.

Marc Miller announced that based primarily on increased DPP reimbursement, the midpoint of the 2025 EPS guidance is increased by 7% to $20.50 per diluted share, excluding Medicaid supplemental programs in Washington, D.C. and other unapproved programs.

• Uncertainty regarding the implementation of the One Beautiful Bill Act and its impact on Medicaid program changes, which could reduce aggregate net benefit starting from 2028. - Labor market challenges affecting staffing in both acute care and behavioral health segments, including difficulties in hiring and retaining therapists. - Challenges in revenue cycle interactions with managed care organizations, including denials and denial appeals.

Q: Pito Chickering asked about the $360 million to $400 million net impact in 2032 with current law and how to offset it.

A: Steve G. Filton said there's time to strategically alter the business approach, shift revenue sources, and implement cost-cutting initiatives, and the industry has pivoted before. Marc D. Miller added that states are recognizing the issue and changes are expected.

Q: Andrew Mok asked about Cedar Hill Hospital's accreditation status and guidance.

A: Steve G. Filton said Medicare certification was awaited, imminent, and there was a $25 million loss in Q2 with another $25 million drag in the back half, expecting ramp-up to profitability by 2026.

Q: Jason Cassorla asked about pathway to grabbing more outpatient share in behavioral health.

A: Steve G. Filton said it's through step-down business and step-in business, focusing on keeping patients in programs and building more freestanding facilities.

Q: Andrew Mok asked about EBITDA guidance and offsets.

A: Steve G. Filton said new DDP revenues offset some drag from Cedar Hill and behavioral volume shortfall.

Q: Benjamin Rossi asked about behavioral pricing breakdown and volume growth.

A: Steve G. Filton said pricing increased 4.2% and adjusted patient days up 1.2%, with 4% to 5% sustainable pricing growth and outpatient volume opportunity.

Q: Benjamin Rossi asked about acute care length of stay.

A: Steve G. Filton said it's down due to post-pandemic trends, with room for further reduction but challenge in placement of patients.

Q: Craig Hettenbach asked about long-term behavioral business model.

A: Steve G. Filton said expected 6%-7% revenue growth with 4%-5% pricing and 2.5%-3% volume.

Q: Craig Hettenbach asked about AI and technology offset.

A: Steve G. Filton said examining AI uses in revenue cycle and clinical follow-up, freeing up staff.

Q: A.J. Rice asked about managed care impact and labor.

A: Steve G. Filton said managed care challenges in revenue cycle, labor challenges in staffing.

Q: A.J. Rice asked about DPP and long-term impact breakdown.

A: Steve G. Filton said 60% behavioral and 40% acute exposure, DC program pending approval.

Q: Matthew Gillmor asked about West Henderson cannibalization impact.

A: Steve G. Filton said estimated 50-60 basis points drag on adjusted admissions and revenues.

Q: Matthew Gillmor asked about expense management.

A: Steve G. Filton said physician expenses under 5% growth, pressure from radiologists.

Q: Sarah James asked about outpatient behavioral target.

A: Steve G. Filton said 2.5%-3% adjusted patient day target, focus on capturing outpatient share.

Q: Ryan Langston asked about Vegas volume and capital deployment.

A: Steve G. Filton said Vegas volumes seeing slowdown, incremental free cash flow likely for share repurchase.

Q: Hua Ha asked about behavioral health margins and DPP offsets.

A: Steve G. Filton said confident in shifting programming to offset DPP headwinds over time.

Q: Hua Ha asked about Medicaid work requirements.

A: Steve G. Filton said difficult to predict impact, more optionality in behavioral for patient targeting.

Q: Kevin Fischbeck asked about behavioral volume weakness.

A: Steve G. Filton said combination of competition, staffing, and focus on improving processes.

Q: Joshua Raskin asked about AI in RCM and tariffs.

A: Steve G. Filton said combination of internal and external AI use, tariffs having little impact.

Q: Raj Kumar asked about inpatient-only list proposal.

A: Steve G. Filton said difficult to project impact without details of specific deal.