Universal Health Services, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Adjusted net income attributable to UHS was $5.69 per share, up 53% YOY. Revenue grew 13.4% YOY.
• Medicaid Benefit: $90M net benefit from the recently approved supplemental Medicaid program in DC. Projected 2025 full year net benefit from Medicaid programs is $1.3B.
• Hospital Openings: West Henderson Hospital in Nevada and Cedar Hill Regional Medical Center in DC made progress; Cedar Hill expects to exit 2025 at breakeven or better. Alan B. Miller Medical Center in Florida slated for spring 2026.
• Outpatient Initiatives: Opened 4 freestanding EDs in acute care; in behavioral health, focusing on outpatient strategy with 10 step-in programs planned.
• Capital and Stock Repurchase: Spent $734M on cap ex YTD. Board authorized new $1.5B stock repurchase program, bringing total authorization to $1.759B.

Segment Performance

• Acute Care: Adjusted net income attributable to UHS for the third quarter of 2025 was $5.69 per share, a 53% increase from Q3 2024. Revenue growth was 13.4% YOY. Same-facility net revenues increased 12.8% YOY. Opened 4 freestanding EDs, bringing total to 34. Revenue per adjusted admission was up 9.8% on a reported basis.
• Behavioral Health: Same-facility net revenues increased 9.3% YOY. Revenue per adjusted patient day was up 7.9%. Adjusted patient days increased 1.3%. Focus on outpatient behavioral strategy with plans to open 10 step-in programs this year.

Guidance

• Increased midpoint of 2025 adjusted EPS guidance by 6% to $21.80 per diluted share from $20.50.
• Projected 2025 full year net benefit from Medicaid programs is $1.3B, including $90M from DC program with additional expected in Q4 2025.
• Estimates that starting 2028, aggregate net benefit will be reduced annually by $420M to $470M by 2032 due to OB3 legislation.

Risks

• Potential reduction in Medicaid net benefit starting 2028, with cumulative impact range increased due to recent supplemental program approvals.
• Labor tightness in some markets affecting behavioral health operations.
• Uncertainties in state-by-state interpretations and computations related to OB3 legislation.

Question and Answer

Q: Justin Lake with Wolfe Research asked about pending Medicaid supplemental program approvals in Florida and Nevada, and exchange contribution.

A: Steve Filton responded that Florida and Nevada pending approvals could bring $75M to $80M in net benefit, and exchange volumes are in 6%-6.5% range with potential $50M to $100M negative impact if subsidies expire.

Q: Jason Cassorla with Guggenheim inquired about the guidance bridge and behavioral health managed care.

A: Steve Filton explained guidance increase components including $140M DPP, $35M malpractice increase, and $18M legal settlement. On behavioral health managed care, noted consistent payer behavior with focus on clinical reputation.

Q: Ben Hendrix with RBC Capital Markets asked about surgical trends in acute care.

A: Steve Filton said surgical volumes increased slightly, with case mix up slightly, and outpatient surgical trends improving from prior year.

Q: A.J. Rice with UBS asked about DPP payments and pricing sustainability.

A: Steve Filton said litigation settlement was recorded in Q3, DPP spread ratably between Q3 and Q4. Acute care pricing sustainable in 3% range, behavioral in 3.5%-4.5% range.

Q: Kevin Fischbeck with Bank of America asked about behavioral health supply-demand and outpatient focus.

A: Marc Miller and Steve Filton discussed staffing stabilization enabling growth, and focus on outpatient step-in programs with existing referral and contract advantages.