Universal Health Services, Inc. Q1 FY2026 earnings call

• Talkspace acquisition: Announced on March 9, Talkspace is a market leader in virtual outpatient behavioral health care. Represents multiyear value creation opportunity with access to new outpatient revenue growth sources. Expected to be accretive to earnings post-closing, increasingly so over time, with effective EBITDA multiple in single-digit range by year three. • Quarter performance: Met internal same-facility revenue growth and earnings objectives despite dynamic operating backdrop, due to solid expense management and higher contributions from pricing. Expect same-facility growth to be more balanced between volume and pricing as year progresses. • Technology: Enterprise-level AI governance process active, focused on operational (impact quality/patient experience) and administrative (increase efficiency) domains. Deployed and scaled 8 AI use cases in revenue cycle operations in 2025, focusing on clinical operations in 2026 to improve hospital-level efficiency and patient experience with Hippocratic AI. • Capital expenditures: Spent $217 million on capital expenditures in first quarter 2026. Invested in acute care de novo hospital in Florida, bed towers/replacement hospital projects, and behavioral health de novo hospitals. Acquired 675,000 shares at $127 million cost, with $1.3 billion repurchase authorization available, expecting active share repurchase in 2026. • Credit facilities: Expanded aggregate capacity of credit facilities by $900 million in late April for Talkspace transaction, other acquisitions, and returning capital to shareholders.

Acute segment: Same-facility net revenues increased 8.2% in first quarter of 2026, up 6.2% excluding health plan impact. Adjusted admissions at acute care hospitals declined vs first quarter 2025, impacted by weaker flu/respiratory activity and winter weather. Acute care same-facility revenue per adjusted admission increased 6.3% reported, 4.9% excluding prior-period supplemental program net benefit. Same-facility segment EBITDA grew 11.7%. Health insurance exchange trends: estimated $15 million impact, exchange adjusted admissions declined ~5%, reiterating full-year $75 million pretax impact. Behavioral health segment: Same-facility net revenues increased 7.3%, supported by 5.8% increase in revenue per adjusted patient day and 1.6% increase in adjusted patient days. Same-facility segment EBITDA increased 8.4%. Winter weather impacted behavioral health volume growth by ~40 - 50 basis points. Wage trends in behavioral expected to grow ~6% in 2026, moderating from 2025's 7% - 8%.

• Reiterating financial and operating forecast established on February 25 in conjunction with fourth quarter earnings. • Plan to reevaluate annual guidance as necessary in conjunction with second quarter earnings in July. • Full-year $75 million pretax impact from health insurance exchange trends assumes exchange declines will steepen as year progresses. • Expect continued ramp-up of new facilities, including Cedar Hill in D.C., Florida de novo hospital, and others, with expected impact on earnings. • Anticipate moderation in wage pressures in behavioral vs 2025, and continued improvement in volumes as year goes on.

• Weather and flu impacts: Early quarter flu and weather impacted acute care volumes, with flu season largely over by March but weather impacts concentrated in January - February. • Health insurance exchange dynamics: Decline in HIX volume and potential for HIX patients to lose coverage, leading to higher bad debt and uncompensated care. • Payer mix changes: Slight increases in uninsured and Medicare, slight decreases in Medicaid utilization, which could impact financials. • California staffing requirements: Renewed or expanded program in California is less certain, potential benefit not estimated until further consensus between state and CMS. • Behavioral health staffing challenges: Still a focus to meet strong demand due to staffing issues in certain markets and roles.

Q: Hi, everybody. Thanks. I appreciate the number you gave on the behavioral side, 4.3% as sort of the normalized core growth. There are a lot of moving parts in the acute business: the negative impact from the weather and the flu, and on the positive side some DPP variance year to year. Can you parse those out and give us a sense of what the core grew on an EBITDA basis in the acute side, possibly? And then, on AI use cases that Marc called out, can you pick two or three that are really meaningful and delve a bit more into the opportunity to deploy AI?

A: I think it was in the low single-digit range, A.J. On AI, we are focused on administrative functions to increase efficiency and on clinical operations where we can impact patient experience and improve outcomes. We have already deployed and scaled eight different AI use cases in our revenue cycle operations, which are yielding significant benefits, including improvements in denials management and revenue capture. We are also doing a lot of things that touch the patient experience. We are not doing much in the core clinical decision space yet, but over time we expect progress there as well.

Q: Thanks. Good morning. I wanted to check back in on the $46 million of combined Nevada and Ohio out-of-period Medicaid supplemental payments. I think we are calculating around a $120 million to $130 million year-over-year benefit from total Medicaid supplemental payments in the quarter. Is that a fair characterization? And if so, can you help bridge what would indicate a decent step up in core EBITDA ramp for the remainder of the year to meet that 5% growth expectation?

A: That is accurate, and it is worth noting that none of what you enumerated was outside of our expectations. The vast majority of DPP we recorded in Q1 was in our guidance. If you exclude the $46 million of out-of-period DPP in Q1, you will have a good run rate for the rest of the year, and that number is consistent with what we disclosed in our 10-K and will disclose in our first quarter 10-Q as our estimated DPP for the year. We recognized that we would have this significant benefit in Q1 largely because we had a number of large DPP programs last year, for example Tennessee and D.C., that were not approved and therefore recorded until after the first quarter. As far as the ramp for the rest of the year, our overall results were within our expectations, and that implies we expect a ramp in our earnings as the year goes on to get to that core level growth of 5% embedded in our guidance. Those assumptions include the continued ramp-up of new facilities, Cedar Hill in Washington, D.C., which celebrated its first-year anniversary this month, the opening of the new hospital in Florida, the opening of 178 new beds in existing hospitals in California, Las Vegas, and Florida, continued improvement in behavioral, both in outpatient revenues and operating leverage from volume growth. Volumes were on the softer side in both acute and behavioral, and we expect them to improve as the year goes on. Finally, we expect continued moderation in wage pressures in behavioral versus the significant investments in 2025.

Q: Good morning. Can we talk about bad debt reserve trends? With Medicaid disenrollment and the expiration of the ACA subsidies, how is that trending versus your expectation? And does your guidance assume deterioration of collectability on copays and deductibles?

A: We addressed the HIX dynamic as it relates to uncompensated care and bad debt in our prepared remarks. We saw a decline in HIX volume in Q1, and we recorded an additional reserve because some HIX patients presenting with coverage will later be deemed not to have coverage if they fail to make premium payments. We have taken a reasonably conservative position in Q1. We continue to believe our $75 million negative estimate for the impact of the HIX subsidies expiring is appropriate; it will get larger as the year goes on, which was always our expectation, and that impact largely is reflected in higher bad debt and uncompensated care. Other than that, no dramatic changes in payer mix: slight increases in uninsured and Medicare, slight decreases in Medicaid utilization, and no big changes in denials or patient status changes. Investments in technology, people, and process in our revenue cycle, particularly in acute, are helping us keep pace with payers. We will increase that focus in behavioral throughout 2026.

Q: Following up on pricing, it seemed like rate outperformed even excluding the DPP. What drove the stronger price in the quarter, and why do you expect moderation for the rest of the year?

A: Mix was a factor. With significantly lower flu this year, by definition the remaining patients were of higher acuity; flu and respiratory are lower-acuity cases. We also saw healthy increases in more acute service lines—cardiology, orthopedics, and neurology—which supported acuity and pricing. We expect a more balanced contribution between rate and volume as the year progresses.

Q: And on professional fees, any trend updates and what are you doing to alleviate pressure, particularly in radiology?

A: Our guidance contemplated professional fees rising at an inflationary single-digit rate, maybe toward the high single digits, and we are largely operating within that range. We are addressing pressure from certain hospital-based physicians by running more competitive RFPs for coverage and reducing locums usage, which is more expensive. It is a daily operational focus, but we have been successful keeping fees manageable.

Q: Hi, good morning. On the HIX volume decline, can you talk more about payer mix in the quarter?

A: We saw a decline in HIX volumes, a slight decline in Medicaid utilization, a slight increase in uninsured volumes, and a slight increase in Medicare volumes—no major changes beyond that.

Q: Thanks. And on supplemental payment programs, sounds like nothing new was approved this quarter. Any update on Florida and California?

A: In Florida, there is a high level of confidence among providers, based on feedback from the state, that the pending 2025 program is likely to be approved. We do not know the exact timing. We have been estimating about a $50 million benefit, and when we see the final approvals, that benefit could be measurably higher; we will adjust guidance when appropriate. In California, a renewed or expanded program is much less certain. We are not estimating a potential benefit there until there is further consensus between the state and CMS, although it is possible an expanded program could be meaningful.

Q: Thanks. On core growth, ex-DPP your core EBITDA looks down about 5% to 6% by my math. Anything in last year’s first quarter that did not reoccur, or anything else driving the decline?

A: It is difficult to respond with precision without your calculation in front of me, but the items you referenced were anticipated and embedded in our guidance. We understood the difficult DPP comparison in Q1 and that our earnings trajectory would need to increase over the year to get to the core 5% growth embedded in guidance. We believe we can get there for the full year, but we are not at that core 5% growth in the quarter when excluding DPP and other nonrecurring items.

Q: Thank you. On HIX trends, you cited a 5% decline in volume, but for the year you assume 25% to 30% of HIX patients lose coverage. Are you updating that assumption based on 1Q results?

A: While we could identify a 5% decline in HIX volumes in Q1, we expect some patients recognized as HIX will later be identified as not having coverage due to nonpayment of premiums. Our reserve reflects a higher effective HIX volume decline, probably in the low double digits—around 10% to 12%. We continue to believe the decline could reach 25% to 30% for the year. We were not expecting to be at that level in Q1. There are still dynamics around premium payments and coverage status that we will learn more about over the next quarter or more, and we are being conservative from an accounting perspective.

Q: Good morning. Given flu and weather were early quarter dynamics, can you comment on volume progression throughout the quarter in each segment, including exit rates in March and April?

A: The flu comparison was more significant in January and February; flu season was largely over by March in both years. Weather impacts were concentrated in January and February and were market-specific. March was a “cleaner” month—no real flu impact and no significant weather impact—and volumes showed a more normative year-over-year increase.

Q: Following up on March and April trends, did you see a pickup from deferred care pushed by winter storms? And any commentary on acute care surgical volumes and acuity shifts year over year?

A: Elective procedures that are scheduled and postponed due to weather tend to be rescheduled. The bigger acute impact was flu, which is not something you recover. We estimate $5 million to $7 million of weather impact, mostly in the D.C. market where burst pipes closed beds temporarily. You recover from closures operationally, but you do not recapture the lost patient days. On the behavioral side, you may recapture outpatient visits, but inpatient trauma-type admissions are generally redirected elsewhere if patients cannot reach the hospital. We are not counting on significant recapture of deferred procedures in our growth outlook.

Q: On the outpatient behavioral strategy and Talkspace, how has the Thousand Branches initiative been going, and did it inform the Talkspace decision?

A: Things are going well, though deployment has been a bit slower due to state-by-state factors. Thousand Branches did not drive the Talkspace decision. We have known Talkspace for many years and have long focused on building outpatient capabilities. The Talkspace opportunity emerged when they indicated an openness to strategic options, and we moved forward. Our internally developed outpatient offerings will complement Talkspace as we build the full continuum.

Q: You mentioned the effective multiple could be single digits a few years out. What gives you that confidence?

A: We have confidence based on a full look at their business model, recent performance, and their standalone plans for the next 24 months, combined with the incremental programs we can drive together. Today’s multiple is harder to assess off current earnings, but with their growth path and our combined initiatives, we expect earnings to scale such that in a few years the effective multiple will be in the single digits.

Q: Good morning. On volumes, what is your current outlook for Medicaid volumes for the year in both segments, and are you seeing any signs of volatility returning through administrative churn or eligibility friction?

A: We saw slight declines in Medicaid utilization in Q1, which is consistent with our expectations for the year. Outside of HIX, payer mix changes in Q1 were relatively minor and consistent with expectations, and that is how we are thinking about the rest of the year.

Q: As a follow-up on de novos, can you update on recent openings in Nevada and D.C., and the Florida hospital set to open next month, and how you are thinking about full-year EBITDA performance?

A: As part of our guidance, we said the new Florida hospital would likely have an operating loss in its first year, as most de novos do. We expect that loss to be largely offset by gains at Cedar Hill in D.C. We still believe that, though Cedar Hill’s improvement is likely more back-end loaded than originally contemplated due to weather and other dynamics. The additional capacity coming online in Q2—new towers in Las Vegas and on Florida’s West Coast, and a replacement facility in California—are in existing markets and should ramp relatively quickly, contributing positively in the back half.

Q: On denials activity, are you seeing accelerating levels of denials but navigating more effectively? Any color by payer class?

A: We are not seeing a material increase in denials. Others have cited more aggressive payer behavior; our investments in revenue cycle technology, personnel, and processes—particularly in acute—are allowing us to keep pace. We plan similar investments in behavioral over the next 12 to 18 months.

Q: Good morning. Update on behavioral supply-demand equilibrium—any incremental shifts on supply or demand versus the last couple of years?

A: Behavioral demand remains strong. Our greatest challenge has been meeting that demand due to staffing in certain markets and roles—nurses, therapists, mental health technicians. We have made progress but it remains a focus. Demand is also shifting more to outpatient delivery, similar to the long-term trend in acute. We are addressing this through freestanding outpatient facilities (Thousand Branches), step-down programs, and the Talkspace acquisition.

Q: As a follow-up on outpatient strategy and capital allocation, how are you balancing buybacks relative to allocating more capital toward building out outpatient and digital capabilities?

A: Since announcing Talkspace, we have emphasized it is not an either/or with share repurchase. We continue to view buybacks as compelling and intend to remain active; our previously discussed annual target of $800 million to $900 million remains a minimum target. The Talkspace deal modestly increases leverage from just under 2x to just over 2x, leaving plenty of capacity for additional M&A, an aggressive CapEx program, and continued returns of capital through buybacks and dividends.

Q: Thank you. Following up on core growth math, inputs I am considering include net DPPs, the exchange subsidy headwind, California staffing requirement headwind, flu/weather impact, Palm Beach Gardens de novo costs, and Cedar Hill which sounds more back-end loaded now. Anything else to consider, or any nonrecurring items from last year’s first quarter?

A: Those are the items we have discussed, and none were a surprise to us in the quarter. Overall results were consistent with our internal expectations. Weather and flu were the less predictable elements, but we referenced both on our Q4 call. On Cedar Hill and the new Florida hospital, we continue to expect a near wash for the year, with Cedar Hill more back-end loaded.

Q: And on behavioral labor efforts focused on retention of year-one hires—last time you cited turnover moving down from as high as 50% to at least 40% over the last half year. Where does turnover stand today, and what was the pre-COVID reference point?

A: Behavioral salary and wage expense was up about 8% in 2025 and moderated to roughly 6% to 7% in Q1 2026. We expect further moderation as the year progresses, reflecting less aggressive hiring, moderation in wage increases, and measurable progress in turnover. Turnover remains elevated industrywide but is improving meaningfully versus last year. Pre-COVID turnover was materially lower than today’s levels, and our initiatives are aimed at continuing to narrow that gap.