Universal Health Services, Inc. (

UHS

)

Q2 2011 Earnings Call

July 28, 2011 9:00 AM ET

Executives

Steve Filton – SVP, CFO and Secretary

Alan Miller – Chairman and CEO

Analysts

A. J. Rice – Susquehanna Financial

Justin Lake – UBS

Adam Feinstein – Barclays Capital

Ralph Giacobbe – Credit Suisse

Darren Lehrich – Deutsche Bank

Tom Gallucci – Lazard Capital Markets

Whit Mayo – Robert

Frank Morgan – RBC Capital Markets

Christine Arnold – Cowen

Kevin Fishbeck – Bank of America

John Rex – JPMorgan

John Ransom – Raymond James

Arthur Henderson – Jefferies & Company

Jake Hindelong – Ticonderoga

Presentation

Operator

Compare to:
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Good morning. My name is Scheret and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Services Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the conference over to Steve Filton. Sir, you may begin.

Steve Filton

Thank you and good morning. I am Steve Filton. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Services results for the second quarter ended June 30th, 2011. As discussed in our press release last night the company recorded adjusted net income per diluted share of $1.04 for the quarter compared to $0.68 during the second quarter of 2010 as calculated on the supplemental schedules included with last night’s press release.

We are maintaining our previously announced guidance for the full year with earnings per diluted share expected to be $3.85 to $4. During this conference call we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecast 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 estimates and risk factors in our Form 10-K for the year ended December 31st, 2010, and our Form 10-Q for the quarter ended March 31st, 2011. We’d like to highlight just a couple of developments in business trends before opening the call up to questions.

On a same-facility basis in our acute care division, revenue increased 6.1% during the second quarter of 2011. Adjusted admissions to our hospitals owned for more than a year were down approximately 1% for the quarter. On a same-facility basis, revenue per adjusted admission increased 7.1% over last year’s quarter. The increased revenue was due to higher acuity, improved payer mix, and strong commercial pricing.

We define operating margin as operating income or net revenue less salaries, wages, and benefits, other operating expenses, supplies expense and provision for doubtful accounts divided by net revenues. The impact of the prior year items included on the supplemental schedules are not included in our divisional operating margin.

On a same-facility basis, operating margins for our acute care hospitals increased to 15.2% during the second quarter of 2011 from 14.2% during the second quarter of 2010. The margin improvement resulted mainly from improved payer mix, higher acuity and strong commercial pricing.

Our acute care hospitals provided charity care and uninsured discounts based on charges at established rates amounting to 239 million and 190 million during the three month periods ended John 30, ‘11 and ‘10 respectively. As a percentage of gross revenue the combined total of bad debt, charity care and uninsured discount was slightly lower than last year’s second quarter.

On a same-facility basis, revenues in our behavioral health division increased 6.2% during the second quarter of 2011. Adjusted patient days at our behavioral hospitals owned for more than a year increased 3% during the second quarter and revenue per adjusted day increased 3.8% compared to the comparable prior year quarter. These same favorable trends were present in the results of the recently acquired PSI facilities which largely met our financial expectations for the second quarter.

Operating margins for our behavioral health hospitals owned for more than a year increased to 26.7% during the quarter ended June 30, 2011 as compared to 27.4% during the comparable prior year period, primarily due to the temporary closure of some capacity at one of our Pennsylvania facilities to repair certain physical plant problems.

Our cash flow from operating activities was $173 million during the second quarter of 2011 as compared to $88 million in the second quarter of 2010. Our accounts receivable days outstanding increased to 44 days during the second quarter of 2011 from 42 days in 2010.

At June 30, 2011, our ratio of debt to total capitalization was 63% and the ratio of debt to EBITDA was 3.8 times. We spent $60 million on capital expenditures during the second quarter. We opened a total of 176 new behavioral health beds at some of our busiest facilities during the first two quarters of 2011 and anticipate opening another 150 new beds during the remainder of this year.

At this point Alan and I would be pleased to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from A. J. Rice with Susquehanna Financial.

A. J. Rice – Susquehanna Financial

Hi, everybody. Thanks. Maybe just asking about the margins on the same-store basis on both sides of the business. You had a positive margin trend on the acute care side, it sounds like on a same-store basis. When you drill down to the specific expense items what were some of the dynamics there. And just to confirm, if you ex out that unusual item you would have been positive it sounds like on the psych side? I just want to make sure that’s true.

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