Universal Health Services' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Universal Health Services, Inc. ( UHS)

Q4 2011 Earnings Call

February 28, 2012 9:00 am ET

Executives

Steve Filton - SVP and CFO

Alan Miller - CEO

Analysts

A.J. Rice - Susquehanna Financial Group

Adam Feinstein - Barclays Capital

Tom Gallucci - Lazard Capital Markets

Ralph Giacobbe - Credit Suisse First Boston

Justin Lake - UBS Securities

Gary Lieberman - Wells Fargo Securities

Kevin Fishbeck - Bank of America-Merrill Lynch

Darren Lehrich - Deutsche Bank

Christine Arnold - Cowen & Co.

Whit Mayo - Robert W. Baird

Kimberly Purvis - Cross Current Research

Presentation

Operator

At this time, I would like to welcome everyone to the Q4 earnings conference call. (Operator Instructions) Thank you. I would now like to turn the call over to your host Mr. 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 full year and fourth quarter ended December 31, 2011.

During this conference call Alan and I will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecast projections and forward-looking statements. We recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2011. We would like to highlight just a couple of developments and business trends before opening the call up to questions.

As discussed in our press release last night, the company recorded net income attributable to UHS per diluted share of $4.04 for the year and $0.98 for the quarter. After adjusting for a reduction in malpractice reserves relating primarily to prior years, our adjusted net income attributable to UHS per diluted share for the quarter ended December 31, 2011, was $0.91.

Included in the quarter is a year-to-date reduction to our effective tax rate due to final implementation of certain state income tax planning and the securing of certain state tax credits.

We define operating margin as operating income or net revenue less salaries, wages, and benefits, other operating expenses, supplies expense and doubtful accounts divided by net revenue. Our operating margins increased to 16.7% during the quarter ended December 31, 2011, as compared to 15.7% during the comparable prior year period.

On a same-facility basis, revenues in our behavioral health division increased 6.3% during the fourth quarter of 2011. We note that the PSI facilities are included in our same-store data for one month this quarter. Adjusted admissions and patient days to our behavioral health facilities owned for more than a year increased 8.3% and 4.1% respectively during the fourth quarter. Revenue per adjusted patient day rose 2.4% during the fourth quarter of 2011 over the comparable prior year quarter.

Operating margins for our behavioral health hospitals owned for more than a year increased to 24.7% during the quarter ended December 31, 2011 as compared to 22.6% during the comparable prior year period.

On a same-facility basis in our acute division, revenues increased 1.6% during the fourth quarter of 2011. The increase resulted primarily from a 1.3% increase in revenues per adjusted admission. Adjusted admissions to our hospitals owned for more than a year were relatively flat. The relatively muted revenue growth reflects a $6 million reduction in the quarter of Medicaid disproportionate share and UPL reimbursements, primarily related to Texas as well as the continued impact of negative economic trends in certain of our local markets.

On a same-facility basis, operating margins for our acute care hospitals decreased to 13.3% during the fourth quarter of 2011 from 14.4% during the fourth quarter of 2010. We also note that they were no EHR related revenues included in our quarterly financial statements.

Our acute care hospitals provided charity care and uninsured discounts based on charges at established rates, amounting to $248 million and $208 million during the three month periods ended December 31, 2011 and 2010.

As a percentage of acute care net revenues, bad debt, charity care expense and the uninsured discount in this year's fourth quarter were at levels higher than those experienced during the fourth quarter of 2010. However, due primarily to the increase in behavioral health revenues in the very low levels of bad debt and uninsured discounts in that business or overall percentage of bad debts, charity care and uninsured discounts were lower than those experienced during the fourth quarter of 2010.

Our cash from operating activities was approximately $156 million during the fourth quarter of 2011 as compared to $89 million in the fourth quarter of 2010. Our accounts receivable days outstanding increased to 49 days during the fourth quarter of 2011, primarily due to a slowdown in Medicaid payments from the State of Illinois.

At December 31, 2011, our ratio of debt to total capitalization was 61%. We spent $90 million on capital expenditures during the fourth quarter. Included in our capital expenditures were the construction cost related to a 97 bed replacement behavioral hospital in Kentucky, which recently opened and the ongoing construction of a new acute care hospital in Temecula, California.

We opened a total of 263 new behavioral health beds at some of our busiest facilities in 2011. And effective in the first quarter of 2012, we have completed all of the divestitures required by the FTC as part of the PSI acquisition. The proceeds from these divestitures totaled approximate $115 million consistent with our expectations.

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