Universal Health Services' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Universal Health Services, Inc. (UHS)

Q2 2012 Earnings Call

July 27, 2012 09:00 a.m. ET

Executives

Alan Miller – Chairman, Chief Executive Officer

Steve Filton – Chief Financial Officer

Analysts

Tom Gallucci – Lazard Capital

A.J. Rice – UBS

Ralph Giacobbe – Credit Suisse

Gary Lieberman – Wells Fargo

Darren Lehrich – Deutsche Bank

Kevin Campbell – Avondale Partners

Gary Taylor – Citigroup

John Ransom - Raymond James

Frank Morgan – RBC Capital Markets

Kevin Fischbeck – Bank of America/Merrill Lynch

Presentation

Operator

Good morning, my name is Benitta, and I will be your conference operator today. At this time, I would like to welcome everyone to the UHS 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 call over to Mr. Steven Filton, Chief Financial Officer.

Steve Filton

Thank you and good morning. Alan Miller, our CEO is also joining us this morning. Welcome to this review of Universal Health Services’ results for the first quarter ended March 30, 2012.

During the 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.

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 statements and risk factors in our Form 10-K for the year ended December 31, 2011 and our Form 10-Q for the quarter ended March 31, 2012.

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 reported net income attributable to UHS per diluted share of $1.10 for the quarter, after adjusting for the prior year impact of several reimbursement items recorded during the quarter, and the revenues and expenses associated with the implementation of electronic health records applications at our acute care hospitals, our adjusted net income attributable to UHS per diluted share for the quarter ended June 30, 2012, was $1.12.

On the same facility basis, revenues in our Behavioral Health division increased 4.1% during the second quarter of 2012 over the comparable prior year quarter. Adjusted admissions inpatient days who are behavioral health facilities owned for more than a year increased 3.3% and 0.2% respectively during the second quarter.

Revenue per adjusted patient day rose 3.5% during the second quarter of 2012 over the comparable prior year quarter. Operating margins for our behavioral health hospitals owned for more than a year increased to 28.6% during the quarter ended June 30, 2012, as compared to 26.9% during the comparable prior year period.

On a same facility basis in our acute care division, revenues decreased 2.2% during the second quarter 2012. The decrease resulted primarily from a 1.3% decrease in adjusted admissions and a 0.9% decrease in revenue per adjusted admissions who are hospital’s own for more than a year.

The revenue decline reflects a difficult comparison to the prior year quarter when our net revenues were favorably impacted by positive changes in payer mix, especially stabilization in uninsured volumes.

On a same facility basis operating margins for our acute care hospitals decreased to 16.3% during the second quarter of 2012 from 17.8% during the second quarter of 2011. Our acute care hospitals provided charity care and uninsured discounts based on charges at established rates amounting to $266 million and $239 million during the three-month period ended June 30, 2012 and 2011 respectively.

As a percentage of acute care net revenues, bad debts, charity care expense and the uninsured discount in this year’s first quarter were at levels higher than those experienced during the second quarter of 2011. However, due primarily to the increase in behavioral health revenues and the very low levels of bad debt and uninsured discounts in that business, our overall percentage of bad debt, charity care and uninsured discounts were lower than those experienced during the second quarter of 2011.

Our cash from operating activities was approximately $246 million during the second quarter of 2012, as compared to $173 million in the second quarter of 2011.

Our accounts receivable days outstanding decreased to 54 days during the second quarter of 2012, from 56 days during the first quarter of this year as we collected a portion of outstanding Medicaid receivables from the State of Illinois.

At June 30, 2012 our ratio of debt-to-total capitalization was 57.7% and debt to EBITDA was 2.99. We spent $90 million on capital expenditures during the second quarter, included in our capital expenditures during the first half of 2012 were the construction cost related to the construction of a new acute care hospital in Temecula, California, a new bed tower at our Wellington facility in Florida and 222 beds added to facilities within our behavioral health division.

Against the backdrop of a sluggish economic recovery and based upon the operating trends and financial results experienced during the first six months of 2012, our revised estimated range of adjusted net income attributable to UHS for the year-ended December 31, 2012 is $4.25 to $4.35 per diluted share. This revised guidance, which represents a 2% to 3% decrease from our original 2012 guidance excludes the estimated favorable impact associated with the implementation of electronic health records applications at our acute care hospitals and the impact of the other items reflected on the supplemental schedule for the six months ended June 30, 2012 as disclosed in last night’s press release, as well as any incremental impact resulting from our previously announced acquisition of Ascend Health Corporation, which we expect to complete during the fourth quarter of this year.

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