Universal Health Services, Inc. Reports 2021 Second Quarter Financial Results, Increases 2021 Full Year Earnings Guidance And Announces $1 Billion Increase To Stock Repurchase Program Authorization

KING OF PRUSSIA, Pa., July 26, 2021 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $325.0 million, or $3.79 per diluted share, during the second quarter of 2021, as compared to $251.9 million, or $2.95 per diluted share, during the second quarter of 2020. Net revenues increased 17.1% to $3.198 billion during the second quarter of 2021 as compared to $2.730 billion during the second quarter of 2020.

As reflected on the Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), our adjusted net income attributable to UHS during the second quarter of 2021 was $322.3 million, or $3.76 per diluted share, as compared to $250.2 million, or $2.93 per diluted share, during the second quarter of 2020. 

During 2021, we received approximately $189 million of additional funds from the federal government in connection with the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), substantially all of which was received during the first quarter of 2021. During the second quarter of 2021, we returned the $189 million to the appropriate government agencies utilizing a portion of our cash and cash equivalents held on deposit. Therefore, our results of operations for the three and six-month periods ended June 30, 2021 include no impact from the receipt of those funds.

Also, and as previously announced earlier this year, in March of 2021 we made an early repayment of $695 million of funds received during 2020 pursuant to the Medicare Accelerated and Advance Payment Program. These funds were returned to the government utilizing a portion of our cash and cash equivalents held on deposit.      

Included in our reported and adjusted net income attributable to UHS during the three and six-month periods ended June 30, 2021 was a net favorable after-tax impact of approximately $29.8 million, or $.35 per diluted share, resulting from:

• a favorable after-tax impact of $42.3 million, or $.49 per diluted share, resulting from $55.3 million of revenues recorded during the second quarter of 2021 in connection with the Kentucky Medicaid Managed Care Hospital Rate Increase Program, covering the period of July 1, 2020 to June 30, 2021, as discussed below in Kentucky Hospital Rate Increase Program;
• an unfavorable after-tax impact of approximately $27.2 million, or $.32 per diluted share, resulting from a $36.0 million increase to our reserves for self-insured professional and general liability claims, as discussed below in Increase to Self-Insured Professional and General Liability Reserves, and;
• an aggregate favorable after-tax impact of $14.6 million, or $.17 per diluted share, resulting from aggregate commercial insurance proceeds of $19.3 million received during the second quarter of 2021 in connection with the previously incurred, unfavorable economic impact from the following: (i) the previously disclosed information technology incident that occurred during 2020 ($10.0 million of insurance proceeds received representing partial recovery of the loss sustained), and; (ii) the COVID-19 pandemic ($9.3 million of insurance proceeds received representing recovery of the policy maximum).    

Included in our reported and adjusted net income attributable to UHS during the three-month period ended June 30, 2020 was approximately $161.9 million, or $1.90 per diluted share, resulting from the recognition of approximately $218 million of net revenues recorded in connection with various governmental stimulus programs, most notably the CARES Act. Approximately $157 million of the governmental stimulus program net revenues were attributable to our acute care services and approximately $61 million were attributable to our behavioral health care services. 

As reflected on the Supplemental Schedule, included in our reported results during the second quarter of 2021, was a net aggregate favorable after-tax impact of $2.7 million, or $.03 per diluted share, consisting of the following: (i) an after-tax unrealized gain of $1.6 million, or $.02 per diluted share, ($2.1 million pre-tax which is included in "Other (income) expense, net"), resulting from an increase in the market value of shares of certain marketable securities held for investment and classified as available for sale, and; (ii) a favorable after-tax impact of $1.2 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09").

As reflected on the Supplemental Schedule, included in our reported results during the second quarter of 2020, was a net aggregate favorable after-tax impact of $1.7 million, or $.02 per diluted share, consisting of the following: (i) an after-tax unrealized gain of $2.2 million, or $.03 per diluted share, resulting from an increase in the market value of shares of certain marketable securities held for investment and classified as available for sale, and; (ii) an unfavorable after-tax impact of $0.5 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09.

As calculated on the attached Supplemental Schedule, our earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI", NCI is net income attributable to noncontrolling interests), was $581.8 million during the second quarter of 2021, as compared to $482.8 million during the second quarter of 2020. Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impact of other (income) expense, net, was $572.7 million during the second quarter of 2021 as compared to $479.7 million during the second quarter of 2020.

Consolidated Results of Operations, As Reported and As Adjusted  – Six-month periods ended June 30, 2021 and 2020:

Reported net income attributable to UHS was $534.1 million, or $6.22 per diluted share, during the six-month period ended June 30, 2021, as compared to $394.0 million, or $4.58 per diluted share, during the first six months of 2020. Net revenues increased 11.7% to $6.211 billion during the first six months of 2021 as compared to $5.559 billion during the comparable period of 2020.

As reflected on the Supplemental Schedule, our adjusted net income attributable to UHS during the six-month period ended June 30, 2021 was $532.4 million, or $6.20 per diluted share, as compared to $400.4 million, or $4.65 per diluted share, during the first six months of 2020. 

Included in our reported and adjusted net income attributable to UHS during the six-month period ended June 30, 2021, was the net favorable after-tax impact of approximately $29.8 million, or $.35 per diluted share, as discussed above.

Our reported and adjusted net income attributable to UHS during the six-month period ended June 30, 2020 included approximately $161.9 million, or $1.89 per diluted share, resulting from the above-mentioned recognition of approximately $218 million of net revenues recorded in connection with various governmental stimulus programs, most notably the CARES Act.

As reflected on the Supplemental Schedule, included in our reported results during the six-month period ended June 30, 2021, was a net aggregate favorable after-tax impact of $1.7 million, or $.02 per diluted share, consisting of the following: (i) an after-tax unrealized loss of $0.5 million, or $.01 per diluted share, resulting from a decrease in the market value of shares of certain marketable securities held for investment and classified as available for sale, and; (ii) a favorable after-tax impact of $2.2 million, or $.03 per diluted share, resulting from our adoption of ASU 2016-09.

As reflected on the Supplemental Schedule, included in our reported results during the six-month period ended June 30, 2020, was a net aggregate unfavorable after-tax impact of $6.4 million, or $.07 per diluted share, consisting of the following: (i) an after-tax unrealized loss of $5.1 million, or $.06 per diluted share, resulting from a decrease in the market value of shares of certain marketable securities held for investment and classified as available for sale, and; (ii) an unfavorable after-tax impact of $1.3 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09.

As calculated on the attached Supplemental Schedule, our EBITDA net of NCI, was $1.008 billion during the six-month period ended June 30, 2021, as compared to $831.9 million during the first six months of 2020. Our Adjusted EBITDA net of NCI, which excludes the impact of other (income) expense, net, was $999.8 million during the six-month period ended June 30, 2021, as compared to $838.3 million during the first six months of 2020.

Acute Care Services – Three and six-month periods ended June 30, 2021 and 2020:

During the second quarter of 2021, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 26.4% and adjusted patient days increased 21.6%, as compared to the second quarter of 2020. During the second quarter of 2021, patient volumes at our acute care hospitals, as compared to the same period of 2020, reflect robust recoveries from the COVID-19 pandemic-related restrictions and policies that negatively affected patient volumes during the second quarter of 2020. 

At these facilities, excluding the governmental stimulus revenues of approximately $157 million recorded during the second quarter of 2020, net revenue per adjusted admission increased 5.1% while net revenue per adjusted patient day increased 9.3% during the second quarter of 2021, as compared to the second quarter of 2020.  During the second quarter of 2021, as compared to the second quarter of 2020, net revenues generated from our acute care services on a same facility basis increased 18.5% including the governmental stimulus revenues recorded during the second quarter of 2020, and increased 33.0% excluding the governmental stimulus revenues recorded during the second quarter of 2020.   

During the six-month period ended June 30, 2021, at our acute care hospitals on a same facility basis, adjusted admissions increased 4.7% and adjusted patient days increased 9.3%, as compared to the first six months of 2020.  At these facilities, excluding the governmental stimulus revenues of approximately $157 million recorded during the first six months of 2020, net revenue per adjusted admission increased 15.7% while net revenue per adjusted patient day increased 10.8% during the first six months of 2021, as compared to the comparable period of 2020.  During the first six months of 2021, as compared to the comparable period of 2020, net revenues generated from our acute care services on a same facility basis increased 15.0% including the governmental stimulus revenues recorded during the first six months of 2020, and increased 21.5% excluding the governmental stimulus revenues recorded during the first six months of 2020.   

Behavioral Health Care Services – Three and six-month periods ended June 30, 2021 and 2020:

During the second quarter of 2021, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 14.1% and adjusted patient days increased 7.4%, as compared to the second quarter of 2020. During the second quarter of 2021, patient volumes at our behavioral health care hospitals, as compared to the same period of 2020, reflect robust recoveries from the COVID-19 pandemic-related restrictions and policies that negatively affected patient volumes during the second quarter of 2020. 

At these facilities, excluding the governmental stimulus revenues of approximately $61 million recorded during the second quarter of 2020, net revenue per adjusted admission increased 1.9% while net revenue per adjusted patient day increased 8.3% during the second quarter of 2021, as compared to the second quarter of 2020.  During the second quarter of 2021, as compared to the second quarter of 2020, net revenues generated from our behavioral health care services on a same facility basis increased 13.7% including the governmental stimulus revenues recorded during the second quarter of 2020, and increased 19.5% excluding the governmental stimulus revenues recorded during the second quarter of 2020.   

During the six-month period ended June 30, 2021, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 3.8% and adjusted patient days increased 1.6%, as compared to the first six months of 2020. At these facilities, excluding the governmental stimulus revenues of approximately $61 million recorded during the first six months of 2020, net revenue per adjusted admission increased 4.9% while net revenue per adjusted patient day increased 7.2% during the first six months of 2021, as compared to the comparable period of 2020.  During the first six months of 2021, as compared to the comparable period of 2020, net revenues generated from our behavioral health care services on a same facility basis increased 7.2% including the governmental stimulus revenues recorded during the first six months of 2020, and increased 9.8% excluding the governmental stimulus revenues recorded during the first six months of 2020.   

COVID-19

The impact of the COVID-19 pandemic, which began during the second half of March, 2020, has had a material unfavorable effect on our operations and financial results since that time. The COVID-19 vaccination process commenced during the first quarter of 2021 and we have generally experienced a decline in COVID-19 patients since that time as well as a corresponding recovery in non-COVID-19 patient activity. Since the future volumes and severity of COVID-19 patients remain highly uncertain and subject to change, including potential increases in future COVID-19 patient volumes caused by new variants of the virus, we are not able to fully quantify the impact that these factors will have on our future financial results.  However, developments related to the COVID-19 pandemic could materially affect our financial performance during the remainder of 2021.

Net Cash Provided by Operating Activities and Liquidity:

Net Cash Provided by Operating Activities:

For the six months ended June 30, 2021, our net cash provided by operating activities was $119 million as compared to $1.451 billion during the first six months of 2020.  The $1.332 billion net decrease in our cash provided by operating activities during the first six months of 2021, as compared to the first six months of 2020, was due to: (i) an unfavorable change of $1.174 billion resulting primarily from the above-mentioned $695 million of Medicare accelerated payments repaid during the first quarter of 2021, as compared to a favorable change of $477 million experienced during the first six months of 2020 resulting from receipt of the Medicare accelerated payments and other deferred governmental stimulus grants; (ii) an unfavorable change of $167 million in accounts receivable; (iii) a favorable change of $151 million resulting from an increase in net income plus depreciation and amortization expense, stock-based compensation expense, gain/loss on sales of assets and businesses and provision for asset impairment, and; (iv) an unfavorable change of $143 million in accrued and deferred income taxes due, in part, to COVID-19 related deferrals granted in 2020 by the Federal government and those of certain states, which deferred income tax payments into the third quarter of 2020, that were originally scheduled to be remitted during the second quarter of 2020.    

Liquidity:

As of June 30, 2021, we had $996 million of aggregate available borrowing capacity pursuant to our $1 billion revolving credit facility, net of outstanding letters of credit.  In addition, as of June 30, 2021, we had approximately $199 million of cash and cash equivalents. 

Revised 2021 Operating Results Forecasts:

Based upon the operating trends and financial results experienced during the first six months of 2021, as indicated on the Revised Forecast table below, we are increasing our guidance range for consolidated net revenues; earnings before interest, taxes, depreciation & amortization, and the impacts of other income/expense and net income attributable to noncontrolling interests ("Adjusted EBITDA, net of NCI"), and adjusted net income attributable to UHS per diluted share ("Adjusted EPS-diluted") for the year ended December 31, 2021. The tables below include our revised 2021 operating results forecasts for the year ended December 31, 2021, as well as our original 2021 operating results forecast which was previously disclosed on February 25, 2021.

• Our revised 2021 forecasted net revenues are estimated to be approximately $12.351 billion to $12.502 billion, representing increases of 1.1% to 1.9% over our original 2021 forecasted net revenues. 
• Our revised 2021 forecasted Adjusted EBITDA, net of NCI, is estimated to be approximately $1.883 billion to $1.961 billion, representing increases of 6.1% to 8.4% over our original 2021 forecasted Adjusted EBITDA, net of NCI.
• Our revised 2021 forecasted Adjusted EPS-diluted is estimated to be $11.46 per share to $12.16 per share, representing increases of 10.0% to 14.0% over our original 2021 forecasted Adjusted EPS-diluted. 

Adjusted EPS-diluted and Adjusted EBITDA net of NCI, are non-GAAP financial measures and should be examined in connection with net income determined in accordance with GAAP as presented in the consolidated financial statements and notes thereto in this report or in our filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2020 and our Form 10-Q for the quarter ended March 31, 2021. Please see the schedule of Supplemental Non-GAAP Disclosures - 2021 Revised Operating Results Forecast, as included herein for additional information and a reconciliation to the financial forecasts as computed in accordance with GAAP. 

In addition, the 2021 revised forecasted amounts exclude the impact of future items, if applicable, that are nonrecurring or non-operational in nature including items such as, pre-tax unrealized gains/losses resulting from increases/decreases in the market value of shares of certain marketable securities held for investment and classified as available for sale, our adoption of ASU 2016-09, and other potential material items including, but not limited to, reserves for various matters including settlements, legal judgments and lawsuits, potential impacts of non-ordinary course acquisitions, divestitures, joint ventures or other strategic transactions, costs related to extinguishment of debt, gains/losses on sales of assets and businesses, impairment of long-lived and intangible assets, other amounts that may be reflected in the current financial statements that relate to prior periods, and the impact of share repurchases that differ from included assumptions. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures, including the likelihood that our future operations and financial results may continue to be materially impacted by developments related to COVID-19, as discussed herein.

Stock Repurchase Program:

On July 26, 2021, our Board of Directors authorized a $1.0 billion increase to our stock repurchase program, which increased the aggregate authorization to $3.7 billion from the previous $2.7 billion authorization approved in various increments since 2014.  Pursuant to this program, which including today's increased authorization has a current aggregate available repurchase authorization of $1.210 billion, shares of our Class B Common Stock may be repurchased, from time to time as conditions allow, on the open market or in negotiated private transactions. 

In April, 2021, our Board of Directors approved a resumption to our stock repurchase program which had been suspended in April, 2020, as part of various COVID-19 initiatives.  In conjunction with our stock repurchase program, during the three-month period ended June 30, 2021, we have repurchased approximately 2.21 million shares at an aggregate cost of $350 million (approximately $158 per share). Since inception of the program in 2014 through June 30, 2021, we have repurchased approximately 20.23 million shares at an aggregate cost of approximately $2.49 billion (approximately $123 per share). 

Kentucky Hospital Rate Increase Program:

In early 2021, the Centers for Medicare and Medicaid Services ("CMS") approved the Kentucky Medicaid Managed Care Hospital Rate Increase Program ("HRIP") for state fiscal year ("SFY") 2021. The CMS approval increased the program's statewide net benefit to eligible Kentucky hospitals to approximately $1.1 billion from the original approved pool size of $86 million. During the second quarter of 2021, Kentucky enacted legislation that authorizes increased HRIP payments to hospitals and CMS approved the applicable HRIP rate add-on amount for SFY 2021, which is retroactive to July 1, 2020. 

This program change increased our reimbursement for SFY 2021, covering the period of July 1, 2020 through June 30, 2021, by an aggregate of approximately $55 million, which we recorded during the second quarter of 2021. Programs such as HRIP require an annual state submission and approval by CMS.  In May, 2021, Kentucky submitted a request to CMS in order to continue the HRIP program for SFY 2022 with a similar payment methodology and payment level as the SFY 2021 program. However, we are unable predict if CMS will approve the HRIP for SFY 2022, and if approved, if the rates will be generally comparable to the SFY 2021 HRIP rates. 

Increase to Self-Insured Professional and General Liability Reserves:

Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. As a result of unfavorable trends recently experienced, during the second quarter of 2021, we recorded a $36.0 million increase to our reserves for self-insured professional and general liability claims.  

Conference call information:

We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on July 27, 2021. The dial-in number is 1-877-648-7971. 

A live broadcast of the conference call will be available on our website at www.uhs.com.  Also, a replay of the call will be available following the conclusion of the live call and will be available for one full year.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:

One of the nation's largest and most respected providers of hospital and healthcare services, Universal Health Services, Inc. has built an impressive record of achievement and performance. Growing steadily since our inception into an esteemed Fortune 500 corporation, our annual revenues were approximately $11.6 billion during 2020. In 2021, UHS was again recognized as one of the World's Most Admired Companies by Fortune; ranked #270 on the Fortune 500; and ranked #307 on Forbes' list of America's Largest Public Companies.

Our operating philosophy is as effective today as it was upon the Company's founding in 1979, enabling us to provide compassionate care to our patients and their loved ones.  Our strategy includes building or acquiring high quality hospitals in rapidly growing markets, investing in the people and equipment needed to allow each facility to thrive, and becoming the leading healthcare provider in each community we serve.

Headquartered in King of Prussia, PA, UHS has approximately 89,000 employees and through its subsidiaries operates 26 acute care hospitals, 334 behavioral health facilities, 39 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and various related services located in 38 U.S. states, Washington, D.C., Puerto Rico and the United Kingdom. It acts as the advisor to Universal Health Realty Income Trust, a real estate investment trust (NYSE:UHT).  For additional information visit www.uhs.com.

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to the anticipated impact of COVID-19 on our operations and financial results, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2020 and in Item 2-Forward Looking Statements and Risk Factors in our Form 10-Q for the quarterly period ended March 31, 2021), may cause the results to differ materially from those anticipated in the forward-looking statements.  These statements are subject to risks and uncertainties and therefore actual results may differ materially.  Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof.  We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.  Many of the factors that could affect our future results are beyond our control or ability to predict, including the impact of the COVID-19 pandemic. Our future operations and financial results will likely be materially impacted by developments related to COVID-19 including, but not limited to, the potential impact on future COVID-19 patient volumes resulting from new variants of the virus, the length of time and severity of the spread of the pandemic; the volume of cancelled or rescheduled elective procedures and the volume of COVID-19 patients treated at our hospitals and other healthcare facilities; measures we are taking to respond to the COVID-19 pandemic; the impact of government and administrative regulation and stimulus on the hospital industry and potential retrospective adjustment in future periods of CARES Act and other grant income revenues recorded as revenues in prior periods; declining patient volumes and unfavorable changes in payer mix caused by deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients as the result of business closings and layoffs); potential disruptions to our clinical staffing and shortages and disruptions related to supplies required for our employees and patients; and potential increases to expenses related to staffing, supply chain or other expenditures; the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the COVID-19 pandemic which could impact us from a financing perspective; and changes in general economic conditions nationally and regionally in our markets resulting from the COVID-19 pandemic. We are not able to fully quantify the impact that these factors will have on our future financial results, but developments related to the COVID-19 pandemic could materially affect our financial performance during the remainder of 2021.

We believe that adjusted net income attributable to UHS, adjusted net income attributable to UHS per diluted share, EBITDA net of NCI and Adjusted EBITDA net of NCI, which are non-GAAP financial measures ("GAAP" is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect of material items impacting our net income attributable to UHS, such as, our adoption of ASU 2016-09, unrealized gains/losses resulting from changes in the market value of shares of certain marketable securities held for investment and classified as available for sale, and other potential material items that are nonrecurring or non-operational in nature including, but not limited to, impairments of long-lived and intangible assets, changes in the reserve established in connection with our discussions with the Department of Justice, reserves for various matters including settlements, legal judgments and lawsuits, costs related to extinguishment of debt, gains/losses on sales of assets and businesses, and other amounts that may be reflected in the current or prior year financial statements that relate to prior periods. To obtain a complete understanding of our financial performance these measures should be examined in connection with net income attributable to UHS, as determined in accordance with GAAP, and as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2020, and our Report on Form 10-Q for the quarter ended March 31, 2021. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability. Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.