Universal Health Services, Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
UHS owns and operates acute-care hospitals, outpatient facilities and behavioral-health facilities in the United States, United Kingdom, Puerto Rico and Washington, D.C. As of March 31, 2021, it operated 361 inpatient facilities and 39 outpatient and other facilities. Reported results cover the three months ended March 31, 2021 and are compared with the three months ended March 31, 2020. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenues | $3.013 billion | $2.830 billion | Up 6.5% |
| Income from operations | $295.7 million | $236.7 million | Up 24.9% |
| Operating margin | 9.8% | 8.4% | Up 140 bps |
| Income before income taxes | $272.9 million | $190.8 million | Up 43.0% |
| Net income attributable to UHS | $209.1 million | $142.0 million | Up 47.2% |
| Diluted EPS | $2.43 | $1.64 | Up 48.2% |
| Effective tax rate | 23.4% | 24.3% | Down 90 bps |
| Net cash from operating activities | $71.8 million | $502.1 million | Down $430.3 million |
| Capital expenditures | $247.5 million | $184.1 million | Up $63.4 million |
Acute-care net revenues increased 11.4% to $1.695 billion, while income before taxes increased 67% to $173.1 million. Behavioral-health net revenues increased 0.7% to $1.315 billion, while income before taxes decreased 3% to $231.3 million. U.K. behavioral-health revenue was approximately $164.7 million, compared with $136.9 million in the prior-year quarter.
Liquidity, Debt and Capital Structure
- Cash and cash equivalents were $764.5 million at March 31, 2021, compared with $1.224 billion at December 31, 2020. Cash, cash equivalents and restricted cash totaled $819.2 million.
- Total debt was approximately $3.6 billion at March 31, 2021, compared with approximately $3.9 billion at December 31, 2020. Debt represented approximately 36% of total capitalization, versus 38% at year-end.
- The $1.0 billion revolving credit facility had no borrowings outstanding and approximately $997 million of available capacity, net of letters of credit.
- Outstanding term loans included approximately $1.875 billion under tranche A and $489 million under tranche B. Senior secured notes totaled $1.2 billion, consisting of $400 million due in 2026 and $800 million due in 2030.
- The company repaid $695 million of Medicare accelerated payments during March 2021 and expects to return approximately $188 million of CARES Act funds received during the quarter in May 2021.
- UHS was in compliance with its debt covenants at March 31, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue growth was primarily driven by a $186 million increase in same-facility acute-care and behavioral-health revenue.
- Acute-care performance improved substantially: same-facility revenue rose 11.7%, income before taxes rose 68%, and the margin expanded to 10.4% from 6.9%.
- Acute-care inpatient admissions declined 6.2% and adjusted admissions declined 12.1%, but higher revenue per adjusted admission, longer stays and improved occupancy supported revenue and profitability. Occupancy increased to 69% from 65%.
- Behavioral-health same-facility admissions declined 4.7%, adjusted admissions declined 4.9%, patient days declined 3.6% and occupancy declined to 72% from 75%. Revenue per adjusted admission increased 6.2%, but same-facility pretax income declined 2%.
- Operating cash flow declined sharply because of the repayment of Medicare accelerated payments, partially offset by higher earnings and noncash expenses.
- Interest expense decreased $14 million to $22 million, primarily because of lower borrowing costs and lower average debt.
- Uncompensated care at acute-care hospitals declined to $426 million from $634 million based on established charges; estimated cost declined to $46 million from $71 million.
- Unlike Q1 2020, which included a $20 million increase to prior-year professional liability reserves, Q1 2021 was not materially affected by prior-year reserve adjustments.
Guidance, Outlook, Risks and Unusual Items
- Management projects 2021 capital expenditures of approximately $850 million to $1.0 billion, including $247 million spent in the first quarter.
- Management expects a 2021 net benefit of approximately $330 million from state Medicaid supplemental payment programs, net of approximately $211 million of provider taxes. This estimate depends on government approvals, funding transfers and program terms outside UHS’s control.
- UHS expects to record approximately $60 million of additional Kentucky Hospital Rate Increase Program reimbursement in Q2 2021. Continuation and comparable funding for the following fiscal year are uncertain.
- Management expects to finance capital expenditures, acquisitions and shareholder distributions through operating cash flow, cash balances and available financing, and believes resources are sufficient for the next twelve months.
- COVID-19 continued to affect patient volumes, labor costs, supplies, reimbursement and financial estimates. Management stated that the pandemic’s ultimate duration and financial impact cannot be quantified reliably and expects COVID-19 developments to materially affect 2021 performance.
- Q1 2021 results included approximately $11 million of revenue from state and local stimulus programs, $17 million from the federal uninsured COVID-19 reimbursement program, an estimated $11 million benefit from Medicare sequestration relief and approximately $16 million from the Medicare COVID-19 inpatient add-on.
- UHS maintains significant self-insured exposure. Accrued professional and general liability claims totaled $278 million and workers’ compensation claims totaled $107 million at March 31, 2021. Reserve changes could materially affect future results.
- Material contingencies include shareholder and derivative litigation, the George Washington University dispute, Pennsylvania Medicaid disproportionate-share-hospital repayment claims, and a certified ERISA class action concerning retirement-plan fees. The filing states that potential exposure for several matters cannot currently be estimated.
- Other key risks include changes to Medicare and Medicaid reimbursement, Medicaid supplemental-payment programs, healthcare regulation, labor shortages, payer collection risk, cybersecurity threats, litigation and government investigations. UHS reported a September 2020 cyberattack and stated that insurance recovery is uncertain.
- The filing does not provide a formal consolidated revenue or earnings-per-share forecast.
Most Important Facts for Investors to Verify
- Whether acute-care volume and occupancy improvements can continue despite lower admissions and ongoing pandemic-related effects.
- Whether behavioral-health admissions, patient days and margins stabilize or continue to decline.
- The timing and accounting treatment of the planned $188 million CARES Act fund repayment and the effect of returning Medicare accelerated payments on liquidity.
- Renewal, funding and audit risks associated with the projected $330 million Medicaid supplemental-payment benefit, including Texas, California and Kentucky programs.
- Actual 2021 capital spending relative to the $850 million–$1.0 billion estimate and its effect on free cash flow.
- Changes in professional liability, workers’ compensation and Medicaid DSH reserves, including potential litigation or repayment outcomes.
- Compliance with debt covenants, the availability of the revolving facility and maturities of the 2023, 2025 and 2026 debt obligations.