Universal Health Services, Inc. Reports 2021 Third Quarter Financial Results

KING OF PRUSSIA, Pa., Oct. 25, 2021 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $218.4 million, or $2.60 per diluted share, during the third quarter of 2021, as compared to $241.3 million, or $2.82 per diluted share, during the third quarter of 2020. Net revenues increased 8.4% to $3.156 billion during the third quarter of 2021 as compared to $2.913 billion during the third quarter of 2020.

As reflected on the Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), our adjusted net income attributable to UHS during the third quarter of 2021 was $224.1 million, or $2.67 per diluted share, as compared to $246.5 million, or $2.88 per diluted share, during the third quarter of 2020. 

Included in our reported and adjusted net income attributable to UHS during the third quarter of last year were the following: (i) a favorable impact of approximately $21.4 million, or $0.25 per diluted share, resulting from $28 million of net revenues recorded in connection with the California Medicaid supplemental payment program related to our acute care hospitals (approximately $11 million of these supplemental revenues were attributable to the first nine months of 2020 and $17 million were attributable to prior years), and; (ii) an unfavorable impact of approximately $4.7 million, or $0.06 per diluted share, resulting from a reversal of approximately $5 million of previously recognized grant income revenues recorded in connection with various governmental stimulus programs, most notably the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2021, was a net aggregate unfavorable after-tax impact of $5.8 million, or $.07 per diluted share, consisting primarily of the following: (i) an after-tax charge of $12.9 million, or $.15 per diluted share, ($16.8 million pre-tax which is included in "Other (income) expense, net") recorded in connection with costs related to extinguishment of debt, as discussed below in Liquidity and Financing Transactions, partially offset by; (ii) an after-tax unrealized gain of $6.8 million, or $.08 per diluted share, ($8.9 million pre-tax which is included in "Other (income) expense, net"), resulting from an increase in the market value of shares of certain equity securities.  

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2020, was a net aggregate unfavorable after-tax impact of $5.2 million, or $.06 per diluted share, consisting of the following: (i) an after-tax unrealized loss of $2.1 million, or $.02 per diluted share, ($2.7 million pre-tax which is included in "Other (income) expense, net"), resulting from a decrease in the market value of shares of certain equity securities, and; (ii) an unfavorable after-tax impact of $3.1 million, or $.04 per diluted share, resulting from ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("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 $441.5 million during the third quarter of 2021, as compared to $471.0 million during the third 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 $448.2 million during the third quarter of 2021 as compared to $472.8 million during the third quarter of 2020.

Consolidated Results of Operations, As Reported and As Adjusted  – Nine-month periods ended September 30, 2021 and 2020:
Reported net income attributable to UHS was $752.5 million, or $8.83 per diluted share, during the nine-month period ended September 30, 2021, as compared to $635.2 million, or $7.40 per diluted share, during the first nine months of 2020. Net revenues increased 10.6% to $9.367 billion during the first nine months of 2021 as compared to $8.472 billion during the comparable period of 2020.

As reflected on the Supplemental Schedule, our adjusted net income attributable to UHS during the nine-month period ended September 30, 2021 was $756.6 million, or $8.88 per diluted share, as compared to $646.9 million, or $7.53 per diluted share, during the first nine months of 2020. 

Included in our reported and adjusted net income attributable to UHS during the nine-month period ended September 30, 2021, the substantial majority of which was previously disclosed and recorded during the second quarter of 2021, was a net favorable after-tax impact of approximately $31.2 million, or $.37 per diluted share, consisting of:

• a favorable after-tax impact of $47.7 million, or $.56 per diluted share, resulting from approximately $62 million of revenues recorded during the second and third quarters of 2021 ($55 million and $7 million, respectively), 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 $31.0 million, or $.36 per diluted share, resulting from a $41 million increase to our reserves for self-insured professional and general liability claims recorded during the second and third quarters of 2021 ($36 million and $5 million, respectively), resulting from unfavorable trends experienced in connection with the number of asserted claims and reported incidents and estimates of losses for those claims;
• an aggregate favorable after-tax impact of $22.1 million, or $.26 per diluted share, resulting from aggregate commercial insurance proceeds received of approximately $29 million, approximately $19 million and $10 million of which were recorded during the second and third quarters of 2021, respectively, in connection with: (i) the unfavorable economic impact resulting from the previously disclosed information technology incident that occurred during 2020 ($20 million aggregate proceeds received thus far representing partial recovery of the loss sustained), and; (ii) the COVID-19 pandemic (approximately $9 million of insurance proceeds received during the second quarter of 2021 representing recovery of the policy maximum), and;
• an estimated unfavorable impact of approximately $7.6 million (approximately $10 million pre-tax), or $.09 per diluted share, resulting from damage sustained from Hurricane Ida during the third quarter of 2021 at three of our behavioral health care facilities located in Louisiana and Pennsylvania (see below in Behavioral Health Care Services for additional disclosure).    

Our reported and adjusted net income attributable to UHS during the nine-month period ended September 30, 2020 included the following: (i) a favorable impact of $157.2 million, or $1.84 per diluted share, resulting from the recording of approximately $213 million of grant income revenues recorded in connection with various governmental stimulus programs, most notably the CARES Act, and; (ii) a favorable impact of $21.4 million, or $0.25 per diluted share, resulting from the above-mentioned $28 million of net revenues recorded during the third quarter of 2020 in connection with the California Medicaid supplemental payment program.   

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2021, was a net aggregate unfavorable after-tax impact of $4.1 million, or $.05 per diluted share, consisting of the following: (i) an after-tax charge of $12.9 million, or $.15 per diluted share, ($16.8 million pre-tax which is included in "Other (income) expense, net") recorded in connection with costs related to extinguishment of debt, as discussed below in Liquidity and Financing Transactions; (ii) an after-tax unrealized gain of $6.3 million, or $.07 per diluted share, ($8.2 million pre-tax which is included in "Other (income) expense, net") resulting from an increase in the market value of shares of certain equity securities, and; (iii) a favorable after-tax impact of $2.5 million, or $.03 per diluted share, resulting from ASU 2016-09.

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2020, was a net aggregate unfavorable after-tax impact of $11.6 million, or $.13 per diluted share, consisting of the following: (i) an after-tax unrealized loss of $7.2 million, or $.08 per diluted share, ($9.4 million pre-tax which is included in "Other (income) expense, net"), resulting from a decrease in the market value of shares of certain equity securities, and; (ii) an unfavorable after-tax impact of $4.4 million, or $.05 per diluted share, resulting from ASU 2016-09.

As calculated on the attached Supplemental Schedule, our EBITDA net of NCI, was $1.450 billion during the nine-month period ended September 30, 2021, as compared to $1.303 billion during the first nine months of 2020. Our Adjusted EBITDA net of NCI, which excludes the impact of other (income) expense, net, was $1.448 billion during the nine-month period ended September 30, 2021, as compared to $1.311 billion during the first nine months of 2020.

Acute Care Services – Three and nine-month periods ended September 30, 2021 and 2020:
During the third quarter of 2021, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 12.4% and adjusted patient days increased 10.9%, as compared to the third quarter of 2020. Patient volumes at our acute care hospitals during the third quarter of 2021 included a continuation of relatively robust non-COVID patient volumes as well as an increase in COVID-related patients as compared to volumes experienced during the second quarter of 2021.    

At these facilities, excluding the governmental stimulus revenues of approximately $4 million recorded during the third quarter of 2020, net revenue per adjusted admission increased 1.3% while net revenue per adjusted patient day increased 2.7% during the third quarter of 2021, as compared to the third quarter of 2020.  During the third quarter of 2021, as compared to the third quarter of 2020, net revenues generated from our acute care services on a same facility basis increased 13.1% including the governmental stimulus revenues recorded during the third quarter of 2020, and increased 13.4% excluding the governmental stimulus revenues recorded during the third quarter of 2020.   

During the nine-month period ended September 30, 2021, at our acute care hospitals on a same facility basis, adjusted admissions increased 7.3% and adjusted patient days increased 9.9%, as compared to the first nine months of 2020.  At these facilities, excluding the governmental stimulus revenues of approximately $161 million recorded during the first nine months of 2020, net revenue per adjusted admission increased 10.4% while net revenue per adjusted patient day increased 7.8% during the first nine months of 2021, as compared to the comparable period of 2020.  During the first nine 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 14.4% including the governmental stimulus revenues recorded during the first nine months of 2020, and increased 18.6% excluding the governmental stimulus revenues recorded during the first nine months of 2020.   

Behavioral Health Care Services – Three and nine-month periods ended September 30, 2021 and 2020:
During the third quarter of 2021, at our behavioral health care facilities on a same facility basis, adjusted admissions decreased 2.7% and adjusted patient days decreased 2.1%, as compared to the third quarter of 2020. During the third quarter of 2021, patient volumes at our behavioral health care hospitals were pressured by increased COVID-19 infections experienced in many of our markets, as well as clinical staffing shortages caused by the general unfavorable availability of workers in the U.S., as well as pandemic-related staffing challenges experienced at many of our facilities.  

In addition, three of our behavioral health care facilities located in Louisiana and Pennsylvania were damaged and temporarily closed (either entirely or partially) as a result of Hurricane Ida in late August/early September of 2021. One of these facilities was fully re-opened by the end of September while the other two are expected to be fully re-opened by late October/mid-November. As mentioned above, we estimate that our pre-tax financial results for the three and nine month periods ended September 30, 2021 were unfavorably impacted by approximately $10 million as a result of the damage sustained from Hurricane Ida.      

At these facilities, excluding the governmental stimulus revenue reversal of approximately $9 million recorded during the third quarter of 2020, net revenue per adjusted admission increased 4.2% while net revenue per adjusted patient day increased 3.6% during the third quarter of 2021, as compared to the third quarter of 2020.  During the third quarter of 2021, as compared to the third quarter of 2020, net revenues generated from our behavioral health care services on a same facility basis increased 2.0% including the governmental stimulus revenue reversal recorded during the third quarter of 2020, and increased 1.3% excluding the governmental stimulus revenue reversal recorded during the third quarter of 2020.   

During the nine-month period ended September 30, 2021, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 1.6% and adjusted patient days increased 0.3%, as compared to the first nine months of 2020. At these facilities, excluding the governmental stimulus revenues of approximately $52 million recorded during the first nine months of 2020, net revenue per adjusted admission increased 4.7% while net revenue per adjusted patient day increased 6.0% during the first nine months of 2021, as compared to the comparable period of 2020.  During the first nine 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 5.4% including the governmental stimulus revenues recorded during the first nine months of 2020, and increased 6.9% excluding the governmental stimulus revenues recorded during the first nine 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 effect on our operations and financial results since that time. The COVID-19 vaccination process commenced during the first quarter of 2021.  Since that time, through the second quarter of 2021, we had generally experienced a decline in COVID-19 patients as well as a corresponding recovery in non-COVID-19 patient activity.  However, during the third quarter of 2021, our facilities generally experienced an increase in COVID-19 patients resulting primarily from the Delta variant. 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, as well as related pressures on staffing and wage rates, 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 and into 2022.

Net Cash Provided by Operating Activities and Liquidity and Financing Transactions:

Net Cash Provided by Operating Activities:
For the nine months ended September 30, 2021, our net cash provided by operating activities was $562 million as compared to $2.218 billion during the first nine months of 2020.  The $1.656 billion net decrease in our cash provided by operating activities during the first nine months of 2021, as compared to the first nine months of 2020, was due to: (i) an unfavorable change of $1.576 billion resulting primarily from the $695 million of Medicare accelerated payments repaid during the first quarter of 2021, as compared to a favorable change of $878 million experienced during the first nine months of 2020 resulting from receipt of the Medicare accelerated payments and other deferred governmental stimulus grants; (ii) a favorable change of $153 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, costs related to extinguishment of debt and provision for asset impairment; (iii) an unfavorable change of $111 million due to the first nine months of 2020 including the favorable impact of the payment deferral of the employer's share of Social Security taxes, as provided for by the CARES Act; (iv) an unfavorable change of $75 million in accounts receivable; (v) an unfavorable change of $51 million in accrued and deferred income taxes, and; (vi) $4 million of other combined net favorable changes.    

Liquidity and Financing Transactions:
During the third quarter of 2021, we completed the following previously announced financing transactions:

• On August 24, 2021, we completed the following via private offerings to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended:
• Issued $700 million of aggregate principal amount of 1.65% senior secured notes due on September 1, 2026, and;
• Issued $500 million of aggregate principal amount of 2.65% senior secured notes due on January 15, 2032.
• On August 24, 2021, we entered into a seventh amendment to our credit agreement dated as of November 15, 2010, which provided for the amendment and restatement of the previously existing credit facility. The seventh amendment, among other things, provided for the following:
• a $1.2 billion aggregate amount revolving credit facility, which is scheduled to mature on August 24, 2026, representing an increase of $200 million over the $1.0 billion previous commitment. As of September 30, 2021, this facility had no borrowings outstanding and $1.196 billion of available borrowing capacity, net of outstanding letters of credit;
• a $1.7 billion tranche A term loan facility, which is scheduled to mature on August 24, 2026, resulting in a reduction of $150 million from the $1.85 billion of borrowings outstanding under the previous tranche A term loan facility, and;
• repayment of approximately $488 million of borrowings outstanding under the previous tranche B term loan facility.
• On September 13, 2021, we redeemed $400 million of aggregate principal amount of 5.00% senior secured notes, that were scheduled to mature on June 1, 2026, at 102.50% of the aggregate principal, or $410 million.

In connection with the various financing transactions mentioned above, our results of operations for the three and nine-month periods ended September 30, 2021, include a $16.8 million pre-tax charge incurred for costs related to the extinguishment of debt. This pre-tax charge consisted of the following: (i) $6.8 million incurred to write-off unamortized deferred charges on the extinguished debt, and; (ii) a $10 million make-whole premium paid on the early redemption of the $400 million, 5.00% senior secured notes.

As of September 30, 2021, we had approximately $190 million of cash and cash equivalents. 

Stock Repurchase Program:
As of September 30, 2021, we had an aggregate stock repurchase authorization of $3.7 billion which was approved by our Board of Directors in various increments since 2014, including a previously announced $1.0 billion increase authorized on July 26, 2021. Pursuant to the terms of this program, which had an aggregate available repurchase authorization of $790.5 million as of September 30, 2021, 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 conjunction with our stock repurchase programs, during the three-month period ended September 30, 2021, we have repurchased approximately 2.78 million shares at an aggregate cost of $419.1 million (approximately $151 per share). Since inception of the program in 2014 through September 30, 2021, we have repurchased approximately 23.0 million shares at an aggregate cost of approximately $2.91 billion (approximately $126 per share). 

Kentucky Hospital Rate Increase Program:
As previously disclosed, 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, which covered the period of July 1, 2020 through June 30, 2021. This program change increased our reimbursement for SFY 2021 by an aggregate of approximately $62 million, of which $55 million and $7 million were recorded by us during the second and third quarters of 2021, respectively.   

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. Although we believe the CMS approval process is in progress, we are unable to predict if CMS will ultimately approve the HRIP for SFY 2022, and if approved, if the rates will be generally comparable to the SFY 2021 HRIP rates. 

Conference call information:
We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on October 26, 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 27 acute care hospitals, 333 behavioral health facilities, 40 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 June 30, 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 and into 2022.

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, the impact of ASU 2016-09, unrealized gains/losses resulting from changes in the market value of shares of certain equity securities, 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, 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 June 30, 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.