Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the Universal Health Services, Inc. first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Steve Filton, CFO, please go ahead.

Thank you, Mary. Good morning. Mark Miller is also joining us this morning. We welcome you to this review of Universal Health Services results for the first quarter ended March 31st, 2022. During the conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, 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 end of December 31, 2021. We'd 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 for diluted share of $2.02 for the first quarter of 2022. After adjusting for the impact of the item reflected on the supplemental schedule as included with the press release, our adjusted net income attributable to UHS for diluted share was $2.15 for the quarter ended March 31, 2022. During the first quarter of 2022, our operations continue to be impacted by the COVID-19 pandemic, as well as pressures on staffing and wage rates. Specifically, a surge in patients with the Omicron variant of the virus which began in December of 2021, tended to peak in most of our geographies in January of 2022. In our acute segment, we would note, in general, the Omicron patients were less acutely ill than the COVID patients treated in previous surges and thus displayed lower acuity. Meanwhile, the amount of contract nursing hours used, and even more importantly, the rate we had to pay for those hours increased significantly in the first quarter, both on a sequential basis as well as a year-to-year comparison. Although in our behavioral segment, contract nursing costs did not increase quite as dramatically, Our inability to fill all of our labor vacancies had a notable limiting impact on our patient volumes and related revenues. We do note that our results were benefited in the first quarter from approximately $12 million of revenues net of related provider taxes from special Texas Medicaid reimbursements, which related to the last four months of 2021. Recognition of those revenues were deferred until formal government approval was obtained. Our first quarter also included approximately $15 million of startup losses incurred by recently opened Lenovo acute and behavioral health facilities and $6 million of losses related to temporarily closed beds at two behavioral health facilities which were impacted by natural disasters. Those beds have since been reopened. As disclosed in our last night's press release, our operating results for the first quarter of 2022 were unfavorably impacted by labor costs that were higher than anticipated and patient volumes at our behavioral health facilities that were lower than anticipated due to the continued uncertainties related to the COVID-19 pandemic, as well as cost escalations related to the nationwide shortage of nurses and other clinical staff. Although we're not changing our previously released 2022 operating salt forecast at this time, we may make reductions to our forecast at a future date if the unfavorable operating trends experienced during the first quarter of 2022 do not improve. Our cash generated from operating activities was $445 million during the first quarter of 2022, as compared to $72 million during the same period in 2021. We note that the first quarter of 2021 cash generation reflected the repayment of the Medicare accelerated payments. We spent $200 million on capital expenditures during the first quarter of 2022. Our accounts receivable days outstanding decreased to 48 days during the first quarter of 2022 as compared to 50 days in the first quarter of 2021. Due in large part to the continued repurchasing of our shares, At March 31, 2022, our ratio of debt to total capitalization increased to 42.3% as compared to 35.7% at March 31, 2021. Our first quarter 2022 operating results were behind our internal forecasts. And our internal forecasts were below the consensus estimates.

The primary driver of the shortfall was the fact that the labor scarcity has not moderated as quickly as we were expecting. We believe, in part, this is because at the height of the Omicron surge, providers were entering into longer-term commitments for temporary and traveling nurses, not necessarily predicting that COVID volumes would decline as rapidly as they ultimately did. We do believe that the demand for this premium-priced labor will continue to gradually decline. In the meantime, we continue to invest heavily in recruitment and retention initiatives and have substantially increased the pace of our hiring. Where appropriate, we are also developing alternative patient care models that allow us to use a wider variety of available caregivers to render the most efficient and highest quality of care that we can. While the pace of the recovery from the current labor scarcity is still uncertain, we're comfortable that it will occur over time. And combined with our confidence in the long-term baseline demand in both of our business segments, our bullish view of the underlying strength of our core businesses remains intact. Reflective of that sentiment, we remained an active acquirer of our own shares in the first quarter, repurchasing $350 million of those shares. At the same time, we continued to reinvest organically, opening the new acute care hospital in the Reno market and behavioral de novo and or joint venture hospitals in Arizona, Michigan, and Wisconsin. At this time, we're pleased to answer your questions.