Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the Q2 2025 Universal Health Services 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 the question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Filton, Executive Vice President and CFO. Please begin.

Thank you and good morning. Mark Miller is also joining us this morning. We both welcome you to this review of Universal Health Services results for the second quarter and to June 30, 2025. During the conference call, we'll 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 this section on risk factors and forward-looking statements and risk factors in our form 10-K for the year ended December 31, 2024, and our form 10-Q for the quarter ended March 31, 2025. 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 per diluted share of $5.43 for the second quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule included with the press release, our adjusted net income attributable to UHS per diluted share was $5.35 for the quarter ended June 30, 2025. During the second quarter of 2025, on a same facility basis, adjusted admissions to our acute care hospitals increased .0% over the second quarter of the prior year, and surgical volumes were down slightly. Still, same facility net revenues in our acute care hospital segment increased by .7% during the second quarter of 2025 as compared to last year's second quarter, after excluding the impact of our insurance subsidiary. We note that West Henderson Hospital, which opened in late 2024, has had a certain cannibalization impact on the division's same facility volumes and revenues. Meanwhile, operating expenses continued to be well managed. Other operating expenses on the same facility basis increased .1% over last year's second quarter, again, after excluding the impact of our insurance subsidiary. For the second quarter of 2025, our solid acute care revenues combined with effective expense controls resulted in a 10% increase in same facility EBITDA. During the second quarter of 2025, excluding the impact of the Tennessee Medicaid Directive Payment Program, same facility net revenues at our behavioral health hospitals increased by 5.4%, driven by a .2% increase in revenue per adjusted day. Adjusted patient days were up .2% compared to the prior year's second quarter. Our cash generated from operating activities decreased by $167 million to $909 million during the first six months of 2025 as compared to $1.076 billion during the same period in 2024. We expect to collect the $58 million of Tennessee Directive Payment Program receivables in the third quarter. The new hospital in Las Vegas and the District of Columbia contributed $35 million to the receivable increase. In the first half of 2025, we spent $505 million on capital expenditures, 25% of which related to the two new splash replacement facilities in California and Florida, both set to open in the spring of 2026. During the first half of 2025, we also acquired $1.9 million of our own shares at a total cost of approximately $332 million. Since 2019, we have repurchased approximately 34% of the company's outstanding shares. As of June 30, 2025, we had approximately $1 billion of aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. The recently enacted One Beautiful Bill Act includes several significant changes in the Medicaid program, including changes to state-directed payment programs and provider taxes. Beginning with the 2028 state fiscal years and primarily phased in over a five-year period through 2032, these program changes will limit both the level of payment and the amount of provider tax assessment that states are permitted to utilize to finance the non-federal share of their respective Medicaid supplemental payments. The legislation provides for different limits depending on whether states have previously expanded their Medicaid eligible population as permitted under the Affordable Care Act. We cannot predict, among other things, that this legislation will ultimately be implemented as enacted or if certain states may attempt to implement countermeasures to mitigate its impact. Our current projected 2025 full-year net benefit from previously approved state Medicaid supplemental programs is approximately $1.2 billion. At this time, assuming no changes to our Medicaid revenues or other changes to related state or federal programs, we estimate that commencing with the 2028 state fiscal years, our aggregate net benefit will be reduced on an annually increasing and relatively pro-lata basis by approximately $360 to $400 million in 2032. Given the various uncertainties, including the evolving -by-state interpretations and computations related to the legislation, our forecasted estimates are subject to change potentially by material amounts. Our future operating results, potentially starting in 2026, may also be impacted by other factors which are more difficult to predict, such as the impact of Medicaid work requirements, which may decrease Medicaid enrollment, and factors that could unfavorably impact insurance exchange enrollment such as the scheduled expiration of insurance exchange subsidies. I'll now turn the call over to Mark Miller, President and CEO, for closing comments.

Thanks, Steve. So, based primarily on the increased DPP reimbursement, we are increasing our midpoint of our 2025 EPS guidance by 7% to $20.50 per diluted share, up from $19.20 per diluted share previously. Medicaid supplemental programs in Washington, D.C., and other potential programs that are not yet fully approved, are not included in our revised guidance. We remain pleased with the performance of West Henderson Hospital, which produced a positive EBIDA in the second quarter. At the same time, we acknowledge the significant drag created by the recently opened Cedar Hill Regional Medical Center in Washington, D.C. Timing of hospital certification and other startup issues proved a bit more challenging than we anticipated, but demand, especially for emergency services, has been very encouraging. Although recovery to expected results will continue into the back half of this year, we remain confident in the positive long-term prospects for the facility that prompted our development partnership with the District of Columbia. DeNovo growth continues in our behavioral segment. We recently opened a 96-bed behavioral hospital in Grand Rapids, Michigan, which is a joint venture with Trinity Health Michigan, and a 41-bed substance use disorder and dual diagnosis treatment center