Universal Health Services, Inc.

Good day and thank you for standing by. Welcome to the first quarter 2026 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 a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising 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, Darren Larrick, Vice President of Investor Relations. Please go ahead.

Thanks, Daniel. Good morning, and welcome to Universal Health Services' first quarter 2026 earnings conference call. I'm Darren Larrick, Vice President of Investor Relations. With me this morning are our President and CEO, Mark Miller, and our Chief Financial Officer, Steve Filton. Mark and Steve will provide some prepared remarks, and then we will open it up to Q&A. During today's 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, we recommend a careful reading of the section on risk factors and forward-looking statements and risk factors, and our Form 10-K for the year ended December 31st, 2025. In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI, and adjusted net income attributable to UHS, which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, Let me now turn it over to Mark Miller for some introductory remarks.

Thank you, Darren. Good morning to all participants on today's call, and thank you for your continued interest in UHS. The first quarter of 2026 features significant acceleration in our behavioral health outpatient strategy with the announcement of the Talkspace acquisition and continued steady operating performance and cash flow generation in our core operations in the midst of a more challenging seasonal volume trend. Revenue growth for the first quarter was 9.6%. Adjusted EBITDA net of NCI increased 8.4% and adjusted EPS increased 16.1% as compared to the first quarter of 2025. These results highlight the adaptability and financial discipline of our leadership teams and the benefits of our efficiency initiatives, which are driven by technology adoption and operational excellence. Speaking first to the Talkspace acquisition announced on March 9th, Talkspace is an established market leader in virtual outpatient behavioral health care with a network of 6,000 licensed professionals serving all 50 states. We believe Talkspace is the best in class virtual platform in the behavioral industry with differentiated technology offering and strong brand recognition among patients and clinicians. Talkspace's successful payer-driven business model aligns well with our strategy to increase access to a full spectrum of outpatient services and diversify our behavioral payer mix Over the past 24 months, we've focused significant resources to grow existing outpatient service locations adjacent to our hospital campuses and develop new freestanding outpatient clinic locations. We will continue to invest in these areas internally. The addition of Talkspace's high-quality, scaled platform accelerates our ability to create the industry's first end-to-end continuum of behavioral health care services that is strongly aligned to the demand trends and preferences of the market overall. This national continuum includes lower acuity, outpatient, and step-in services, all the way to residential and inpatient services, where we've led the market for more than four decades. We plan to share more details about the impact of the transaction after closing, but I'd like to highlight two primary benefits for the acquisitions. First, from a strategic perspective, Talkspace represents a multi-year value creation opportunity underpinned by access to new sources of outpatient revenue growth. This is supported first by the strength of the base Talkspace business, which has a very strong outlook on a standalone basis and enhanced further by the programs we plan to develop alongside Talkspace to complement each other's businesses. For example, there is a significant opportunity for us to introduce Talkspace's 6,000 clinicians into our environment to develop higher acuity virtual offerings, such as virtual intensive outpatient programs or IOPs. This will improve our ability to manage more patients stepping down from UHS facilities with a preferred virtual option. The types of programs we build on a virtual outpatient basis will drive higher quality continuity of care further downstream after our patients step down from higher levels of care. There are numerous other bidirectional revenue synergy opportunities we'll be working on post-closing that will improve access to outpatient virtual services for UHS patients and improve access to higher levels of care for Talkspace patients. Second, from a financial perspective, we expect the deal to be accretive to earnings during the first 12 months post-closing, and we expect it to be increasingly accretive thereafter. By year three post-closing, we expect the effective EBITDA multiple for the Talkspace transaction to be in the single-digit range. Moving on to the quarters, I'd like to highlight a few items before I turn it over to Steve to review the financials. From a growth perspective, we met our internal same facility revenue growth and earnings objectives in the first quarter, despite a more dynamic operating backdrop. This was accomplished through solid expense management and higher contributions from pricing in both segments due to more positive trends in rates. We expect same facility growth to be more balanced between volume and pricing as the year progresses. As we believe first quarter volume performance was impacted heavily by seasonal factors consistent with what we highlighted in February on our fourth quarter earnings call. From a technology perspective, our enterprise level AI governance process remained very active and focused on two primary domains within our business, in the operational domain to impact quality and patient experience, and in the administrative domain to increase efficiency. During 2025, we focused heavily on scaling solutions that reduce the burden of our routine administrative tasks. We deployed and scaled a total of eight different use cases of AI solutions into our revenue cycle operations that are now yielding significant benefit on a go-forward basis. For 2026, we are focusing more heavily on enabling solutions in our clinical operations to improve hospital-level efficiency and patient experience. Included in our 2026 roadmap are several new use cases being designed and built with Hippocratic AI, which is one of our key AI solution partners. It is too early to project the longer-term financial impact of the 2026 initiatives, although we expect them to be incremental to margins over time, and just as importantly, we expect them to have a real impact on quality and patient experience. In closing, I am encouraged by our progress so far in 2026 and remain optimistic about our ability to deliver high-quality services in an efficient manner in the communities we serve. On behalf of our entire organization, we look forward to welcoming Talkspace employees into UHS in the coming months. With that, I will now turn the call over to Steve Stilton for more details on the quarter.

Thanks, Mark. I'll highlight a few financial and operational trends before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $5.65 for the first quarter of 2026. After adjusting for the impact of the items reflected on the supplemental schedule as included with the press release, our adjusted EPS was $5.62 for the first quarter. On a same facility basis, adjusted admissions at our acute care hospitals were unchanged as compared to the first quarter of 2025. We estimate acute care volumes during the first quarter of 2026 were impacted by approximately 200 basis points due to weaker flu and respiratory activity and winter weather in certain markets. Performance in the Nevada market rebounded slightly, with adjusted admissions increasing approximately 1.5% over the prior year. Saved facility acute care emergency department visits increased approximately by 2%, and we also saw positive trends in certain higher-acuity important service lines or inpatient service lines, notably cardiology, orthopedics, and neurology. On a same-facility basis, net revenues in our acute care hospital segment during the first quarter of 2026 increased 8.2%, and were up 6.2%, excluding the impact of our health plan. Acute care same-facility revenue per adjusted admission increased 6.3%, during the first quarter of 2026 on a reported basis and was up 4.9% after excluding approximately $30 million of prior period supplemental program net benefit related to the expanded 2025 Nevada program, which we contemplated in our guidance. Operating expenses were well managed across labor, supply, and other expense categories. SANE facility acute care salaries, wages, and benefits expense for adjusted admission increased 3.1%, and supply expense for adjusted admission increased 3.5% over last year's first quarter. SANE facility contract labor was 2.3% of acute care segment revenues, or 40 basis points lower year over year. Other operating expenses increased primarily as a result of the growth in our health plan. For the first quarter of 2026, our acute care performance resulted in 11.7% growth in SANE facility segment EBITDA. Excluding the prior period supplemental program revenue, first quarter 2026 SANE facility acute care segment revenue would have increased 3.3% on a year-over-year basis. With respect to health insurance exchange trends during the first quarter of 2026, we estimate an impact of approximately $15 million. Our exchange-adjusted admissions declined approximately 5% as compared to the first quarter of 2025. However, due to our expectation that some of the exchange members treated at our acute care facilities during the first quarter will not sustain their premium payments, the impact to our acute care financials assumes an effective HICS decline that is higher than the reported trend. We are reiterating the full-year $75 million pre-tax impact, which assumes the exchange declines will steepen somewhat as the year progresses. Turning to our behavioral health segment results during the first quarter of 2026, same-facility net revenues increased 7.3%, supported by a 5.8% increase in same-facility revenue per adjusted patient day and a 1.6% increase in same-facility adjusted patient days as compared to the first quarter of 2025. We estimate that the winter weather impacted first quarter behavioral health volume growth by approximately 40 to 50 basis points. Same facility behavioral health segment EBITDA increased by 8.4% in the first quarter of 2026. Excluding the net benefit from prior period supplemental payments, same facility revenue per adjusted patient day would have increased 4.9%, and same facility segment EBITDA would have increased 4.3%. For the first quarter of 2026, behavioral health segments, same facilities, salaries, wages, and benefits for adjusted patient day increased by approximately 6% on a year-over-year basis, moderating slightly from the 7% to 8% level we experienced during 2025. In California, we are making good progress year-to-date with respect to the state's nurse staffing ratio requirements that go into effect June 1, and we remain on track with the assumptions contemplated in our 2026 outlook. Cash generated from operating activities was $402 million for the three months ended March 31, 2026, as compared to $360 million during the same period last year. During the first quarter of 2026, we spent $217 million on capital expenditures. In the acute care segment, we continue to invest in the 156-bed De Novo Hospital in Florida, scheduled to open in May, and in two bed towers and a replacement hospital project, together comprising 178 beds that go online during the second quarter. In our behavioral health segment, we opened a 144-bed De Novo Joint Venture Hospital in Pennsylvania in the early part of the first quarter, and plan to open a 120-bed de novo hospital in Missouri later this year. During the first quarter of 2026, we acquired 675,000 of our shares at a total cost of $127 million. As of March 31, 2026, we had $1.3 billion of repurchase authorization available pursuant to our stock buyback program, and we expect to remain active with share repurchase through 2026. throughout 2026, including leading up to and following the closing of the Talkspace acquisition. From a balance sheet perspective, in late April, we expanded the aggregate capacity of our credit facilities by $900 million to provide additional flexibility with the pending Talkspace transactions, other potential acquisitions, and our continued prioritization of returning capital to shareholders through buybacks and dividends. As of March 31, 2026, we have $373 million of borrowings outstanding pursuant to our revolving credit facility, the borrowing capacity of which was recently expanded to $1.5 billion. Turning to our outlook for 2026, we are reiterating the financial and operating forecast that we established on February 25th in conjunction with fourth quarter earnings. Customary with our historical practice, We plan to reevaluate annual guidance as necessary in conjunction with our second quarter earnings plan for July. Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time.

We will now open the call to questions and answers. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. To allow as many people as possible to submit a question, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question comes from AJ Rice with EBS. Your line is open.

Hi, everybody. Thanks for the question. I appreciate the number you gave on the behavioral side of the 4.3, sort of the normalized core growth. I wondered if I could ask you that maybe a lot of the parts of the acute business are a little negative. You have the impact on the weather and the flu, and on the positives, some DPP variants year to year. Can you sort of parse those out and give us a sense of what the core grew on an even basis in the acute side, possibly?

I think it was in the low single-digit rate.

range aj okay all right um and then uh obviously interesting to talk about the eight ai use cases that uh mark called out and then it sounds like there's some additional ones you're looking at um i wondered if you could pick out two or three that uh you're saying these are really uh meaningful and uh maybe delve in a little bit more of what you're seeing as an opportunity to deploy AI.

Yeah, I mean, as I said, AJ, you know, we're looking to do things that affect our administrative functions to increase efficiency and in clinical operations. So if we can impact patient experience, improve outcomes, so that's kind of where our focus has been. We're already seeing some of those things, paying dividends, For example, right now, one of the things on the operating side, we've deployed and scaled a total of eight different use cases of AI solutions into our revenue cycle operations. And we've already seen, like I said, significant benefits already, and I think this is going to continue and multiply going forward. So I think our efficiency is getting better, but we're also seeing it on the financial side in increased dollars. improvements with denial of management, and then hopefully increased revenue. And then we're also doing a lot of things that are touching the patient. So anything that we can do in those two areas are kind of where we're going to focus for now. We're not doing much in the clinical space yet, but I do think down the line we'll see something there as well.

Okay. All right. Thanks so much.

Thank you. Our next question comes from Jason Casorla with Guggenheim. Your line is open.

Great. Thanks. Good morning. Wanted to check back in with the 46 million of combined Nevada and Ohio out-of-period Medicaid supplemental payments. I think we're culting somewhere around 120 to 130 million year-over-year benefit from total Medicaid supplemental payments in the quarter. Is that fair characterization? And then, If it's so, then can you help us bridge what would indicate, you know, a decent step up in core EBITDA ramp for the remainder of the year to meet that 5% growth expectation? Just any color that would be helpful to start.

Sure, Jason. So, I think that's accurate, and I also think it's worth noting that nothing that you enumerated was outside of our expectations. everything that you suggested, all the DPP that we recorded or, you know, the vast majority of it in Q1 within our guidance. I think that if you exclude the $46 million of out-of-period DPP in Q1, you'll have a good run rate for the rest of the year, and that number is consistent with what we disclosed in our 10-K and will disclose in our first quarter 10-Q as our estimated, you know, DPP for the year. So we recognized that we would have this significant benefit in Q1, largely because we had a number of large DPP programs last year, if you recall Tennessee, D.C., that were not approved and therefore recorded and recognized until after the first quarter. As far as the ramp for the rest of the year, so I'm just trying to make the point that everything – We recorded in Q1 was within our expectations. I think our overall results were within our expectations. And I think that implies that we expect a ramp in our earnings as the year goes on to get to that core level growth of 5% that's embedded in our guidance. Those assumptions include the continued ramp up of the new facilities, Cedar Hill in Washington, D.C., which celebrated its first year anniversary, you know, this month. The opening of the new hospital in Florida, the opening, as we alluded to in our remarks, of 178 new beds in existing hospitals in California, in Las Vegas, and in Florida. The continued improvement in behavioral, both in outpatient revenues, higher margin outpatient revenue business, and continued operating leverage. from growth in volumes, and I think volumes were on the softer side in both acute and behavioral, and we would expect them both to improve as the year goes on. And, you know, finally, I think, you know, as I also, I think, suggested in my remarks, we expect continued moderation in wage pressures in the behavioral business. We saw a significant Investment in wages in behavioral in 2025, moderated a little bit in Q1 26, but expected to moderate further as 26 progresses.

Got it. Great. Thanks. Very helpful. And if I could just follow up maybe on the behavioral volume picture, you know, excluding weather impacts, you still, you know, you hit the low end of your 2% to 3% volume target in the quarter. Maybe can you just talk about or talk a little bit more about the drivers of growth in the quarter? Maybe how much of that kind of step up or that volume acceleration X weather was a function of the higher headcount and increased labor supply? Or are you seeing anything different in the demand picture or throughput there? Just any thoughts around the volume environment for behavioral would be helpful. Thanks.

Sure. I think there's two broad trends, and I think you touched on at least one of them, Jason. Again, we made the point in our year-end call that we invested heavily in easing up our staffing in behavioral in 2025, and the point of that was to allow us greater flexibility and ability to take on greater patient demand, and I think that's beginning to affect itself or reflect itself. And then also, you know, we've talked at great length over several quarters about our continued focus on outpatient growth in a business where we're finding more and more of the demand. And we think demand remains strong for behavioral services, but more and more of that demand is shifting to the outpatient setting. And I think we're doing a better job and a more focused job on capturing that demand. And again, I think we think that's a upward climbing trajectory, as I alluded to in my answer to your first question.

Thank you. Our next question comes from Anne Hines with Mizuho. Your line is open.

Good morning. Thank you. Can we just talk about bad debt reserve trends? I know this is a dynamic environment with some Medicaid disenrollment and also the expiration of the ACA subsidies. How is that trending versus your expectation? And can you remind us, does your guidance assume a deterioration of of collectability on the copays or deductibles. Thanks.

Yeah, and so, you know, we address, you know, I think specifically kind of the HICS dynamic as it relates to uncompensated care and bed debt in our prepared remarks. We saw a decline in HICS volume in Q1, but as, you know, I noted, we also recorded an additional reserve because we believe that some of those HICS patients who are presenting themselves as having HICS coverage will later be deemed not to have coverage because they failed to make their premium payments. So I think we've taken a reasonably conservative position in Q1. We'll continue to learn more about those HICS dynamics, but at the moment, we believe that our $75 million negative estimate for the impact of the HICS subsidies expiring is good. It will continue to get larger as the year goes on, but that was always our expectation. And that impact largely is reflected in higher levels of dead debt and uncompensated care. Other than that, I can't say that we saw any dramatic changes in our payer mix. Slight increases in uninsured and Medicare. Excuse me, slight increases in uninsured and decreases in Medicaid utilization slightly, increase in Medicare utilization slightly, but no other big changes, no big changes in denials or patient status changes from the payers. And I think, you know, we attribute a lot of that to the investments that Mark alluded to in technology and also in people in process in our revenue cycle. We've really been focused, particularly in the acute care segment, on improvements in our revenue cycle efficiency, and I think that's allowing us to, at a minimum, keep pace with the payers as they demonstrate more aggressive behavior. And as we've disclosed before, we're going to shift that focus or increase that focus to the behavioral segment in 2026 and our revenue cycle efficiencies in that segment.

Thank you. Our next question comes from Matthew Gilmore with KeyBank.

Your line is open.

Hey, thanks.

I wanted to follow up on the pricing comments. I think Mark had mentioned the positive contribution in rate, but expecting a more balanced outlook for the balance of the year. It seemed like that outperformance was above and beyond your expectations, even excluding the SDP. So can you give us a sense for what drove the stronger pricing in the quarter and what's behind your expectation for the moderation for the rest of the year?

Well, I think a little bit of it, Matt, is you know, simply the mix with a lower sort of, you know, flu component, a significantly lower flu component this year rather than last year. By definition, the patients that we had this year were of a higher acuity. Most flu and respiratory patients obviously, you know, carry a fairly low acuity. So I think that's a big piece of it. But I did, you know, stress, I think, you know, or one of us stressed in our prepared comments, that we also saw, you know, reasonably healthy increases in some of the more acute service lines, including cardiology, orthopedics, and neurology. So that helped as well with the acuity and the pricing in acute care.

Fair enough. And then maybe asking a follow-up on trends with professional fees. I heard the comments about the, you know, controlling costs, but I was curious if there's anything to report there and give us a sense for what you're doing to try to alleviate some of that, particularly in areas like radiology.

Sure. So, you know, I think in our guidance for the year, we talked about professional fees rising at, you know, an inflationary rate in the single-digit range, you know, maybe towards the high end of the single digits. And I think, you know, we're largely, you know, operating within that range. That's not to say that we're not seeing pressure in our markets from certain hospital-based physicians for higher fees. You know, the way we're dealing with that is, you know, being more competitive in terms of, you know, going out for coverage with more RFPs, trying to reduce the number of locums physicians we use for our hospital-based physicians, which tend to be more expensive. And it's really just sort of a daily grind. But I think, you know, our operators have been fairly successful in keeping those professional fees down. at a level that is manageable, as I said, in the single digits, even if it's in the high single digits.

Thank you. Our next question comes from Kevin Fishbeck with Bank of America. Your line is open.

Oh, hi. Good morning. This is actually Joanna Gadgigan filling for Kevin here. So thanks for taking the question. So maybe first, I guess you talk about the decline in the HICS volumes. I don't think I heard you talk about the changes in your uninsured mix. Can you talk about the payer mix a little bit more in the quarter?

Yeah, Joanna, so what I thought I said before was obviously we saw a decline in HICS volumes. We saw a slight decline in Medicaid utilization, slight increase in uninsured volumes, and a slight increase in Medicare volumes. None of which is...

Okay.

Okay.

Yeah, no, I was just saying, so a slight increase in self-pay or uninsured, sorry.

Yeah.

Okay. And so thanks for that, clarifying that. That's helpful. And I guess on these supplemental payment programs, right, so sounds like there was nothing new that was approved that came through this quarter, and I guess, you know, we're still waiting for Florida and California, so any update on these programs?

As far as Florida is concerned, I think as a number of our peers have expressed, I think there is a high level of confidence amongst providers in Florida based on feedback that we've gotten from the state that their pending 2025 program is likely to be approved. We don't know the exact timing. It could be imminent. It could be another while. ultimately believe the 2025 program will be approved. And when it is, we'll record it in that period and revise our guidance appropriately at that time. We have been estimating that to be about a $50 million benefit to us. When we see the final approvals, we believe that benefit could be measurably higher, but waiting for the details from the state. As far as California is concerned, you know, we've been asked about this before. We think that the likelihood of a renewed or expanded California program is much less likely or much less certain, I should say, and, you know, we've done nothing to try and estimate the potential benefit there until, you know, there's further, I think, sort of consensus building between the state of California and CMS. But it is possible that if there is an expanded program, it could be measurably beneficial for us, but I think it's way too preliminary to make that judgment.

Thank you. Our next question comes from Justin Wake with Wolf Research. Your line is open.

Thanks. Good morning. I just wanted to follow up on core growth. I appreciate all the commentary about what's going to get better through the year. I think a lot of investors want to look at the household business right now, given DPP is going to be winding down to some extent going forward on an ex-DPP basis. And when I do that math and I think about all the other moving parts, the headwinds you had on flu and weather, I get to about an $80 million benefit on DPP plus the headwinds versus your growth of about $50 million in the quarter on EBITDA. So it looks like Corey Vidal is down $30 million or about 5%, 6%. Just curious if you can, you know, help us understand, you know, was there anything in the first quarter last year that wouldn't have reoccurred? Were there any good guys that we haven't thought about or, you know, anything else in the core that you think was driving that minus 5% if I'm thinking about it right? Thanks.

Yeah, so, Justin, it's a little bit difficult to answer your question. First of all, I don't have your calculation in front of me. But I don't dispute it. You know, the point that I think I made in an earlier response was simply all the points that you raised, all the points that were raised earlier are things that we anticipated. I think that were appropriately included in our guidance. You know, we understood that there was a difficult DPP comparison for us in the first quarter. We understood that our earnings trajectory would have to increase over the years, progression in order for us to get to that core 5% growth that's embedded in our guidance. And for the reasons that I tried to enumerate before, I think we, you know, we believe we can get there. But I acknowledge I'm not going to, you know, agree to all your numbers. I'm not suggesting they're wrong. I just don't, you know, I'm not able to do that off the top of my head. But I would suggest we get it, that we're not at that core 5% growth, excluding all the DPP and other non-recurring items in the corridor but still believe that we're going to get there for the full year. Got it. Thank you.

Thank you. Our next question comes from Ben Hendricks with RBC Capital Markets. Your line is open.

Thank you very much. Just wanted to follow up on the HICS trends real quick. You said a 5%, you know, decline in volume, though, and then that's excluding, you know, what you expect may not actually kind of effectuate in the quarter. And I just wanted to get your thoughts on that 5% versus the 25% to 30% of HICS patients and lost coverage that you mentioned. kind of embed in your assumptions for the year. Anything changing with that or any kind of results that you saw in the first quarter that kind of informed your decision to renew that number or anything within that range for the 25% to 30% changing?

Yeah, so I think what we tried to articulate then was that while we we could identify a 5% decline in our HICS volumes in Q1. We had an expectation that some of the patients that we were recognizing as HICS patients will later likely be identified as not having coverage because they failed to make their premium payments. So the reserve on those patients that we recorded for the first quarter reflects sort of a higher level of HICS volume decline, probably something in the low double digits, you know, 10 or 11 or 12 percent. We continue to believe that that number will increase as the year goes on. Our 25 to 30 percent estimate for the year, we believe, you know, we may still get there. Obviously, you know, we were not there in Q1, but, you know, again, that was an expectation that we wouldn't get there, you know, right away. So we'll see. You know, I think what all of our peers have said and I think providers have generally said is there's still a lot of dynamics in, you know, the movement of HICS patients and who's able to make their premiums and who's not, that, you know, we're going to continue to learn for at least another quarter and maybe more. But I think, you know, we feel like from an accounting perspective and reporting perspective, we're being conservative in how we're thinking about it.

Thank you. Our next question comes from Andrew Mott with Barclays. Your line is open.

Hi. Good morning. Given that flu and weather were early quarter dynamics, can you comment on the progression of volumes throughout the quarter in each segment, including exit rates in March and April? Thanks.

Well, you know, what I would say, Andrew, is, you know, I think the flu volume comparison was more significant in January and February. I think flu season was largely over last year and this year, you know, as we got to the end of the quarter. So I think that was the significant sort of flu decline was, you know, felt more acutely in the first couple of months of the quarter. And then the weather related, you know, really depended on the market. But, you know, we had storms in both January and February that affected, I think, you know, both business segments. Again, I think March was kind of a better word, a cleaner month, meaning, you know, no real flu impact and no significant weather impact. And I think, you know, March volumes were – showed a more normative increase over last year.

Great. Thank you. Thank you. Our next question comes from Raj Kumar with Stevens. Your line is open.

Yeah, maybe following up on the kind of March, April trends, I guess, did you see, you know, significant pickup and potential kind of deferred care that got pushed back because of the winter storms? And then maybe just also any kind of commentary on acute care surgical volume trends and just general acuity profile shifts year over year?

Well, what I would say generally is that, you know, what we find are, elective procedures, and that's mostly in the acute segment, that are scheduled and postponed because of the weather tend to be rescheduled. But as we indicated, the bigger impact in acute care was the flu, which is not something you recover from. So I think we talk about... you know, maybe, you know, $5 to $7 million of weather impact. And that's mostly in the D.C. market where we had some burst pipes in one of our facilities and had to close beds for a period of time. And, you know, quite frankly, that's not something you can really, you recover from the bed closure. You know, and on the behavioral side, you know, same thing. You know, you'll recover, you know, outpatient visits, et cetera, but You know, inpatient, you know, trauma sorts of admissions, you know, are generally going to go somewhere else, you know, if they can't get to the hospital. So, yeah, you know, again, I think that's something that, you know, we're not – if I talk about our recovery for the rest of the year or our growth for the rest of the year, we're not really counting on a tremendous amount of recapture of those deferred procedures. Thank you.

Thank you. Our next question comes from Craig Hettenbach with Morgan Stanley. Your line is open.

Yes, thanks. I wanted to go back to the strategy in outpatient behavioral health and the Talkspace deal. Can you maybe just touch on kind of thousand branches, how that's been going, and how much that kind of informed this next step on Talkspace?

Sure. I mean, things are going well. It's been a little bit slower deployment than we would have thought. just with various different situations state by state. But, you know, it didn't really inform us at all as far as being an impetus for Talkspace. We've known about Talkspace for many years. We obviously follow the landscape, so we know everybody that's out there. And we've talked a lot about our own outpatient deployment, you know, for many years now and wanting to become, you know, more proficient in outpatients So 1,000 branches is something we've been working on for a number of years. But Talkspace, you know, happened because there was an opportunity, you know, that we didn't really create. And once that company indicated that they were interested in at least considering options, you know, we began discussions and it got to where it got to. So I wouldn't say that one led us to the other. I would say that, you know, we've been studying that landscape for a long time And we were pleased and we are pleased that we're able to go in both directions because I think that our current outpatient offerings and the ones that we're developing ourselves internally are only going to help us as we, you know, combine with Talkspace and grow, as I said earlier, you know, our whole continuum.

Got it. And then just as a quick comment, you mentioned kind of the effect of multiple could be in single digits a few years out. Just what gives you that confidence in terms of what you're seeing in their business and what you can do with it to drive that effective multiple down?

Yeah, I mean, you said it actually in the question. We have confidence now that we've had a full look at their business model, what they achieved just in the last couple years, and what their plans are and we think they can achieve. I'll even say what they were going to achieve on their own in the next 24 months. Add that to what we think we can do to help them increase those achievements and earnings. That's what gives us greater confidence that a few years from now, we'll look back on this and I think the multiple will be single digits because when you look at it now, we've had folks ask us about it. It's harder to understand the multiple if you just look at it from today's earnings. But in the next couple of years, again, They're on a great growth path themselves, and we're going to add to that once we combine resources.

Thank you. Our next question comes from Benjamin Rossi with J.P. Morgan. Your line is open.

Hey, good morning. Thank you for taking my questions here. Just following up on the volume discussion across through the first quarter, what's your current outlook for Medicaid volumes for the year for both segments? And are you seeing any signs of volatility returning either through administrative churn or eligibility friction to start the year?

Yeah, Ben, I mean, as I've now said a couple of times on the call, we saw, I think, slight declines in Medicaid utilization in Q1. I think that's reasonably consistent with our expectations for the year. We're not expecting you know, any other major changes, either in Medicaid, quite frankly, or in pay or mix, other than the HICS commentary that we've talked about a couple of times. So, yeah, again, I would describe the changes to pay or mix outside of HICS and Q1 as relatively minor and pretty consistent with our expectations, and I think we think about that as being likely to be true for the rest of the year as well.

Okay. As a follow-up then on the de novo side, can you just provide an update on your de novo hospitals and how you're thinking about full year performance across your recent openings in Nevada and D.C. and along with the Florida hospital set to open up next month? Thanks.

Yeah, I'll just remind people that, you know, as part of our guidance, we talked about the idea that the new hospital in Florida, which is, you know, really the true de novo for this year, you know, would likely experience, you know, an operating loss for the year as would most, you know, new hospitals. We believe and our guidance contemplates that whatever loss that it incurs would likely be largely offset by gains and improvements at our Cedar Hill facility in Washington, D.C. I think we, you know, would reiterate that guidance, although I think we are of the mind that the Cedar Hill improvement is likely more back-end loaded maybe than we originally contemplated. It's had some issues with the weather and some of the other dynamics that we've talked about. The other new capacity that we referred to in our prepared remarks, new towers in Las Vegas and in the west coast of Florida, and you know, a replacement facility in California. These are in existing markets, and they'll all come online at some point during the second quarter, and we need steps to ramp up relatively quickly because they're in existing markets and essentially just adding to our existing operations. So, you know, you can believe that they will have a, you know, a very positive impact on growth in the back half of the year.

Thank you. Our next question comes from Ryan Langston with TD Cowan. Your line is open.

Hi. Good morning. I just wanted to follow up and make sure I understood your comments on the denials activity. Are you saying you are seeing accelerating levels of denials, but you're just able to navigate them more effectively? And are you able to provide any further details on what you're seeing by payer class?

So, no, I don't think we're seeing an increased level of denials, Ryan, of any material amount. What I suggest, and I think is that because I think others have talked about maybe more aggressive behavior on the part of payers, and, you know, I was trying to make the point that I think the investments that we've made in our own revenue cycle, particularly in the acute space, both from a technology perspective but also from personnel and process perspectives, are allowing us to sort of keep pace with potentially more aggressive behavior on the part of the payers. And I've just simply also made the point that we expect to make similar investments over the next 12 to 18 months in our behavioral health revenue cycle functions.

Okay. Thank you.

Thank you. Our next question comes from Scott Fidel with Goldman Sachs. Your line is open.

Hi, thanks. Good morning. First question, would it be interesting if you could give us an update on just how you're seeing the sort of underlying trend in behavioral in terms of just the demand versus supply equilibrium, if there's, you know, relatively consistent with where we've been, you know, the last couple of years, or just any type of incremental, you know, shifts you may be seeing either on the supply or the demand side?

Scott, in that regard, I think we've been pretty consistent for several years now in suggesting that we think behavioral demand remains strong. And, you know, probably our greatest challenge is then in meeting that demand. Probably the single biggest obstacle we've had in meeting that demand for the last several years has been inadequate staffing in certain markets in certain areas. personnel functions, sometimes that's nurses, sometimes that's therapists, sometimes that's mental health technicians, the unlicensed personnel in our behavioral facilities. The only other, I think, comment that, you know, we've made about demand, particularly I would say in the last, you know, several quarters or maybe the last year, is that while the demand remains strong, I think we see it as shifting, not unlike the way it has shifted in the acute segment for, you know, a decade or more at this point, to more outpatient delivery. And, you know, as Mark alluded to in his previous answer, you know, we're trying to meet that demand in a number of different ways, building out our own freestanding ability to deliver care in freestanding facilities with our 1,000 branches initiative, more focused on the step-down of patients who are being discharged from our existing facilities, and obviously through the Talkspace acquisition as well. So strong demand. although to a degree that demand is shifting more and more to the outpatient setting.

Okay. So if I can ask a follow-up around that, Steve, and around the outpatient strategy that's underway, and particularly just as it relates to how that's informing your thinking right now on capital allocation, and specifically, you know, obviously you have the outpatient clinics expansion going on. You have the talk space expansion. acquisition. I'm curious around, you know, how you're weighing sort of balancing buybacks relative to sort of, you know, continuing to invest more, allocate more capital towards continuing to build out that full capacity flywheel on the application and digital side.

Thanks. Well, I think the point that we've tried to make since announcing the top space acquisition, we had a number of questions, I think, when we first announced sort of in the context of well, this is a fairly large acquisition. You know, how does, you know, is this an either or in terms of, you know, share repurchase? And I think, again, as we tried to articulate in our remarks, we continue to find buyback of our own shares to be a pretty compelling investment and intend to remain active in that regard. I think we talked on our, you know, end of the year call as having a buyback target in the $800 to $900 million range, and I think that certainly remains a target for us at a minimum. The tall space acquisition does not increase our leverage significantly. We go from, you know, a little under two times leverage to a little over two times, but certainly that leaves us plenty of space to consider, as we said in our prepared remarks, any other acquisitions that, you know, would come up that we found compelling. as well as a continued, you know, aggressive CapEx program, as well as, you know, continued being an active return of capital to our shareholders.

Thank you. Our next question comes from Michael Ha with Bayer. Your line is up.

Great. Thank you. Just quickly first following up on Justin's question, I understand you're not providing the core growth math at the moment, but I wanted to ask you about the inputs and to see if I'm missing any major components to this map. So far, I'm looking at net TPPs, the exchange subsidy headwind, California staffing requirement headwind, the flu weather impact, but then how should we treat any Palm Beach gardens, Novo Cause, the Cedar Hill at K1, which sounds more back-end loaded now, and is there anything else that we should consider, anything on first quarter last year that would not reoccur?

Yeah, I mean, everything that you ticked through, Michael, are, I believe, items that we've discussed already. Again, I made the point earlier, and I'll just reiterate, none of those items were really a surprise to us during the quarter, and our overall results in the quarter were very consistent with our internal expectations. I think these were all knowns going into the quarter, obviously, other than the weather and the flu, although we certainly, I think, referenced both on our fourth quarter call. Your question about Cedar Hill and the new hospital in Florida, again, I'll reiterate, we said in our guidance we thought that would be a wash for the year, largely. That continues to be our belief, although I, you know, made the point that I think the Cedar Hill improvement is probably a little bit back-end loaded. But, no, I mean, I think we've covered all those items. Those were all well within our expectations, all included in our guidance.

Got it. Thank you. Following up on Scott's question on behavioral health, I know you had implemented labor efforts, you know, focused on retention at year one hires since the turnover rate of post year one hires diminishes drastically. Wondering how those efforts gone. I know last time we spoke, the turnover rate was moving from as high as 50% down to at least 40 over the last half year. Curious, where are you today on that turnover rate? Is it still in the 40s, and if you could remind us what your pre-COVID turnover rate was, just to establish a reference point. That'd be great. Thank you.

Yeah. So, again, I think as we said in our prepared remarks, reminded people that last year, our salary and wage expense and behavioral was up 8%, which included a pretty significant increase in the headcount. In Q1, it was more in the 6% to 7% range. We saw some moderation in Q1. We expect to see further moderation as the year goes on. You know, that's a function, I think, of any number of things. It is, you know, we're not hiring as aggressively in 26 as we did in 25. That's number one. Number two, I think we're seeing some moderation in wage increases. And, you know, again, I think we expect that. And as your question implied, we're also seeing, you know, some progress on turnover. You know, turnover remains high in behavioral. It remains high, I think, in all subacute industries. But we have clearly made progress and, you know, measurable progress on turnover in the last year or so.

Thank you. I'm showing no further questions at this time. Oh, now let's turn it back to Darren Larrick for closing remarks.

Thank you, everyone, for participating in today's call and for your interest in UHS. Have a great rest of your day.

This concludes today's conference call. Thank you for participating.