Universal Health Services, Inc. Reports 2020 Third Quarter Financial Results

KING OF PRUSSIA, Pa., Oct. 29, 2020 /PRNewswire/ -- Universal Health Services, Inc. (NYSE: UHS) announced today that its reported net income attributable to UHS was $241.3 million, or $2.82 per diluted share, during the third quarter of 2020, as compared to $97.2 million, or $1.10 per diluted share, during the comparable quarter of 2019. Net revenues increased 3.2% to $2.913 billion during the third quarter of 2020 as compared to $2.822 billion during the third quarter of 2019.

As reflected on the Schedule of Non-GAAP Supplemental Information (“Supplemental Schedule”), our adjusted net income attributable to UHS during the third quarter of 2020 was $246.5 million, or $2.88 per diluted share, as compared to $176.3 million, or $1.99 per diluted share, during the third quarter of 2019.

Included in our reported and adjusted net income attributable to UHS during the three-month period ended September 30, 2020 were the following:

• 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;
• An unfavorable impact of approximately $4.7 million, or $0.06 per diluted share, resulting from a reversal of previously recorded grant income revenues of approximately $5 million, as provided for by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as discussed below in CARES Act and Other Governmental Grants and Medicare Accelerated Payments.

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 marketable securities held for investment and classified as available for sale, and; (ii) a unfavorable after-tax impact of $3.1 million, or $.04 per diluted share, resulting from our adoption of ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09").

As reflected on the Supplemental Schedule, included in our reported results during the third quarter of 2019, is an aggregate net unfavorable after-tax impact of $79.1 million, or $.89 per diluted share, resulting from: (i) an unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment recorded in connection with Foundations Recovery Network, L.L.C.; (ii) an unfavorable after-tax impact of $6.2 million, or $.07 per diluted share, resulting from the non-deductible portion of the net federal and state income taxes due on the settlement finalized in July, 2020 with the Department of Justice, Civil Division, and; (iii) a favorable after-tax impact of $1.7 million, or $.02 per diluted share, resulting from our adoption of ASU 2016-09.

Included in our reported and our adjusted net income attributable to UHS during the third quarter of 2019 is a pre-tax unrealized loss of $15.2 million, or $.13 per diluted share (included in “Other (income) expense, net”), resulting from a decrease in the market value of shares of certain marketable securities held for investment and classified as available for sale.

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 $471.0 million during the third quarter of 2020, as compared to $297.4 million during the third quarter of 2019. Our adjusted earnings before interest, taxes, depreciation & amortization (“Adjusted EBITDA net of NCI”), which excludes the impact of other (income) expense, net, and the above-mentioned provision for asset impairment recorded during the third quarter of 2019, was $472.8 million during the third quarter of 2020 as compared to $404.4 million during the third quarter of 2019.

COVID-19

The impact of the COVID-19 pandemic, which began during the second half of March, 2020, has had a material unfavorable effect on our operations and financial results since that time, before giving effect to the revenues recorded in connection with the CARES Act and other governmental grants as discussed below in CARES Act and Other Governmental Grants and Medicare Accelerated Payments. Patient volumes at both our acute care and behavioral health care facilities were most significantly reduced in March and April. Our acute care and behavioral health facilities began experiencing gradual and continued improvement in patient volumes since May as various states eased stay-at-home restrictions and acute care hospitals were permitted to resume elective surgeries and procedures. Although many of our acute care and behavioral health facilities are located in states that have continued to experience intermittent increases in COVID-19 infections, non-COVID-19 patient volumes at our hospitals have not been as dramatically impacted in recent months by increases experienced from time-to-time in COVID-19 patient volumes. We believe that the adverse impact that COVID-19 will have on our future operations and financial results will depend upon many factors, most of which are beyond our capability to control or predict.

Consolidated Results of Operations, As Reported and As Adjusted – Nine-month periods ended September 30, 2020 and 2019:

Reported net income attributable to UHS was $635.2 million, or $7.40 per diluted share, during the nine-month period ended September 30, 2020, as compared to $569.7 million, or $6.35 per diluted share, during the first nine months of 2019. Net revenues decreased slightly to $8.472 billion during the first nine months of 2020 as compared to $8.482 billion during the comparable period of 2019.

As reflected on the Supplemental Schedule, our adjusted net income attributable to UHS during the nine-month period ended September 30, 2020 was $646.9 million, or $7.53 per diluted share, as compared to $646.7 million, or $7.21 per diluted share, during the first nine months of 2019.

Our reported and adjusted net income attributable to UHS during the nine-month period ended September 30, 2020 included the following:

• 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, as discussed below in CARES Act and Other Governmental Grants and Medicare Accelerated Payments, and;
• 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, 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 marketable securities held for investment and classified as available for sale, and; (ii) an unfavorable after-tax impact of $4.4 million, or $.05 per diluted share, resulting from our adoption of ASU 2016-09.

As reflected on the Supplemental Schedule, included in our reported results during the nine-month period ended September 30, 2019, is an aggregate net unfavorable after-tax impact of $77.0 million, or $.86 per diluted share, resulting from: (i) an unfavorable after-tax impact of $74.6 million, or $.84 per diluted share, resulting from a $97.6 million provision for asset impairment recorded in connection with Foundations Recovery Network, L.L.C.; (ii) an unfavorable after-tax impact of $14.6 million, or $.16 per diluted share, resulting from the non-deductible portion of the net federal and state income taxes due on the settlement finalized in July, 2020 with the Department of Justice, Civil Division, and; (iii) a favorable after-tax impact of $12.1 million, or $.14 per diluted share, resulting from our adoption of ASU 2016-09.

Included in our reported and our adjusted net income attributable to UHS during the nine-month period ended September 30, 2019 is a pre-tax unrealized loss of $12.5 million, or $.11 per diluted share (included in “Other (income) expense, net”), resulting from a decrease in the market value of shares of certain marketable securities held for investment and classified as available for sale.

As calculated on the attached Supplemental Schedule, our EBITDA net of NCI was $1.303 billion during the first nine months of 2020, as compared to $1.222 billion during the first nine months of 2019. Our Adjusted EBITDA net of NCI, which excludes the impact of other (income) expense, net, and the increase in the Department of Justice settlement reserve and the provision for asset impairment, both of which were recorded during the first nine months of 2019, was $1.311 billion during the nine-month period ended September 30, 2020 and $1.336 billion during the comparable period of 2019.

Acute Care Services – Three and nine-month periods ended September 30, 2020 and 2019:

During the third quarter of 2020, at our acute care hospitals owned during both periods (“same facility basis”), adjusted admissions (adjusted for outpatient activity) decreased 17.3% and adjusted patient days decreased 1.6%, as compared to the third quarter of 2019. At these facilities, excluding the CARES Act and other grant income revenues of approximately $4 million recorded during the third quarter of 2020, net revenue per adjusted admission increased 26.2% while net revenue per adjusted patient day increased 6.0% during the third quarter of 2020 as compared to the third quarter of 2019. During the third quarter of 2020, as compared to the third quarter of 2019, net revenues generated from our acute care services on a same facility basis increased 5.5% including the impact of the CARES Act and other grant income revenues, and increased 5.2% excluding the impact of the CARES Act and other grant income revenues.

During the nine-month period ended September 30, 2020, at our acute care hospitals on a same facility basis, adjusted admissions decreased 15.4% and adjusted patient days decreased 6.6%, as compared to the first nine months of 2019. At these facilities, excluding the CARES Act and other grant income revenues of approximately $161 million recorded during the first nine months of 2020, net revenue per adjusted admission increased 13.8% while net revenue per adjusted patient day increased 3.0% during the nine-month period ended September 30, 2020 as compared to the comparable nine-month period of 2019. During the first nine months of 2020, as compared to the comparable period of 2019, net revenues generated from our acute care services on a same facility basis increased 0.8% including the CARES Act and other grant income revenues, and decreased 2.8% excluding the CARES Act and other grant income revenues.

Behavioral Health Care Services – Three and nine-month periods ended September 30, 2020 and 2019:

During the third quarter of 2020, at our behavioral health care facilities on a same facility basis, adjusted admissions decreased 5.6% while adjusted patient days decreased 3.6% as compared to the third quarter of 2019. At these facilities, excluding the impact of the CARES Act and other grant income revenue reversal of approximately $9 million recorded during the third quarter of 2020, net revenue per adjusted admission increased 8.0% while net revenue per adjusted patient day increased 5.7% during the third quarter of 2020 as compared to the comparable quarter in 2019. During the third quarter of 2020, as compared to the third quarter of 2019, net revenues generated from our behavioral health care services on a same facility basis increased 1.2% including the impact of the CARES Act and other grant income revenue reversal, and increased 1.9% excluding the impact of the CARES Act and other grant income revenue reversal.

During the nine-month period ended September 30, 2020, at our behavioral health care facilities on a same facility basis, adjusted admissions decreased 7.6% and adjusted patient days decreased 5.1%, as compared to the first nine months of 2019. At these facilities, excluding the CARES Act and other grant income revenues of approximately $52 million recorded during the first nine months of 2020, net revenue per adjusted admission increased 6.6% while net revenue per adjusted patient day increased 3.8% during the first nine months of 2020 as compared to the comparable period of 2019. During the first nine months of 2020, as compared to the comparable period of 2019, net revenues generated from our behavioral health care services on a same facility basis decreased 0.2% including the CARES Act and other grant income revenues, and decreased 1.5% excluding the CARES Act and other grant income revenues.

Net Cash Provided by Operating Activities and Liquidity:

Net Cash Provided by Operating Activities:

For the nine months ended September 30, 2020, our net cash provided by operating activities increased to $2.218 billion as compared to $1.105 billion generated during the first nine months of 2019.

The $1.113 billion net increase was due to: (i) a favorable change of $878 million resulting from the Medicare accelerated payments and deferred CARES Act and other grants; (ii) a favorable change of $111 million due to the payment deferral of the employer’s share of Social Security taxes, as provided for by the CARES Act; (iii) a favorable change of $52 million in accrued and deferred income taxes; (iv) a favorable change of $49 million in accounts receivable; (v) a favorable change $30 million in other working capital accounts due primarily to the timing of accounts payable disbursements, and; (vi) $7 million of other combined net unfavorable changes.

Liquidity:

As of September 30, 2020, there were no borrowings outstanding pursuant to our $1 billion revolving credit facility or our $450 million accounts receivable securitization program. As of that date, we had $1.447 billion of aggregate available borrowing capacity pursuant to the terms of these debt facilities, net of outstanding letters of credit.

In addition, as of September 30, 2020, we had approximately $1.101 billion of cash and cash equivalents.

CARES Act and Other Governmental Grants and Medicare Accelerated Payments:

As of September 30, 2020, we have received an aggregate of $1.091 billion as follows:

• Approximately $396 million of funds received from various governmental stimulus programs, most notably the Public Health and Social Services Emergency Fund, as provided for by the CARES Act.
  • Included in our reported and adjusted net income attributable to UHS for the three-month period ended September 30, 2020, was an unfavorable impact of $4.7 million, or $0.06 per diluted share, resulting from a reversal of previously recorded CARES Act and other grant income revenues of approximately $5 million. During the third quarter of 2020, approximately $4 million of grant income revenues were recorded by our acute care services, while our behavioral health services reversed approximately $9 million of previously recorded CARES Act and other grant income revenues.
  • Included in our reported and adjusted net income attributable to UHS for the nine-month period ended September 30, 2020, was the favorable impact of $157.2 million, or $1.84 per diluted share, resulting from the recording of approximately $213 million of CARES Act and other grant income revenues. Approximately $161 million of the grant income revenues were attributable to our acute care services and approximately $52 million were attributable to our behavioral health care services.
  • As of September 30, 2020, approximately $183 million of these funds remain in the Medicare accelerated payments and deferred CARES Act and other grants liability account in our condensed consolidated balance sheet.
• Approximately $695 million of Medicare accelerated payments received. Pursuant to legislation enacted on October 1, 2020, these funds are required to be repaid to the government beginning in the second quarter of 2021 through the third quarter of 2022 through withholding of future Medicare revenues earned during those periods. There was no impact on our earnings during the three and nine-month periods ended September 30, 2020 in connection with receipt of these funds. As of September 30, 2020, the funds are included in the Medicare accelerated payments and deferred CARES Act and other grants liability account in our condensed balance sheet.

We recognized grant income net revenues related to the CARES Act and other governmental grant funding based on information available at September 30, 2020 based upon laws and regulations governing the funding as well as interpretations issued by the Department of Health and Human Services (“HHS”). In October 2020, HHS issued new reporting requirements for the CARES Act funding. Due to these new reporting requirements and various interpretations, there is at least a reasonable possibility that amounts recorded under CARES Act funding will change in future periods.

Update on Previously Disclosed Information Technology Incident:

As previously disclosed on September 29, 2020, we experienced an information technology security incident in the early morning hours of September 27, 2020. As a result of this cyberattack, we suspended user access to our information technology applications related to operations located in the United States. While our information technology applications were offline, patient care was delivered safely and effectively at our facilities across the country utilizing established back-up processes, including offline documentation methods.

Since that time, our information technology applications have been restored at our acute care and behavioral health hospitals, as well as at the corporate level, thereby re-establishing connections to all major systems and applications, including electronic medical records, laboratory and pharmacy systems. With the back-loading of data substantially complete at this point, our hospitals are resuming normal operations.

We have worked diligently with our information technology security partners to restore our information technology infrastructure and business operations as quickly as possible. In parallel, we immediately began investigating the nature and potential impact of the security incident and engaged third-party information technology and forensic vendors to assist. Although the investigation remains ongoing, no evidence of unauthorized access, copying or misuse of any patient or employee data has been identified to date.

Conference call information:

We will hold a conference call for investors and analysts at 10:00 a.m. eastern time on October 30, 2020. The dial-in number is 1-877-648-7971.

A live broadcast of the conference call will be available on our website at www.uhsinc.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 $11.4 billion during 2019. In 2020, UHS was again recognized as one of the World’s Most Admired Companies by Fortune; ranked #281 on the Fortune 500; and listed #330 in Forbes ranking of U.S.’ Largest Public Companies.

Our operating philosophy is as effective today as it was 40 years ago, 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 more than 90,000 employees and through its subsidiaries operates 26 acute care hospitals, 330 behavioral health facilities, 41 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and various related services located in 37 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 on the Company, visit our web site: http://www.uhsinc.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-Q for the quarterly period ended June 30, 2020), 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 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 expect developments related to the COVID-19 pandemic to materially affect our financial performance in 2020. In addition, although we are unable to quantify the ultimate impact of the above-mentioned information technology security incident that we experienced in late September, 2020, the incident could have an adverse effect on our future results of operations.

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, our adoption of ASU 2016-09, unrealized gains/losses resulting from changes in the market value of shares of certain marketable securities held for investment and classified as available for sale, 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, changes in the reserve established in connection with our discussions with the Department of Justice, 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 Reports on Form 10-K for the year ended December 31, 2019 and Form 10-Q for the quarterly period ended June 30, 2020. 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.