Universal Health Services, Inc. Reports 2018 Fourth Quarter And Full Year Financial Results And 2019 Full Year Earnings Guidance

KING OF PRUSSIA, Pa., Feb. 27, 2019 /PRNewswire/ -- Universal Health Services, Inc. UHS announced today that its reported net income attributable to UHS was $158.1 million, or $1.70 per diluted share, during the fourth quarter of 2018 as compared to $219.6 million, or $2.31 per diluted share, during the comparable quarter of 2017.  Net revenues increased 4.2% to $2.754 billion during the fourth quarter of 2018 as compared to $2.643 billion during the fourth quarter of 2017.

For the three-month period ended December 31, 2018, our adjusted net income attributable to UHS, as calculated on the attached Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), was $220.1 million, or $2.37 per diluted share, as compared to $189.6 million, or $2.00 per diluted share, during the fourth quarter of 2017. 

Included in our reported and our adjusted net income attributable to UHS during the fourth quarter of 2018, is a pre-tax unrealized loss of $12.5 million, or $.10 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 reflected on the Supplemental Schedule, included in our reported results during the fourth quarter of 2018, is a net aggregate unfavorable after-tax impact of $62.0 million, or $.67 per diluted share, consisting primarily of the following: (i) an unfavorable after-tax impact of $24.5 million, or $.26 per diluted share, resulting from a $31.9 million pre-tax increase in the reserve established in connection with the discussions with the Department of Justice ("DOJ Reserve"), as discussed below, and; (ii) an unfavorable after-tax impact of $37.7 million, or $.41 per diluted share, resulting from a $49.3 million provision for intangible asset impairment, as discussed below.  

As reflected on the Supplemental Schedule, included in our reported results during the fourth quarter of 2017, is a net aggregate favorable after-tax impact of $30.0 million, or $.31 per diluted share, consisting of: (i) a favorable after-tax impact of $30.0 million, or $.32 per diluted share, resulting from a reduction in our net deferred income tax liability recorded in connection with the Tax Cuts and Jobs Act of 2017 (the "TCJA-17") which reduced the U.S. federal corporate tax rate to 21% from 35%, effective January 1, 2018; (ii) a favorable after-tax impact of $13.5 million, or $.14 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09, "Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), as discussed below; (iii) an unfavorable after-tax impact of $11.3 million, or $.12 per diluted share, due to the one-time repatriation tax incurred pursuant to the TCJA-17 (incurred in connection with our behavioral health care facilities located in the U.K. and Puerto Rico), and; (iv) an unfavorable after-tax impact of $2.3 million, or $.03 per diluted share, related to the depreciation and amortization expense recorded in connection with the implementation of electronic health records ("EHR") applications at our acute care hospitals.

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 $359.9 million during the fourth quarter of 2018 as compared to $447.0 million during the fourth quarter of 2017.  Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impact of the above-mentioned $31.9 million pre-tax increase in the DOJ Reserve, the $49.3 million provision for intangible asset impairment and $12.5 million of other expense, net, was $453.6 million during the fourth quarter of 2018 as compared to $447.0 million during the fourth quarter of 2017.

Consolidated Results of Operations, As Reported and As Adjusted  – Twelve-month periods ended December 31, 2018 and 2017:

Reported net income attributable to UHS was $779.7 million, or $8.31 per diluted share, during the twelve-month period ended December 31, 2018 as compared to $752.3 million, or $7.81 per diluted share, during the full year of 2017.  Net revenues increased 3.5% to $10.772 billion during 2018 as compared to $10.410 billion during 2017.

For the twelve-month period ended December 31, 2018, our adjusted net income attributable to UHS, as calculated on the attached Supplemental Schedule, was $894.4 million, or $9.53 per diluted share, as compared to $725.5 million, or $7.53 per diluted share, during the full year of 2017. 

Included in our reported and our adjusted net income attributable to UHS during the full year of 2018, is a pre-tax unrealized gain of $6.0 million, or $.05 per diluted share (included in "Other (income) expense, net"), resulting from an increase in the market value of shares of certain marketable securities held for investment and classified as available for sale.  

As reflected on the Supplemental Schedule, included in our reported results during the twelve-month period ended December 31, 2018, is a net aggregate unfavorable after-tax impact of $114.6 million, or $1.22 per diluted share, consisting of: (i) an unfavorable after-tax impact of $78.2 million, or $.83 per diluted share, resulting from a $102.3 million pre-tax increase in the DOJ Reserve, as discussed below; (ii) an unfavorable after-tax impact of $37.7 million, or $.40 per diluted share, resulting from a $49.3 million provision for intangible asset impairment, as discussed below, partially offset by; (iii) a favorable after-tax impact of $1.2 million, or $.01 per diluted share, resulting from our adoption of ASU 2016-09.  

As reflected on the Supplemental Schedule, included in our reported results during the full year of 2017, is a net aggregate favorable after-tax impact of $26.8 million, or $.28 per diluted share, consisting of: (i) a favorable after-tax impact of $30.0 million, or $.32 per diluted share, resulting from a reduction in our net deferred income tax liability resulting from lower federal income tax rates beginning January 1, 2018 pursuant to the TCJA-17; (ii) a favorable after-tax impact of $22.1 million, or $.23 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09, as discussed below; (iii) an unfavorable after-tax impact of $11.3 million, or $.12 per diluted share, due to the one-time repatriation tax incurred pursuant to the TCJA of 2017, and; (iv) an unfavorable after-tax impact of $14.0 million, or $.15 per diluted share, related to the depreciation and amortization expense recorded in connection with the implementation of EHR applications at our acute care hospitals.

As calculated on the attached Supplemental Schedule, our earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI"), was $1.624 billion during the full year of 2018 as compared to $1.709 billion during the 2017 full year. Our adjusted earnings before interest, taxes, depreciation & amortization ("Adjusted EBITDA net of NCI"), which excludes the impact of the $102.3 million pre-tax increase in the DOJ Reserve, the $49.3 million provision for intangible asset impairment and $14.2 million of other income, net, was $1.762 billion during the twelve-month period ended December 31, 2018 as compared to $1.709 billion during the twelve-month period of 2017.

Acute Care Services – Three and twelve-month periods ended December 31, 2018 and 2017:

During the fourth quarter of 2018, at our acute care hospitals owned during both periods ("same facility basis"), adjusted admissions (adjusted for outpatient activity) increased 2.2% and adjusted patient days increased 4.8%, as compared to the fourth quarter of 2017. At these facilities, net revenue per adjusted admission increased 4.2% while net revenue per adjusted patient day increased 1.6% during the fourth quarter of 2018 as compared to the comparable quarter of 2017. Net revenues from our acute care services on a same facility basis increased 4.7% during the fourth quarter of 2018 as compared to the comparable quarter of the prior year.

During the twelve-month period ended December 31, 2018, at our acute care hospitals on a same facility basis, adjusted admissions increased 2.1% and adjusted patient days increased 4.8%, as compared to the full year of 2017. At these facilities, net revenue per adjusted admission increased 4.1% while net revenue per adjusted patient day increased 1.4% during the full year of 2018 as compared to the 2017 full year. Net revenues from our acute care services on a same facility basis increased 4.6% during 2018 as compared to the prior year.

Behavioral Health Care Services – Three and twelve-month periods ended December 31, 2018 and 2017:

During the fourth quarter of 2018, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 4.5% while adjusted patient days increased 1.2% as compared to the fourth quarter of 2017. At these facilities, net revenue per adjusted admission decreased 2.1% while net revenue per adjusted patient day increased 1.1% during the fourth quarter of 2018 as compared to the comparable quarter in 2017. On a same facility basis, our behavioral health care services' net revenues increased 2.0% during the fourth quarter of 2018 as compared to the fourth quarter of 2017.   

During the twelve-month period ended December 31, 2018, at our behavioral health care facilities on a same facility basis, adjusted admissions increased 3.0% while adjusted patient days increased 0.5% as compared to the full year of 2017. At these facilities, net revenue per adjusted admission was unchanged while net revenue per adjusted patient day increased 2.5% during the full year of 2018 as compared to 2017. On a same facility basis, our behavioral health care services' net revenues increased 2.6% during the twelve-month period of 2018 as compared to the 2017 full year.   

Net Cash Provided by Operating Activities and Share Repurchase Program:

For the twelve months ended December 31, 2018, our net cash provided by operating activities was $1.341 billion as compared to $1.183 billion generated during the full year of 2017. The net increase of $158 million was due to: (i) a $130 million favorable change in cash flows from foreign currency forward exchange contracts related to our investments in the U.K; (ii) a favorable change of $91 million due to an increase in net income plus/minus depreciation and amortization expense, stock-based compensation, a net gain on sales of assets and businesses, costs related to extinguishment of debt and provision for intangible asset impairment; (iii) an unfavorable change of $48 million in accrued and deferred income taxes; (iv) a favorable change of $40 million in other working capital accounts resulting primarily from changes in accrued expenses due to timing of disbursements; (v) an unfavorable change of $18 million in accounts receivable, and; (vi) $37 million of other combined net unfavorable changes.

In December of 2018, our Board of Directors authorized a $500 million increase to our stock repurchase program, which increased the aggregate authorization to $1.7 billion from the previous $1.2 billion authorization approved during 2017, 2016 and 2014. Pursuant to this program, we may purchase shares of our Class B Common Stock, from time to time as conditions allow, on the open market or in negotiated private transactions. There is no expiration date for our stock repurchase programs.

In conjunction with our stock repurchase program, during the fourth quarter of 2018, we have repurchased approximately 1.22 million shares at an aggregate cost of $149.3 million (approximately $122 per share), $16.6 million of which was paid in early January, 2019. During the twelve-month period of 2018, we have repurchased approximately 3.32 million shares at an aggregate cost of $401.3 million (approximately $121 per share), $16.6 million of which was paid in early January, 2019. Since inception of the program in 2014 through December 31, 2018, we have repurchased approximately 10.67 million shares at an aggregate cost of $1.24 billion (approximately $116 per share). 

2019 Operating Results Forecast:

Reflected below is our 2019 guidance range for consolidated net revenues, earnings before interest, taxes, depreciation & amortization ("EBITDA net of NCI"), adjusted earnings per diluted share ("Adjusted EPS-diluted") and capital expenditures.  Adjusted EPS-diluted and EBITDA net of NCI, are non-GAAP financial measures and should be examined in connection with net income determined in accordance with GAAP as presented in the consolidated financial statements and notes thereto in this report or in our filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2018. Please see the Supplemental Non-GAAP Disclosures - 2019 Operating Results Forecast schedule as included herein for additional information and a reconciliation to the financial forecasts as computed in accordance with GAAP. 

Our 2019 guidance contains a number of assumptions including, but not limited to, the following:

• The 2019 forecasted amounts exclude the impact of future items, if applicable, that are nonrecurring or non-operational in nature including items such as changes in the reserve (including the income tax deductibility assumptions) established in connection with the discussions with the Department of Justice, pre-tax unrealized gains/losses resulting from increases/decreases in the market value of shares of certain marketable securities held for investment and classified as available for sale, our adoption of ASU 2016-09, and other potential material items including, but not limited to, reserves for various matters including settlements, legal judgments and lawsuits, potential impacts of non-ordinary course acquisitions, divestitures, joint ventures or other strategic transactions, costs related to extinguishment of debt, gains/losses on sales of assets and businesses, impairment of long-lived and intangible assets, and other amounts that may be reflected in the current financial statements that related to prior periods and the impact of share repurchases that differ from included assumptions. It is also subject to certain conditions including those as set forth below in General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures.
  
  
  
  
• Our net revenues are estimated to be approximately $11.213 billion to $11.361 billion representing an increase of approximately 4.1% to 5.5% over our 2018 net revenues of approximately $10.772 billion.
  
  
  
  
• The Adjusted EPS-diluted guidance range represents an increase of approximately 2% to 9% over the adjusted net income attributable to UHS of $9.53 per diluted share for the year ended December 31, 2018, as calculated on the attached Supplemental Schedule.
  
  
  
  
• The guidance range, like our adjusted earnings for 2018, as discussed above, excludes changes in the reserve established in connection with the Department of Justice, pre-tax unrealized gains/losses resulting from increases/decreases in the market value of shares of certain marketable securities held for investment and classified as available for sale, and the impact on our provision for income taxes and net income attributable to UHS resulting from of our adoption of ASU 2016-09, as discussed below.

Conference call information:

We will hold a conference call for investors and analysts at 9:00 a.m. eastern time on February 28, 2019. 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.

DOJ Reserve:

During the three and twelve-month periods ended December 31, 2018, we recorded pre-tax increases of approximately $31.9 million and $102.3 million, respectively, to the reserve established in connection with the civil aspects of the government's investigation of certain of our behavioral health care facilities, increasing the aggregate pre-tax reserve to approximately $123 million as of December 31, 2018.  Changes in the reserve may be required in future periods as discussions with the Department of Justice continue and additional information becomes available.  We cannot predict the ultimate resolution of this matter and therefore can provide no assurance that final amounts paid in settlement or otherwise, if any, or associated costs, as well as the income tax deductibility of payments, will not differ materially from our established reserve and assumptions related to income tax deductibility. Please see Item 3-Legal Proceedings in our Form 10-K for the year ended December 31, 2018 for additional disclosure in connection with this matter.

Provision for Intangible Assets Impairment

During 2018, we recorded a pre-tax $49.3 million provision for asset impairment to reduce the carrying value of a tradename intangible asset to approximately $75 million from approximately $124 million as previously recorded in connection with our 2015 acquisition of Foundations Recovery Network, L.L.C. ("Foundations"). The intangible asset impairment charge, which is included in other operating expenses in our 2018 consolidated statements of income, was recorded after evaluation of the estimated fair value of the Foundations' tradename for its existing facilities, consisting of 4 inpatient and 12 outpatient facilities as of December 31, 2018, as well as estimated planned de novos. This asset impairment charge was impacted by the following: (i) the lost future revenue and cash flows resulting from the permanent closure of a Foundations' inpatient facility located in Malibu, California that was severely damaged in the California wildfires during the fourth quarter of 2018; (ii) reduction in growth rates of projected future patient volumes, revenues and operating cash flows based upon pressures on reimbursement rates experienced from certain payers and competitive pressures experienced in certain markets, and; (iii) revisions made to the number and timing of planned de novo facilities.           

Adoption of New Revenue Recognition Standard:

On January 1, 2018, we adopted, using the modified retrospective approach, ASU 2014-09 and ASU 2016-08, "Revenue from Contracts with Customers (Topic 606)" and "Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)", respectively, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The most significant change from the adoption of the new standard relates to our estimation for the allowance for doubtful accounts. Under the previous standards, our estimate for amounts not expected to be collected based upon our historical experience, were reflected as provision for doubtful accounts, included within net revenue. Under the new standard, our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue, however, not reflected separately as provision for doubtful accounts. Under the new standard, subsequent changes in estimate of collectability due to a change in the financial status of a payer, for example a bankruptcy, will be recognized as bad debt expense in operating charges. The adoption of this ASU in 2018, and amounts recognized as bad debt expense and included in other operating expenses, did not have a material impact on our consolidated financial statements.      

Tax Cuts and Jobs Act of 2017:

Effective January 1, 2018, our provision for income taxes, net income attributable to UHS, and net income attributable to UHS per diluted share, were favorably impacted by the Tax Cuts and Jobs Act of 2017 which made broad and complex changes to the U.S. tax code including, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%.  

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:

One of the nation's largest and most respected hospital companies, Universal Health Services, Inc. ("UHS") has built an impressive record of achievement and performance. Growing steadily since its inception into an esteemed Fortune 500 corporation, UHS today has annual revenue exceeding $10.7 billion. In 2019, UHS was again recognized as one of the World's Most Admired Companies by Fortune; in 2018, ranked #268 on the Fortune 500; and in 2017, listed #275 in Forbes inaugural ranking of America's Top 500 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: Build or acquire high quality hospitals in rapidly growing markets, invest in the people and equipment needed to allow each facility to thrive, and become the leading healthcare provider in each community we serve.

Headquartered in King of Prussia, PA, UHS has more than 87,000 employees and through its subsidiaries operates 350 inpatient acute care hospitals and behavioral health facilities and 37 outpatient and other facilities located in 37 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 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 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, 2018), may cause the results to differ materially from those anticipated in the forward-looking statements.  Many of the factors that will determine our future results are beyond our capability to control or predict. 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.

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 in each year of material items impacting our net income attributable to UHS, such as, changes in the reserve established in connection with our discussions with the Department of Justice, our adoption of ASU 2016-09, impairments of long-lived and intangible assets, and other potential material items that are nonrecurring or non-operational in nature including, but not limited to, 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, 2018. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Universal Health Services, Inc.