Universal Health Services Q3 Earnings Call Highlights

Key Points

• Q3 earnings fell short of internal expectations: Adjusted EPS declined 8% year over year to $5.22, while adjusted EBITDA less noncontrolling interests fell to $625 million. Management cited slower de novo hospital ramp-ups and weaker surgical trends, though it maintained its full-year outlook and expects results near the lower end.
• Acute-care demand remained strong but the volume mix weakened: Same-facility admissions rose 4.9% and emergency visits increased 4.6%, while surgeries declined 0.7%. Medical admissions outpaced surgical cases, contributing to lower revenue per adjusted admission and a 4.5% reported decline in acute-care segment EBITDA.
• De novo losses and future regulatory pressures remain key risks: Cedar Hill’s break-even target was pushed back to the first half of 2027, and combined 2026 losses from new facilities and Laurel Ridge are expected at $80 million to $100 million. UHS also estimates potential 2027 headwinds of $175 million to $200 million from Medicaid supplemental-payment reductions, plus about $15 million from exchange enrollment changes.

Universal Health Services NYSE: UHS reported third-quarter adjusted earnings per share of $5.22, down 8% from a year earlier, as the company cited favorable acute-care demand, improving behavioral-health volumes and moderating labor pressures but said results fell below its internal expectations after excluding certain items.

Adjusted EBITDA less noncontrolling interests totaled $625 million, compared with $671 million in the third quarter of 2025. Chief Financial Officer Steve Filton said the quarter included a $37 million net out-of-period headwind from Medicaid directed payment programs compared with the prior-year period.

Results also included $47 million of supplemental Medicaid benefits not included in the company’s July forecast, partly offset by $26 million in additional professional and general liability reserves, primarily related to a tentative litigation settlement involving its Cumberland facility in Virginia, and $8.5 million of Talkspace acquisition-related costs. Together, those items had a net favorable impact of $12 million.

“Excluding these items, adjusted EBITDA less NCI was below our internal expectations despite modest sequential improvement,” Filton said. He attributed the shortfall primarily to a slower-than-expected ramp at de novo hospitals and softer surgical trends.

Acute-Care Volumes Rise as Surgeries Decline

Same-facility adjusted admissions at UHS acute-care hospitals rose 4.9% year over year, while emergency department visits increased 4.6%. The growth was broad-based geographically and benefited from capacity additions at three hospitals during the second quarter, Filton said.

Same-facility surgeries, however, declined 0.7%, with inpatient and outpatient surgical cases falling at similar rates. Medical admissions substantially outpaced surgical admissions, affecting revenue mix and pricing trends. The company reported strength in cardiology, neurology and urology.

Acute-care same-facility net revenue rose 4.7%, or 3.1% excluding the company’s health plan. Revenue per adjusted admission declined 1.7% on a reported basis but was slightly positive after excluding the effects of out-of-period Medicaid supplemental benefits and a shift from exchange-covered patients to uninsured volumes.

After adjusting for those factors and the higher medical-to-surgical mix, UHS estimated acute-care rate growth of about 3%, consistent with recent quarters.

• Acute-care salaries, wages and benefits expense per adjusted admission increased 2.1%.
• Supply expense per adjusted admission decreased 2.3%.
• Acute-care segment EBITDA declined 4.5% on a reported basis but increased 2.9% excluding out-of-period supplemental-program effects from both years.

Health insurance exchange volumes fell 17% from the prior-year quarter, with a similar increase in self-pay volumes. Filton said exchange trends had an impact of slightly less than $25 million during the quarter, in line with the company’s July outlook.

De Novo Hospitals Take Longer to Mature

UHS said Palm Beach Gardens Hospital in Florida remains in the early stages of building volumes across service lines. Startup losses improved each month during the third quarter, and the company expects conditions to improve as Florida enters its seasonally busier winter period.

At Cedar Hill Regional Medical Center in Washington, D.C., operating losses were sequentially similar excluding supplemental payments. UHS now expects the hospital to reach operational break-even in the first half of 2027, later than its prior expectation for the fourth quarter of 2026.

Filton said Cedar Hill has maintained busy emergency-room activity but has taken longer to develop surgical and procedural volumes because of a limited physician infrastructure in the surrounding Ward 7 and Ward 8 communities. UHS is working to establish primary-care and specialty practices near the hospital and its medical office building.

Combined operating losses from Cedar Hill, Palm Beach Gardens and Laurel Ridge Treatment Center in San Antonio are expected to total $80 million to $100 million in 2026, according to Filton. He said Cedar Hill has been losing about $10 million monthly, while Palm Beach Gardens lost about $15 million during the third quarter.

Behavioral Health Growth and Talkspace Integration

In behavioral health, same-facility net revenue increased 4.0%, supported by 2.1% growth in both revenue per adjusted patient day and adjusted patient days. The segment’s volumes improved modestly from recent quarters, which management attributed to steady demand and a greater focus on outpatient levels of care.

Behavioral-health results included Talkspace, acquired Aug. 17, and a U.K. acquisition completed in July. Talkspace’s contribution to third-quarter earnings was immaterial because the transaction closed partway through the quarter.

President and CEO Marc Miller said UHS has begun integrating Talkspace through technology deployment, referral pathways from behavioral-health facilities and more flexible market-based outpatient services, including virtual intensive outpatient program offerings.

The company expects the strategic benefits of the acquisition to emerge over the next 12 to 24 months. Filton said Talkspace is expected to be slightly accretive during its first 12 months under UHS ownership, largely reflecting limited duplicative-cost savings. The larger opportunity is expected to come from revenue synergies as the companies connect Talkspace’s lower-acuity virtual-care population with UHS’s higher-acuity behavioral-health network.

UHS continues to expect Laurel Ridge to regain certification during 2027. The facility generated $20 million to $25 million in pretax income before losing certification, Filton said, and is expected to lose $5 million to $10 million per quarter while it remains open without certification and treats a limited number of patients.

Cash Flow, Capital Spending and 2027 Considerations

Cash generated from operating activities totaled $637 million in the third quarter, compared with $381 million a year earlier. UHS spent $214 million on capital expenditures during the quarter and expects full-year capital spending to come in slightly below $1 billion.

With several acute-care de novo and expansion projects completed, the company expects capital expenditures to moderate toward $800 million beyond 2026. Filton said that figure would still include substantial expansionary spending on capacity, beds, operating rooms, emergency rooms, robotics and outpatient access points.

UHS repurchased 1.35 million shares for $242 million during the quarter, bringing year-to-date repurchases to $690 million. As of Sept. 30, the company had $735 million remaining under its authorization. UHS ended the quarter with $169 million in cash, $5.7 billion in total debt and leverage of 2.17 times.

The company reiterated the financial and operating outlook ranges it issued in July but said it expects results toward the lower end of those ranges, reflecting the pace of de novo hospital ramp-ups.

Looking ahead to 2027, Filton said UHS sees potential to recover a meaningful portion of the losses from its de novo facilities and Laurel Ridge. But he also identified regulatory pressures, including Medicaid supplemental-payment reductions, exchange enrollment changes and Medicaid work requirements.

UHS estimates that Medicaid supplemental-payment reductions could create a $175 million to $200 million headwind in 2027, including the nonrecurrence of prior-year directed-payment benefits recorded during 2026. Annualizing the second-half 2026 exchange run rate would create an additional $15 million headwind, with further risk depending on enrollment trends.

About Universal Health Services (NYSE:UHS)

Universal Health Services, Inc NYSE: UHS is a healthcare services company that owns and operates hospitals, outpatient facilities and other healthcare providers. Its operations are focused primarily on acute care and behavioral health services.

The company's acute care operations include general and specialty hospitals, ambulatory surgery centers, emergency departments, physician practices and other outpatient services. Its behavioral health business provides inpatient and outpatient treatment for mental health conditions, substance-use disorders and related needs.

Universal Health Services serves patients across the United States and Puerto Rico, with additional behavioral health operations in the United Kingdom.

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