Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2010 Earnings Presentation
30 slides from Encompass Health's earnings presentation, May 4, 2010
Slide 1: First Quarter 2010 Earnings Call Supplemental Slides
First Quarter 2010 Earnings Call Supplemental Slides Exhibit 99-2
Slide 2: Forward-Looking Statements
The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current views with respect to future events and financial performance. These estimates, projections and other forward-looking information are based on assump
Slide 3: Table of contents
Q1 2010 Highlights 4 High-Quality Care .. 5 Revenues (Q1 2010 vs. Q1 2009) 6 Expenses (Q1 2010 vs. Q1 2009) i Adjusted Consolidated EBITDA (Q 8 Adjusted Income per Diluted Share (Q1 2010 vs. Q1 2009). 9 Net Cash Provided by Operating Activities (Q1 2010 vs. Q1 2009) 10 Adjusted Free Cash Flow (Q1 20
Slide 4: Q1 2010 Highlights
Q1 2010 Highlights ü Revenue growth of 3.8% – Driven by pricing, payor mix, higher patient acuity, and higher discharge volume ü Discharge growth of 1.1% – Steep ramp-up in January, due to strong December discharges – Weather-related disruption to discharge patterns in February – Strong March discha
Slide 5: High-Quality Care
FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Reports: Q1 2010 Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adjusted LO
Slide 6: Revenues (Q1 2010 vs. Q1 2009)
Revenues (Q1 2010 vs. Q1 2009) • Inpatient revenue growth was driven by: – 2.5% Medicare market basket increase effective October 1, 2009 – Discharge growth of 1.1% quarter-over-quarter – Increase in percentage of Medicare patients treated • Outpatient revenue declined primarily as a result of 10 fe
Slide 7: Expenses (Q1 2010 vs. Q1 2009)
Expenses (Q1 2010 vs. Q1 2009) • Disciplined expense management • Solid labor productivity as reflected in EPOB
Slide 8: Adjusted Consolidated EBITDA (Q1 2010 vs. Q1 2009)
(Millions) Q1 2010 Q1 2009 2009 Net operating revenues $ 491.0 $ 472.9 $ 1,911.1 Operating expenses: Salaries and benefits 241.9 233.3 948.8 Hospital-related expenses: Other operating expenses 66.9 66.9 271.4 Supplies 28.3 27.4 112.4 Occupancy costs (2) 11.6 12.0 47.3 Provision for doubtful accounts
Slide 9: Adjusted Income per Diluted Share (Q1 2010 vs. Q1 2009)
Adjusted Income per Diluted Share (1) (Q1 2010 vs. Q1 2009) (1) Reconciliation to GAAP provided on slides 29 through 30. • The improvement was driven by: – Higher Adjusted Consolidated EBITDA – Lower interest expense as a result of lower debt balances and a lower LIBOR rate • 5 million shares were i
Slide 10: Net Cash Provided by Operating Activities
(1) Notes on page 30. Net Cash Provided by Operating Activities (Q1 2010 vs. Q1 2009)
Slide 11: Adjusted Free Cash Flow (Q1 2010 vs. Q1 2009)
Adjusted Free Cash Flow (Q1 2010 vs. Q1 2009)
Slide 12: Debt Outstanding and Liquidity
Year-End 2011 Goal: 3.5x to 4.0x Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.2x (1) ($ Billions) Liquidity Debt Outstanding and Liquidity (1) Based on trailing four quarter Adjusted Consolidated EBITDA of $391.0 million; reconciliation to GAAP provided on slides 29 through 30.
Slide 13: 2010 Guidance: Adjusted Consolidated EBITDA
2010 Guidance: Adjusted Consolidated EBITDA (1) Guidance Based on the results of the first quarter, the Company expects its 2010 full-year performance will be at the high end of the guidance range. Considerations ü IT “pilot” investment ü Integration of acquisitions ü Start-up costs at two new hospi
Slide 14: 2010 Guidance: Adjusted Earnings per Diluted Share
2010 Guidance:Adjusted Earnings per Diluted Share (1) Guidance Based on the results of the first quarter, the Company expects its 2010 full-year performance will be at the high-end of the guidance range. ü $3 million of additional stock-based compensation expense ü 5 million more diluted shares (Sec
Slide 15: Business Outlook: Deleveraging, Growth, Reform and Sector Regulation
Deleveraging, Growth, Reform and Sector Regulation Business Outlook 3.5x to 4.0x Debt to EBITDA (by YE 2011) ( Exclusive of any E&Y settlement) Organic growth through capacity expansion and de novos ($60+ million in 2010) IRF acquisitions/joint ventures Deleveraging Growth Acquisitions of other, com
Slide 16: Growth
Capacity expansions : • 100+ beds 2010 De novos : Acquisitions/Joint Ventures: • Acquired the rehabilitation unit in Altoona, PA, through a newly formed joint venture and relocated its operations to one of our hospitals. (Q4 2009) • Expanded joint venture with St. Vincent Health System in Little Roc
Slide 17: Appendix
Appendix
Slide 18: Discharge Growth - Historical
(1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 90 HealthSouth sites. (2) Includes 90 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Discharge Growth - His
Slide 19: Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 228 953 1,181 94 Average # of Discharges per IRF 649 237 316 822 Outlier Payments as % of Total Payments 1.32% 4.08% 3.00% 0.43% Average Estimated Total Payment per Discharge for FY 2010 $16,452 $16,741 $16,626 $15,996 Average
Slide 20: Readmission Rates
Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission, “A Data Book: H
Slide 21: Future Regulatory Risk
Future Regulatory Risk IRF SNF LTCH HH 1. Re-basing payment system No Yes; RUGS IV delayed until 10/01/11 (per PPACA) No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adjustments No No Yes; will occur when MMSEA relief expires (short stay outliers) Yes; 10% cap pe
Slide 22: Revenues (Sequential) & Payment Sources
Payment Sources (Q1 2010 vs. Q1 2009) (1) Managed Medicare revenues represent ~ 7% and 8% of total revenues for Q1 2010 and Q1 2009, respectively, and are included in “Managed care and other discount plans.”
Slide 23: Expenses (Sequential)
Favorable (Unfavorable) (Millions, except percent) Q1 2010 Q4 2009 Change Salaries and benefits $ 241.9 $ 243.7 0.7% Percent of net operating revenues 49.3% 50.1% 80 bps EPOB (employees per occupied bed) 3.41 3.55 3.9% Hospital related expenses $ 113.7 $ 119.2 46% (other operating, supplies, occupan
Slide 24: Operational and Labor Metrics
Operational and Labor Metrics (1) (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 90 consolidated hospitals and 6 LTCHs. (3) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with
Slide 25: Debt Profile
4 i A.D. u r e O u A Debt Profile Debt Maturities As of March 31, 2010 = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases & term loan amortization (1) The Company had $116.8 million in cash and cash equivalents as of March 31, 2010. (2) Based on trailing four quarter Adjusted Cons
Slide 26: Interest Rate Swaps
Floating Rate Debt Balances Mar. 31, 2010 Floating Interest Rate Advances under $400 million revolving credit facility $ - Libor plus 300 Term Loan facility due 2013 450.9 Libor plus 225 Term Loan facility due 2015 (1) 298.5 Libor plus 375 (1) Total $ 749.4 Notional Amount Cash payment if LIBOR = 0.
Slide 27: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Mar. 31, 2010 • Federal tax recoveries virtually complete. • State tax refunds in progress. – Approx. $6.5 million received in Q1 2010. – Approx. $1.1 million net receivable on the balance sheet. Future Cash Tax Payments • Expect to pay about $5-7 m
Slide 28: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes: (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants
Slide 29: US GAAP Reconciliations
Q1 2010 Q1 2009 2009 (In Millions, Except per Share Data) Per Share (2) Per Share (2) Per Share (2) Net income $ 50.5 $ 0.54 $ 53.5 $ 0.61 $ 128.8 $ 1.45 Loss (income) from discontinued operations, net of tax, attributable to HealthSouth 3.1 $ 0.03 3.0 0.03 (1.5) (0.02) Net income attributable to no
Slide 30: Reconciliation Notes
Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (Total Consolidated Debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measure. Manag