Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2010 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Oct 29, 2010
Slide 1: Third Quarter 2010 Earnings Call Supplemental Slides
Third Quarter 2010 Earnings g Call Supplemental Slides
Slide 2: Forward-Looking Statements
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 infor
Slide 3: Table of Contents
Table of Contents Q3 2010 Summary .......................................................................................................................... 4–6 Hi h Q lit C High-Quality Care ............................................................................................................
Slide 4: Q3 2010 Summary (Q3 2010 vs. Q3 2009)
Q3 2010 Summary (Q3 2010 vs. Q3 2009) Revenue growth of 4.3% in line with expectations ― Inpatient revenue growth of 5.3% driven by price and volume ― Outpatient and other revenue declined 5.6% on 9 fewer outpatient clinics ― Discharge growth 2.5%; same-store discharge growth 0.4% Disciplined ex
Slide 5: Q3 2010 Summary continued
Q3 2010 Summary (Q3 2010 vs. Q3 2009) continued Grew Adjusted Consolidated EBITDA by 4.8% ― Driven by higher revenue ― Offset by higher non-controlling interests expense Driven by growth in revenues at JV hospitals Continued strong free cash flow generation (1) ― YTD ffree cash h flow fl gener
Slide 6: Q3 2010 Summary continued
Q3 2010 Summary (Q3 2010 vs. Q3 2009) continued Credit rating agency upgrades from both Moodys and S&P S&P Moodys y Corporate Rating B to B+ B2 to B1 Revolver Rating BB- to BB Ba3 to Ba1 Senior Notes Rating CCC+ to B+ Caa1 to B2 Disciplined growth: ― Purchased Sugar Land Rehabilitation Hospital,
Slide 7: High-Quality Care
High-Quality Care H lthS th Functional HealthSouth F ti l Outcomes O t Continue C ti to t Outpace O t Industry I d t Average A HealthSouth Average UDS Average* 35.0 3.5 31.6 30.0 3.0 27.7 2.8 25.0 2.5 2.4 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Dat
Slide 8: Revenues (Q3 2010 vs. Q3 2009)
Revenues (Q3 2010 vs. Q3 2009) Q3 Q3 IIncrease// (Millions) 2010 2009 (Decrease) Inpatient $ 451.8 $ 429.2 5.3% p Outpatient and other 38.9 41.2 ((5.6%)) Consolidated net operating $ 490.7 $ 470.4 4.3% (Actual Amounts) Discharges 28,828 28,125 2.5% Net patient revenue / discharge $15,672 $15,260 2.7
Slide 9: Expenses (Q3 2010 vs. Q3 2009)
Expenses (Q3 2010 vs. Q3 2009) Q3 Q3 Increase/ (Millions) 2010 2009 (D (Decrease) ) Salaries and benefits $ 246.4 $ 234.0 5.3% Percent of net operating revenues 50.2% 49.7% 50 bps EPOB (employees per occupied bed) 3.57 3.58 (0.3%) Hospital-related expenses $ 115.4 $ 113.9 1.3% (other operating, oper
Slide 10: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA (1) Adjusted Consolidated EBITDA Change Q3 9 Months Q3 9 Months (Millions) 2010 2009 2010 2009 +$4.6M +$22.3M Net operating revenues $ 490.7 $ 470.4 $ 1,478.6 $ 1,424.9 +4.8% +7.7% Operating expenses: Salaries and benefits (246 4) (246.4) (234 0) (234.0) (729 9) (729.9)
Slide 11: Adjusted Income per Diluted Share
Adjusted Income per Diluted Share (1) Adjusted EPS Change Q3 9 Months Q3 9 Months +$0.01 +$0.15 (Millions, except per share data) 2010 2009 2010 2009 +2.4% +12.5% Adjusted income from $ 46.7 $ 42.8 $ 146.0 $122.4 Improvements driven by: continuing operations (1) • Higher Adjusted Consolidated EBITDA
Slide 12: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided byy Operating p g Activities to Adjusted Free Cash Flow Q3 9 Months FY (Millions) 2010 2009 2010 2009 2009 Net cash provided by operating activities $ 96.8 $ 132.9 $ 269.5 $ 362.1 $ 406.1 Impact of discontinued operations 1.3 2.4 5.5 9.4 13
Slide 13: Debt Outstanding, Liquidity and Swaps
Debt Outstanding, Liquidity and Swaps D bt O Debt Outstanding t t di Li idit Liquidity ($ Billions) Sept. 30, Sept. 30, $3.0 2010 Pro Forma $3.40 Cash Available $ 190 5 190.5 $ 46 3 46.3 $2.0 $2.04 Revolver Total Line 400.0 500.0 $1.81 $1.66 $1.66 $1.0 Less: – Draws - (100.0) $0.0 $ YE06 YE07 YE08 Y
Slide 14: Debt Maturity Profile
Debt Maturity Profile (1) Annualized Cash Effect of Refinancing Increased interest expense (2) Cash $18.0 ($ in millions) As off Sept. 30, 2010 Reduction in principal amortization ($7.5) requirements Total increase in cash payments $10.5 1.0% 1 0% Annual Term Loan $49 $49 LC LC $495.4 amortization $
Slide 15: Debt Schedule and Interest Expense
Debt Schedule and Interest Expense (3) Debt Schedule Annualized Interest Expense (2) (Millions) Sept. 30, 2010 Pro Forma 2010 Pro Forma Advances under $400 million revolving credit facility, March 2012 - 3 Month LIBOR +350bps $ - $ - $ - $ - Advances under $500 million revolving credit facility, Mar
Slide 16: 2010 Guidance – Adjusted Consolidated EBITDA
2010 Guidance – Adjusted Consolidated EBITDA (1) Original Guidance Revised Guidance Revised Guidance (February 23, 2010) (August 2, 2010) (October 29, 2010) $397M to $407M $402M to $410M $407M to $412M Assumptions: • Discharge sc a ge volume ou e growth of 2.5% to 3.5% • Q4 2010 bad debt ~ 1.5% 1 5%
Slide 17: 2010 Guidance – Adjusted Earnings per Share
2010 Guidance – Adjusted Earnings per Share (1) Original Guidance Revised Guidance Revised Guidance (February 23, 2010) (August 2, 2010) (October 29, 2010) $1.60 to $1.70 $1.66 to $1.74 $1.57 to $1.62 Assumptions: Impact of refinancing: • $12.0 million or $0.11 per diluted share loss on early exting
Slide 18: Business Outlook
Business Outlook Business Model • 5 – 8% annual Adjusted Consolidated EBITDA growth (1) • 15 – 20% annual Adjusted EPS growth (1) (2) Strategy 2010 2011 2012 2013 Goal: < 4.0x Goal: ~ 3.5x Goal: ~ 3.0x Deleveraging (3) debt to EBITDA debt to EBITDA debt to EBITDA Organic growth (includes capacity ex
Slide 19: Appendix
19 Appendix HEALTHSOUTH,
Slide 20: Regulatory Uncertainty
Regulatory Uncertainty Future Regulatory Risk IRF SNF LTCH HH Yes; RUGS IV and MDS Yes; would be required 1. Re-basing payment system No 3.0 being implemented No as part of PPACA starting FY 2011/2012 in 2014 Yes; will occur when Yes; 10% cap per agency; 2. Major outlier payment adjustments No No MM
Slide 21: Cost-Effective Care
Cost-Effective Care (1) CMS Fiscal Year 2011 IRF Rate Setting File Analysis HealthSouth (2) (2) (2) Freestanding Units Total Hospitals Number of IRFs 230 941 1,171 91 Average # of Discharges per IRF 708 243 335 942 Outlier Payments as % of Total Payments 1.45% 4.08% 3.00% 0.26% Average g Estimated T
Slide 22: Readmission Rates
Readmission Rates Percent Percent Percent Discharged from Rehospitalized Died in Post-Acute Care Hospital to after Using PAC PAC (("PAC")) Setting g PAC Setting g Setting g Setting g Skilled Nursing Facility 17.3% 22.0% 5.4% Home o e Health ea 16.0% 6.0% 18.1% 8. % 0.8% Long-Term Care Hospital 1.0%
Slide 23: Portfolio Growth
Portfolio Growth C h Payback Cash P b k Period P i d Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Installed Operational Location B d Beds D t Date De novos (1) 1. Mesa, AZ 40 Beds Q3 2009 2. Loudoun County, VA 40 Beds Q2 2010 3. Bristol, VA 25 Beds Q3 2010 4. Cypress, yp TX 40 Beds Q4 2011 1. Al
Slide 24: Discharge Growth – Trend
Discharge Growth – Trend HealthSouth vs. Industry y UDS Industry Sites (1) 9.7% HLS Same Store (2) 8.1% 5.7% 4.8% 4.7% 5.3% 4.2% HealthSouth’s volume 3.3% 3 6% 3.6% 2.9% 1.3% 1.6% 0.1% 0.4% 1.3% growth has outpaced -0.5% -0.3% -0.2% -1.8% competitors’ -4.0% TeamWorks = standardized sales & Q108
Slide 25: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) 2010 2010 (Decrease) Inpatient $ 451.8 $ 456.2 (1.0%) Outpatient and other 38.9 40.7 (4.4%) C Consolidated lid t d nett operating ti $ 490 7 490.7 $ 496 9 496.9 (1 2%) (1.2%) (Actual Amounts) Discharges 28,828 29,016 (0.6%) Net pat
Slide 26: Revenues & Expenses (9 Months 2010 vs. 9 Months 2009)
Revenues & Expenses (9 Months 2010 vs. 9 Months 2009) 9 Months 9 Months Increase/ Revenues (millions) 2010 2009 (Decrease) Inpatient $ 1,359.8 $ 1,297.7 4.8% Outpatient and other 118.8 127.2 (6.6%) Consolidated net operating $ 1 478 6 1,478.6 $ 1 424 9 1,424.9 3 8% 3.8% (Actual Amounts) Discharges 8
Slide 27: Payment Sources
Payment Sources Percent of Revenues Q3 9 Months FY 2010 2009 2010 2009 2009 Medicare 69.9% 67.8% 70.1% 67.6% 67.9% Medicaid 1.8% 2.1% 1.8% 2.2% 2.1% W k ' compensation Workers' ti 1 6% 1.6% 1 7% 1.7% 1 6% 1.6% 1 6% 1.6% 1 6% 1.6% (1) Managed care and other discount plans 21.7% 23.4% 21.8% 23.2% 23.1
Slide 28: Operational and Labor Metrics
(1) Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months FY 2010 2010 2010 2009 2009 2009 2009 2010 2009 2009 (In Millions) Net patient revenue-inpatient $ 451.8 $ 456.2 $ 451.8 $ 445.7 $ 429.2 $ 437.2 $ 431.3 $ 1,359.8 $ 1,297.7 $ 1,743.4 Net patient revenue-outpatient and other rev
Slide 29: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Sept 30, 2010 Future Cash Tax Payments • Federal tax recoveries virtually • Expect to pay about $5-6 million per year of complete. income tax. • State tax refunds in p progress. g • The Company does not expect to pay – Approximately $2.2 million rec
Slide 30: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities (1) Reconciliation eco c a o o of Adjusted djus ed Co Consolidated so da ed EBITDA to o Net e Cash Cas Provided by Operating Activities Q3 9 Months FY (Millions) 2010 2009 2010 2009 2009 Adjusted j Consolidated EBITDA $ 100.5 $ 95.9 $ 310.6 $ 288.3 $ 383.0 P
Slide 31: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q3 9 Months FY (Millions) 2010 2009 2010 2009 2009 Net cash provided by operating activities $ 96.8 $ 132.9 $ 269.5 $ 362.1 $ 406.1 Impact of discontinued operations 1.3 2.4 5.5 9.4 13.5 Ne
Slide 32: Outstanding Share Summary
Outstanding Share Summary (Millions) Weighted Average for the Period Q3 Q3 9 Months 9 Months FY 2010 2009 2010 2009 2009 (1) (2) Basic Shares outstanding 92.8 87.6 92.7 87.6 88.8 (1) (2) (3) Diluted Shares outstanding 108.3 102.2 108.3 101.6 103.3 End of Period Q3 Q3 9 Months 9 Months FY 2010 2009 2
Slide 33: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and (1) (3) (4) Adjusted Consolidated EBITDA Three Months Ended Sept. 30, Nine Months Ended Sept. 30, Year Ended Dec.31, 2010 Per Share 2009 Per Share 2010 Per Share 2009 Per Share 2009 Per Share (In Millions, Except per Shar
Slide 34: Reconciliation Notes
Reconciliation Notes 1 Adjusted 1. Adj t d income i from f continuing ti i operations ti and d Adjusted Adj t d Consolidated C lid t d EBITDA are non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, lik