Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2010 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Feb 18, 2011
Slide 1: Fourth Quarter 2010 Earnings Call Supplemental Slides
Fourth 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, strategy, capital expenditures and financial performance. These estimates, projection
Slide 3: Table of Contents
Table of Contents Q4 2010 Summary y ((Q4 2010 vs. Q4 2009)… ) … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-7 High-Quality Care… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8 Revenue (Q4 2010 vs. Q4 2009)… … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q4 2010 Summary (Q4 2010 vs. Q4 2009)
Q4 2010 Summary (Q4 2010 vs. Q4 2009) Revenue growth of 7.1% ― Inpatient revenue growth of 8.0% driven by volume and price Discharge growth 5.3%; same-store discharge growth 2.9% • Continued market share gains, including new hospitals Higher revenue per discharge of 2.5% predominantly driven b
Slide 5: Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.)
Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.) SWB as a percent of revenue decreased 160 bps. ― Improved productivity as measured by EPOB ― Improved occupancy at new hospitals ― Benefited from lower workers’ compensation self-insurance costs Hospital-related expenses decreased 110 bps. ― Lower th
Slide 6: Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.)
Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.) Continued strong adjusted free cash flow generation (1) ― Q4 2010 benefited from a shift in timing of interest payments related to the Q4 2010 refinancing. refinancing ― Offset by the $6.9 million unwind fee related to the termination of two forward- s
Slide 7: Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.)
Q4 2010 Summary (Q4 2010 vs. Q4 2009) (cont.) Adjusted EPS(1) increased 68.2%. ― Driven by higher Adjusted EBITDA ― Offset by higher interest expense A significant portion of the valuation allowance against deferred income tax assets was released in Q4 2010. ― Income statement includes a tax ben
Slide 8: 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 30.0 31.3 3.0 27.6 2.78 25.0 2.5 2.43 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr D
Slide 9: Revenues (Q4 2010 vs. Q4 2009)
Revenues (Q4 2010 vs. Q4 2009) Q4 Q4 Increase/ (Millions) 2010 2009 (Decrease) Inpatient $ 481.3 $ 445.7 8.0% Outpatient and other 39 4 39.4 40 5 40.5 (2 7%) (2.7%) Consolidated net operating $ 520.7 $ 486.2 7.1% (Actual Amounts) Discharges 30,311 28,772 5.3% Net patient revenue / discharge $15,879
Slide 10: Expenses (Q4 2010 vs. Q4 2009)
Expenses (Q4 2010 vs. Q4 2009) Q4 Q4 Increase/ (Millions) 2010 2009 (D (Decrease)) Salaries and benefits $ 252.4 $ 243.7 3.6% Percent of net operating revenues 48.5% 50.1% (160 bps) EPOB (employees per occupied bed) 3.52 3.55 ( %) (0.8%) Hospital-related expenses $ 122.1 $ 119.2 2.4% (other operatin
Slide 11: Adjusted EBITDA
Adjusted EBITDA (1) Q4 Full Year Adjusted EBITDA Change (Millions) 2010 2009 2010 2009 Q4 Full Year Net operating revenues $ 520.7 $ 486.2 $ 1,999.3 $ 1,911.1 +$22.1M +$44.4M Operating expenses: +23.3% +11.6% Salaries and benefits (2) (252.4) (243.7) (982.1) (948.8) Improvements driven by: Hospital-
Slide 12: Adjusted EPS (Q4 2010 vs. Q4 2009)
Adjusted EPS(1) (Q4 2010 vs. Q4 2009) Q4 Change (Millions, except per share data) 2010 2009 $ % Adjusted income from continuing operations (1) $ 40.4 $ 24.1 $ 16.3 67.6% Weighted average diluted shares outstanding 108.8 107.8 1.0 0.9% Per Share Per Share Adjusted income from continuing operations $
Slide 13: Adjusted EPS (2010 vs. 2009)
Adjusted EPS(1) (2010 vs. 2009) Full Year Change (Millions, except per share data) 2010 2009 $ % Adjusted income from continuing operations (1) $ 186.4 $ 149.6 $ 36.8 24.6% Weighted average diluted shares outstanding 108.5 103.3 5.2 5.0% Per Share Per Share Adjusted income from continuing operations
Slide 14: Adjusted Free Cash Flow (Q4 2010 vs. Q4 2009)
Adjusted Free Cash Flow (Q4 2010 vs. Q4 2009) Reconciliation eco c a o o of Net e Cas Cash Provided o ded by Ope Operating a g Activities c es to Adjusted Free Cash Flow Q4 Change (Millions) 2010 2009 $ (1) Net cash p provided by y operating p g activities $ 67.1 $ 44.0 $ 23.1 Impact of discontinued
Slide 15: Adjusted Free Cash Flow (2010 vs. 2009)
Adjusted Free Cash Flow(1) (2010 vs. 2009) Full Year Change (Millions, except per share data) 2010 2009 $ % Adjusted free cash flow (1) $ 197.7 197 7 $ 173.6 173 6 $ 24.1 24 1 13 9% 13.9% $15.2 $ $44.4 ($6.9) ($5.4) ($23.2) $197.7 $173.6 Adjusted Free Adjusted EBITDA Cash Interest Unwind Fee for Mai
Slide 16: Debt, Liquidity, and Swaps
Debt, Liquidity, and Swaps Debt Outstanding Li idit Liquidity December 31, 2010 2009 5.3x(1) Cash Available $ 48.4 $ 80.9 Revolver Total Line $ 500.0 $ 400.0 $1.81 Less: $1.66 3.5x(1) – Draws (78.0) 0.0 – Letters of credit (45.6) 0.0 $1.51 Available $ 376.4 $ 400.0 Total Liquidity $ 424.8 $ 480.9 Sw
Slide 17: Our Track Record
Our Track Record ($ in millions, except p adjusted j EPS)) Revenue Adjusted EBITDA (1) $1,999 $427 $383 $1,911 $341 $1,830 2008 2009 2010 2008 2009 2010 Adjusted Net Income (1) Adjusted EPS (1) $186 $1.72 $150 $1.45 $73 $0 76 $0.76 2008 2009 2010 2008 2009 2010 (1)Reconciliation to GAAP provided on
Slide 18: Business Outlook: 2011 to 2013
Business Outlook: 2011 to 2013 Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Strategy 2010 2011 2012 2013 Goal: < 4.0x Longer-Term Goal: ~ 3.0x Deleveraging (2) debt to EBITDA debt to EBITDA (3.5x goal achieved at year-end 2010) Organic growth (includes c
Slide 19: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations M di Medicare 70% Medicare Pricing FY 2011 (1) FY 2012 FY 2013 Q4 10 - Q3 11 Q4 11 - Q3 12 Q4 12 - Q3 13 (2) Market basket upd
Slide 20: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating and supplies 2011 2012 2013 tracking with inflation Merit increases 2-3% 2-3% 2-3% • Occupancy costs relatively constant as percent of revenue Benefit costs increases 5-8% 5-8% 5-8% • Bad debt o
Slide 21: 2011 Guidance – Adjusted EBITDA
2011 Guidance – Adjusted EBITDA Adjusted EBITDA (1) $440 million to $450 million Reflects: • 2.9% to 5.3% growth over 2010 • 7.2% to 8.4% CAGR over 2009 Considerations: 2010 bad debt expense was 0.9% of revenue; expect 2011 bad debt expense to be approximately 1.5% of revenue, in line with histori
Slide 22: Business Outlook: Income Tax Considerations
Business Outlook: Income Tax Considerations GAAP Considerations: • Valuation allowance reduced by approximately $825 million resulting in a $736.6 million benefit to 2010 income tax provision. • As of 12/31/10, the Company had a remaining valuation allowance of approximately $113 million, primarily
Slide 23: Business Outlook: Adjusted Free Cash Flow
Business Outlook: Adjusted Free Cash Flow (1) Adjusted Free Cash Flow (1) HealthSouth’s H lthS th’ GAAP income i statement t t t will ill be b affected ff t d by b (millions) $198 a number of items that will not affect cash flow from $174 operating activities or adjusted free cash flow: • Normalized
Slide 24: Options for Addressing the 10.75% Senior Notes
Options for Addressing the 10.75% Senior Notes We can utilize a number of sources to repay/refinance the 10.75% 10 75% notes. notes Illustration of Potential Interest Expense Reduction by Funding Source (millions) Annual Assumed Sources $ Million (1) Interest Call Price (3) Savings Cash on hand $100
Slide 25: 2011 Guidance - EPS
2011 Guidance - EPS HealthSouth is transitioning EPS guidance to a GAAP measure. measure Diluted Earnings per Share from Continuing Operations Attributable EPS Guidance Transition to HealthSouth (1) Prior EPS (1) Measure GAAP EPS Measure $1.01 to $1.06 Actual Actual Low High (In Millions, Except Per
Slide 26: Appendix
Appendix HEALTHSOUTH,
Slide 27: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry UDS Industry Sites ((1)) HealthSouth vs. vs Industry • HealthSouth’s HLS Same Store (2) 6.6% volume growth has 4.8% outpaced 2.9% competitors’. 1.8% 1 0% 1.0% 1 2% 1.2% 1 3% 1.3% 0.4% 0.8% 0 8% 0.4% • TeamWorks = -1.4% -1.4% standardized and -1.8% -4.0% enhance
Slide 28: Debt Schedule and Interest Expense
Debt Schedule and Interest Expense Credit Rating Debt Annualized S&P Moody YE Debt Schedule Reduction Interest (Millions) Corporate B+ B1 2010 2009 2010 Expense (2) Advances under $400 million revolving credit facility, March 2012 - 3 Month LIBOR +350bps $ - $ - $ - $ - Advances under $500 million r
Slide 29: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q4 Q3 Increase/ Revenues (millions) 2010 2010 (Decrease) Inpatient $ 481.3 $ 451.8 6.5% Outpatient and other 39.4 38.9 1.3% Consolidated net operating $ 520.7 $ 490.7 6.1% (Actual Amounts) Discharges 30,311 28,828 5.1% Net patient revenue / discharge $ 15,879 $ 15,67
Slide 30: Revenues & Expenses (Year over Year)
Revenues & Expenses (Year over Year) Full Year Increase/ Revenues (millions) 2010 2009 (Decrease) Inpatient $ 1,841.2 $ 1,743.4 5.6% Outpatient and other 158.1 167.7 (5.7%) Consolidated net operating $ 1,999.3 $ 1,911.1 4.6% (Actual Amounts) Discharges 116,153 112,975 2.8% Net patient revenue / disc
Slide 31: Payment Sources
Payment Sources Percent of Revenues Q4 Full Year 2010 2009 2010 2009 Medicare 71.4% 68.9% 70.5% 67.9% Medicaid 1.5% 1.9% 1.7% 2.1% W k ' compensation Workers' ti 1 5% 1.5% 1 6% 1.6% 1 6% 1.6% 1 6% 1.6% (1) Managed care and other discount plans 20.9% 22.8% 21.5% 23.1% Other third-party payors 2.3% 2.
Slide 32: Operational and Labor Metrics
(1) Operational and Labor Metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2010 2010 2010 2010 2009 2009 2009 2009 2010 2009 (In Millions) Net patient revenue-inpatient $ 481.3 $ 451.8 $ 456.2 $ 451.8 $ 445.7 $ 429.2 $ 437.2 $ 431.3 $ 1,841.2 $ 1,743.4 Net patient revenue-outpatient and other rev
Slide 33: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities ((1)) Reconciliation R ili ti off Adj Adjusted t d EBITDA to t Net N t Cash C h Provided by Operating Activities Q4 Full Year (Millions) 2010 2009 2010 2009 2008 Adjusted Adj t d EBITDA $ 116.8 116 8 $ 94 94.7 7 $ 427.4 427 4 $ 383.0 383 0 $ 341.2 341 2 Prov
Slide 34: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q4 Full Year (Millions) 2010 2009 2010 2009 2008 (1)(2) Net cash p provided by y operating p g activities $ 67.1 $ 44.0 $ 331.0 $ 406.1 $ 227.2 Impact of discontinued operat ions (0.8) 4.1
Slide 35: Outstanding Share Summary
Outstanding Share Summary (Millions) Weighted Average for the Period Q4 Q4 FY FY 2010 2009 2010 2009 (1) (2) Basic Shares outstanding 92.8 92.6 92.8 88.8 (1) (2) (3) Diluted Shares outstanding 108.8 107.8 108.5 103.3 End of Period FY FY 2010 2009 (1) (2) Basic Shares outstanding 92 8 92.8 92 6 92.6
Slide 36: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and (1) (3) (4) Adjusted EBITDA 2010 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 50.5 $ 0.54 $ 57.5 $ 0.62 $ 41.9 $ 0
Slide 37: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and (1) (3) (4) Adjusted EBITDA 2009 Q1 Q2 Q3 Q4 F ll Year Full (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 53.5 $ 0.61 $ 3.6 $ 0.04 $ 24.8
Slide 38: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and (1) (3) (4) Adjusted EBITDA Q1 Q2 2008 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 26.4 $ 0.33 $ 52.4 $ 0.66 $ 12.8 $ 0
Slide 39: 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 EBITDA are non-GAAPGAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial meas