Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2017 Earnings Presentation
43 slides from Encompass Health's earnings presentation, Apr 28, 2017
Slide 1: First Quarter 2017 Earnings Call
First Quarter 2017 Earnings Call April 28, 2017 Supplemental Information HEALTHSOUTH.
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 HealthSouth’s current outlook, views and plans with respect to future events, including legislative and regulatory developments, strate
Slide 3: Table of Contents
Table of Contents Q1 2017 Summary................................................................................................................................................. 4-5 IRF-Home Health Clinical Collaboration ..............................................................................
Slide 4: Q1 2017 Summary
Q1 2017 Summary Q1 Growth (In Millions) Q1 2017 Q1 2016 Dollars Percent HealthSouth Consolidated Net operating revenues $ 974.8 $ 909.8 $ 65.0 7.1% Adjusted EBITDA $ 200.8 $ 192.1 $ 8.7 4.5% Inpatient Rehabilitation Segment Net operating revenues $ 792.5 $ 749.2 $ 43.3 5.8% Adjusted EBITDA $ 205.4 $
Slide 5: Q1 2017 Summary (cont.)
Q1 2017 Summary (cont.) u Balance Sheet Leverage ratio of 3.7x at end of first quarter Continue to expect range of 3.5x to 3.8x at year-end 2017, subject to opportunities for creating ü shareholder value u Expansion Activity (see page 21) 9 IRF development projects underway (5 are joint ventures
Slide 6: IRF-Home Health Clinical Collaboration (All Payors)
IRF-Home Health Clinical Collaboration (All Payors) Overlap Markets Clinical collaboration rate with HealthSouth IRFs increased by 630 basis points over Q1 2016 28.9% Collaboration Rate 22.6% u Overlap markets are defined as a Collaboration Rate HealthSouth IRF located within a 30- 4,308 mile radius
Slide 7: Inpatient Rehabilitation Segment - Revenue
Inpatient Rehabilitation Segment - Revenue Q1 Q1 Favorable/ ($millions) 2017 2016 (Unfavorable) Net operating revenues: Inpatient $ 766.2 $ 719.4 6.5% Outpatient and other 26.3 29.8 (11.7%) Total segment revenue $ 792.5 $ 749.2 5.8% (Actual Amounts) Discharges 42,259 41,098 2.8% Same-store discharge
Slide 8: Inpatient Rehabilitation Segment - Adjusted EBITDA
Inpatient Rehabilitation Segment - Adjusted EBITDA Q1 % of Q1 % of Segment Adjusted ($millions) 2017 Revenue 2016 Revenue EBITDA for the quarter Net operating revenues $ 792.5 $ 749.2 of $205.4 million Less: Provision for doubtful accounts (14.7) 1.9% (15.6) 2.1% - Salaries and benefits Net operatin
Slide 9: Home Health and Hospice Segment - Revenue
Home Health and Hospice Segment - Revenue Q1 Q1 Favorable/ ($millions) 2017 2016 (Unfavorable) Net operating revenues: Home health revenue $ 165.3 $ 150.9 9.5 % Hospice revenue 17.0 9.7 75.3 % Total segment revenue $ 182.3 $ 160.6 13.5 % (Actual Amounts) Admissions 30,810 25,763 19.6 % Same-store ad
Slide 10: Home Health and Hospice Segment - Adjusted EBITDA
Home Health and Hospice Segment - Adjusted EBITDA Q1 Q1 % of % of ($millions) 2017 Revenue 2016 Revenue Net operating revenues $ 182.3 $ 160.6 Less: Provision for doubtful accounts (1.7) 0.9% (0.9) 0.6% Segment Adjusted EBITDA for the Net operating revenues less provision for doubtful accounts 180.6
Slide 11: Earnings per Share - As Reported
Earnings per Share - As Reported Q1 (In Millions, Except Per Share Data) 2017 2016 Inpatient rehabilitation segment Adjusted EBITDA $ 205.4 $ 196.9 u The increase in EPS for Q1 2017 resulted Home health and hospice segment Adjusted EBITDA 23.9 22.6 primarily from increased Adjusted EBITDA. General a
Slide 12: Adjusted Earnings per Share
Adjusted Earnings per Share(5) Q1 2017 2016 Earnings per share, as reported $ 0.70 $ 0.61 Adjustments, net of tax: Mark-to-market adjustment for stock appreciation rights(3) 0.02 (0.01) (4) Income tax adjustments and settlements (0.03) — Loss on early extinguishment of debt — 0.01 Adjusted earnings
Slide 13: 2017 Adjusted Free Cash Flow
2017 Adjusted Free Cash Flow(6) $8.7 $3.3 $1.0 ($0.4) ($4.5) $139.4 $147.5 Adjusted Free Cash Adjusted Working Capital Cash Interest Cash Tax Maintenance Adjusted Free Cash Flow 3 Mos. 2016 (6) EBITDA and Other Expense Payments, Capital Expenditures Flow 3 Mos. 2017 Net of Refunds u Adjusted free ca
Slide 14: Guidance (Reiterated as of April 27, 2017)
Guidance (Reiterated as of April 27, 2017) 2016 2017 Actuals Guidance Net Operating Revenues Net Operating Revenues $3,707.2 million $3,850 million to $3,950 million Adjusted EBITDA(7) Adjusted EBITDA(7) $793.6 million $800 million to $820 million Adjusted Earnings per Share Adjusted Earnings per Sh
Slide 15: Guidance Considerations
Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 1.9% increase in Medicare u Estimated 3.6%, or ~$21 million, net pricing for Q1 through Q3; ~1.0% for Q4 Medicare pricing reduction for CY 2017 (see page 23) (see page 23) u Salary increase of ~3.0% (see page 24) u
Slide 16: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(6) and Tax Assumptions u Increased cash payments for taxes due to exhaustion of federal NOL in Q1 2017 3 Months Certain Cash Flow Items 2017 2016 In March 2017, the IRS approved the 2017 (millions) Assumptions Actual Company’s request for a tax Actual accounting method chan
Slide 17: Free Cash Flow Priorities
Free Cash Flow Priorities (In Millions) 3 Months 2017 2017 2016 Highest Priority Actuals Assumptions Actuals IRF bed expansions $3.5 $30 to $40 $19.1 Growth New IRF’s in Core - De novos 18.6 85 to 105 72.6 Business - Acquisitions 10.9 TBD — - Replacement hospitals and other 0.6 10 to 20 11.1 New hom
Slide 18: Appendix
Appendix HEALTHSOUTH.
Slide 19: HealthSouth: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care 61% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass location. Encompass Inpatient Rehabilitation Home Health and Hospice Portfolio - As of March 31, 2017 Portfolio – As of March 31, 2017 IRF Market Share Inpatient Rehabilit
Slide 20: Pre-Payment Claims Denials - Inpatient Rehabilitation Segment
Pre-Payment Claims Denials - Inpatient Rehabilitation Segment HealthSouth reserves for pre-payment claim denials via the provision for Background doubtful accounts upon notice from a MAC that a claim is under review. For several years, under programs designated as “widespread Impact to Income Stat
Slide 21: Expansion Activity
Expansion Activity Inpatient Rehabilitation Facilities IRF Development New States 9 2 # of New Beds Projects Underway 2017 2018 2019 De Novo: 1 Pearland, TX 40 — — 2 Shelby County, AL — 34 — Home Health and Hospice 3 Hilton Head, SC — 38 — # of locations 4 Murrieta, CA — 50 — December 31, 2016 223 J
Slide 22: Business Outlook 2017 to 2019
Business Outlook 2017 to 2019* Business Model • Adjusted EBITDA CAGR: 5% - 9%** • Strong free cash flow generation 2017 2018 2019 • Quarterly cash dividends Shareholder • Opportunistic repurchases Distributions - (~$78 million authorization remaining as of March 31, 2017) Strategy Component • Target
Slide 23: Business Outlook 2017 to 2019: Revenue Assumptions
Business Outlook 2017 to 2019: Revenue Assumptions Inpatient Rehabilitation Home Health & Hospice Volume (Includes New Stores) • 3+% annual discharge growth • 10+% annual episode growth • 10% to15% annual episode growth Approx. 73% of Revenue • Includes $35-$40 Approx. 84% of million Revenueper Medi
Slide 24: Business Outlook 2017 to 2019: Labor and Other Expense Assumptions
Business Outlook 2017 to 2019: Labor and Other Expense Assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2017 2018 2019 Salary increases 2.75-3.25% 2.75-3.25% 2.75-3.25% Benefit costs increases 5-10% 5-10% 5-10% Salaries Percent of Salaries & Benefits Salaries & Bene
Slide 25: Debt Schedule
Debt Schedule Change in March 31, Dec. 31, Debt vs. ($millions) 2017 2016 YE 2016 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps $ 85.0 $ 152.0 $ (67.0) Term loan facility, July 2020 - LIBOR +200bps 415.7 421.2 (5.5) Bonds Payable: 5.125% Senior Notes due 2023 295.4
Slide 26: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of March 31, 2017* ($ in millions) Callable beginning November 2017 Callable beginning $1,200 September 2020 $479 Senior Available Callable beginning March 2018 Notes Holders have a put
Slide 27: New-Store/Same-Store IRF Growth
New-Store/Same-Store IRF Growth Hot Springs, AR (27 beds) 25.0 Reliant (857 beds) Bryan, TX (49 beds) Franklin, TN (40 beds) Broken Arrow, OK (22 beds) 20.0 Altamonte Springs, FL (50 beds) 15.0 Johnson City, TN (26 beds) Newnan, GA (50 beds) Lexington, KY (158 beds) Middletown, DE (34 beds) Savannah
Slide 28: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health and Rehabilitation Consolidated Hospice Segment Segment Q1 Q1 Q1 Full Year 2017 2016 2017 2016 2017 2016 2016 Medicare 73.3% 73.8% 84.1% 83.5% 75.2% 75.4% 75.2% Medicare Advantage 8.5% 7.6% 10.3% 8.7% 8.8% 7.8% 7.9% Managed care 11.2% 11.0%
Slide 29: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2017 2016 2016 2016 2016 2016 (In Millions) Net patient revenue-inpatient $ 766.2 $ 740.9 $ 724.1 $ 721.2 $ 719.4 $ 2,905.5 Net patient revenue-outpatient and other revenues 26.3 26.7 27.6 31.4 29.8 115.6 Net operating r
Slide 30: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2017 2016 2016 2016 2016 2016 (In Millions) Net home health revenue $ 165.3 $ 165.2 $ 162.0 $ 157.1 $ 150.9 $ 635.2 Net hospice and other revenue 17.0 17.1 13.1 11.0 9.7 50.9 Net operating revenues $ 182.3 $ 182.3 $ 175.1 $ 168.1 $
Slide 31: Share Information
Share Information Weighted Average for the Period Q1 Full Year (Millions) 2017 2016 2016 2015 2014 Basic shares outstanding(19) 88.8 89.5 89.1 89.4 86.8 Convertible perpetual preferred stock(19) — — — 1.0 3.2 Convertible senior subordinated notes(20) 8.6 8.4 8.5 8.3 8.2 Restricted stock awards, dilu
Slide 32: Segment Operating Results
Segment Operating Results Q1 2017 Q1 2016 Home Home Health and HealthSouth Health and HealthSouth IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 792.5 $ 182.3 $ — $ 974.8 $ 749.2 $ 160.6 $ — $ 909.8 Less: Provision for doubtful accounts (14.7) (1.7) —
Slide 33: Segment Operating Results
Segment Operating Results Year Ended December 31, 2016 Home Health HealthSouth IRF and Hospice Reclasses Consolidated Net operating revenues $ 3,021.1 $ 686.1 $ — $ 3,707.2 Less: Provision for doubtful accounts (57.0) (4.2) — (61.2) 2,964.1 681.9 — 3,646.0 Operating Expenses: Inpatient Rehabilitatio
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(7) 2017 Q1 (in millions, except per share data) Total Per Share Net Income $ 84.4 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 Net income attributable to noncontrolling interests (17.6) Income from continuing operations attributable
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(7) 2016 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 76.7 $ 81.2 $ 78.1 $ 82.1 $ 318.1 Loss (income) from disc ops, net of tax, attributable to H
Slide 36: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full Year (Millions) 2017 2016 2016 Net cash provided by operating activities $ 180.8 $ 169.6 $ 634.4 Provision for doubtful accounts (16.4) (16.5) (61.2) Professional fees — accounting, tax, and legal — 0.2 1.9 Interest expe
Slide 37: Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations
Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Year Ended March 31, December 31, 2017 2016 2016 In Millions Total segment Adjusted EBITDA $ 229.3 $ 219.5 $ 899.6 General and administrative expenses (36.5) (31.9) (133.4) Dep
Slide 38: Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow(6) Q1 Full-Year ($millions) 2017 2016 2016 Net cash provided by operating activities $ 180.8 $ 169.6 $ 634.4 Impact of discontinued operations 0.4 0.2 0.7 Net cash provided by operating activities of continuing op
Slide 39: Adjusted EPS - Q1 2017
Adjusted EPS(5) - Q1 2017 For the Three Months Ended March 31, 2017 Adjustments Mark-to- Market Adjustment Income Tax for Stock Adjustments(4) As Appreciation and As Reported Rights Settlements Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 200.8 $ — $ — $ 200.8 Depreciation and
Slide 40: Adjusted EPS - Q1 2016
Adjusted EPS(5) - Q1 2016 For the Three Months Ended March 31, 2016 Adjustments Mark-to- Market Professional Adjustment Fees — for Stock Loss on Early As Accounting, Appreciation Extinguishment As Reported Tax, & Legal Rights of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $
Slide 41: End Notes
End Notes (1) Current income tax (benefit) expense was ($9.3) million and $5.0 million for Q1 2017 and Q1 2016, respectively. (2) The interest and amortization related to the convertible senior subordinated notes must be added to income from continuing operations when calculating diluted earnings pe
Slide 42: End Notes, con't.
End Notes, con’t. (7) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a finan
Slide 43: End Notes, con't.
End Notes, con’t. (20) In November 2013, the Company closed separate, privately negotiated exchanges in which it issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of its 6.5% Series A Convertible Perpetual Preferred Stock. The Company recorded