Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2015 Earnings Presentation
40 slides from Encompass Health's earnings presentation, Feb 24, 2016
Slide 1: Fourth Quarter 2015 Earnings Call
Fourth Quarter 2015 Earnings Call February 24, 2016 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 outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capita
Slide 3: Table of Contents
Table of Contents Q4 2015 Summary................................................................................................................................................. 4-5 Inpatient Rehabilitation Segment.....................................................................................
Slide 4: Q4 2015 Summary (Q4 2015 vs. Q4 2014)
Q4 2015 Summary (Q4 2015 vs. Q4 2014) Q4 YTD HealthSouth Consolidated 2015 2014 Delta % 2015 2014 Delta % ($millions) Net operating revenues $ 879.3 $ 613.4 $ 265.9 43.3 % $3,162.9 $2,405.9 $ 757.0 31.5 % Adjusted EBITDA* $ 191.5 $ 140.8 $ 50.7 36.0 % $ 682.5 $ 577.6 $ 104.9 18.2 % Major takeaways:
Slide 5: Q4 2015 Summary (cont.)
Q4 2015 Summary (cont.) u Balance sheet Redeemed $50 million of 7.75% Senior Notes due 2022 in November 2015 Issued notice of intent to redeem an additional $50 million of 7.75% Senior Notes due 2022 in February 2016; expect to complete redemption in March 2016 u Diluted earnings per share of $0
Slide 6: Inpatient Rehabilitation Segment - Revenue
Inpatient Rehabilitation Segment - Revenue Q4 Q4 Favorable/ ($millions) 2015 2014 (Unfavorable) Net operating revenues: Inpatient $ 696.8 $ 580.9 20.0% Outpatient and other 29.1 24.9 16.9% Total segment revenue $ 725.9 $ 605.8 19.8% (Actual Amounts) Discharges 40,891 34,465 18.6% New-store discharge
Slide 7: Inpatient Rehabilitation Segment - Adjusted EBITDA
Inpatient Rehabilitation Segment - Adjusted EBITDA* Q4 % of Q4 % of ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 725.9 $ 605.8 Less: Provision for doubtful accounts (13.3) 1.8% (6.5) 1.1% Net operating revenues less provision for doubtful accounts 712.6 599.3 Operating expenses: Sa
Slide 8: Home Health and Hospice Segment - Revenue
Home Health and Hospice Segment - Revenue Q4 Q4 ($millions) 2015 2014 Encompass is now the Net operating revenues: 4th largest provider of Home health revenue $ 144.4 $ 7.6 Medicare-certified Hospice revenue skilled home health 9.0 — services. Total segment revenue $ 153.4 $ 7.6 (Actual Amounts) Adm
Slide 9: Home Health and Hospice Segment - Adjusted EBITDA
Home Health and Hospice Segment - Adjusted EBITDA* Q4 Q4 % of % of ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 153.4 $ 7.6 Less: Provision for doubtful accounts (0.7) 0.5% (0.1) 1.3% Segment Adjusted Net operating revenues less provision for EBITDA* for Q4 2015 doubtful accounts 1
Slide 10: Earnings per Share - As Reported
Earnings per Share - As Reported Q4 Year Ended (In Millions, Except Per Share Data) 2015 2014 2015 2014 u Earnings per share for fourth quarter and full-year 2015 were Inpatient rehabilitation segment Adjusted EBITDA $ 189.9 $ 162.2 $ 691.0 $ 665.3 impacted by: Home health and hospice segment Adjust
Slide 11: Adjusted Earnings per Share
Adjusted Earnings per Share(1) Q4 Full Year 2015 2014 2015 2014 Earnings per share, as reported $ 0.48 $ 0.41 $ 1.92 $ 2.24 Adjustments, net of tax: Government, class action, and related settlements — (0.01) 0.04 (0.01) Professional fees — accounting, tax, and legal — 0.01 0.02 0.06 Income tax valua
Slide 12: 2015 Adjusted Free Cash Flow
2015 Adjusted Free Cash Flow*(9) $104.9 $7.0 $8.9 $3.2 ($32.1) ($14.2) $389.0 $311.3 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 12 Mos. 2014 EBITDA Expense Net of Refunds and Other Expenditures Dividends Flow 12
Slide 13: Guidance
Guidance Projected Year-Over- 2015 Year 2016 Growth Net Operating Revenues Net Operating Revenues 12% to $3,162.9 million 15% $3,550 million to $3,650 million Adjusted EBITDA Adjusted EBITDA 12% to $682.5 million 15% $765 million to $785 million Adjusted Earnings per Share Adjusted Earnings per Shar
Slide 14: 2016 Guidance Considerations
2016 Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Full-year contribution from 2015 u Full-year contribution from 2015 acquisitions and openings, acquisitions and openings, including Reliant including CareSouth Transitioning to HLS business model Transitioning to Enc
Slide 15: Appendix
Appendix HEALTHSOUTH.
Slide 16: HealthSouth: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care 59% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass location. Inpatient Rehabilitation Encompass Home Health and Hospice Portfolio as of Portfolio as of 2014 2015 2014 2015 December 31, December 31, Inpatient Rehabilitation
Slide 17: Expansion Activity
Expansion Activity Inpatient Rehabilitation Facilities # of New Beds 2015 2016 2017 Acquisitions: Reliant 902 – – Cardinal Hill 232 – – Home Health and Hospice De Novo: # of Franklin, TN 40 – – locations Modesto, CA – 50 – December 31, 2014 160 Joint Ventures: Acquisitions 59 Savannah, GA 50 – – De
Slide 18: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow*(9) and Tax Assumptions Certain Cash Flow Items 2016 2015 2014 (millions) Assumptions Actual Actual • Cash interest expense $165 to $175 $128.6 $96.5 (net of amortization of debt discounts and fees) Working capital increase in 2015 driven primarily by • Cash payments for taxe
Slide 19: Free Cash Flow Priorities
Free Cash Flow Priorities (In Millions) 2016 2015 2014 Highest Priority Assumptions Actuals Actuals IRF bed expansions $20 to $30 $20.8 $23.6 Growth New IRF’s in Core - De novos 70 to 90 47.8 53.7 Business - Acquisitions 0 to 20 786.2 20.2 New home health and hospice acquisitions 30 to 40 200.2 674.
Slide 20: Debt Schedule
Debt Schedule(13) Change in Dec. 31, Dec. 31, Debt vs. ($millions) 2015 2014 YE 2014 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps(14)(15) $ 130.0 $ 325.0 $ (195.0) Term loan facility, July 2020 - LIBOR +200bps(14)(15) 443.3 447.5 (4.2) Bonds Payable: 8.125% Senior
Slide 21: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of December 31, 2015* ($ in millions) Callable beginning March 2018 Callable beginning November 2017 $1,200 Callable beginning $436 Became callable in September 2015 Senior September 20
Slide 22: New-Store/Same-Store IRF Growth
New-Store/Same-Store IRF Growth 25.0 Reliant (857 beds) Franklin, TN (40 beds) 20.0 Altamonte Springs, FL (50 beds) Johnson City, TN (26 beds) Augusta, GA (58 beds) Newnan, GA (50 beds) Lexington, KY (158 beds) 15.0 Littleton, CO (40 beds) Middletown, DE (34 beds) Savannah, GA (50 beds) Stuart, FL (
Slide 23: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q4 Q4 Q4 Full-Year 2015 2014 2015 2014 2015 2014 2015 2014 Medicare 73.6% 73.7% 82.6% 96.9% 75.2% 73.9% 74.9% 74.1% Managed care and other discount plans, including Medicare Advantage*
Slide 24: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2015 2014 2014 2014 2014 2015 2014 (In Millions) Net patient revenue-inpatient $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,547.2 $ 2,272.5 Net patient revenue-outpatient an
Slide 25: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics HealthSouth’s 25 Legacy Home Health Home Health and Hospice Segment Encompass Home Health and Hospice Agencies Full- Full- Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Year Q4 Q3 Q2 Q1 Year 2015 2015 2015 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (I
Slide 26: Share Information
Share Information Weighted Average for the Period Q4 Full-Year (Millions) 2015 2014 2015 2014 2013 Basic shares outstanding(6)(28)(29) 90.1 86.6 89.4 86.8 88.1 Diluted shares outstanding(6)(28)(29)(30) 100.6 100.8 101.0 100.7 102.1 End of Period Q4 Full-Year (Millions) 2015 2014 2015 2014 2013 Basic
Slide 27: History Recast by Segment
History Recast by Segment Three Months Ended December 31, 2015 Three Months Ended December 31, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net oper
Slide 28: History Recast by Segment
History Recast by Segment Year Ended December 31, 2015 Year Ended December 31, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net operating revenues $
Slide 29: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(31) 2015 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 $ 59.0 $ 60.2 $ 67.8 $ 65.8 $ 252.8 Loss (income) from disc ops, net of tax, attributable to
Slide 30: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(31) 2014 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 $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable to
Slide 31: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q4 Full Year (Millions) 2015 2014 2015 2014 Net cash provided by operating activities $ 116.6 $ 70.2 $ 484.8 $ 444.9 Provision for doubtful accounts (14.0) (6.6) (47.2) (31.6) Professional fees—accounting, tax, and legal 0.3 1.7
Slide 32: Reconciliation of Segment Adjusted EBITDA to Income Before Income Tax
Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Year Ended December 31, December 31, 2015 2014 2015 2014 (In Millions) Total segment Adjusted EBITDA $ 216.4 $ 163.3 $ 774.1 $ 669.2 General and administrative expenses (36.0)
Slide 33: Reconciliation of Operating Cash Flow to Adjusted Free Cash Flow
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow(9) Q4 Full Year ($millions) 2015 2014 2015 2014 Net cash provided by operating activities $ 116.6 $ 70.2 $ 484.8 $ 444.9 Impact of discontinued operations (0.1) 0.2 0.7 1.2 Net cash provided by operating activitie
Slide 34: Adjusted EPS - Q4 2015
Adjusted EPS(1) - Q4 2015 For the Three Months Ended December 31, 2015 Adjustments Income Pro. Tax Gov’t, Class Fees - Valuation Loss on Action, & Acct., Allowance Early As Related Tax, & & Other Transaction Exting. As Reported Settlements Legal Adj. Costs of Debt Adjusted (In Millions, Except Per S
Slide 35: Adjusted EPS - Q4 2014
Adjusted EPS(1) - Q4 2014 For the Three Months Ended December 31, 2014 Adjustments Pro. Income Gov’t, Class Fees - Tax Loss on Action, & Acct., Valuation Early As Related Tax, & & Other Transaction Exting. of As Reported Settlements Legal Adj. Costs Debt Adjusted (In Millions, Except Per Share Amoun
Slide 36: Adjusted EPS - Full-Year 2015
Adjusted EPS(1) - Full-Year 2015 For the Year Ended December 31, 2015 Adjustments Income Pro. Tax Gov’t, Class Fees - Valuation Loss on Action, & Acct., Allowance Early As Related Tax, & & Other Transaction Exting. As Reported Settlements Legal Adj. Costs of Debt Adjusted (In Millions, Except Per Sh
Slide 37: Adjusted EPS - Full-Year 2014
Adjusted EPS(1) - Full-Year 2014 For the Year Ended December 31, 2014 Adjustments Gain on Gov't, Class Consolidation Loss on Action, and Pro. Fees - of Fairlawn Early Income Tax As Related Acct, Tax, Transaction Rehabilitation Exing. of Valuation As Reported Settlements and Legal Costs Hospital Debt
Slide 38: End Notes
End Notes (1) HealthSouth is providing adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to inves
Slide 39: End Notes, con't.
End Notes, con’t. (7) The increase in the Company’s income tax valuation allowance in 2015 related primarily to changes to its state apportionment percentages resulting from its acquisitions of Encompass, Reliant, and CareSouth as well as changes to its forecast of earnings in each jurisdiction. (8)
Slide 40: End Notes, con't.
End Notes, con’t. (21) Includes consolidated HealthSouth inpatient rehabilitation hospitals classified as same store during each time period. (22) Data provided by Uniform Data System for Medical Rehabilitation, a division of UB Foundation Activities, Inc., a data gathering and analysis organization