Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2013 Earnings Presentation
36 slides from Encompass Health's earnings presentation, Oct 29, 2013
Slide 1: Third Quarter 2013 Earnings Call Supplemental Slides
Third Quarter 2013 Earnings 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 outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capit
Slide 3: Table of Contents
Table of Contents Q3 2013 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …4-7 ……………… Highlights… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8-9 …………. Quality… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q3 2013 Summary (Q3 2013 vs. Q3 2012)
Q3 2013 Summary (Q3 2013 vs. Q3 2012) Revenue growth of 5.0% (negatively impacted by the effect of sequestration for Medicare patients) ― Inpatient revenue growth of 6.0% Discharge growth of 5.7% • Same-store discharge growth of 3.2% (negatively impacted by closure of 41 SNF beds at two hospital
Slide 5: Q3 2013 Summary (cont.)
Q3 2013 Summary (Q3 2013 vs. Q3 2012) (cont.) Disciplined expense management ― Salaries and benefits as percent of revenue decreased by 100 bps in Q3 2013. Positively impacted by a $6.3 million reduction in group medical and workers’ compensation reserves due to favorable trends in claims Nega
Slide 6: Q3 2013 Summary (cont.)
Q3 2013 Summary (Q3 2013 vs. Q3 2012) (cont.) Adjusted EBITDA (1) for the quarter of $135.5 million reflected growth of 8.2%. ― Negatively impacted by approx. $8 million for sequestration. Adjusted free cash flow (2) for the quarter of $106.4 million: ― Benefited from higher Adjusted EBITDA and
Slide 7: Q3 2013 Summary (cont.)
Q3 2013 Summary (Q3 2013 vs. Q3 2012) (cont.) Diluted earnings (1) per share of $0.59 reflected solid operating results and the benefit of certain other items (see table on slide 14). ― Q3 2013 diluted earnings per share of $0.59 benefited from two items having a net after-tax impact of $0.16 per
Slide 8: Highlights
Highlights Development: ― Continued construction on a replacement hospital for HealthSouth Rehabilitation Hospital of Western Massachusetts. This hospital will be owned and will replace an existing leased facility; expected to be operational Q4 2013. ― Broke ground in Q4 2013 for a 50-bed hospital
Slide 9: Highlights (cont.)
Highlights (cont.) On October 25, 2013, the Company’s board of directors authorized the repurchase of up to $200 million of its common stock, subject to certain terms and conditions. The Company plans to give notice on October 29, 2013 of its intent to redeem $30.2 million and $27.9 million of i
Slide 10: Quality
Quality HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDSMR Average* 40.0 4.0 35.0 3.5 35.6 30.0 3.0 3.17 30.7 25.0 2.5 2.67 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSMR Database – On Demand Report: Q3 2013
Slide 11: Revenues (Q3 2013 vs. Q3 2012)
Revenues (Q3 2013 vs. Q3 2012) Q3 Q3 Increase/ (Millions) 2013 2012 (Decrease) Inpatient $ 528.8 $ 498.9 6.0% Outpatient and other 35.2 38.1 (7.6%) Consolidated net operating $ 564.0 $ 537.0 5.0% (Actual Amounts) Discharges 32,307 30,569 5.7% Net patient revenue / discharge $ 16,368 $ 16,320 0.3%
Slide 12: Expenses (Q3 2013 vs. Q3 2012)
Expenses (Q3 2013 vs. Q3 2012) Q3 Q3 Increase/ (Millions) 2013 2012 (Decrease) Salaries and benefits $ 269.5 $ 262.3 2.7% Percent of net operating revenues 47.8% 48.8% (100 bps) EPOB (employees per occupied bed) 3.48 3.46 0.6% Hospital-related expenses $ 116.9 $ 111.0 5.3% (1) (other operating , sup
Slide 13: Adjusted EBITDA
Adjusted EBITDA (1) Adjusted EBITDA Change Q3 9 Months (Millions) 2013 2012 2013 2012 9 Months Net operating revenues $ 564.0 $ 537.0 $ 1,701.1 $ 1,609.0 Q3 2013 __ 2013__ Less: Prov ision for doubtful accounts (8.0) (7.0) (22.4) (19.8) +$10.3M +$32.0M +8.2% +8.5% Net operating rev enues less prov i
Slide 14: Earnings per Share
Earnings per Share Q3 9 Months Earnings per Share from (In Millions, Except Per Share Data) 2013 2012 2013 2012 Continuing Operations (3) Adjusted EBITDA $ 135.5 $ 125.2 $ 409.3 $ 377.3 Interest expense and amortization of Q3 2013 reflects: debt discounts and fees (25.3) (23.5) (73.9) (69.8) Depreci
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q3 9 Months (Millions) 2013 2012 2013 2012 Net cash provided by operating activities $ 142.6 $ 107.2 $ 369.4 $ 302.2 Impact of discontinued operations 1.2 0.2 1.4 (1.5) Net cash provided by operating 143.8 107.4 370.8 300.7 activities of continuing operations Capital expendit
Slide 16: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 9 Months Change (Millions) 2013 2012 $ % (1) Adjusted free cash flow $ 264.6 $ 186.8 $ 77.8 41.6% Operating Cash Flows Investing and Financing Cash Flows $13.7 $1.7 $30.4 $32.0 $264.6 $186.8 Adjusted Free Cash Adjusted EBITDA Working Capital and Maintenance Capital Prefer
Slide 17: 2013 Revised Guidance – Adjusted EBITDA
2013 Revised Guidance – Adjusted EBITDA (1) Original Guidance Revised Guidance Feb. 19, 2013 April 25, 2013 July 25, 2013 Oct. 28, 2013 $506 million to $516 $506 million to $516 $520 million to $530 $533 million to $538 million million; million million (The high end of, or greater than) Consideratio
Slide 18: 2013 Revised Guidance - EPS
2013 Revised Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth (1) EPS Guidance Actual Low High $ 3.06 to $ 3.09 (In Millions, Except Per Share Data) 2012 2013 Adjusted EBITDA $ 505.9 $ 533 $ 538 (Previous guidance $2.87 to $2.93) Interest expense and amortizat
Slide 19: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 9/30/13, the Company’s federal NOL had a gross balance of approx. $1.0 billion. ― Includes the approx. $283 million increase in the federal NOL (on a gross basis) as a result of the April 25, 2013 agreements with the IRS • The Company has a rema
Slide 20: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2013 reflects: Continued spending on the CIS and hospital refresh projects Completion of delevering and refinancing Adjusted Free Cash Flow (1) Certain Cash Flow Items (2) 2013 9 Months 2012 (millions) Assumptions 2013 Actuals $346 Actuals (millions) $2
Slide 21: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2013 9 Months 2012 Priorities may shift based on prevailing market Growth in core business Assumptions 2013 Actuals Bed expansions (target approx. 80 beds/yr) $20 to $30 $18.4 $16.6 De novo hospitals (target 4/yr) $35 to $45 24.5 41.1 Growth Acqui
Slide 22: Appendix
Appendix HEALTHSOUTH,
Slide 23: Business Outlook: 2013 to 2015
Business Outlook: 2013 to 2015 (1) The multi-year adjusted free cash flow used in CAGR calculation does not Business Model • Adjusted EBITDA CAGR: 4-8% (2) include the dividend on common stock • Adjusted Free Cash Flow CAGR: 10-14% (2)(3) announced July 25, 2013 . Strategy 2012 2013 2014 2015 Purcha
Slide 24: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody Sept 30, Dec. 31, in Debt (Millions) Corporate BB- Ba3 2013 2012 vs. YE 2012 Advances under $600 million revolving credit facility, June 2018 - 1 Month LIBOR +175bps BB+ Baa3 $ 35.0 $ - $ 35.0 Bonds Payable: 7.25% Senior Notes due 2018 BB- B1 302.7 302.9
Slide 25: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) 2013 2013 (Decrease) Inpatient $ 528.8 $ 527.4 0.3% Outpatient and other 35.2 37.1 (5.1%) Consolidated net operating $ 564.0 $ 564.5 (0.1%) (Actual Amounts) Discharges 32,307 32,645 (1.0%) Net patient revenue / discharge $ 16,368 $
Slide 26: Revenues & Expenses (9 months)
Revenues & Expenses (9 months) 9 Months 9 Months Increase/ Revenues (millions) 2013 2012 (Decrease) Inpatient $ 1,593.3 $ 1,494.5 6.6% Outpatient and other 107.8 114.5 (5.9%) Consolidated net operating $ 1,701.1 $ 1,609.0 5.7% (Actual Amounts) Discharges 97,082 92,159 5.3% Net patient revenue / disc
Slide 27: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q3 9 Months Full Year 2013 2012 2013 2012 2012 Medicare 74.1% 73.1% 74.5% 73.1% 73.4% Medicaid 1.5% 1.4% 1.2% 1.3% 1.2% Workers' compensation 1.3% 1.5% 1.3% 1.5% 1.5% Managed care and other discount plans (1) 18.7% 19.1% 18.5% 19.4% 19.3% Other third-party payor
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months Full Year 2013 2013 2013 2012 2012 2012 2012 2013 2012 2012 (In Millions) Net patient revenue-inpatient $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 1,593.3 $ 1,494.5 $ 2,012.6 Net patient revenue-outpatient and other
Slide 29: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Weighted Average for the Period Q3 Q3 9 Months Full Year 2013 2012 2013 2012 2012 2011 Basic shares outstanding (1) (2) (3) (4) 86.2 94.7 88.7 94.6 94.6 93.3 (1) (2) (3) (4) (5) Diluted shares outstanding 100.4 108.1 102.4 108.2 108.1 109.
Slide 30: Outstanding Share Summary and Warrant Information Notes
Outstanding Share Summary and Warrant Information Notes (1) The Company purchased 9,119,450 common shares in Q1 2013 through a tender offer at a price of $25.50 per share. (2) On July 25, 2013, the Company’s board of directors approved the initiation of a quarterly cash dividend on its common stock.
Slide 31: Adjusted EBITDA History
Adjusted EBITDA (1) History Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months Full Year (Millions) 2013 2013 2013 2012 2012 2012 2012 2013 2012 2012 Net operating revenues $ 564.0 $ 564.5 $ 572.6 $ 552.9 $ 537.0 $ 533.4 $ 538.6 $1,701.1 $1,609.0 $ 2,161.9 Less: Prov ision for doubtful accounts (8.0) (7.0) (7.4
Slide 32: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q3 9 Months Full Year (Millions) 2013 2012 2013 2012 2012 2011 2010 Net cash provided by operating activities $ 142.6 $ 107.2 $ 369.4 $ 302.2 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 65.9 $ 179.0 $ 72.3 $ 317.2 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (0.1) 0.9
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable to
Slide 35: Reconciliation Notes for Slides 33-34
Reconciliation Notes for Slides 33-34 1. 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 financial measure. Management and some members of the investment community util
Slide 36: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 Months Full Year (Millions) 2013 2012 2013 2012 2012 Net cash provided by operating activities $ 142.6 $ 107.2 $ 369.4 $ 302.2 $ 411.5 Prov ision for doubtful accounts (8.0) (7.0) (22.4) (19.8) (27.0) Professional fees—acco