Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2012 Earnings Presentation
41 slides from Encompass Health's earnings presentation, Oct 26, 2012
Slide 1: Third Quarter 2012 Earnings Call Supplemental Slides
Third Quarter 2012 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 2012 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-8 …………… Revenues (Q3 2012 vs. Q3 2011)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …9… … … … … … Expenses (Q3 2012 vs. Q3 2011)… … … … … … … … … … … … … … … … … … … … …
Slide 4: Q3 2012 Summary (Q3 2012 vs. Q3 2011)
Q3 2012 Summary (Q3 2012 vs. Q3 2011) HealthSouth amended the joint venture agreement related to St. Vincent Rehabilitation Hospital which resulted in a change in accounting for this hospital from the equity method of accounting to a consolidated entity. The impact on HealthSouth’s financials and op
Slide 5: Q3 2012 Summary (Q3 2012 vs. Q3 2011)
Q3 2012 Summary (Q3 2012 vs. Q3 2011) Improved operating leverage and labor productivity 73.8% 75.1% 3.60 % of Revenue 80% (1) General & Administrative 3.53 Employees per Occupied Bed (2) Hospital-related Expenses 3.46 (EPOB) 40% Salaries, Wages & Benefits 3.20 0% Q3 2012 Q3 2011 Q3 2012 Q3 2011
Slide 6: Q3 2012 Summary (Q3 2012 vs. Q3 2011) (cont.)
Q3 2012 Summary (Q3 2012 vs. Q3 2011) (cont.) Diluted earnings (1) per share of $0.44 reflected strong operating results (see table on slide 12). ― Q3 2012 diluted earnings per share of $0.44 included two items having a net after tax impact of $0.05 per share: $4.9 million gain on consolidation
Slide 7: Q3 2012 Summary (cont.)
Q3 2012 Summary (cont.) Growth: Entered into a letter of intent to acquire Walton Rehabilitation Hospital, a 58-bed inpatient rehabilitation hospital owned by the Walton Rehabilitation Health System located in Augusta, GA. ― Expected to close in Q1 2013 Broke ground on a replacement hospital for
Slide 8: Q3 2012 Summary (cont.)
Q3 2012 Summary (cont.) HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* 35.0 3.5 34.3 30.0 3.0 29.7 3.03 25.0 2.5 2.58 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database – On Demand Report: Q3 2
Slide 9: Revenues (Q3 2012 vs. Q3 2011)
Revenues (Q3 2012 vs. Q3 2011) Q3 Q3 Increase/ (Millions) 2012 2011 (Decrease) Inpatient $ 498.9 $ 458.8 8.7% Outpatient and other 38.1 38.9 (2.1%) Consolidated net operating $ 537.0 $ 497.7 7.9% (Actual Amounts) Discharges 30,569 29,350 4.2% Net patient revenue / discharge $ 16,320 $ 15,632 4.4%
Slide 10: Expenses (Q3 2012 vs. Q3 2011)
Expenses (Q3 2012 vs. Q3 2011) Q3 Q3 Increase/ (Millions) 2012 2011 (Decrease) Salaries and benefits $ 262.3 $ 245.0 7.1% Percent of net operating revenues 48.8% 49.2% (40 bps) EPOB (employees per occupied bed) 3.46 3.53 (2.0%) Hospital-related expenses $ 111.0 $ 107.5 3.3% (other operating, supplie
Slide 11: Adjusted EBITDA
Adjusted EBITDA Change Adjusted EBITDA (1) Q3 9 Months (Millions) 2012 2011 2012 2011 Net operating revenues $ 537.0 $ 497.7 $ 1,609.0 $ 1,508.8 9 Months Less: Prov ision for doubtful accounts (7.0) (5.1) (19.8) (14.9) Q3 2012 __2012__ +$14.7M +$34.0 Net operating rev enues less prov ision +13.3% +9
Slide 12: Earnings per Share
Earnings per Share Q3 9 Months Earnings per Share from Continuing Operations (3) (In Millions, Except Per Share Data) 2012 2011 2012 2011 Adjusted EBITDA $ 125.2 $ 110.5 $ 377.3 $ 343.3 Interest expense and amortization of debt discounts and fees (23.5) (26.3) (69.8) (96.3) Q3 2012 and 9 Months 2012
Slide 13: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q3 9 Months (Millions) 2012 2011 2012 2011 Net cash provided by operating activities $ 107.2 $ 55.1 $ 302.2 $ 213.2 Impact of discontinued operations 0.2 (2.2) (1.5) (9.4) Net cash provided by operating 107.4 52.9 300.7 203.8 activities of continuing operations Capital expend
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 9 Months Change (Millions) 2012 2011 $ % (1) Adjusted free cash flow $ 186.8 $ 144.1 $ 42.7 29.6% Operating Cash Flows Investing Cash Flows $10.9 (4) $25.9 (2) $4.8 (3) $34.0 ($32.9) (5) $186.8 $144.1 Adjusted Free Cash Adjusted EBITDA Cash Interest Working Capital Swap-R
Slide 15: 2012 Revised Guidance – Adjusted EBITDA
2012 Revised Guidance – Adjusted EBITDA(1) Original Guidance Revised Guidance Feb. 23, 2012 April 26, 2012 July 26, 2012 Oct. 25, 2012 $475 million to $485 $475 million to $485 $487 million to $495 $490 million to $495 million million; million million (The high end of, or greater than) Includes appr
Slide 16: 2012 Revised Guidance - EPS
2012 Revised Guidance - EPS Based on results for the first 9 months of 2012, HealthSouth is raising it expectations for full- Earnings per Share from year 2012 results. Continuing Operations EPS Guidance Attributable to HealthSouth (1) Actual Low High (In Millions, Except Per Share Data) 2011 2012 $
Slide 17: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 9/30/12, the Company’s federal NOL had a balance of approx. $1.0 billion. • The Company has a remaining valuation allowance of approx. $49 million, primarily related to state NOLs. Cash Tax Payments: • The Company expects to pay approx. $8 milli
Slide 18: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations The increase in 2012 2012 adjusted free cash flow growth reflects increased maintenance CAPEX maintenance capital expenditures and working is driven by the capital. clinical information Multi-year adjusted free cash flow CAGR of 12% to 17% system roll-o
Slide 19: Priorities for Reinvesting Free Cash Flows
Priorities for Reinvesting Free Cash Flows (millions) 2012 9 Months Growth in core business Assumptions 2012 2011 Bed expansions (80 - 100 beds) $20 to $25 $14.5 $12.5 De novo hospitals (complete Ocala; start 4 others) $50 to $70 $28.8 $15.6 Growth Priorities Acquisitions (target 2/year) - Free stan
Slide 20: Portfolio Growth: De Novo (40 bed) Assumptions and Timing
Portfolio Growth: De Novo (40 bed) Assumptions and Timing All projects have minimum IRR target of 15% (pre-tax). Investment Considerations • Target 4 openings/Year • All private rooms • Cash Payback (1) = 5 to 7 years • A minimum of 30 patients treated for ―zero‖ revenue (Medicare pre-certification)
Slide 21: Portfolio Growth: Acquisition Assumptions, Timing and Performance
Portfolio Growth: Acquisition Assumptions, Timing and Performance All projects have minimum IRR target of 15% (pre-tax). Acquisition Assumptions Investment Considerations Value Added • Cash Payback (1) = 4 to 6 years • TeamWorks approach to sales/marketing • Target: 2 acquisitions/Year • Labor manag
Slide 22: Appendix
Appendix HEALTHSOUTH,
Slide 23: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1)(2) • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Achieved < 3.0x Delevering (3) Debt to Adj. EBITDA < 3.0x Debt to Adj. EBITDA (subject to operating environment) Same-store Growth (Includes be
Slide 24: 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 Medicare and unit consolidations 72% Medicare Pricing FY 2012 FY 2013 (3) FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (1) 2
Slide 25: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating expenses 2012 2013 2014 Merit increases (2) ~2% 0.5-0.6% 2.25-2.5% and supply costs tracking with inflation Benefit costs increases 5-8% 8-10% (2) 5-8% • Occupancy costs relatively constant as p
Slide 26: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry HealthSouth’s volume growth has outpaced competitors’ Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly 6.5% UDS Industry Sites (1) 120,000 5.0% HLS Same Store (2) 2.1% Q4 4.7% 5.9% 90,000 3.3% 4.2% 2.7% 1.9% 5.9% 2.7% 5.1% Q3 1.8% 1.4% 1.0%
Slide 27: Debt Schedule
Debt Schedule Credit Rating Pro Forma Change S&P Moody Post Sept. 30, Dec. 31, in Debt (Millions) Corporate BB- Ba3 Redemption (1) 2012 2011 vs. YE 2011 Advances under $600 million revolving credit facility, August 2017 - 3 Month LIBOR +175bps BB+ Baa3 $ - $ - $ - $ - Advances under $500 million rev
Slide 28: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) 2012 2012 (Decrease) Inpatient $ 498.9 $ 495.0 0.8% Outpatient and other 38.1 38.4 (0.8%) Consolidated net operating $ 537.0 $ 533.4 0.7% (Actual Amounts) Discharges 30,569 30,719 (0.5%) Net patient revenue / discharge $ 16,320 $ 1
Slide 29: Revenues & Expenses (9 months)
Revenues & Expenses (9 months) 9 Months 9 Months Increase/ Revenues (millions) 2012 2011 (Decrease) Inpatient $ 1,494.5 $ 1,386.3 7.8% Outpatient and other 114.5 122.5 (6.5%) Consolidated net operating $ 1,609.0 $ 1,508.8 6.6% (Actual Amounts) Discharges 92,159 88,288 4.4% Net patient revenue / disc
Slide 30: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q3 9 Months Full Year 2012 2011 2012 2011 2011 Medicare 73.1% 72.0% 73.1% 71.8% 72.0% Medicaid 1.4% 1.6% 1.3% 1.7% 1.6% Workers' compensation 1.5% 1.6% 1.5% 1.7% 1.6% Managed care and other discount plans (1) 19.1% 20.0% 19.4% 19.8% 19.8% Other third-party payor
Slide 31: Operational and Labor Metrics
Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months Full Year 2012 2012 2012 2011 2011 2011 2011 2012 2011 2011 (In Millions) Net patient revenue-inpatient $ 498.9 $ 495.0 $ 500.6 $ 480.1 $ 458.8 $ 465.4 $ 462.1 $ 1,494.5 $ 1,386.3 $ 1,866.4 Net patient revenue-outpatient and other
Slide 32: Operational and Labor Metrics – Impact of St. Vincent Rehabilitation Hospital Consolidation
Operational and Labor Metrics – Impact of St. Vincent Rehabilitation Hospital Consolidation St. Vincent St. Vincent Rehabilitation Rehabilitation Hospital as Hospital as Equity Consolidated Entity Method Entity Q3 2012 Without Q3 2012 Accounting As Reported Change Difference (In Millions) Net patien
Slide 33: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information Weighted Average for the Period (Millions) Q3 Q3 9 Months 9 Months FY FY 2012 2011 2012 2011 2011 2010 Basic shares outstanding (1) (2) 94.7 93.3 94.6 93.2 93.3 92.8 (1) (2) (3) Diluted shares outstanding 108.1 109.2 108.2 109.1 109.2 108.5 End of Pe
Slide 34: Adjusted EBITDA History
Adjusted EBITDA (1) History Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months Full Year (Millions) 2012 2012 2012 2011 2011 2011 2011 2012 2011 2011 Net operating revenues $ 537.0 $ 533.4 $ 538.6 $ 518.1 $ 497.7 $ 505.1 $ 506.0 $ 1,609.0 $ 1,508.8 $ 2,026.9 Less: Prov ision for doubtful accounts (7.0) (6.5) (6
Slide 35: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q3 9 Months Full Year (Millions) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 107.2 $ 55.1 $ 302.2 $ 213.2 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of discontinued operations 0.2 (2.2) (1.5) (9.4) (9.1) (13.2) (5.7) (32.5) (3.
Slide 36: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 176.6 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (3.5) 0.5 (
Slide 37: Reconciliation of Net Income to Adjusted EBITDA - Impact of Consolidation of St. Vincent
Reconciliation of Net Income to Adjusted EBITDA (1) - Impact of Consolidation of St. Vincent Rehabilitation Hospital St. Vincent St. Vincent Rehabilitation Rehabilitation Hospital as Hospital as Equity Consolidated Entity Method Entity Q3 2012 Without Q3 2012 Accounting As Reported Change Difference
Slide 38: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2011 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 $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable to
Slide 39: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA Full Year 2007 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 718.7 $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (462.4) (32.
Slide 40: Reconciliation Notes for Slides 36-39
Reconciliation Notes for Slides 36-39 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 41: 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) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 107.2 $ 55.1 $ 302.2 $ 213.2 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Prov ision for doubtful accounts (7.0