Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2011 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Oct 28, 2011
Slide 1: Third Quarter 2011 Earnings Call Supplemental Slides
Third Quarter 2011 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 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 2011 Summary S (Q3 2011 vs. Q3 2010)… 2010) … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-6 46 High-Quality Care… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 7 Revenues (Q3 2011 vs. Q3 2010)… … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q3 2011 Summary (Q3 2011 vs. Q3 2010)
Q3 2011 Summary (Q3 2011 vs. Q3 2010) Revenue growth of 8.0% 8 0% ― Inpatient revenue growth of 8.6% Discharge growth 5.1% • Strong same-store same store discharge growth of 4.0% 4 0% • Continued positive contribution from hospitals opened or acquired in the last 12 months Location # of Beds Tra
Slide 5: Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.)
Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.) Adjusted EBITDA (1) for the quarter of $110.5 million reflects growth of 15.2%. Adjusted free cash flow (1) for the quarter of $32.4 million: ― Benefited from higher Adjusted EBITDA ― Benefited from the absence of a swap payment ($10.6 million in Q3
Slide 6: Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.)
Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.) Completed the sale of five long-term acute care hospitals (LTCHs) for approx. $117.5 million. Additional capital structure enhancements ― Completed the retirement of the10.75% senior notes due 2016 ― Reduced total debt by $131 million during the quar
Slide 7: 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 33.2 30.0 3.0 2.95 28.8 25.0 2.5 2.49 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr D
Slide 8: Revenues (Q3 2011 vs. Q3 2010)
Revenues (Q3 2011 vs. Q3 2010) Q3 Q3 Increase/ (Millions) 2011 2010 (Decrease) Inpatient $ 458.8 $ 422.6 8.6% Outpatient and other 38.9 38.2 1.8% Consolidated net operating $ 497 7 497.7 $ 460 8 460.8 8 0% 8.0% (Actual Amounts) Discharges 29,350 29 350 27,931 27 931 5.1% 5 1% Net patient revenue / d
Slide 9: Expenses (Q3 2011 vs. Q3 2010)
Expenses (Q3 2011 vs. Q3 2010) Q3 Q3 Increase/ (Millions) 2011 2010 (Decrease) Salaries and benefits $ 245.0 $ 231.7 5.7% Percent of net operating revenues 49.2% 50.3% (110 bps) EPOB (employees per occupied bed) 3.53 3.56 (0.8%) Hospital-related expenses $ 112.6 $ 104.6 7.6% (other operating, suppli
Slide 10: Adjusted EBITDA
Adjusted EBITDA Change Adjusted EBITDA (1) Q3 9 Months Q3 9 Months (Millions) 2011 2010 2011 2010 +$14.6M $14 6M +$45.8M $45 8M Net operating revenues $ 497.7 $ 460.8 $ 1,508.8 $ 1,386.7 +15.2% +15.4% Operating expenses: Salaries and benefits (2) (245.0) (231.5) (730.6) (684.0) • Revenue growth driv
Slide 11: Earnings per Share
Earnings per Share GAAP EPS Measure (1) Earnings per Share from Continuing Operations (1) Q3 9 Months (In Millions, Millions Except Per Share Data) 2011 2010 2011 2010 Adjusted EBITDA $ 110.5 $ 95.9 $ 343.3 $ 297.5 Interest expense and amortization of Q3 2011 impacted by: debt discounts and fees (26
Slide 12: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q3 9 Months (Millions) 2011 2010 2011 2010 Net cash provided by operating activities $ 53.9 $ 90.8 $ 210.8 $ 263.9 Impact of discontinued operations (2.2) (3.1) (9.4) (10.4) Net cash provid
Slide 13: Debt and Liquidity
Debt and Liquidity Debt Outstanding Liquidity Sept. 30, Dec. 31, 5.6x(1) 2011 2010 Cash Available $ 47.7 $ 48.3 Revolver Tot al Line $ 500 0 500.0 $ 500 0 500.0 Less: $1.81 – Draws (178.0) (78.0) – Lett ers of credit (46.0) (45.6) 2.9x(1) Available $ 276.0 $ 376.4 $1 66 $1.66 (billions) Tot al Liqui
Slide 14: Debt Profile
Debt Profile Capital Structure Enhancements: Completed the retirement of the 10.75% notes due 2016 Reduced total debt by $131 million during the quarter Leverage ratio reduced to 2.9x (1) Debt Profile: Additional debt pre-payment opportunities and flexible covenants (2) No near-term maturi
Slide 15: Reinvesting Free Cash Flow
Reinvesting Free Cash Flow • Growth in core business • Bed expansions Prioritiies • De novo hospitals • Hospital acquisitions Growth • Acute care IRF unit acquisitions/consolidations • Purchase properties under operating leases • Lower capital cost • Greater control of property, property CON and/or
Slide 16: 2011 Guidance – Adjusted EBITDA
2011 Guidance – Adjusted EBITDA(1) Original Guidance Raised Guidance Feb. 17, 2011 May 18, 2011 July 27, 2011 Oct. 27, 2011 $440 million to $450 $440 million to $450 $447 million to $453 $450 million to $455 million illi (Inclusive (I l i off million; million million 12 months LTCH (The high end of,
Slide 17: 2011 Guidance – EPS
2011 Guidance – EPS Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (1) Diluted earnings per share on a GAAP basis are the same as basic earnings per $1 18 to $1.23 $1.18 $1 23 share due to the antidilutive impact in the period. Considerations: Includes $38.8 millio
Slide 18: 2011 Guidance – EPS
2011 Guidance – EPS EPS Guidance Transition (LTCHs Reclassified to Disc. Ops.) (1) (2) Prior EPS Measure GAAP EPS Measure Actual Actual Low High Low High (In Millions, Except Per Share Dat a) 2010 2010 Original 2011 Revised 2011 Adjusted EBITDA $ 409.6 $ 409.6 $ 440 $ 450 $ 450 $ 455 Int erest expen
Slide 19: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 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) $181 a number of items that will not affect adjusted free cash $155 flow: • Normalized GAAP tax rate resulting from the valuatio
Slide 20: Appendix
Appendix HEALTHSOUTH,
Slide 21: Business Model and Potential Medicare Reductions
Business Model and Potential Medicare Reductions Business Model 5 8% (1) • Adjusted EBITDA CAGR: 5-8% • Adjusted Free Cash Flow CAGR: 12-17% (1) Strategy 2010 2011 2012 2013 Achieved A hi d 3.5x 35 Delevering (2) debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Same-store growth (Includes capa
Slide 22: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 9/30/11, the Company had an ending balance of approx. $1.3 billion in federal NOLs and a remaining valuation allowance of approx. $105 million, primarily related to state NOLs. NOLs • Expect effective tax rate of approx. 40% going forward Future
Slide 23: Our Historic Discharge Growth vs. Industry
Our Historic Discharge Growth vs. Industry HealthSouth’s H lthS th’ volume l growth th has h outpaced t d competitors’ tit ’ Same Store Quarterly Discharge Growth HealthSouth vs. Industry UDS Industry Sites ((1)) 120,000 HLS Same Store (2) Q4 4.7% 5.9% 6.9% 80,000 Q3 5.9% 2.7% 5.1% 5.5% 5.0% 5.9% 2.
Slide 24: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody Sept. 30, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $ $500 million revolving g credit facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 $ 178.0 $ 78.0 $ 100.0 Term loan facility, May 2016 - 3 Month LIBOR +225bps BB B
Slide 25: Revenues & Expenses (9 Months)
Revenues & Expenses (9 Months) 9 Months Increase/ Revenues (millions) 2011 2010 (Decrease) Inpatient $ 1,386.3 $ 1,270.4 9.1% Outpatient and other 122.5 116.3 5.3% Consolidated net operating $ 1 508 8 1,508.8 $ 1 386 7 1,386.7 8 8% 8.8% (Actual Amounts) Discharges 88,288 83,052 6.3% Net patient reve
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) ( illi ) 2011 2011 (Decrease) Inpatient $ 458.8 $ 465.4 (1.4%) Outpatient and other 38.9 39.7 (2.0%) Consolidated net operating $ 497.7 $ 505.1 (1.5%) (A t l Amounts) (Actual A t ) Discharges 29,350 29,811 (1.5%) Net patient revenu
Slide 27: Payment Sources (Percent of Revenue)
Payment Sources (Percent of Revenue) Q3 9 Months Full Year 2011 2010 2011 2010 2010 Medicare 72.0% 70.2% 71.8% 70.2% 70.5% Medicaid 1.6% 1.8% 1.7% 1.8% 1.8% Workers' compensation 1.6% 1.6% 1.7% 1.6% 1.6% Managed care and other discount plans (1) 20.0% 21.5% 19.8% 21.5% 21.3% Other third-party third
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics (1) Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 9 Months Full Year 2011 2011 2011 2010 2010 2010 2010 2011 2010 2010 (In Millions) Net patient revenue-inpatient $ 458.8 $ 465.4 $ 462.1 $ 452.3 $ 422.6 $ 427.6 $ 420.2 $ 1,386.3 $ 1,270.4 $ 1,722.7 Net patient revenue-outpatient and ot
Slide 29: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Weighted Average for the Period Q3 Q3 9 Months 9 Months FY FY 2011 2010 2011 2010 2010 2009 (1) (2) Basic Shares outstanding 93.3 92.8 93.2 92.7 92.8 88.8 (1) (2) (3) Dil t d Shares Diluted Sh outstanding t t di 109 2 109.2 108 3 108.3 109
Slide 30: Adjusted EBITDA History
Adjusted EBITDA (1) History Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months Full Year (Millions) 2011 2011 2011 2010 2010 2010 2010 2011 2010 2010 Net operating revenues $ 497.7 $ 505.1 $ 506.0 $ 490.9 $ 460.8 $ 467.3 $ 458.6 $ 1,508.8 $ 1,386.7 $ 1,877.6 Operating expenses: ( 2) Salaries and benefits (245.0) (241.6)
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2011 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 $ 91.5 $ 32.3 $ 68.3 $ 192.1 Income from disc ops, net of tax, attributable to HealthSouth (17.6) (2.5) (34.8)
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to 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 $ 57.5 $ 41.9 $ 789.9 $ 939.8 Income from disc ops, net of tax, attributable to Hea
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
(1) (3) Reconciliation of Net Income to Adjusted EBITDA Full Year 2008 2009 (in millions, except per share data) Total Per Share Total Per Share Net income $ 281.8 $ 128.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) Net income attributable to noncontrolling interests
Slide 34: Reconciliation Notes for Slides 31-33
Reconciliation Notes for Slides 31-33 1 Adjusted 1. Adj t d EBITDA isi a non-GAAP GAAP financial fi i l measure. Th The Company’s C ’ leverage l ratio ti (total (t t l consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measure. Management and some
Slide 35: 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 Prior Year Historical Reporting Reclassified for LTCHs 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
Slide 36: Reconciliation Notes for Slide 35
Reconciliation Notes for Slide 35 1 Adjusted 1. Adj t d income i from f continuing ti i operations ti and d Adjusted Adj t d EBITDA are non-GAAP GAAP financial fi i l measures. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a no
Slide 37: 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) 2011 2010 2011 2010 2010 2009 2008 Net cash provided by operating activities $ 53.9 $ 90.8 $ 210.8 $ 263.9 $331.0 $ 406.1 $ 227.2 Impact of discontinued ope
Slide 38: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities R Reconciliation ili ti off N Nett Cash C h Provided P id d b by Operating O ti Activities A ti iti tot Adjusted Adj t d EBITDA Q3 9 Months Full Year (Millions) 2011 2010 2011 2010 2010 2009 2008 Net cash provided by operating activities $ 53.9 $ 90.8 $ 210.