Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2010 Earnings Presentation
29 slides from Encompass Health's earnings presentation, Aug 2, 2010
Slide 1: Second Quarter 2010 Earnings Call Supplemental Slides
Second Quarter 2010 Earnings Call Supplemental Slides Page 1
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 views with respect to future events and financial performance. These estimates, projections and other forward-looking info
Slide 3: Table of Contents
Table of Contents Q2 2010 Highlights g g .............................................................................................................. 4 High-Quality Care ................................................................................................................ 5 Revenues (Q2
Slide 4: Q2 2010 Highlights
Q2 2010 Highlights 9 Discharge growth of 2.2% – Same-store discharge growth = 1.3% – Sequential discharge growth = 3.6% 9 Revenue growth of 3.2% – Driven by pricing and volume growth 9 Adjusted Consolidated EBITDA growth of 10.3% – Continued emphasis on quality outcomes – Continued disciplined expen
Slide 5: High-Quality Care
High-Quality Care FIM Gain LOS Efficiency 32.0 2.8 30.0 2.6 28.0 31.1 2.4 26.0 2.2 2.75 24.0 27 7 27.7 20 2.0 2 41 2.41 22.0 1.8 20.0 1.6 18.0 1.4 16.0 1.2 14.0 1.0 HealthSouth Average UDS Average * HealthSouth Average UDS Average ** * Average = Expected, Risk-adjusted FIM Change Average ** Average
Slide 6: Revenues (Q2 2010 vs. Q2 2009)
Revenues (Q2 2010 vs. Q2 2009) Q2 Q2 Increase/ (Millions) 2010 2009 (Decrease) Inpatient $ 456.2 $ 437.2 4.3% Outpatient and other 40.7 44.4 (8.3%) Consolidated net operating $ 496.9 $ 481.6 3.2% (Actual Amounts) Discharges 29,016 28,379 2.2% Net patient revenue / discharge $ 15,722 $ 15,406 2.1% •
Slide 7: Expenses (Q2 2010 vs. Q2 2009)
Expenses (Q2 2010 vs. Q2 2009) Q2 Q2 Increase/ (Millions) 2010 2009 (Decrease) Salaries and benefits $ 241 6 241.6 $ 237 8 237.8 1 6% 1.6% Percent of net operating revenues 48.6% 49.4% (80 bps) EPOB (employees per occupied bed) 3 48 3.48 3 51 3.51 (0 9%) (0.9%) Hospital-related expenses $ 122.7 $ 11
Slide 8: Adjusted Consolidated EBITDA
(1) Adjusted Consolidated EBITDA Adjusted Consolidated Q2 6 Months EBITDA Change (Millions) 2010 2009 2010 2009 Q2 6 Months Net operating revenues $ 496.9 $ 481.6 $ 987.9 $ 954.5 +$9.7M +$17.7M Operating expenses: +10.3% +9.2% Salaries and benefits (241 6) (241.6) (237 8) (237.8) (483 5) (483.5) (47
Slide 9: Adjusted Income per Diluted Share
(1) Adjusted Income per Diluted Share Q2 6 Months Adjusted EPS Change (Millions, except per share data) 2010 2009 2010 2009 Adjusted income from continuing Q2 6 Months operations (1) $ 47.4 $ 39.9 $ 99.3 $ 79.6 +$0.05 +$0.13 +12 8% +12.8% +16 +16.5% 5% Weighted average diluted shares Improvements dr
Slide 10: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities (1) Reconciliation of Adjusted Consolidated EBITDA to Net Cash Provided by Operating Activities Q2 6 Months YE (million) 2010 2009 2010 2009 2009 Adjusted Consolidated EBITDA $ 103.7 $ 94.0 $ 210.1 $ 192.4 $ 383.0 Provision for doubtful accounts 5.9 9.7 12.8
Slide 11: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q2 6 Months YE (Millions) 2010 2009 2010 2009 2009 Net cash provided by operating activities $ 87.9 $ 46.1 $ 172.7 $ 229.2 $ 406.1 Impact of discontinued operations 2.0 6.5 4.2 7.0 13.5 Net
Slide 12: Debt Outstanding, Liquidity and Swaps
Debt Outstanding, Liquidity and Swaps ($ Billions) $3.5 Debt Outstanding Liquidity $3.40 $3.0 June 30, Dec. 31, $2.5 2010 2009 $2 0 $2.0 $2 04 $2.04 C h A Cash Available il bl $ 172 6 172.6 $ 80 9 80.9 $1.81 $1.5 $1.66 $1.65 Revolver Total Line $ 400.0 $ 400.0 $1.0 Less: $0.5 – Draws - - $0 0 $0.0 –
Slide 13: 2010 Guidance – Revised
2010 Guidance – Revised (1) Adjusted Consolidated EBITDA Original Guidance (February 23, 2010) Revised Guidance (August 2, 2010) $397M to $407M $402M to $410M Considerations: 9 IT “pilot” investment 9 Integration of acquisitions 9 Start-up costs at two new hospitals 9 TeamWorks investment 9 2nd half
Slide 14: Business Outlook
Business Outlook Business Model: • 5 – 8 % ann al Adj annual sted Consolidated EBITDA gro Adjusted th (1) growth • 15 – 20% annual Adjusted EPS growth (1) (2) Strategy 2010 2011 2012 2013 (3) Goal: < 4.0x Goal: ~ 3.5x Longer-term goal: ~ 3.0x Deleveraging Debt to EBITDA Debt to EBITDA Debt to EBITDA
Slide 15: Appendix
Appendix Page 15
Slide 16: Regulatory Uncertainty
Regulatory Uncertainty Future Regulatory Risk IRF SNF LTCH HH Yes; RUGS IV and MDS Yes; would be required as part 1. Re-basing payment system No 3.0 being implemented No of PPACA starting in 2014 FY 2011/2012 Yes; will occur when Yes; 10% cap per agency; 2. Major outlier payment adjustments No No MM
Slide 17: Cost-Effective Care
Cost-Effective Care (1) CMS Fiscal Year 2010 IRF Rate Setting File Analysis HealthSouth (2) (2) (2) Freestanding Units Total Hospitals Number of IRFs 228 953 1,181 94 Average # of Discharges per IRF 649 237 316 822 Outlier Payments as % of Total Payments 1.32% 4.08% 3.00% 0.43% Average Estimated Tot
Slide 18: Readmission Rates
Readmission Rates Percent Discharged Percent Percent Post-Acute Care from Hospital to Rehospitalized after Died in PAC ("PAC") Setting PAC Setting Using PAC Setting Setting Skilled Nursing Facility 17.3% 22.0% 5.4% Home Health 16.0% 18.1% 0.8% Long-Term Care Hospital 1.0% 10.0% 15.5% Inpatient Rehab
Slide 19: Portfolio Growth
Portfolio Growth Target Cash pay-back O Organic i Growth G th • Capacity Expansions: 2 – 4 years (1) ¾ ~ 100+ beds in 2010 • De novos: 6 – 7 years (2) Installed Operational Location Beds Date 1. Mesa, AZ 40 Beds Q3 2009 2 Loudoun 2. L d C County, t VA 40 B Beds d Q2 2010 3. Bristol, VA 25 Beds Q3 20
Slide 20: Discharge Growth – Trend
Discharge Growth – Trend HealthSouth vs. Industry (1) UDS Industry Sites HLS Same Store (2) 9.7% 8.1% 5.7% 3.6% 4.8% 1.3% 4.7% 1.6% 5.3% 3.3% 2.9% 0.1% 4.2% 0.4% 9 HealthSouth’s volume -0.5% -0.3% -0.2% -4.0% growth has outpaced competitors’ 9 TeamWorks = standardized Q108 vs. Q208 vs. Q308 vs. Q408
Slide 21: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 Q1 Increase/ Revenues (millions) 2010 2010 (Decrease) Inpatient $ 456.2 $ 451.8 1.0% Outpatient p and other 40.7 39.2 3.8% Consolidated net operating $ 496.9 $ 491.0 1.2% (Actual Amounts) Discharges 29,016 27,998 3.6% Net patient revenue / discharge $ 15,722 $ 16,
Slide 22: Revenues & Expenses (6 Months 2010 vs. 6 Months 2009)
Revenues & Expenses (6 Months 2010 vs. 6 Months 2009) 6 Months 6 Months Increase/ Revenues (millions) 2010 2009 (Decrease) Inpatient $ 908.1 $ 868.5 4.6% Outpatient and other 79.8 86.0 ((7.2%) %) Consolidated net operating $ 987.9 $ 954.5 3.5% (Actual Amounts) Discharges 57,014 56,078 1.7% Net patie
Slide 23: Payment Sources
Payment Sources Q2 Q2 6 Months 6 Months YE 2010 2009 2010 2009 2009 Medicare 69.6% 67.2% 70.0% 67.5% 67.9% Medicaid 1.8% 2.2% 1.8% 2.2% 2.1% Workers' compensation 1.7% 1.5% 1.6% 1.6% 1.6% (1) M Managed d care and d other th didiscountt plans l 21 9% 21.9% 23 8% 23.8% 21 8% 21.8% 23 1% 23.1% 23 1% 23
Slide 24: Operational and Labor Metrics
(1) Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months YE 2010 2010 2009 2009 2009 2009 2010 2009 2009 (In Millions) Net patient revenue-inpatient $ 456.2 $ 451.8 $ 445.7 $ 429.2 $ 437.2 $ 431.3 $ 908.1 $ 868.5 $ 1,743.4 Net patient revenue-outpatient and other revenues 40.7 39.2 40.5
Slide 25: Debt Profile
Debt Profile Credit Rating Debt Schedule Debt Reduction S&P Moody's June 30, 2010 Dec. 31, 2009 6 Months 2010 Corporate p B B2 Outlook Positive Stable Advances under $400 million revoling credit facility, March 2012 $ - $ - $ - Term loan facility - March 2013 BB- Ba3 449.7 452.0 (2.3) Term loan faci
Slide 26: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of June 30, 2010 Future Cash Tax Payments • Federal tax recoveries virtually complete. • Expect to pay about $5-7 million per year of income • State tax refunds in progress. tax. – State income tax. – Approx. $3.1 million received in Q2 – Alternative M
Slide 27: Outstanding Share Summary
Outstanding Share Summary (Millions) Weighted Average for the Period Q2 Q2 6 Months 6 Months YE 2010 2009 2010 2009 2009 (1) (2) Basic Shares outstanding 92.8 87.6 92.7 87.5 88.8 (1) (2) (3) Diluted Shares outstanding 108.2 101.5 108.2 101.2 103.3 End of Period Q2 Q2 6 Months 6 Months YE 2010 2009 2
Slide 28: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing (1) (3) (4) Operations and Adjusted Consolidated EBITDA Three Months Ended June 30, Six Months Ended June 30, Year Ended December 31, 2010 Per Share 2009 Per Share 2010 Per Share 2009 Per Share 2009 Per Share (In Millions, Except per Sh
Slide 29: Reconciliation Notes
Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP fi financial i l measure