Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2011 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Apr 28, 2011
Slide 1: First Quarter 2011 Earnings Call Supplemental Slides
First 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 views and plans with respect to future events, strategy, capital expenditures and financial performance. These estimates,
Slide 3: Table of Contents
Table of Contents Q1 2011 Summary S (Q1 2011 vs. Q1 2010) 2010)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-7 47 High-Quality Care… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8 Revenues (Q1 2011 vs. Q1 2010)… … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q1 2011 Summary (Q1 2011 vs. Q1 2010)
Q1 2011 Summary (Q1 2011 vs. Q1 2010) Revenue growth of 9.6% ― Inpatient revenue growth of 9.2% driven by volume and price Discharge growth 7.1%; same-store discharge growth 4.5% • Against soft volume growth in Q1 2010 • Continued positive contribution from hospitals opened or acquired in the la
Slide 5: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) SWB as a percent of revenue decreased 110 bps. ― Higher volumes and improved productivity ― Revenue related to state provider tax refunds contributed 30 bps to the improvement. Hospital Hospital-related related expenses as a percent of revenue declin
Slide 6: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) Income from continuing operations attributable to HealthSouth was $0.60 per diluted share. ― Increase driven by an income tax benefit, higher Adjusted EBITDA, and lower nonrecurring items The income tax benefit of $0.27 per diluted share is related t
Slide 7: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) Additional capital structure enhancements ― Raised $122 million by reopening the 2018 and 2022 senior notes Utilized proceeds to repay $45 million outstanding under the revolving credit facility Held $77 million in cash for repayment of the 10.75 %
Slide 8: 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 31.9 30.0 3.0 28.0 2.79 25.0 2.5 2.41 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr D
Slide 9: Revenues (Q1 2011 vs. Q1 2010)
Revenues (Q1 2011 vs. Q1 2010) Q1 Q1 Increase/ (Millions) 2011 2010 (Decrease) Inpatient $ 493.4 $ 451.8 9.2% Outpatient and other 44 7 44.7 39 2 39.2 14 0% 14.0% Consolidated net operating $ 538.1 $ 491.0 9.6% (Actual Amounts) Discharges 29,996 27,998 7.1% Net patient revenue / discharge $16,449 $1
Slide 10: Expenses (Q1 2011 vs. Q1 2010)
Expenses (Q1 2011 vs. Q1 2010) Q1 Q1 Increase/ (Millions) 2011 2010 (Decrease) Salaries and benefits $ 259.1 $ 241.9 7.1% Percent of net operating revenues 48.2% 49.3% (110 bps) EPOB (employees per occupied bed) 3.40 3.41 (0.3%) Hospital-related expenses $ 124.3 $ 113.7 9.3% (other operating, suppli
Slide 11: Adjusted EBITDA
Adjusted EBITDA Change Adjusted EBITDA (1) Q1 2011 Q1 +$17.0M $17 0M (Millions) 2011 2010 +16.0% Net operating revenues $ 538.1 $ 491.0 Improvements driven by: Operating expenses: Salaries and benefits (259.1) (241.9) • Revenue growth driven by Hospital-related expenses: higher volumes and price, Ot
Slide 12: Earnings per Share
Earnings per Share from Earnings per Share Continuing Operations (1) Prior EPS ((1)) ((2)) Measure GAAP EPS Measure Q1 2011 (In Millions, Except Per Share Data) Q1 2010 Q1 2010 Q1 2011 Adjusted EBITDA $ 106.4 $ 106.4 $ 123.4 +$0.20 Interest expense and amortization of +50% debt discounts and fees (3
Slide 13: Adjusted Free Cash Flow (Q1 2011 vs. Q1 2010)
Adjusted Free Cash Flow (Q1 2011 vs. Q1 2010) Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q1 Full Year (Millions) 2011 2010 2010 Net cash provided by operating activities $ 89.1 89 1 $ 84.8 84 8 $ 331 331.0 0 Impact of discontinued operations 1.4 2.2 4.7 Ne
Slide 14: Debt, Liquidity, and Swaps
Debt, Liquidity, and Swaps Debt Outstanding Li idit Liquidity Mar. 31, Dec. 31 5.3x(1) 2011 2010 Cash Available $ 141.0 $ 48.4 Revolver Total Line $ 500.0 $ 500.0 $1.81 Less: 3.5x(1) – Draws (11.0) (78.0) $1 66 $1.66 – Letters of credit (48.7) (45.6) Available $ 440.3 $ 376.4 $1.56 $1.51 Total Liqui
Slide 15: Debt Maturity Profile
Debt Maturity Profile (1) Plan to call $285 million of the 10.75% senior notes: Cash use of approx. $300 million ($223 million revolver and $77 million cash) • Interest savings for second half of 2011 will be ~$12 million • Loss on early extinguishment of debt is expected to be ~$23 $23 million mi
Slide 16: Business Outlook: 2011 to 2013
Business Outlook: 2011 to 2013 Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Strategy 2010 2011 2012 2013 Goal: < 4.0x Longer-Term Goal: ~ 3.0x Delevering (2) debt to EBITDA debt to EBITDA (3.5x goal achieved at year-end 2010) Organic growth (includes cap
Slide 17: 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 and unit consolidations M di Medicare 70% Medicare Pricing FY 2011 (1) FY 2012 FY 2013 Q4 10 - Q3 11 Q4 11 - Q3 12 Q4 12 - Q3 13 (2) Market basket upd
Slide 18: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating and supplies 2011 2012 2013 tracking with inflation Merit increases 2-3% 2-3% 2-3% • Occupancy costs relatively constant as percent of revenue Benefit costs increases 5-8% 5-8% 5-8% • Bad debt o
Slide 19: 2011 Guidance – Adjusted EBITDA
2011 Guidance – Adjusted EBITDA Adjusted EBITDA (1) $440 million to $450 million Based on strong results for Q1 2011, HealthSouth expects its 2011 0 full-year y results to be at the high g end of,, or greater than, this guidance range. Considerations: 2010 bad debt expense was 0.9% of revenue; exp
Slide 20: Business Outlook: Income Tax Considerations
Business Outlook: Income Tax Considerations GAAP Considerations: • As of 3/31/11, the Company had a remaining valuation allowance of approximately $106 million, primarily related to state NOLs. • Q1 2011 tax provision reflects a tax benefit of $0.27 $0 27 per diluted share related to the Company’s s
Slide 21: Business Outlook: Adjusted Free Cash Flow
Business Outlook: Adjusted Free Cash Flow (1) 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) $198 a number of items that will not affect cash flow from $174 operating activities or adjusted free cash flow: • Normalized
Slide 22: 2011 Guidance - EPS
Based on strong results for Q1 2011, HealthSouth 2011 Guidance - EPS expects its 2011 full-year results to be at the high end of, or greater than, this guidance Diluted Earnings per Share from range range. Continuing Operations Attributable EPS Guidance Transition to HealthSouth (2) Prior EPS Measur
Slide 23: Appendix
Appendix HEALTHSOUTH,
Slide 24: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry UDS Industry Sites ((1)) HealthSouth vs. vs Industry HLS Same Store (2) 6.6% • HealthSouth’s 4.8% 4.5% volume growth has 2.9% outpaced 1.8% 1 0% 1.0% 1 2% 1.2% 0.4% 1 3% 1.3% 0.4% 0.8% competitors’. competitors TBD • TeamWorks = -1.4% -1.8% -1.4% standardized a
Slide 25: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody March 31, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $500 million revolving credit facility March 2015 - 3 Month LIBOR +350bps facility, BB Ba1 $ 11 0 11.0 $ 78 0 78.0 $ (67 0) (67.0) Term loan facility - March 2013 -
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q1 Q4 Increase/ Revenues (millions) 2011 2010 (Decrease) Inpatient $ 493.4 $ 481.3 2.5% Outpatient and other 44.7 39.4 13.5% Consolidated net operating $ 538.1 $ 520.7 3.3% (Actual Amounts) Discharges 29,996 30,311 (1.0%) Net patient revenue / discharge $ 16,449 $ 15
Slide 27: Payment Sources
Payment Sources Percent of Revenues Q1 Full Year 2011 2010 2010 Medicare 71.2% 70.4% 70.5% Medicaid 1.7% 1.8% 1.7% W k ' compensation Workers' ti 1 7% 1.7% 1 6% 1.6% 1 6% 1.6% (1) Managed care and other discount plans 20.0% 21.7% 21.5% Other third-party payors 2.3% 2.2% 2.3% Patients 1.0% 1.1% 1.2%
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2011 2010 2010 2010 2010 2009 2009 2009 2009 2010 2009 (In Millions) Net patient revenue-inpatient $ 493.4 $ 481.3 $ 451.8 $ 456.2 $ 451.8 $ 445.7 $ 429.2 $ 437.2 $ 431.3 $ 1,841.2 $ 1,743.4 Net patient revenue-outpatient a
Slide 29: Outstanding Share Summary
Outstanding Share Summary (Millions) Weighted Average for the Period Q1 Q1 FY FY 2011 2010 2010 2009 (1) (2) Basic Shares outstanding 93.1 92.7 92.8 88.8 (1) (2) (3) Diluted Shares outstanding 109.0 108.0 108.5 103.3 End of Period Q1 Q1 FY FY 2011 2010 2010 2009 (1) (2) Basic Shares outstanding 93 2
Slide 30: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2011 Q1 (in millions, except per share data) Total Per Share Net income $ 91.5 Income from disc ops, net of tax, attributable to HealthSouth (14.4) Net income attributable to noncontrolling interests (11.7) (11 7) Income from continuing operatio
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2010 0 0 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 Loss (income) from disc ops, net of tax, attribut
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
(1) (3) Reconciliation of Net Income to Adjusted EBITDA 2009 Q1 Q2 Q3 Q4 F ll Y 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 $ 53.5 $ 3.6 $ 24.8 $ 46.9 $ 128.8 Loss (income) from disc ops, net of tax, attrib
Slide 33: Reconciliation of Net Income to and Adjusted EBITDA
(1) (3) Reconciliation of Net Income to and Adjusted EBITDA 2008 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 $ 26.4 $ 52.4 $ 12.8 $ 190.2 $ 281.8 (Income) loss from disc ops, net of tax, attribu
Slide 34: Reconciliation Notes for Slides 30-33
Reconciliation Notes for Slides 30-33 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 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 $ 0.54 $ 57.5 $ 0.62 $ 41.9 $ 0
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 andd Adjusted Adj t d EBITDA are non-GAAP GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP fi
Slide 37: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q1 Full Year (Millions) 2011 2010 2010 2009 2008 Net cash provided by operating activities $ 89.1 $ 84.8 $ 331.0 $ 406.1 $ 227.2 Impact of discont inued operations 14 1.4 22 2.2 47 4.7 13 5
Slide 38: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities Reconciliation ii i off Adjusted j EBITDA to Net Cash Provided by Operating Activities Q1 Full Year (Millions) 2011 2010 2010 2009 2008 Net cash provided by operating activities $ 89.1 89 1 $ 84 84.8 8 $ 331.0 331 0 $ 406.1 406 1 $ 227.2 227 2 Prov ision for