Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2014 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Jul 29, 2014
Slide 1: Second Quarter 2014 Earnings Call Supplemental Slides
Second Quarter 2014 Earnings Call July 29, 2014 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 Q2 2014 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …4-7 …………… Highlights… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8-9 …………… Quality… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q2 2014 Summary (Q2 2014 vs. Q2 2013)
Q2 2014 Summary (Q2 2014 vs. Q2 2013) Revenue growth of 7.1% ― Inpatient revenue growth of 8.0% (80 bps for Fairlawn (1)) Discharge growth of 3.0% (6.3% in prior year) • Same-store discharge growth of 1.4% • New-store growth of 1.6% (60 bps for Fairlawn (1)); Littleton, CO and Stuart, FL both op
Slide 5: Q2 2014 Summary (cont.)
Q2 2014 Summary (Q2 2014 vs. Q2 2013) (cont.) Bad debt as a percent of revenue was 1.5%. Disciplined expense management benefited from increased revenue and the maturation of three new hospitals that opened in Q2 2013. ― Salaries and benefits as a percent of revenue improved by 130 bps. ― EPOB w
Slide 6: Q2 2014 Summary (cont.)
Q2 2014 Summary (Q2 2014 vs. Q2 2013) (cont.) Adjusted EBITDA (1) for the quarter of $152.7 million reflected growth of 13.5% and benefited from: ― Revenue growth and disciplined expense management ― The increase in ownership and consolidation of Fairlawn Adjusted free cash flow (2) for the quar
Slide 7: Q2 2014 Summary (cont.)
Q2 2014 Summary (Q2 2014 vs. Q2 2013) (cont.) Diluted earnings (1) (2) per share of $0.81 (see table on slide 14). ― Includes a $27.2 million gain related to the increase in ownership and consolidation of Fairlawn Shareholder distributions: ― Quarterly cash dividends on common stock: Paid quar
Slide 8: Highlights
Highlights On July 17, 2014, the Company’s Board of Directors approved an increase in the quarterly dividend of 16.7% to $0.21 per common share. Capacity expansion and new development ― Continued construction of three de novos; expect all to be operational in Q4 2014: Altamonte Springs, FL (50
Slide 9: Highlights (cont.)
Highlights (cont.) Signed an agreement with Mountain States Health Alliance to form a joint venture to own and operate a 26-bed free-standing inpatient rehabilitation hospital in Johnson City, TN. We expect to begin operating the joint venture by year-end 2014. Signed an agreement with Memorial
Slide 10: Quality
Quality HealthSouth Functional Outcomes Continue to Outpace Industry Average (1) HealthSouth Average UDSMR Average (1) without HealthSouth 40.0 4.0 35.0 36.8 3.5 3.28 30.0 3.0 28.0 25.0 2.5 2.36 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency Source: UDSMR Database – On Demand Report: Q1 2014 Report (1
Slide 11: Revenues (Q2 2014 vs. Q2 2013)
Revenues (Q2 2014 vs. Q2 2013) Q2 Q2 Increase/ (Millions) 2014 2013 (Decrease) Inpatient $ 569.7 $ 527.4 8.0% Outpatient and other 34.7 37.1 (6.5%) Consolidated net operating $ 604.4 $ 564.5 7.1% (Actual Amounts) Discharges 33,620 32,645 3.0% Net patient revenue / discharge $ 16,945 $ 16,156 4.9%
Slide 12: Expenses (Q2 2014 vs. Q2 2013)
Expenses (Q2 2014 vs. Q2 2013) Q2 Q2 Increase/ (Millions) 2014 2013 (Decrease) Salaries and benefits $ 285.3 $ 273.6 4.3% Percent of net operating revenues 47.2% 48.5% (130 bps) EPOB (employees per occupied bed) 3.39 3.43 (1.2%) Hospital-related expenses $ 122.7 $ 117.8 4.2% (1) (other operating , s
Slide 13: Adjusted EBITDA
Adjusted EBITDA (1) Q2 6 Months (Millions) 2014 2013 2014 2013 Net operating revenues $ 604.4 $ 564.5 $ 1,195.6 $ 1,137.1 Adjusted EBITDA Change Less: Prov ision for doubtful accounts (9.3) (7.0) (16.8) (14.4) Q2 2014 6Mo.2014 Net operating rev enues less prov ision for doubtful accounts 595.1 557.5
Slide 14: Earnings per Share
Earnings per Share Q2 2014 benefited from: Q2 6 Months (In Millions, Except Per Share Data) 2014 2013 2014 2013 Adjusted EBITDA $ 152.7 $ 134.5 $ 296.8 $ 273.8 • Higher Adjusted EBITDA Interest expense and amortization of debt discounts and fees (27.8) (24.4) (55.7) (48.6) Depreciation and amortizat
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Q2 6 Months (Millions) 2014 2013 2014 2013 Net cash provided by operating activities $128.0 $ 105.4 $ 235.1 $ 226.8 Impact of discontinued operations 1.0 (0.5) 1.2 0.2 Net cash provided by operating 129.0 104.9 236.3 227.0 activities of continuing operations Capital expen
Slide 16: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 6 Months Change (Millions) 2014 2013 $ % Adjusted free cash flow (1) $ 163.0 $ 158.2 $ 4.8 3.0 Investing and Operating Cash Flows Financing Cash Flows $23.0 ($2.8) ($11.7) ($12.1) $8.4 $163.0 $158.2 (2) Adjusted Free Cash Adjusted EBITDA Cash Interest Working Capital Main
Slide 17: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) $570 million to $580 million (previous guidance $555 million to $565 million) Considerations for July through December: Revenue growth of 6.0% to 7.0% ― Discharge growth between 4.3% and 5.3% (includes 180 bps for Fairlawn) ― Revenue per discharge growth between
Slide 18: 2014 Guidance - EPS
2014 Guidance - EPS EPS Guidance Earnings per Share from Continuing Actual Low High (In Millions, Except Per Share Data) 2013 2014 Operations Attributable to HealthSouth (1) Adjusted EBITDA $ 551.6 $ 570 $ 580 Interest expense and amortization $2.25 to $2.31 of debt discounts and fees (100.4) (112)
Slide 19: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 6/30/14, the Company’s federal NOL had a gross balance of approx. $761 million. • The Company has a remaining valuation allowance of approx. $30 million related to state NOLs. Cash Tax Payments: • In 2014, the Company expects to pay approx. $12
Slide 20: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations Reflects: • Continued investment in the CIS and hospital refresh projects • Timing of maintenance capital expenditures in 2013 and 2014 Certain Cash Flow Items (2) 2013 6 Months 2014 Adjusted Free Cash Flow (1) (millions) Actual 2014 Assumptions Actual (mil
Slide 21: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2013 6 Months 2014 Actual 2014 Assumptions Highest Priority Bed expansions (target ~ 80 beds/yr) Growth Remains and unit consolidations $24.9 $8.4 $25 to $35 in Core New IRF's (target 4-6/yr) 55.5 24.9 55 to 75 Fairlawn transaction - 15.9 - Busine
Slide 22: Appendix
Appendix HEALTHSOUTH,
Slide 23: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Potential depletion of the federal NOL Business Model during the 2014 to 2016 timeframe will affect • Adjusted EBITDA CAGR: 4-8% (2) Cash Flow CAGR. • Continued strong free cash flow generation Strategy 2013 2014 2015 2016 $234 million common • Quarterly cash divide
Slide 24: Our New-Store/Same-Store Growth
Our New-Store/Same-Store Growth HealthSouth’s volume growth is driven by bed expansions and new IRFs. 10.0% 9.0% Bristol, VA (25 beds) Augusta, GA (58 beds) Sugar Land, TX (50 Beds) Littleton, CO (40 beds) 8.0% Stuart, FL (34 beds) Cypress, TX (40 beds) 7.0% Cincinnati, OH (40 beds) Ocala, FL (40 Be
Slide 25: Debt Schedule
Debt Schedule Credit Rating Change in S&P Moody June 30, Dec. 31, Debt vs. (Millions) Corporate BB- Ba3 2014 2013 YE 2013 Advances under $600 million revolving credit facility, June 2018 - 1 Month LIBOR +175bps BB+ Baa3 $ 15.0 $ 45.0 (30.0) Bonds Payable: 7.25% Senior Notes due 2018 BB- Ba3 272.3 27
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 Q1 Increase/ Revenues (millions) 2014 2014 (Decrease) Inpatient $ 569.7 $ 558.2 2.1% Outpatient and other 34.7 33.0 5.2% Consolidated net operating $ 604.4 $ 591.2 2.2% (Actual Amounts) Discharges 33,620 32,889 2.2% Net patient revenue / discharge $ 16,945 $ 16,97
Slide 27: Revenues & Expenses (6 Months)
Revenues & Expenses (6 Months) 6 Months 6 Months Increase/ Revenues (millions) 2014 2013 (Decrease) Inpatient $ 1,128.0 $ 1,064.5 6.0% Outpatient and other 67.6 72.6 (6.9%) Consolidated net operating $ 1,195.6 $ 1,137.1 5.1% (Actual Amounts) Discharges 66,509 64,775 2.7% Net patient revenue / discha
Slide 28: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q2 6 Months Full Year 2014 2013 2014 2013 2013 2012 Medicare 74.1% 74.6% 74.7% 74.6% 74.5% 73.4% Medicaid 1.8% 1.0% 1.5% 1.1% 1.2% 1.2% Workers' compensation 1.2% 1.2% 1.2% 1.3% 1.2% 1.5% Managed care and other discount plans, including Medicare Adv antage (1) 1
Slide 29: Operational and Labor Metrics
Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2014 2014 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 (In Millions) Net patient rev enue-inpatient $ 569.7 $ 558.2 $ 537.5 $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 2,130.8 $ 2,012.6 Net patient rev enue-outp
Slide 30: Operational and Labor Metrics – Impact of Fairlawn Consolidation
Operational and Labor Metrics – Impact of Fairlawn Rehabilitation Hospital Consolidation Fairlawn Fairlawn Rehabilitation Hospital Rehabilitation Hospital as Consolidated as Equity Method Entity(1) Entity(1) Q2 2014 Without Q2 2014 Accounting or As Reported Ownership Change Difference (In Millions)
Slide 31: Outstanding Share Summary, Warrant Information, and Conversion Price
Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q2 6 months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 Basic shares outstanding (1) (2) (3) 86.7 86.1 87.0 90.0 88.1 94.6 93.3 (1) (2) (3) (4) Diluted shares outstanding 100.6 99.8 100.8
Slide 32: Outstanding Share Summary, Warrant Information, and Conversion Price Notes
Outstanding Share Summary, Warrant Information, and Conversion Price 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) 10 million warrants (pre-October 2006 reverse split) were issued in connection with a January 2004 loan r
Slide 33: Adjusted EBITDA History
Adjusted EBITDA History (1) Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year (Millions) 2014 2014 2013 2013 2013 2013 2014 2013 2013 2012 Net operating revenues $ 604.4 $ 591.2 $ 572.1 $ 564.0 $ 564.5 $ 572.6 $ 1,195.6 $ 1,137.1 $ 2,273.2 $ 2,161.9 Less: Prov ision for doubtful accounts (9.3) (7.5) (3.
Slide 34: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q2 6 Months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 Net cash provided by operating activities $ 128.0 $ 105.4 $ 235.1 $ 226.8 $ 470.3 $ 411.5 $ 342.7 I mpact of discontinued
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2014 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net income $ 61.5 $ 97.9 $ 159.4 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.1 (3.8) (3.7) Net income attributable t
Slide 36: Reconciliation of Net Income to Adjusted EBITDA - Impact of Consolidation of Fairlawn
Reconciliation of Net Income to Adjusted EBITDA (1) - Impact of Consolidation of Fairlawn Rehabilitation Hospital Fairlawn Rehabilitation Hospital Fairlawn Rehabilitation Hospital as Consolidated Entity (3) as Equity Method Entity (3) Q2 2014 Q2 2014 Without Accounting As Reported or Ownership Chang
Slide 37: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 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 $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable to
Slide 38: Reconciliation Notes for Slides 35-37
Reconciliation Notes for Slides 35-37 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 utili
Slide 39: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q2 6 Months Full Year (Millions) 2014 2013 2014 2013 2013 2012 Net cash provided by operating activities $ 128.0 $ 105.4 $ 235.1 $ 226.8 $ 470.3 $ 411.5 Prov ision for doubtful accounts (9.3) (7.0) (16.8) (14.4) (26.0) (27.0) Pr