Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2013 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Jul 26, 2013
Slide 1: Second Quarter 2013 Earnings Call Supplemental Slides
Second Quarter 2013 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 Q2 2013 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …4-6 ……………… Highlights… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 7-8 …………. Quality… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q2 2013 Summary (Q2 2013 vs. Q2 2012)
Q2 2013 Summary (Q2 2013 vs. Q2 2012) Revenue growth of 5.8% (negatively impacted by the effect of sequestration for Medicare patients) ― Inpatient revenue growth of 6.5% Discharge growth of 6.3% • Same-store discharge growth of 3.3% (negatively impacted by closure of 41 SNF beds at two hospital
Slide 5: Q2 2013 Summary (cont.)
Q2 2013 Summary (Q2 2013 vs. Q2 2012) (cont.) Disciplined expense management ― Salaries and benefits as percent of revenue increased slightly in Q2 2013. Negatively impacted by sequestration and the ramp up of operations at three new hospitals ― Excluding the ramp up of operations at three new h
Slide 6: Q2 2013 Summary (cont.)
Q2 2013 Summary (cont.) Adjusted EBITDA (1) for the quarter of $134.5 million reflected growth of 7.5% Adjusted free cash flow (2) for the quarter of $72.5 million: ― Benefited from higher Adjusted EBITDA and timing of maintenance capital expenditures (see slide 19 for adjusted free cash flow co
Slide 7: Highlights
Highlights Augusta, GA Littleton, CO Stuart, FL Development: ― Acquired Walton Rehabilitation Hospital (58 beds) in Augusta, GA, on April 1, 2013 ― Opened HealthSouth Rehabilitation Hospital of Denver in Littleton, CO in May 2013 (40 beds) ― Opened HealthSouth Rehabilitation Hospital at Martin Hea
Slide 8: Highlights (cont.)
Highlights (cont.) On July 25, 2013, our board of directors approved the initiation of a quarterly cash dividend on our common stock of $0.18 per share, representing $0.72 per share annually. Completed amendment to the Credit Agreement ― Permits unlimited restricted payments so long as the senio
Slide 9: Quality
Quality HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDSMR Average* 40.0 4.0 35.0 3.5 35.5 3.18 30.0 3.0 30.7 2.68 25.0 2.5 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSMR Database – On Demand Report: Q2 2013
Slide 10: Revenues (Q2 2013 vs. Q2 2012)
Revenues (Q2 2013 vs. Q2 2012) Q2 Q2 Increase/ (Millions) 2013 2012 (Decrease) Inpatient $ 527.4 $ 495.0 6.5% Outpatient and other 37.1 38.4 (3.4%) Consolidated net operating $ 564.5 $ 533.4 5.8% (Actual Amounts) Discharges 32,645 30,719 6.3% Net patient revenue / discharge $ 16,156 $ 16,114 0.3%
Slide 11: Expenses (Q2 2013 vs. Q2 2012)
Expenses (Q2 2013 vs. Q2 2012) Q2 Q2 Increase/ (Millions) 2013 2012 (Decrease) Salaries and benefits $ 273.6 $ 257.4 6.3% Percent of net operating revenues 48.5% 48.3% 20 bps EPOB (employees per occupied bed) 3.43 3.41 0.6% Hospital-related expenses $ 117.8 $ 112.6 4.6% (other operating (1), supplie
Slide 12: Adjusted EBITDA
Adjusted EBITDA (1) Q2 6 Months Adjusted EBITDA Change (Millions) 2013 2012 2013 2012 Net operating revenues $ 564.5 $ 533.4 $ 1,137.1 $ 1,072.0 6 Months Less: Prov ision for doubtful accounts (7.0) (6.5) (14.4) (12.8) Q2 2013 __ 2013__ Net operating rev enues less prov ision +$9.4M +$21.7M for doub
Slide 13: Earnings per Share
Earnings per Share Q2 6 Months Earnings per Share from (In Millions, Except Per Share Data) 2013 2012 2013 2012 Continuing Operations (2) Adjusted EBITDA $ 134.5 $ 125.1 $ 273.8 $ 252.1 Interest expense and amortization of debt discounts and fees (24.4) (23.0) (48.6) (46.3) Q2 2013 reflects: Depreci
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q2 6 Months (Millions) 2013 2012 2013 2012 Net cash provided by operating activities $ 105.4 $ 114.0 $ 226.8 $ 195.0 Impact of discontinued operations (0.5) (1.3) 0.2 (1.7) Net cash provided by operating 104.9 112.7 227.0 193.3 activities of continuing operations Capital expe
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 6 Months Change (Millions) 2013 2012 $ % (1) Adjusted free cash flow $ 158.2 $ 115.2 $ 43.0 37.3% Operating Cash Flows Investing and Financing Cash Flows $14.4 $1.6 (2) $21.7 $5.3 $158.2 $115.2 Adjusted Free Cash Adjusted EBITDA Working Capital and Maintenance Capital Pre
Slide 16: 2013 Revised Guidance – Adjusted EBITDA
2013 Revised Guidance – Adjusted EBITDA (1) 2013 Adjusted EBITDA Based on results for the first 6 months of 2013, $520 million to $530 million HealthSouth is raising its expectations for full- (previous guidance year 2013 results. $506 million to $516 million) Considerations for July through Decembe
Slide 17: 2013 Revised Guidance - EPS
2013 Revised Guidance - EPS Based on results for the first 6 months of 2013 which includes the $1.15 tax benefit related to the IRS settlement (slide 18), HealthSouth is Earnings per Share from Continuing raising its expectations for full-year 2013 results. Operations Attributable to HealthSouth (1)
Slide 18: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 6/30/13, the Company’s federal NOL had a gross balance of approx. $1.1 billion. ― As a result of the April 25, 2013 agreements with the IRS, the Company increased its federal NOL (on a gross basis) by approx. $283 million in Q2 2013. • The Compa
Slide 19: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2013 reflects: Continued spending on the CIS and hospital refresh projects Completion of delevering and refinancing Adjusted Free Cash Flow (1) Certain Cash Flow Items (2) 2013 6 Months 2012 (millions) Assumptions 2013 Actuals $311 Actuals (millions) $2
Slide 20: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2013 6 Months 2012 Priorities may shift based on prevailing market Growth in core business Assumptions 2013 Actuals Bed expansions (target approx. 80 beds/yr) $25 to $35 $12.2 $16.6 De novo hospitals (target 4/yr) $40 to $50 22.9 41.1 Growth Acqui
Slide 21: Appendix
Appendix HEALTHSOUTH,
Slide 22: Business Outlook: 2013 to 2015
Business Outlook: 2013 to 2015 (1) The multi-year adjusted free cash flow used in CAGR calculation does not Business Model • Adjusted EBITDA CAGR: 4-8% (2) include the dividend on common stock • Adjusted Free Cash Flow CAGR: 10-14% (2)(3) announced July 25, 2013 . Strategy 2012 2013 2014 2015 Purcha
Slide 23: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody June 30, Dec. 31, in Debt (Millions) Corporate BB- Ba3 2013 2012 vs. YE 2012 Advances under $600 million revolving credit facility, June 2018 - 1 Month LIBOR +175bps BB+ Baa3 $ 73.0 $ - $ 73.0 Bonds Payable: 7.25% Senior Notes due 2018 BB- B1 302.8 302.9
Slide 24: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 Q1 Increase/ Revenues (millions) 2013 2013 (Decrease) Inpatient $ 527.4 $ 537.1 (1.8%) Outpatient and other 37.1 35.5 4.5% Consolidated net operating $ 564.5 $ 572.6 (1.4%) (Actual Amounts) Discharges 32,645 32,130 1.6% Net patient revenue / discharge $ 16,156 $ 1
Slide 25: Revenues & Expenses (6 months)
Revenues & Expenses (6 months) 6 Months 6 Months Increase/ Revenues (millions) 2013 2012 (Decrease) Inpatient $ 1,064.5 $ 995.6 6.9% Outpatient and other 72.6 76.4 (5.0%) Consolidated net operating $ 1,137.1 $ 1,072.0 6.1% (Actual Amounts) Discharges 64,775 61,590 5.2% Net patient revenue / discharg
Slide 26: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q2 6 Months Full Year 2013 2012 2013 2012 2012 Medicare 74.6% 72.9% 74.6% 73.3% 73.4% Medicaid 1.0% 1.3% 1.1% 1.2% 1.2% Workers' compensation 1.2% 1.5% 1.3% 1.5% 1.5% Managed care and other discount plans (1) 18.4% 19.6% 18.4% 19.5% 19.3% Other third-party payor
Slide 27: Operational and Labor Metrics
Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year 2013 2013 2012 2012 2012 2012 2013 2012 2012 (In Millions) Net patient revenue-inpatient $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 1,064.5 $ 995.6 $ 2,012.6 Net patient revenue-outpatient and other revenues 37.1 35.5
Slide 28: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information Weighted Average for the Period (Millions) Q2 Q2 6 Months Full Year 2013 2012 2013 2012 2012 2011 (1) (2) (3)(4) Basic shares outstanding 86.1 94.6 90.0 94.5 94.6 93.3 (1) (2) (3) (4)(5) Diluted shares outstanding 99.8 108.0 103.4 108.3 108.1 109.2 E
Slide 29: Adjusted EBITDA History
Adjusted EBITDA (1) History Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year (Millions) 2013 2013 2012 2012 2012 2012 2013 2012 2012 Net operating revenues $ 564.5 $ 572.6 $ 552.9 $ 537.0 $ 533.4 $ 538.6 $ 1,137.1 $ 1,072.0 $ 2,161.9 Less: Prov ision for doubtful accounts (7.0) (7.4) (7.2) (7.0) (6.5)
Slide 30: 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) 2013 2012 2013 2012 2012 2011 2010 Net cash provided by operating activities $ 105.4 $ 114.0 $ 226.8 $ 195.0 $ 411.5 $ 342.7 $ 331.0 Impact of discont inued
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net income $ 65.9 $ 179.0 $ 244.9 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (0.1) 0.3 Net income attributable to
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable to
Slide 33: Reconciliation Notes for Slides 31-32
Reconciliation Notes for Slides 31-32 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 34: 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) 2013 2012 2013 2012 2012 Net cash provided by operating activities $ 105.4 $ 114.0 $ 226.8 $ 195.0 $ 411.5 Prov ision for doubtful accounts (7.0) (6.5) (14.4) (12.8) (27.0) Professional fees—acco