Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2014 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Apr 29, 2014
Slide 1: First Quarter 2014 Earnings Call
First Quarter 2014 Earnings Call April 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 Q1 2014 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …4-7 ……………… Highlights… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8 …………. Quality… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q1 2014 Summary (Q1 2014 vs. Q1 2013)
Q1 2014 Summary (Q1 2014 vs. Q1 2013) Revenue growth of 3.2% ― Inpatient revenue growth of 3.9% Negatively impacted by approx. $9 million for sequestration Discharge growth of 2.4% negatively impacted by approx. 100 bps attributable to winter storms (all in same store) • Same-store discharge g
Slide 5: Q1 2014 Summary (cont.) - Expense management
Q1 2014 Summary (Q1 2014 vs. Q1 2013) (cont.) Disciplined expense management ― Salaries and benefits as a percent of revenue increased by 40 bps in Q1 2014. Without the impact of sequestration, salaries and benefits as a percent of revenue would have decreased by 30 bps. ― EPOB was essentially f
Slide 6: Q1 2014 Summary (Q1 2014 vs. Q1 2013) (cont.)
Q1 2014 Summary (Q1 2014 vs. Q1 2013) (cont.) Adjusted EBITDA (1) for the quarter of $144.1 million reflected growth of 3.4%. ― Negatively impacted by approx. $8 million for sequestration, as well as the lower volumes resulting from winter storms ― Benefited by approx. $2 million from the sale of
Slide 7: Q1 2014 Summary (Q1 2014 vs. Q1 2013) (cont.)
Q1 2014 Summary (Q1 2014 vs. Q1 2013) (cont.) Balance sheet enhancements ― Purchased the real estate previously subject to a lease for $17.3 million 76 of our 103 inpatient rehabilitation hospital buildings are now owned. Diluted earnings (1) (2) per share of $0.48 (see table on slide 13). S
Slide 8: Highlights
Highlights Capacity expansion and new development ― Continued construction of three de novos; expect all to be operational in Q4 2014: Altamonte Springs, FL (50 beds) Newnan, GA (50 beds) Middletown, DE (34 beds) ― Continued the design and permitting process to construct a 50-bed inpatient r
Slide 9: Quality
Quality HealthSouth Functional Outcomes Continue to Outpace Industry Average (1) HealthSouth Average UDSMR Average (1) without HealthSouth 40.0 4.0 35.0 36.4 3.5 3.27 30.0 3.0 27.9 25.0 2.5 2.40 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency Source: UDSMR Database – On Demand Report: Q4 2013 Report (1
Slide 10: Revenues (Q1 2014 vs. Q1 2013)
Revenues (Q1 2014 vs. Q1 2013) Q1 Q1 Increase/ (Millions) 2014 2013 (Decrease) Inpatient $ 558.2 $ 537.1 3.9% Outpatient and other 33.0 35.5 (7.0%) Consolidated net operating $ 591.2 $ 572.6 3.2% (Actual Amounts) Discharges 32,889 32,130 2.4% Net patient revenue / discharge $ 16,972 $ 16,716 1.5%
Slide 11: Expenses (Q1 2014 vs. Q1 2013)
Expenses (Q1 2014 vs. Q1 2013) Q1 Q1 Increase/ (Millions) 2014 2013 (Decrease) Salaries and benefits $ 286.1 $ 274.6 4.2% Percent of net operating revenues 48.4% 48.0% 40 bps EPOB (employees per occupied bed) 3.32 3.31 0.3% Hospital-related expenses $ 121.3 $ 116.4 4.2% (1) (other operating , suppli
Slide 12: Adjusted EBITDA
Adjusted EBITDA (1) Q1 Adjusted EBITDA Change (Millions) 2014 2013 Q1 2014 Net operating revenues $ 591.2 $ 572.6 +$4.8M Less: Prov ision for doubtful accounts (7.5) (7.4) +3.4% Net operating rev enues less prov ision for doubtful accounts 583.7 565.2 • Revenue growth and Operating expenses: discipl
Slide 13: Earnings per Share
Earnings per Share (1) Q1 2014 reflects: Q1 (In Millions, Except Per Share Data) 2014 2013 • Higher Adjusted EBITDA Adjusted EBITDA $ 144.1 $ 139.3 Interest expense and amortization of • Higher depreciation and debt discounts and fees (27.9) (24.2) amortization related to Depreciation and amortizati
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Q1 Full Year (Millions) 2014 2013 2013 Net cash provided by operating activities $107.1 $ 121.4 $ 470.3 Impact of discontinued operations 0.2 0.7 1.9 Net cash provided by operating 107.3 122.1 472.2 activities of continuing operations Capital expenditures for maintenance
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Q1 Change (Millions) 2014 2013 $ % Adjusted free cash flow (1) $ 65.1 $ 85.7 $ (20.6) (24.0) Investing and Operating Cash Flows Financing Cash Flows $4.8 ($1.6) ($16.6) $85.7 ($11.3) $4.1 $65.1 Adjusted Free Cash Adjusted EBITDA Cash Interest Working Capital Maintenance P
Slide 16: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) Adjusted EBITDA Based on results of Q1 2014, $555 million to $565 million HealthSouth expects its 2014 full-year results to be at the high end of this guidance range. Considerations for full-year 2014: Revenue growth of 4.0% to 5.0% before sequestration ― Dischar
Slide 17: 2014 Guidance - EPS
2014 Guidance - EPS EPS Guidance Earnings per Share from Continuing Operations Actual Low High Attributable to HealthSouth (1) (In Millions, Except Per Share Data) 2013 2014 Adjusted EBITDA $ 551.6 $ 555 $ 565 $ 1.86 to $ 1.91 Interest expense and amortization of debt discounts and fees (100.4) (112
Slide 18: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 3/31/14, the Company’s federal NOL had a gross balance of approx. $866 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. $10
Slide 19: 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 Q1 2014 2014 (millions) Actual Actual Assumptions Adjusted Free Cash Flow (1) (millions)
Slide 20: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2013 Q1 2014 2014 Actual Actual Assumptions Highest Priority Bed expansions (target ~ 80 beds/yr) Growth Remains and unit consolidations $24.9 $3.5 $25 to $35 in Core New IRF's (target 4-6/yr) 55.5 10.5 55 to 75 Business $80 to $110, excluding $80
Slide 21: Appendix
Appendix HEALTHSOUTH,
Slide 22: 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 23: Debt Schedule
Debt Schedule Credit Rating Change in S&P Moody Mar. 31, 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 $ 43.0 $ 45.0 (2.0) Bonds Payable: 7.25% Senior Notes due 2018 BB- Ba3 272.4 272
Slide 24: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q1 Q4 Increase/ Revenues (millions) 2014 2013 (Decrease) Inpatient $ 558.2 $ 537.5 3.9% Outpatient and other 33.0 34.6 (4.6%) Consolidated net operating $ 591.2 $ 572.1 3.3% (Actual Amounts) Discharges 32,889 32,906 (0.1%) Net patient revenue / discharge $ 16,972 $ 1
Slide 25: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q1 Full Year 2014 2013 2013 Medicare 75.2% 74.7% 74.5% Medicaid 1.3% 1.1% 1.2% Workers' compensation 1.3% 1.3% 1.2% Managed care and other discount plans, including Medicare Adv antage (1) 18.1% 18.5% 18.5% Other third-party payors 1.6% 1.7% 1.8% Patients 1.0% 1
Slide 26: Operational and Labor Metrics
Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2014 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 (In Millions) Net patient revenue-inpatient $ 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 revenue-outpatient and other r
Slide 27: Outstanding Share Summary, Warrant Information, and Conversion Price
Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q1 Full Year (Millions) 2014 2013 2013 2012 2011 Basic shares outstanding (1) (2) (3) 87.3 94.0 88.1 94.6 93.3 (1) (2) (3) (4) Diluted shares outstanding 100.9 107.1 102.1 108.1 109.2 End of Period Q
Slide 28: 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 29: Adjusted EBITDA History
Adjusted EBITDA History (1) Q1 Q4 Q3 Q2 Q1 Full Year (Millions) 2014 2013 2013 2013 2013 2013 2012 Net operating revenues $ 591.2 $ 572.1 $ 564.0 $ 564.5 $ 572.6 $ 2,273.2 $ 2,161.9 Less: Prov ision for doubtful accounts (7.5) (3.6) (8.0) (7.0) (7.4) (26.0) (27.0) Net operating rev enues less prov i
Slide 30: 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) 2014 2013 2013 2012 2011 Net cash provided by operating activities $ 107.1 $ 121.4 $ 470.3 $ 411.5 $ 342.7 I mpact of discontinued operations 0.2 0.7 1.9 (2.0) (9.1)
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA Q1 2014 (in millions, except per share data) Total Per Share Net income $ 61.5 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 Net income attributable to noncontrolling interests (14.8) Income from continuing operations attributable
Slide 32: 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 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 utili
Slide 34: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full Year (Millions) 2014 2013 2013 2012 Net cash provided by operating activities $ 107.1 $ 121.4 $ 470.3 $ 411.5 Prov ision for doubtful accounts (7.5) (7.4) (26.0) (27.0) Professional fees—accounting, tax, and legal 1.6 1.