Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2009 Earnings Presentation
36 slides from Encompass Health's earnings presentation, Nov 4, 2009
Slide 1: Third Quarter 2009 Earnings Call Supplemental Slides
Third Quarter 2009 Earnings Call Supplemental Slides Exhibit 99.2
Slide 2: 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 information are based on assump
Slide 3: Highlights
Highlights Revenues. Expenses .. Adjusted Consolidated EBITDA Adjusted Income per Share. Free Cash Flow. Debt Reduction Liquidity... 2009 Guidance. Business Outlook Appendi: Operational Excellence Disciplined Growth Denovo .... Revenue (YTD) Expense (YTD) Revenues (Sequential). Expenses (Sequential)
Slide 4: Highlights (Q3 2009)
Highlights (Q3 2009) ü Achieved 5.3% quarter-over-quarter discharge growth. – Same store discharge growth was 5.3%. ü Revenue growth of 3.8%. – Driven by higher discharge volume which more than offset lower outpatient revenue. ü High-quality, cost-effective, patient care. – Driven by effective manag
Slide 5: Revenues (Q3 2009 vs. Q3 2008)
Revenues (Q3 2009 vs. Q3 2008) • Inpatient revenue growth was driven by strong discharge volumes. – Volume growth was driven by the sustained sales and marketing effort. – Same store discharge growth was 5.3%. – Pricing essentially flat for the quarter. Q3 2009 marks the end of the Medicare pricing
Slide 6: Expenses and labor productivity
• Continued improvement on labor productivity demonstrated by lower EPOB. • Hospital-related expenses: – Despite increased volume, hospital expenses remained essentially flat producing strong operating leverage. – Increased provision for doubtful accounts to reflect aging of pending Medicare appeals
Slide 7: Adjusted Consolidated EBITDA (3Q 2009)
Adjusted Consolidated EBITDA (1) (3Q 2009) (Millions) (1) Reconciliation to GAAP provided on slides 33 through 36. • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management
Slide 8: Adjusted Consolidated EBITDA (9 months)
Adjusted Consolidated EBITDA (1) (9 months) (Millions) (1) Reconciliation to GAAP provided on slides 33 through 36. • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management • Improvements offset by: – Increased provision for doubtful accounts to re
Slide 9: Adjusted Income per Diluted Share (3Q 2009)
Adjusted Income per Diluted Share (3Q 2009) (1) Includes a charge of $8.5 million and $17.1 million, respectively, for government, class action, and related settlements expense primarily reflecting the change in value of our common stock. (2) Reconciliation to GAAP provided on slides 33 through 36.
Slide 10: Adjusted Income per Diluted Share (9 months)
(1) Includes a charge of $41.3 million and a gain of $27.9 million, respectively, for government, class action, and related settlements expense primarily reflecting the change in value of our common stock . (2) Reconciliation to GAAP provided on slides 33 through 36. • Major drivers were: – Increase
Slide 11: Free Cash Flow
Free Cash Flow (1) Includes capital expenditures for the hospital refresh program. (2) Benefited by approximately $19 million for the seasonal effect on working capital related to the interest payment accrual.
Slide 12: Debt Reduction: Year-End 2012 Goal 3.5x to 4.0x
Year-End 2012 Goal: 3.5x to 4.0x • No near-term refinancing – Revolver = 2012 – Term Loan = 2013 & 2014 – Bonds = 2014 & 2016 • Previous goal of 4.5x by year-end 2010, achieved in Q3 2009. • Future deleveraging – Excess cash from operations – Derivative proceeds Ø E&Y arbitration (1) October 2009, a
Slide 13: Liquidity
September 30, 2009 December 31, 2008 Cash Available $ 117.3 $ 32.2 Revolver Total line $ 400.0 $ 400.0 Less: — Draws = (40.0) — Letters of credit - (62.7) Available $ 400.0 $ 307.3 Total Liquidity (available cash and revolver) $ 517.3 $ 339.5
Slide 14: 2009 Guidance - Adjusted Consolidated EBITDA
2009 Guidance - Adjusted Consolidated EBITDA (1) (1) Reconciliation to GAAP provided on slides 33 through 36. Key Drivers: ü Sustainable discharge growth ü High-quality, cost-effective patient care ü Market basket update in Q4 2009.
Slide 15: 2009 Guidance - Adjusted Earnings per Diluted Share
2009 Guidance - Adjusted Earnings per Diluted Share (1) (1) Adjusted income from continuing operations per diluted share. Key Drivers : ü Increased Adjusted Consolidated EBITDA ü Deleveraging ü Lower floating-rate interest expense (results in higher cash payment on the swap) ü Market basket update i
Slide 16: Business Outlook
Business Outlook (1) For reconciliation to GAAP, see slides 33 - 36. These ranges are based on current assumptions of external drivers (e.g., healthcare reform, interest rates) and are subject to change. (2) Based on adjusted income from continuing operations per diluted share.
Slide 17: Appendix
Appendix
Slide 18: Operational Excellence = High-Quality Care
FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source: UDSmr Database - On Demand Reports 2008 Year End Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Benchmark = Expected, Risk Adjus
Slide 19: Operational Excellence = Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth Hospitals (2) 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 Total Payment per Discharge for FY 2010 $16,452 $16,741 $16,626 $15,996 Average
Slide 20: Disciplined Growth
Disciplined Growth (1) All surveys complete, awaiting final CMS approval. (2) CON is being appealed; operational date may change. Bed expansions : • Approximately 100 beds being added in 2009 and a similar amount in 2010. • Average investment per bed: – Internal renovation = $15 - 45K – New construc
Slide 21: De novo: 40-Bed Proforma Example
De novo’s attractive for future growth. We evaluate based on commitment (cash or leased). De novo: 40-Bed Proforma Example (1) Does not include estimated corporate overhead of ~4.75% of net operating revenues. (2) Assumes state income taxes only for first five years, then federal and state income ta
Slide 22: Revenue (YTD)
(Millions) Inpatient Outpatient and other Consolidated net operating (Actual Amounts) Discharges Net patient revenue / discharge Favorable 9 Months 9 Months (Unfavorable) 2009 2008 Change $ 1,303.4 $ 1,241.1 5.0% 128.1 135.2 (5.3%) $ 1,431.5 $ 1,376.3 4.0% 84,542 80,126 5.5% $ 15,417 $ 15,489 (0.5%)
Slide 23: Expense (YTD)
Favorable/ 9 Months 9 Months (Unfavorable) (Millions, except percent) 2009 2008 Change Salaries and benefits $ 709.2 $ 700.8 (1.2%) Percent of net operating revenues 49.5% 50.9% 140bps EPOB (employees per occupied bed) 3.52 3.62 2.8% Hospital related expenses $ 346.9 $ 339.4 (2.2%) (other operating,
Slide 24: Revenues (Sequential)
Favorable (Unfavorable) (Millions, except percent) 3rd Qtr. 2009 2nd Qtr. 2009 Change Inpatient $ 431.3 $ 439.0 (1.8%) Outpatient and other 41.4 44.7 (7.4%) Consolidated net operating $ 472.7 $ 483.7 (2.3%) (Actual Amounts) Discharges 28,241 28,494 (0.9%) Net patient revenue / discharge $ 15,272 $ 1
Slide 25: Expenses (Sequential)
Favorable (Unfavorable (Millions, except percent) 3rd Qtr.2009 2nd Qtr. 2009 Change Salaries and benefits $ 235.4 $ 239.1 1.5% Percent of net operating revenues 49.8% 49.4% (40) bps EPOB (employees per occupied bed) 3.58 3.52 (1.7%) Hospital related expenses $ 114.2 $ 118.1 3.3% (other operating, su
Slide 26: Operational and Labor Metrics
Operational and Labor Metrics (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 91 consolidated hospitals, which includes Mesa, Arizona starting in Q3 2009. (3) Excludes approx. 400 full-time equivalents, who are considered part
Slide 27: Payment Sources
Payment Sources (1) Managed Medicare revenues represent ~ 8% of total revenues and are included in “Managed care and other discount plans.”
Slide 28: Debt Maturities
Debt Maturities (Millions) $400.0 Current undrawn revolver matures in 2012. • Minimal amortization and no near-term financing risk. • As of Sept. 30, 2009, we were in compliance with the covenants under our Credit Agreement. $623.3 Term loan extendable to Sept. 2015 contingent on the floating rates
Slide 29: Interest Rate Swaps
Interest Rate Swaps (Millions) (1) In October 2009, the credit agreement was amended. The maturity for $300 million of the term-loan was extended to 2014, and is extendable to September 2015, contingent on the floating rate note being refinanced prior to March 2014. The extended portion of the term
Slide 30: Debt Schedule
Debt Schedule (Millions) (1) October 2009, amendment to the credit agreement increases debt repayment flexibility of non-term loan balances. (2) The Company had $117.3 million in cash and cash equivalents as of September 30, 2009.
Slide 31: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Sept. 30, 2009 • Federal tax recoveries virtually complete. – Approx. $43 million received. • State tax refunds in progress. – Approx. $17 million received. – Approx. $9 million net receivable on the balance sheet. Future Cash Tax Payments • Expect
Slide 32: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes: (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants
Slide 33: Three & Nine Months Reconciliation of Net Income to Adjusted Income
Three & Nine Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 36.
Slide 34: 2008 Year-End Reconciliation of Net Income to Adjusted Income
2008 Year-End Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 36.
Slide 35: YTD Reconciliation of Adjusted EBITDA to Operating Cash Flow
YTD Reconciliation of Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities (1) - Notes on page 36.
Slide 36: 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 financial measure. Manag