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 1
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 with respect to future events and financial performance. These estimates, projections and other forward-looking info
Slide 3: Table of Contents
Table of Contents Highlights .......................................................................................................................................... 4 Revenues..........................................................................................................................
Slide 4: Highlights (Q3 2009)
Highlights (Q3 2009) Achieved 5.3% quarter-over-quarter discharge growth. – Same store discharge growth was 5.3%. Revenue growth of 3.8%. – Driven by higher discharge volume which more than offset lower outpatient revenue. High-quality, cost-effective, patient care. – Driven by effective management
Slide 5: Revenues (Q3 2009 vs. Q3 2008)
Revenues (Q3 2009 vs. Q3 2008) Favorable (Unfavorable) (Millions) 3rd. Qtr. 2009 3rd. Qtr. 2008 Change Inpatient $ 431.3 $ 411.5 4.8% Outpatient and other 41.4 44.0 (5.9%) Consolidated net operating $ 472.7 $ 455.5 3.8% (Actual Amounts) Discharges 28,241 26,827 5.3% Net patient revenue / discharge $
Slide 6: Expenses (Q3 2009 vs. Q3 2008)
Expenses (Q3 2009 vs. Q3 2008) Favorable/ (Unfavorable) (Millions) 3rd Qtr. 2009 3rd Qtr. 2008 Change Salaries and benefits $ 235.4 $ 236.3 0.4% Percent of net operating revenues 49.8% 51.9% 210bps EPOB (employees per occupied bed) 3.58 3.69 3.0% Hospital-related expenses $ 114.2 $ 114.0 (0.2%) (oth
Slide 7: Adjusted Consolidated EBITDA (3Q 2009)
(1) Adjusted Consolidated EBITDA (3Q 2009) (Millions) Change 3rd Qtr. 2009 3rd Qtr. 2008 $ % $ 96.4 $ 79.4 $ 17.0 21.4% • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management (1) Reconciliation to GAAP provided on slides 33 through 36. 7
Slide 8: Adjusted Consolidated EBITDA (9 months)
(1) Adjusted Consolidated EBITDA (9 months) (Millions) Change 9 Months 2009 9 Months 2008 $ % $ 289.1 $ 254.2 $ 34.9 13.7% • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management • Improvements offset by: – Increased provision for doubtful account
Slide 9: Adjusted Income per Diluted Share (3Q 2009)
Adjusted Income per Diluted Share (3Q 2009) 3rd Qtr. 3rd Qtr. Change (Millions, except per share data) 2009 2008 $ % Income from continuing operations (1) (1) attributable to HealthSouth $ 22.2 $ 9.8 $ 12.4 126.5% Adjusted income from continuing (2) operations $ 39.1 $ 15.1 $ 24.0 158.9% Per Share P
Slide 10: Adjusted Income per Diluted Share (9 Months)
Adjusted Income per Diluted Share (9 Months) 9 Months 9 Months Change (Millions, except per share data) 2009 2008 $ % Income from continuing operations (1) (1) attributable to HealthSouth $ 63.5 $ 62.7 $ 0.8 1.3% Adjusted income from continuing (2) operations $ 118.7 $ 48.2 $ 70.5 146.3% Per Share P
Slide 11: Free Cash Flow
Free Cash Flow 3 Months Ended Sept. 30, 9 Months Ended Sept. 30, (Millions) 2009 2008 2009 2008 Net cash provided by operating activities $ 132.9 $ 82.3 $ 362.1 $ 149.3 Impact of discontinued operations 2.6 (4.9) 9.6 1.6 Net cash provided by operating activities of continuing operations 135.5 77.4 3
Slide 12: Debt Reduction
Debt Reduction ($ Billions) Debt Outstanding (1) • No near-term refinancing $3.5 $3.40 – Revolver = 2012 $3.0 – Term Loan = 2013 & 2014 $2.5 – Bonds = 2014 & 2016 $2.0 $2.04 $1.81 • Previous goal of 4.5x by year-end $1.5 $1.70 2010, achieved in Q3 2009. $1.0 • Future deleveraging $0.5 – Excess cash
Slide 13: Liquidity
Liquidity (Millions) 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 - (52.7) Available $ 400.0 $ 307.3 Total Liquidity (available cash and revolver) $ 517.3 $ 339.5 13
Slide 14: 2009 Guidance - Adjusted Consolidated EBITDA
(1) 2009 Guidance - Adjusted Consolidated EBITDA Feb. 23, 2009 Aug. 5, 2009 Nov. 5, 2009 Original Update Revised $342 to $352 $354 to $362 $375 to $380 Million Million Million Key Drivers: Sustainable discharge growth High-quality, cost-effective patient care Market basket update in Q4 2009. (1) Rec
Slide 15: 2009 Guidance - Adjusted Earnings per Diluted Share
(1) 2009 Guidance - Adjusted Earnings per Diluted Share Feb. 23, 2009 Aug. 5, 2009 Nov. 5, 2009 Original Update Revised $0.85 to $0.90 $1.15 to $1.25 $1.45 to $1.50 Per Share Per Share Per Share Key Drivers: Increased Adjusted Consolidated EBITDA Deleveraging Lower floating-rate interest expense (re
Slide 16: Business Outlook
Business Outlook Near - Term Longer - Term Despite difficult comps, Discharge expect 4+% growth for 4+% average annual growth sustainable. Growth 2H09. CMS market basket price Healthcare reform will probably reduce annual market Pricing increase October 1, 2009, basket updates. of 2.5%. October 1, 2
Slide 17: Appendix
Appendix 17
Slide 18: Operational Excellence = "High-Quality" Care
Operational Excellence = “High-Quality” Care FIM Gain = Change in Functional LOS Efficiency = Functional gain Independent Measurement (based on divided by length of stay an 18 point assessment) from Admission to Discharge FIM Gain LOS Efficiency 30 2.6 28 2.4 26 2.2 24 29.5 2.0 2.54 2.26 22 1.8 20 2
Slide 19: Operational Excellence = "Cost-Effective" Care
Operational Excellence = “Cost-Effective” Care CMS Fiscal Year 2010 IRF Rate Setting File Analysis (1) HealthSouth Freestanding (2) Units (2) Total 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%
Slide 20: Disciplined Growth
Disciplined Growth Bed expansions: • Approximately 100 beds being added in 2009 and a similar amount in 2010. • Average investment per bed: – Internal renovation = $15 – 45K – New construction = $100 – 250K • Cash pay-back: 2 – 3 years New hospitals: Location Announced Installed Beds Operational Dat
Slide 21: De novo: 40–Bed Proforma Example
De novo: 40–Bed Proforma Example Build and Fund Leased Real Estate (1) (1) Revenue EBITDA % Revenue EBITDA % Year 1 $ 8,500 $ 1,275 15% $ 8,500 $ 150 2% Year 2 10,500 2,500 24% 10,500 1,300 12% Run-Rate 11,500 2,900 25% 11,500 1,575 14% Cash Investment $15,000 – $17,000 $3,000 – $4,000 (2) Internal
Slide 22: Revenue (9 months)
Revenue (9 months) Favorable 9 Months 9 Months (Unfavorable) (Millions) 2009 2008 Change Inpatient $ 1,303.4 $ 1,241.1 5.0% Outpatient and other 128.1 135.2 (5.3%) Consolidated net operating $ 1,431.5 $ 1,376.3 4.0% (Actual Amounts) Discharges 84,542 80,126 5.5% Net patient revenue / discharge $ 15,
Slide 23: Expenses (9 months)
Expenses (9 months) 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
Slide 24: Revenues (Sequential)
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 /
Slide 25: Expenses (Sequential)
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
Slide 26: Operational and Labor Metrics
Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months 2009 2009 2009 2008 2008 2008 2008 2009 2008 (In Millions) Net patient revenue-inpatient 431.3 $ 439.0 433.1 418.4 411.5 $ 410.4 419.1 $ 1,303.4 $ 1,659.5 Net patient revenue-outpatient and other revenues 41.4 44.7 42.0 44.6 44.0 46.2 45.1
Slide 27: Payment Sources
Payment Sources Three Months Nine Months Ended Sept. 30, Ended Sept. 30, 2009 2008 2009 2008 Medicare 67.6% 66.2% 67.5% 67.1% Medicaid 2.1% 2.2% 2.2% 2.2% Workers' compensation 1.7% 2.2% 1.7% 2.2% Managed care and other discount plans (1) 23.4% 23.0% 23.2% 22.3% Other third-party payors 2.5% 3.8% 2.
Slide 28: Debt Maturities
Debt Maturities (Millions) $700 Term loan extendable to Sept. 2015 $623.3 contingent on the floating rates notes $600 being refinanced prior to March 2014. $559.9 $500 $440.5 Current undrawn revolver $400.0 $400 matures in 2012. $300 $200 $100 $24.9 $24.2 $23.6 $6.2 $0 2009 2010 2011 2012 2013 2014
Slide 29: Interest Rate Swaps
Interest Rate Swaps (Millions) Floating Floating Rate Debt Balances Sept. 30, 2009 Interest Rate Advances under $400 million revolving credit facility $ - Libor plus 325 (1) (1) Term Loan facility due 2013 / 2014 753.2 Libor plus 225 / 375 Floating Rate Senior Notes due 2014 329.6 6 month Libor Tota
Slide 30: Debt Schedule
Debt Schedule (Millions) Debt Balances Sept. 30, December 31, Q309 YTD Debt 2009 2008 Reduction (2) Advances under $400 million revolving credit facility, March 2012 $ - $ 40.0 $ (40.0) Term loan facility - March 2013, 2014 (1) 753.2 783.6 (30.4) Bonds Payable: 8.375% Senior Notes due 2011 0.3 0.3 -
Slide 31: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Sept. 30, 2009 Future Cash Tax Payments • Federal tax recoveries virtually complete. • Expect to pay about $5-7 million per year of – Approx. $43 million received. income tax. • State tax refunds in progress. – State income tax. – Approx. $17 millio
Slide 32: Outstanding Share Summary
Outstanding Share Summary (Millions) (1) (1) 3rd Qtr. 3rd Qtr. 9 Months 9 Months Year - End 2009 2008 2009 2008 2008 Weighted Average for the Period (2) (3) Basic Shares outstanding 87.6 87.4 87.6 81.6 83.0 (2) (3) (4) Diluted Shares outstanding 102.2 101.0 101.6 95.1 96.4 End of Period Sept. 30 Sep
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) Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended (In Millions, Except Per Share Data) September 30, 2009 September 30, 2008 September 30, 2
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) Year Ended December 31, (2) (In Millions, Except Per Share Data) 2008 Per Share Net income $ 281.8 $ 3.40 Income from discontinued operations, net of tax, attributable to
Slide 35: YTD Reconciliation of Adjusted Consolidated EBITDA to Operating Cash
YTD Reconciliation of Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities Nine Months Ended September 30, 2009 2008 Adjusted Consolidated EBITDA $ 289.1 $ 254.2 Provision for doubtful accounts 25.5 20.5 Professional fees—accounting, tax, and legal (5.0) (12.9) Interest expe
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