Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2010 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Oct 28, 2010
Slide 1: Third Quarter 2010 Earnings Call Supplemental Slides
Third Quarter 2010 Earnings Call Supplemental Slides
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 assumpt
Slide 3: Table of Contents
ES Table of Contents 4-6 7 Revenues (Q3 2010 vs. Q3 2009) 8 Expenses (Q3 2010 vs. Q3 2009).. 9 Adjusted Consolidated EBITDA. 10 Adjusted Income per Diluted Shar nN Adjusted Free Cash Flow... 12 Debt Outstanding, Liquidity and Swaps. 13 Debt Maturity Profile. 14 Debt Schedule and Interest Expense. 15
Slide 4: Q3 2010 Summary (Q3 2010 vs. Q3 2009)
Q3 2010 Summary (Q3 2010 vs. Q3 2009) ü Revenue growth of 4.3% in line with expectations ― Inpatient revenue growth of 5.3% driven by price and volume ― Outpatient and other revenue declined 5.6% on 9 fewer outpatient clinics ― Discharge growth 2.5%; same-store discharge growth 0.4% ü Disciplined ex
Slide 5: Q3 2010 Summary continued
Q3 2010 Summary (Q3 2010 vs. Q3 2009) continued ü Grew Adjusted Consolidated EBITDA by 4.8% ― Driven by higher revenue ― Offset by higher non-controlling interests expense § Driven by growth in revenues at JV hospitals ü Continued strong free cash flow generation (1) ― YTD free cash flow generation
Slide 6: Q3 2010 Summary continued
S&P Moodys Corporate Rating B to B+ B2 to B1 Revolver Rating BB- to BB Ba3 to Ba1 Senior Notes Rating CCC+ to B+ Caa1 to B2 Q3 2010 Summary (Q3 2010 vs. Q3 2009) continued ü Credit rating agency upgrades from both Moodys and S&P ü Disciplined growth : ― Purchased Sugar Land Rehabilitation Hospital,
Slide 7: HealthSouth Functional Outcomes Continue to Outpace Industry Average
HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database - On Demand Report: Q3 2010 Report FIM Gain Change in Functional Independence Measurement (based on an 18 point ass
Slide 8: Revenues (Q3 2010 vs. Q3 2009)
Inpatient revenue growth was driven by : 2.25% Medicare market basket update Discharge growth of 2.5% driven by new hospitals Same store discharge growth 0.4% Outpatient revenue declined primarily as a result of 9 fewer outpatient rehabilitation satellite clinics quarter over quarter. Revenues (Q3 2
Slide 9: Expenses (Q3 2010 vs. Q3 2009)
SWB as a percent of revenue increased 50 bps. Higher licensed employee mix due to implementation of CMS coverage requirements Ramp up phase at new hospitals Lower outpatient revenue Lower than expected bad debt expense offset the increase in self-insurance costs and the TeamWorks investment. • – – –
Slide 10: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA Change Q3 9 Months +$4.6M +$22.3M +4.8% +7.7% Improvements driven by : Pricing Volume Disciplined expense management Improvements benefited from : Lower bad debt expense Offset by : Ramp up of new hospitals Higher non-controlling interests expense Increased self-insuranc
Slide 11: Adjusted Income per Diluted Share
Adjusted EPS Change Q3 9 Months +$0.01 +$0.15 +2.4% +12.5% Improvements driven by : Higher Adjusted Consolidated EBITDA Lower provision for income tax Offset by : 5 million shares issued on September 30, 2009, related to the 2006 securities litigation settlement Higher interest expense Adjusted Inco
Slide 12: Adjusted Free Cash Flow
Continued strong cash flow generation Q3 2009 working capital benefited as a result of $19 million for interest payment accrual timing and $28 million in receivables due to suspension of Medicare denials and enhanced collections. Adjusted Free Cash Flow (1) For additional information on non-recurrin
Slide 13: Debt Outstanding, Liquidity and Swaps
Year-End 2010 Goal: 3.75x to 4.00x Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.1x (1) ($ Billions) (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $405.3 million; reconciliation to GAAP provided on slides 33 and 34. (2) Cash settlements flow through investing activities for swaps that d
Slide 14: Debt Maturity Profile
Annualized Cash Effect of Refinancing Cash Increased interest expense (2) $18.0 Reduction in principal amortization requirements ($7.5) Total increase in cash payments $10.5 (2) Assumes 3 month LIBOR of 0.39%. Debt Maturity Profile (1) • No near-term refinancing requirements • Flexibility to repay o
Slide 15: Debt Schedule and Interest Expense
Debt Schedule and Interest Expense (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $405.3 million; reconciliation to GAAP provided on slides 33 through 34. (2) Based on debt balances on September 30, 2010 (3) Assumes 3 month LIBOR of 0.39%.
Slide 16: 2010 Guidance - Adjusted Consolidated EBITDA
Original Guidance (February 23, 2010) $397M to $407M Revised Guidance (August 2, 2010) $402M to $410M Revised Guidance (October 29, 2010) $407M to $412M • Discharge volume growth of 2.5% to 3.5% • Q4 2010 bad debt ~ 1.5% • Net Medicare market basket price increase of 2.1% 2010 Guidance - Adjusted Co
Slide 17: 2010 Guidance - Adjusted Earnings per Share
Original Guidance (February 23, 2010) $1.60 to $1.70 Revised Guidance (August 2, 2010) $1.66 to $1.74 Revised Guidance (October 29, 2010) $1.57 to $1.62 Impact of refinancing: • $12.0 million or $0.11 per diluted share loss on early extinguishment of debt • $3.4 million or $0.03 per diluted share hi
Slide 18: Business Outlook
Business Model • 5 - 8% annual Adjusted Consolidated EBITDA growth (1) • 15 - 20% annual Adjusted EPS growth (1) (2) Deleveraging (3) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acq
Slide 19: Appendix
Appendix
Slide 20: Regulatory Uncertainty
Future Regulatory Risk IRF SNF LTCH HH 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012 No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adjustments No No Yes; will occur when MMSEA relief expires (short stay outliers) Yes; 10
Slide 21: Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 230 941 1,171 91 Average # of Discharges per IRF 708 243 335 942 Outlier Payments as % of Total Payments 1.45% 4.08% 3.00% 0.26% Average Estimated Total Payment per Discharge for FY 2011 $16,777 $17,231 $17,042 $16,197 Average
Slide 22: Readmission Rates
Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission, “A Data Book: H
Slide 23: Portfolio Growth
Cash Payback Period Acquisitions Bed Expansions (2) De novos (1) Portfolio Growth ~ 100+ beds in 2010 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 (1) Assumes average investment per bed: ~ $450K. (2) Assumes average investment per bed: $100K to $250K.
Slide 24: Discharge Growth - Trend
(2) Includes 89 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Discharge Growth - Trend ü Capacity expansions will help facilitate organic growth: • ~ 100+ beds will be added in 2010 UDS Industry Sites (1) HLS Same Store (2)
Slide 25: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential)
Slide 26: Revenues & Expenses (9 Months 2010 vs. 9 Months 2009)
Revenues & Expenses (% Months 2010 vs. 9 Months 2009) 9 Months 9 Months Increase/ Revenues (millions! 2010 2009 (Decrease) Inpatient $ 1,359.8 $ 1,297.7 48% Outpatient and other 118.8 127.2 (6.6%) Consolidated net operating $ 1,478.6 $ 1,4249 3.8% (Actual Amounts) Discharges 85,842 84,203 1.9% Net p
Slide 27: Payment Sources
Payment Sources (1 ) Managed Medicare revenues represent ~ 8%, 9%, 8%, 9% and 8% of total revenues for Q3 2010, Q3 2009, 9 months 2010, 9 months 2009 and 2009, respectively, and are included in “Managed care and other discount plans.”
Slide 28: Operational and Labor Metrics
( 3) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with their salaries and benefits included in general and administrative expenses in the Company’s consolidated statements of operations. Full-time equivalents included in the above table represent He
Slide 29: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Sept 30, 2010 • Federal tax recoveries virtually complete. • State tax refunds in progress. – Approximately $2.2 million received in Q3 2010. – Approximately $7.0 million net receivable on the balance sheet. Future Cash Tax Payments • Expect to pay
Slide 30: Net Cash Provided by Operating Activities
(1) Notes on page 34. Net Cash Provided by Operating Activities
Slide 31: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Q3 2009 working capital benefited as a result of $19 million for working capital related to the interest payment accrual timing and $28 million in receivables due to suspension of Medicare denials and enhanced collections.
Slide 32: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes : (1) 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 to the lender to purchase two million shares of our common stock. Each wa
Slide 33: US GAAP Reconciliations
(1) (2) (3) (4) - Notes on page 34.
Slide 34: 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