Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2015 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Oct 29, 2015
Slide 1: Third Quarter 2015 Earnings Call
Third Quarter 2015 Earnings Call October 29, 2015 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, capita
Slide 3: Table of Contents
Table of Contents Q3 2015 Summary................................................................................................................................................. 4-5 Development .........................................................................................................
Slide 4: Q3 2015 Summary (Q3 2015 vs. Q3 2014)
Q3 2015 Summary (Q3 2015 vs. Q3 2014) Q3 YTD HealthSouth Consolidated 2015 2014 Delta % 2015 2014 Delta % ($millions) Net operating revenues $ 778.6 $ 596.9 $ 181.7 30.4 % $2,283.6 $1,792.5 $ 491.1 27.4 % Adjusted EBITDA* $ 165.4 $ 140.0 $ 25.4 18.1 % $ 491.0 $ 436.8 $ 54.2 12.4 % Major takeaways fo
Slide 5: Q3 2015 Summary (cont.)
Q3 2015 Summary (cont.) u Balance sheet Issued an additional $350 million of existing 5.75% senior notes due 2024 Issued $350 million of 5.75% senior notes due 2025 Used proceeds from both offerings to fund a portion of the Reliant acquisition On October 28, 2015, gave notice of optional red
Slide 6: Q3 2015 Development Update
Q3 2015 Development Update Announced Transactions as of October 28, 2015 # of New Beds 2015 2016 2017 u Inpatient rehabilitation: Acquisitions: Reliant 902 – – Cardinal Hill 232 – – Acquired Reliant on October 1, 2015 De Novo: Franklin, TN 40 – – Continued the construction of a 40-bed inpatient
Slide 7: Acquisition of Reliant and CareSouth
Acquisition of Acquisition of Added 11 IRFs in Texas(8), Massachusetts(2), Will add 45 home health locations in 7 states and Ohio(1) with a total of 902 beds across the southeast and mid-atlantic regions Generated approx. $249 million of revenue in —new markets of Alabama, Georgia, North 2014
Slide 8: HealthSouth - Post Reliant and CareSouth
HealthSouth - Post Reliant and CareSouth Inpatient Rehabilitation Encompass Home Health and Hospice Sept. 30, 2015 Portfolio as of... Oct. 1, 2015 Sept. 30, 2015 Portfolio as of... Nov. 1, 2015 Inpatient Rehabilitation 109 Hospitals 120 Home Health 134 179 Locations Number of IRFs 33 operated as JVs
Slide 9: Inpatient Rehabilitation Segment - Revenue
Inpatient Rehabilitation Segment - Revenue Q3 Q3 Favorable/ ($millions) 2015 2014 (Unfavorable) Net operating revenues: Inpatient $ 625.1 $ 563.7 10.9% Outpatient and other 26.5 26.2 1.1% Total segment revenue $ 651.6 $ 589.9 10.5% (Actual Amounts) Discharges 36,746 33,541 9.6% New-store discharge g
Slide 10: Payor Mix Trends
Enrollment Growth in Payor Mix Trends Exchanges and Medicaid is Expected to Slow in 2016 25,769 Discharges 23,789 Q3 2014 Q3 2015 Exchanges u The CBO originally estimated at least 20 million people would buy policies under exchanges in 2016. +8.3% +11.5% +11.5% +25.2% +4.6% uThrough June 2015, 9.9 m
Slide 11: Inpatient Rehabilitation Segment - Adjusted EBITDA
Inpatient Rehabilitation Segment - Adjusted EBITDA* Q3 % of Q3 % of ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 651.6 $ 589.9 Segment Adjusted Less: Provision for doubtful accounts (10.2) 1.6% (8.1) 1.4% EBITDA* for the quarter Net operating revenues less of $166.2 million provisi
Slide 12: Inpatient Rehabilitation Segment - Group Medical Costs
Inpatient Rehabilitation Segment - Group Medical Costs An increase in the number of large claims (>$100k) and increase in use of specialty Rx resulted in HealthSouth increasing its group medical self-insurance reserves by $8.5 million in YTD 2015. HealthSouth did not initiate any significant changes
Slide 13: Group Medical Costs - Specialty Rx
Inpatient Rehabilitation Segment - Group Medical Costs- Specialty Rx The use of specialty Rx by plan participants increased significantly year over year. YTD 2015 YTD 2014 Increase Specialty Rx costs have increased by Specialty Rx costs (in millions) $ 6.6 $ 4.4 $ 2.2 50% in 2015. Utilization of spe
Slide 14: Inpatient Rehabilitation Segment - Pre-Payment Claims Denials
Inpatient Rehabilitation Segment - Pre-Payment Claims Denials Background Impact to Income Statement For several years, under programs designated as “widespread Collections of probes,” certain Medicare Administrative Contractors (“MACs”) Bad Debt New Previously have conducted pre-payment claim revi
Slide 15: Home Health and Hospice Segment - Revenue
Home Health and Hospice Segment - Revenue Q3 Q3 ($millions) 2015 2014 Net operating revenues: Home health revenue $ 118.3 $ 7.0 Historical information for Hospice revenue 8.7 — Encompass Home Health and Hospice and Total segment revenue $ 127.0 $ 7.0 HealthSouth's legacy home (Actual Amounts) health
Slide 16: Home Health and Hospice Segment - Adjusted EBITDA
Home Health and Hospice Segment - Adjusted EBITDA* Q3 Q3 % of % of ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 127.0 $ 7.0 Less: Provision for doubtful accounts (0.5) 0.4% (0.1) 1.4% Net operating revenues less provision for Segment Adjusted doubtful accounts 126.5 6.9 EBITDA* for
Slide 17: Earnings per Share
Earnings per Share u Earnings per share for the quarter and nine months of 2015 Q3 9 Months were negatively impacted by: (In Millions, Except Per Share Data) 2015 2014 2015 2014 Inpatient rehabilitation segment Adjusted EBITDA $ 166.2 $ 161.5 $ 501.1 $ 503.1 Lower pricing growth and Home health an
Slide 18: 2015 Adjusted Free Cash Flow Through 9 Months
2015 Adjusted Free Cash Flow(8) Through 9 Months* $54.2 $6.1 $1.6 $10.0 ($13.3) ($18.6) $305.9 $265.9 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 9 Mos. 2014 EBITDA Expense Net of Refunds and Other Expenditures Di
Slide 19: 2015 Guidance
2015 Guidance Adjusted EBITDA* Updated Guidance $675 million to $685 million Considerations: u Assumes continuation of the following in the inpatient rehabilitation segment in Q4 2015: Lower pricing growth Deleveraging in salaries and benefits, including increased group medical claims activity
Slide 20: Appendix
Appendix HEALTHSOUTH.
Slide 21: Adjusted Free Cash Flow
Adjusted Free Cash Flow(8) Q3 9 Months Full-Year ($millions) 2015 2014 2015 2014 2014 Net cash provided by operating activities $ 163.3 $ 139.6 $ 368.2 $ 374.7 $ 444.9 Impact of discontinued operations 0.5 (0.2) 0.8 1.0 1.2 Net cash provided by operating activities of continuing operations 163.8 139
Slide 22: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(8) and Tax Assumptions 9 Months Certain Cash Flow Items 2015 2014 2015 (millions) Assumptions Actual GAAP Tax Considerations: Actual • As of 9/30/15, the Company’s federal NOL had a gross • Cash interest expense(11) $87.4 $125 to $130 $96.5 balance of approx. $393 million. •
Slide 23: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (in millions) 9 Months 2015 2015 2014 Actuals Assumptions Actuals Highest Priority IRF bed expansions $19.5 $30 to $40 $23.6 Growth New IRF's Remains in Core - De novos 30.5 40 to 60 53.7 Business - Acquisitions 56.5 785 to 805 20.2 New home health and hospi
Slide 24: Debt Schedule
Debt Schedule Change in September 30, Dec. 31, Debt vs. ($millions) 2015 2014 YE 2014 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps(15)(16) $ 25.0 $ 325.0 $ (300.0) Term loan facility, July 2020 - LIBOR +200bps(15)(16) 320.0 450.0 (130.0) Bonds Payable: 8.125% Seni
Slide 25: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of September 30, 2015 (20) Callable beginning ($ in millions) Callable beginning March 2018 November 2017 Became callable in September 2015 $1,200 $125 term loan capacity; must be $541
Slide 26: New-Store/Same-Store IRF Growth
New-Store/Same-Store IRF Growth Lexington, KY (158 beds) 12.0 Augusta, GA (58 beds) Savannah, GA (50 beds) Littleton, CO (40 beds) Altamonte Springs, FL (50 beds) Ocala, FL Stuart, FL (34 beds) 10.0 (40 beds) Johnson City, TN (26 beds) Newnan, GA (50 beds) Middletown, DE (34 beds) 8.0 6.0 4.0 2.0 0.
Slide 27: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q3 Q3 Q3 9 Months Full-Year 2015 2014 2015 2014 2015 2014 2015 2014 2014 Medicare 73.2% 73.1% 84.7% 97.5% 75.1% 73.5% 74.8% 74.1% 74.1% Medicaid 3.0% 2.2% 5.7% —% 3.4% 2.2% 3.0% 1.8% 1
Slide 28: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 (In Millions) Net patient revenue-inpatient $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Net patient revenue-outpatient and other revenues 26.5 26.6 23.7
Slide 29: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Home Health & Hospice Encompass Home Health and Hospice HealthSouth's 25 Legacy Home Health Agencies Segment Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (In Millions) Net home health
Slide 30: Share Information
Share Information Weighted Average for the Period Q3 9 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 Basic shares outstanding(7)(27)(28) 90.6 86.5 89.1 86.8 86.8 88.1 94.6 Diluted shares outstanding(6)(7)(27)(28) 101.5 100.5 101.4 100.7 100.7 102.1 108.1 End of Period Q3 9 Months Fu
Slide 31: History Recast by Segment
History Recast by Segment Three Months Ended September 30, 2015 Three Months Ended September 30, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net op
Slide 32: History Recast by Segment
History Recast by Segment Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net oper
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(29) 2015 Q1 Q2 Q3 9 Months Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Net Income $ 59.0 $ 60.2 $ 67.8 $ 187.0 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 1.6 (0.3) 1.6 Net in
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(29) 2014 Q1 Q2 Q3 Q4 Full-Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable to
Slide 35: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 Net cash provided by operating activities $ 163.3 $ 139.6 $ 368.2 $ 374.7 $ 444.9 $ 470.3 Provision for doubtful accounts (10.7) (8.2) (33.2) (25.0) (31.6) (26.0) Pr
Slide 36: Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax
Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2015 2014 2015 2014 2014 In Millions Total segment Adjusted EBITDA $ 186.9 $ 162.5 $ 557.7 $ 505.9 $ 669.2
Slide 37: End Notes
End Notes (1) HealthSouth acquired an additional 30% equity interest in Fairlawn Rehabilitation Hospital in Worcester, MA from its joint venture partner. This transaction increased HealthSouth's ownership interest from 50% to 80% and resulted in a change in accounting for this hospital from the equi
Slide 38: End Notes, con't.
End Notes, con't. (8) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, dividends paid on preferred stock, distributions to noncontrolling interests, and nonrecurring items. Common stock dividends a
Slide 39: End Notes, con't.
End Notes, con't. (23) 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 table r