Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2016 Earnings Presentation
45 slides from Encompass Health's earnings presentation, Oct 28, 2016
Slide 1: Third Quarter 2016 Earnings Call
Third Quarter 2016 Earnings Call October 28, 2016 SUPPLEMENTAL INFORMATION
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 HealthSouth’s current outlook, views and plans with respect to future events, including legislative and regulatory developments, strate
Slide 3: Table of Contents
Table of Contents Q3 2016 Summary................................................................................................................................................. 4-5 Inpatient Rehabilitation Segment ....................................................................................
Slide 4: Q3 2016 Summary (Q3 2016 vs. Q3 2015)
Q3 2016 Summary (Q3 2016 vs. Q3 2015) Growth (In Millions) Q3 2016 Q3 2015 Dollars Percent HealthSouth Consolidated Net operating revenues $ 926.8 $ 778.6 $ 148.2 19.0% Adjusted EBITDA $ 198.4 $ 165.4 $ 33.0 20.0% Inpatient Rehabilitation Segment Net operating revenues $ 751.7 $ 651.6 $ 100.1 15.4%
Slide 5: Q3 2016 Summary (cont.)
Q3 2016 Summary (cont.) u Balance sheet Reduced debt by ~$76 million (~$161 million year to date) ü Redeemed remaining outstanding principal balance of $76 million of 7.75% Senior Notes due 2022 in September 2016 ü Reduced leverage ratio by 0.3x to 3.8x - See page 23. S&P revised its rating outl
Slide 6: Inpatient Rehabilitation Segment - Revenue
Inpatient Rehabilitation Segment - Revenue Q3 Q3 Favorable/ ($millions) 2016 2015 (Unfavorable) Net operating revenues: Inpatient $ 724.1 $ 625.1 15.8% Outpatient and other 27.6 26.5 4.2% Total segment revenue $ 751.7 $ 651.6 15.4% (Actual Amounts) Discharges 41,368 36,746 12.6% Same-store discharge
Slide 7: Inpatient Rehabilitation Segment - Adjusted EBITDA
Inpatient Rehabilitation Segment - Adjusted EBITDA Q3 % of Q3 % of Segment Adjusted ($millions) 2016 Revenue 2015 Revenue EBITDA for the quarter Net operating revenues $ 751.7 $ 651.6 of $198.6 million Less: Provision for doubtful accounts (13.7) 1.8% (10.2) 1.6% Net operating revenues less provisio
Slide 8: Home Health and Hospice Segment - Revenue
Home Health and Hospice Segment - Revenue Q3 Q3 Favorable/ ($millions) 2016 2015 (Unfavorable) Net operating revenues: Home health revenue $ 162.0 $ 118.3 36.9 % Hospice revenue 13.1 8.7 50.6 % Total segment revenue $ 175.1 $ 127.0 37.9 % (Actual Amounts) Admissions 27,239 18,076 50.7 % Same-store a
Slide 9: Clinical Collaboration
Clinical Collaboration All Markets Overlap Markets* - Represents discharges from all payors - 15.9% Clinical collaboration rate with Collaboration Rate HealthSouth IRFs increased by 820 basis points over Q3 2015 26.8% 10.6% 3,693 Collaboration Rate Collaboration Rate 2,117 18.6% Collaboration Rate 3
Slide 10: Home Health and Hospice Segment - Adjusted EBITDA
Home Health and Hospice Segment - Adjusted EBITDA Q3 Q3 % of % of ($millions) 2016 Revenue 2015 Revenue Net operating revenues $ 175.1 $ 127.0 Segment Adjusted Less: Provision for doubtful accounts (1.1) 0.6% (0.5) 0.4% EBITDA for the Net operating revenues less provision for doubtful accounts 174.0
Slide 11: Earnings per Share - As Reported
Earnings per Share - As Reported Q3 9 Months (In Millions, Except Per Share Data) 2016 2015 2016 2015 u Earnings per share for the third Inpatient rehabilitation segment Adjusted EBITDA $ 198.6 $ 166.2 $ 599.6 $ 501.1 quarter and first nine months of 2016 Home health and hospice segment Adjusted wer
Slide 12: Adjusted Earnings per Share
Adjusted Earnings per Share(4) Q3 9 Months 2016 2015 2016 2015 Earnings per share, as reported $ 0.64 $ 0.52 $ 1.90 $ 1.43 Adjustments, net of tax: Government, class action, and related settlements — — — 0.05 Professional fees — accounting, tax, and legal — — 0.01 0.02 Mark-to-market adjustment for
Slide 13: Adjusted Free Cash Flow - Year to Date
Adjusted Free Cash Flow(6) - Year to Date $103.8 $22.1 $3.1 ($32.8) ($8.9) ($8.6) $384.6 $305.9 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 9 Mos. 2015 EBITDA Expense Net of Refunds and Other Expenditures Dividend
Slide 14: Revised Guidance
Revised Guidance Previous Full-Year Revised 2016 Full-Year Projected Growth Guidance Guidance Over 2015 (Last updated on August 19, 2016) Net Operating Revenues Net Operating Revenues 15% to $3,600 million to $3,700 million $3,650 million to $3,700 million 17% Adjusted EBITDA Adjusted EBITDA 15% to
Slide 15: Guidance Considerations
Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Full-year contribution from Reliant u Full-year contribution from CareSouth (anniversaried October 1st) and other 2015 (anniversaries November 2nd) and other acquisitions and openings 2015 acquisitions and openings Transiti
Slide 16: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(6) and Tax Assumptions Certain Cash Flow Items 9 Months 2016 2015 (millions) 2016 Actual Assumptions Actual • Cash interest expense $120.2 $160 to $165 $128.6 u Revised working capital (net of amortization of debt discounts and fees) range downward by $20 million to reflect c
Slide 17: Appendix
Appendix HEALTHSOUTH.
Slide 18: HealthSouth: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care 59% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass location. Encompass Inpatient Rehabilitation Home Health and Hospice Portfolio - As of September 30, 2016 IRF Marketshare Portfolio – As of September 30, 2016 Inpatient Re
Slide 19: Pre-Payment Claims Denials - Inpatient Rehabilitation Segment
Pre-Payment Claims Denials - Inpatient Rehabilitation Segment Background For several years, under programs designated as “widespread Impact to Income Statement probes,” certain Medicare Administrative Contractors (“MACs”) Collections of have conducted pre-payment claim reviews and denied Bad Debt
Slide 20: Expansion Activity
IRF Development Expansion Activity 11 Projects Underway 1 New State Inpatient Rehabilitation Facilities Q3 2016 expansion activity highlights: # of New Beds u Opened new 40-bed hospital in July 2016 in Hot Springs, AR to 2016 2017 2018 replace 27-bed unit opened in February 2016 (joint venture with
Slide 21: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Inpatient Rehabilitation* Home Health & Hospice* • 10+% annual episode growth Volume • 3+% annual discharge growth • • 10% to15% annual episode Includes $30-$40 million per growth annum in agency acquisitions • Includes $35-$40 million per Approx. 73% of Revenue
Slide 22: Free Cash Flow Priorities
Free Cash Flow Priorities (In Millions) 9 Months 2016 2016 2015 Highest Priority Actuals Assumptions Actuals IRF bed expansions $15.9 $20 to $30 $20.8 Growth New IRF’s in Core - De novos 50.0 70 to 90 47.8 Business - Acquisitions — 0 to 20 786.2 New home health and hospice acquisitions 19.6 30 to 40
Slide 23: Debt Schedule
Debt Schedule Change in September 30, Dec. 31, Debt vs. ($millions) 2016 2015 YE 2015 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps $ 150.0 $ 130.0 $ 20.0 Term loan facility, July 2020 - LIBOR +200bps 426.8 443.3 (16.5) Bonds Payable: 7.75% Senior Notes due 2022 —
Slide 24: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of September 30, 2016* ($ in millions) Callable beginning November 2017 Callable beginning $1,200 September 2020 $417 Senior Available Callable beginning March 2018 Notes Holders have a
Slide 25: New-Store/Same-Store IRF Growth
New-Store/Same-Store IRF Growth Hot Springs, AR (40 beds) Bryan, TX (49 beds) 25.0 Broken Arrow, OK (22 beds) Reliant (857 beds) 20.0 Franklin, TN (40 beds) Altamonte Springs, FL (50 beds) 15.0 Johnson City, TN (26 beds) Newnan, GA (50 beds) Lexington, KY (158 beds) Middletown, DE (34 beds) Savannah
Slide 26: CJR Model - How Does It Work?
CJR Model - How Does It Work? Begins with an There is no downside risk in year one. Repayment RETROSPECTIVE RECONCILIATION admission to an responsibility will be phased in during year two. PERFORMED BY CMS acute care hospital for a At the end of each performance year, patient who is actual spending
Slide 27: CJR Model - Collaborators
CJR Model - How Does It Work? - Collaborators Risk Sharing is Allowed in CJR with “Collaborators” Acute care hospitals participating in CJR may choose to engage in risk-sharing financial arrangements with other care providers for CJR episodes. A provider participating in these risk-sharing arrangeme
Slide 28: 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 2016 2015 2016 2015 2016 2015 2016 2015 2015 Medicare 73.3% 73.2% 81.8% 84.7% 74.8% 75.1% 75.0% 74.8% 74.9% Medicare Advantage 7.6% 7.7% 8.8% 6.7% 7.9% 7.5%
Slide 29: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 (In Millions) Net patient revenue-inpatient $ 724.1 $ 721.2 $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Net patient revenue-outpatient and other revenues 27.6 31.4 29.8
Slide 30: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 (In Millions) Net home health revenue $ 162.0 $ 157.1 $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Net hospice and other revenue 13.1 11.0 9.7 9.0 8.7 7.6 6.4 31.7 Net operating reve
Slide 31: Share Information
Share Information Weighted Average for the Period Q3 9 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 Basic shares outstanding(7) 89.1 90.6 89.3 89.1 89.4 86.8 88.1 Convertible perpetual preferred stock(7) — — — 1.3 1.0 3.2 10.5 Convertible senior subordinated notes(19) 8.5 8.4 8.5 8
Slide 32: Segment Operating Results
Segment Operating Results Q3 2016 Q3 2015 Home HealthSouth Home HealthSouth Health and Reclasses Consolidated Health and Reclasses Consolidated IRF Hospice IRF Hospice Net operating revenues $ 751.7 $ 175.1 $ — $ 926.8 $ 651.6 $ 127.0 $ — $ 778.6 Less: Provision for doubtful accounts (13.7) (1.1) —
Slide 33: Segment Operating Results
Segment Operating Results Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015 Home HealthSouth Home HealthSouth Health and Reclasses Consolidated Health and Reclasses Consolidated IRF Hospice IRF Hospice Net operating revenues $ 2,253.5 $ 503.8 $ — $ 2,757.3 $ 1,927.2 $ 356.4 $
Slide 34: Segment Operating Results
Segment Operating Results Year Ended December 31, 2015 Home Health and HealthSouth IRF Hospice Reclasses Consolidated Net operating revenues $ 2,653.1 $ 509.8 $ — $ 3,162.9 Less: Provision for doubtful accounts (44.7) (2.5) — (47.2) 2,608.4 507.3 — 3,115.7 Operating Expenses: Inpatient Rehabilitatio
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(21) 2016 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 76.7 $ 81.2 $ 78.1 $ 236.0 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 0.1 0.1 0.3 Net inco
Slide 36: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(21) 2015 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 $ 59.0 $ 60.2 $ 67.8 $ 65.8 $ 252.8 Loss (income) from disc ops, net of tax, attributable to
Slide 37: 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) 2016 2015 2016 2015 2015 Net cash provided by operating activities $ 177.6 $ 163.3 $ 489.5 $ 368.2 $ 484.8 Provision for doubtful accounts (14.8) (10.7) (46.7) (33.2) (47.2) Professional fees—acc
Slide 38: Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations
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, 2016 2015 2016 2015 2015 (In Millions) Total segment Adjusted EBITDA $ 224.4 $ 186.9 $ 674.0 $ 557.7 $ 774
Slide 39: Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow(6) Full Q3 9 Months Year ($millions) 2016 2015 2016 2015 2015 Net cash provided by operating activities $ 177.6 $ 163.3 $ 489.5 $ 368.2 $ 484.8 Impact of discontinued operations 0.1 0.5 0.6 0.8 0.7 Net cash provid
Slide 40: Adjusted EPS - Q3 2016
Adjusted EPS(4) - Q3 2016 For the Three Months Ended September 30, 2016 Adjustments Mark-to- Market Adjustment for Stock Loss on Early As Appreciation Extinguishment As Reported Rights of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 198.4 $ — $ — $ 198.4 Depreciation and a
Slide 41: Adjusted EPS - Q3 2015
Adjusted EPS(4) - Q3 2015 For the Three Months Ended September 30, 2015 Adjustments Mark-to- Professional Market Fees - Adjustment Accounting, for Stock As Tax, and Appreciation Transaction As Reported Legal Rights Costs Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 165.4 $ — $
Slide 42: Adjusted EPS - YTD 2016
Adjusted EPS(4) - YTD 2016 For the Nine Months Ended September 30, 2016 Adjustments Mark-to- Professional Market Fees - Adjustment Accounting, for Stock Loss on Early As Tax, and Appreciation Extinguishment Sale of As Reported Legal Rights of Debt Hospital Adjusted (In Millions, Except Per Share Amo
Slide 43: Adjusted EPS - YTD 2015
Adjusted EPS(4) - YTD 2015 For the Nine Months Ended September 30, 2015 Mark-to- Gov’t, Pro. Market Loss Class Fees - Adjustment on Action, & Acct., for Stock Early As Related Tax, and Appreciation Transaction Exting As Reported Settlements Legal Rights Costs of Debt Adjusted (In Millions, Except Pe
Slide 44: End Notes
End Notes (1) Medicare provides that hospitals with residents in an approved graduate medical education program receive an additional payment for a Medicare discharge to reflect higher patient care costs of teaching hospitals relative to non-teaching hospitals. This additional payment is known as an
Slide 45: End Notes, con't.
End Notes, con’t. (11) On July 16, 2015, the board of directors approved a $0.02 per share, or 9.5%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.23 per common share. On July 21, 2016, the board of directors approved a $0.01 per sh