Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2012 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Jul 27, 2012
Slide 1: Second Quarter 2012 Earnings Call Supplemental Slides
Second Quarter 2012 Earnings Call 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, capit
Slide 3: Table of Contents
Table of Contents Q2 2012 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-8 Revenues (Q2 2012 vs. Q2 2011)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …9 Expenses (Q2 2012 vs. Q2 2011)… … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q2 2012 Summary (Q2 2012 vs. Q2 2011)
Q2 2012 Summary (Q2 2012 vs. Q2 2011) Revenue growth of 5.6% ― Inpatient revenue growth of 6.4% Discharge growth of 3.0%; same-store discharge growth of 1.9% Revenue per discharge increase of 3.2% ― Outpatient and other revenue decline of 3.3% ($1.3 million) Improved operating leverage and l
Slide 5: Q2 2012 Summary (cont.)
Q2 2012 Summary (Q2 2012 vs. Q2 2011) (cont.) Adjusted free cash flow (1) for the quarter of $70.0 million and $115.2 million for first six months of 2012 ― Adjusted free cash flow reflected the planned investment in the clinical information system and hospital refresh projects, the anticipated in
Slide 6: Q2 2012 Summary (cont.) - Growth
Q2 2012 Summary (cont.) Growth: Signed letter of intent to acquire 34-bed inpatient rehabilitation unit in San Antonio, TX (CHRISTUS Santa Rosa Hospital) ― Consolidate the unit into existing inpatient rehabilitation hospital, HealthSouth Rehabilitation Hospital of San Antonio ― Completed acquisiti
Slide 7: Q2 2012 Summary (cont.) - Cash Deployment
Q2 2012 Summary (cont.) Cash Deployment: Repurchased 21,645 additional shares of our preferred stock for approx. $22 million (46,645 shares repurchased in first six months of 2012). ― The Q2 2012 repurchase reduces annual preferred stock dividend payments by $1.4 million and diluted share count by
Slide 8: Functional Outcomes Outpace Industry Average
Q2 2012 Summary (cont.) HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* 35.0 3.5 34.6 30.0 3.0 3.09 29.8 25.0 2.5 2.59 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database – On Demand Report: Q2 2
Slide 9: Revenues (Q2 2012 vs. Q2 2011)
Revenues (Q2 2012 vs. Q2 2011) Q2 Q2 Increase/ (Millions) 2012 2011 (Decrease) Inpatient $ 495.0 $ 465.4 6.4% Outpatient and other 38.4 39.7 (3.3%) Consolidated net operating $ 533.4 $ 505.1 5.6% (Actual Amounts) Discharges 30,719 29,811 3.0% Net patient revenue / discharge $ 16,114 $ 15,612 3.2%
Slide 10: Expenses (Q2 2012 vs. Q2 2011)
Expenses (Q2 2012 vs. Q2 2011) Q2 Q2 Increase/ (Millions) 2012 2011 (Decrease) Salaries and benefits $ 257.4 $ 241.6 6.5% Percent of net operating revenues 48.3% 47.8% 50 bps EPOB (employees per occupied bed) 3.41 3.47 (1.7%) Hospital-related expenses $ 112.6 $ 113.7 (1.0%) (other operating, supplie
Slide 11: Adjusted EBITDA
Adjusted EBITDA (1) Q2 6 Months Adjusted EBITDA Change (Millions) 2012 2011 2012 2011 6 Months Net operating revenues $ 533.4 $ 505.1 $ 1,072.0 $ 1,011.1 Q2 2012 __2012__ Less: Prov ision for doubtful accounts (6.5) (5.0) (12.8) (9.8) +$9.8M +$19.3 Net operating rev enues less prov ision +8.5% +8.3%
Slide 12: Earnings per Share
Earnings per Share from Earnings per Share Q2 6 Months Continuing Operations (3) (In Millions, Except Per Share Data) 2012 2011 2012 2011 Adjusted EBITDA $ 125.1 $ 115.3 $ 252.1 $ 232.8 Q2 2012 and 6 Months 2012 Interest expense and amortization of reflect: debt discounts and fees (23.0) (34.9) (46.
Slide 13: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q2 6 Months (Millions) 2012 2011 2012 2011 Net cash provided by operating activities $ 114.0 $ 68.6 $ 195.0 $ 158.1 Impact of discontinued operations (1.3) (5.1) (1.7) (7.2) Net cash provided by operating 112.7 63.5 193.3 150.9 activities of continuing operations Capital expe
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 6 Months Change (Millions) 2012 2011 $ % Adjusted free cash flow (1) $ 115.2 $ 111.8 $ 3.4 3.0% Operating Cash Flows Investing Cash Flows $23.1 (2) $10.9 (4) $19.3 ($22.1) (3) ($27.8) (5) $115.2 $111.8 Adjusted Free Cash Adjusted EBITDA Cash Interest Working Capital Swap-
Slide 15: 2012 Revised Guidance – Adjusted EBITDA
2012 Revised Guidance – Adjusted EBITDA (1) Based on results for the first 6 months of 2012, 2012 Adjusted EBITDA HealthSouth is raising it expectations for full- $487 million to $495 million year 2012 results. (previous guidance $475 million to $485 million) Considerations: Revenue growth of 3.7%
Slide 16: 2012 Revised Guidance - EPS
2012 Revised Guidance - EPS Based on results for the first 6 months of 2012, HealthSouth is raising it expectations for full- Earnings per Share from year 2012 results. Continuing Operations EPS Guidance Attributable to HealthSouth (1) Actual Low High (In Millions, Except Per Share Data) 2011 2012 $
Slide 17: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 6/30/12, the Company’s federal NOL had a balance of approx. $1.1 billion. • The Company has a remaining valuation allowance of approx. $50 million, primarily related to state NOLs. • 2011 effective tax rate was approx. 19%. (1)(2) • Expect effec
Slide 18: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2012 adjusted free cash flow growth reflects increased The increase in 2012 maintenance capital expenditures and working maintenance CAPEX is driven by the capital. clinical information system roll-out, two Multi-year adjusted free cash flow CAGR of 12%
Slide 19: Priorities for Reinvesting Free Cash Flows
Priorities for Reinvesting Free Cash Flows (millions) 2012 6 Months Assumptions 2012 •Growth in core business Bed expansions $20 to $25 $10.7 (80-100 beds) Priorities Growth De novo hospitals $50 to $70 $17.0 (complete Ocala; start 4 others) Acquisitions (target 2/year) (1) TBD $2.1 − Free sta
Slide 20: Portfolio Growth
Portfolio Growth • All projects have minimum IRR target of 15% (pre-tax). De novos Acquisitions • Cash Payback (1) = 5 to 7 years • Cash Payback (1) = 4 to 6 years • Longer payback period due to: • Target: 2 acquisitions/Year − Design and construction period − Initial ramp-up of operations • Target
Slide 21: Appendix
Appendix HEALTHSOUTH.
Slide 22: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1)(2) • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Achieved < 3.0x Delevering (3) Debt to Adj. EBITDA < 3.0x Debt to Adj. EBITDA (subject to operating environment) Same-store Growth (Includes be
Slide 23: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos Medicare and unit consolidations 72% Medicare Pricing FY 2012 (3) FY 2013 (4) FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (
Slide 24: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses 2012 2013 2014 • Other operating expenses and Merit increases (2) 2.25-2.5% 2.25-2.5% 2.25-2.5% supply costs tracking with inflation • Occupancy costs relatively Benefit costs increases 5-8% 5-8% 5-8% constant as
Slide 25: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry HealthSouth’s volume growth has outpaced competitors’ Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly 6.5% UDS Industry Sites (1) 120,000 HLS Same Store (2) 2.1% Q4 5.0% 4.7% 5.9% 90,000 3.3% 1.9% 5.9% 2.7% 5.1% Q3 1.8% 1.4% 1.0% 60,000 3.
Slide 26: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody June 30, Dec. 31, in Debt (Millions) Corporate BB- Ba3 2012 2011 vs. YE 2011 Advances under $500 million revolving credit facility, May 2016 - 3 Month LIBOR +225bps BB+ Baa3 $ 100.0 $ 110.0 $ (10.0) Term loan facility, May 2016 - 3 Month LIBOR +225bps BB+
Slide 27: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 Q1 Increase/ Revenues (millions) 2012 2012 (Decrease) Inpatient $ 495.0 $ 500.6 (1.1%) Outpatient and other 38.4 38.0 1.1% Consolidated net operating $ 533.4 $ 538.6 (1.0%) (Actual Amounts) Discharges 30,719 30,871 (0.5%) Net patient revenue / discharge $ 16,114 $
Slide 28: Revenues & Expenses (6 months)
Revenues & Expenses (6 months) 6 Months 6 Months Increase/ Revenues (millions) 2012 2011 (Decrease) Inpatient $ 995.6 $ 927.5 7.3% Outpatient and other 76.4 83.6 (8.6%) Consolidated net operating $ 1,072.0 $ 1,011.1 6.0% (Actual Amounts) Discharges 61,590 58,938 4.5% Net patient revenue / discharge
Slide 29: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q2 6 Months Full Year 2012 2011 2012 2011 2011 Medicare 72.9% 72.0% 73.3% 71.7% 72.0% Medicaid 1.3% 1.8% 1.2% 1.7% 1.6% Workers' compensation 1.5% 1.7% 1.5% 1.7% 1.6% Managed care and other discount plans (1) 19.6% 19.8% 19.5% 19.8% 19.8% Other third-party payor
Slide 30: Operational and Labor Metrics
Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year 2012 2012 2011 2011 2011 2011 2012 2011 2011 (In Millions) Net patient revenue-inpatient $ 495.0 $ 500.6 $ 480.1 $ 458.8 $ 465.4 $ 462.1 $ 995.6 $ 927.5 $ 1,866.4 Net patient revenue-outpatient and other revenues 38.4 38.0 3
Slide 31: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information Weighted Average for the Period (Millions) Q2 Q2 6 Months 6 Months FY FY 2012 2011 2012 2011 2011 2010 Basic shares outstanding (1) (2) 94.6 93.3 94.5 93.2 93.3 92.8 (1) (2) (3) Diluted shares outstanding 108.0 109.5 108.3 109.3 109.2 108.5 End of Pe
Slide 32: Adjusted EBITDA History
Adjusted EBITDA (1) History Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year (Millions) 2012 2012 2011 2011 2011 2011 2012 2011 2011 Net operating revenues $ 533.4 $ 538.6 $ 518.1 $ 497.7 $ 505.1 $ 506.0 $ 1,072.0 $ 1,011.1 $ 2,026.9 Less: Prov ision for doubtful accounts (6.5) (6.3) (6.1) (5.1) (5.0)
Slide 33: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q2 6 Months Full Year (Millions) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 114.0 $ 68.6 $ 195.0 $ 158.1 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of discontinued operations (1.3) (5.1) (1.7) (7.2) (9.1) (13.2) (5.7) (32.5) (
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net income $ 56.8 $ 59.9 $ 116.7 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (3.5) (3.1) Net income attributable t
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2011 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable to
Slide 36: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA Full Year 2007 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 718.7 $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (462.4) (32.
Slide 37: Reconciliation Notes for Slides 34-36
Reconciliation Notes for Slides 34-36 1. Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non- GAAP financial measure. Management and some members of the investment community util
Slide 38: Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities
Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities Q2 6 Months Full Year (Millions) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 114.0 $ 68.6 $ 195.0 $ 158.1 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Prov ision for doubtful accounts (6.5