Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2009 Earnings Presentation
35 slides from Encompass Health's earnings presentation, Feb 23, 2010
Slide 1: Fourth Quarter 2009 Earnings Call Supplemental Slides
Fourth F th Quarter Q t 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 performance. These estimates, projections and other forward-
Slide 3: Table of Contents
Table of Contents Highlights .......................................................................................................................................... 4-5 Revenues........................................................................................................................
Slide 4: Highlights (Q4 2009)
Highlights (Q4 2009) Goal One – Organic Growth 9 Achieved 4.6% quarter-over-quarter discharge growth. – Same store discharge growth was 4.2%. 9 Revenue growth of 5.5%. – Driven by higher discharge volume and Medicare market basket increase of 2 2.5% 5% effective October 1, 2009. 9 High-quality, cost
Slide 5: Highlights (2009)
Highlights (2009) Goal One – Organic Growth 9 Achieved 5.4% year-over-year discharge growth through our sales and marketing initiative. 9 Successful start-up of Mesa, AZ, 40-bed inpatient rehabilitation hospital. 9 Added capacity for approximately 100 beds at existing hospitals. 9 Broke ground on a
Slide 6: Revenues (Q4 2009 vs. Q4 2008)
Revenues (Q4 2009 vs. Q4 2008) Favorable (Unfavorable) ( (Millions) ) 4th Qtr. 2009 4th Qtr. 2008 Changeg Inpatient $ 445.7 $ 416.5 7.0% Outpatient and other 40.5 44.3 (8.6%) Consolidated net operating $ 486.2 $ 460.8 5.5% (Actual Amounts) Discharges 28,772 27,516 4.6% Net patient revenue / discharg
Slide 7: Expenses (Q4 2009 vs. Q4 2008)
Expenses (Q4 2009 vs. Q4 2008) Favorable/ (Unfavorable) (Millions) 4th Qtr. 2009 4th Qtr. 2008 Change Salaries and benefits $ 243.7 $ 232.1 (5.0%) Percent of net operating revenues 50.1% 50.4% 30 bps EPOB (employees per occupied bed) 3.55 3.64 2.5% Hospital-related Hospital related expenses $ 119 2
Slide 8: Adjusted Consolidated EBITDA
(1) Adjusted Consolidated EBITDA (Millions) Change 4th Qtr. 2009 4th Qtr. 2008 $ % $ 94.7 $ 87.5 $ 7.2 8.2% Year-End Year-End Change g 2009 2008 $ % $ 383.0 $ 341.2 $ 41.8 12.3% • Improvements driven by: – Increased c eased volumes o u es – Improved labor productivity – Disciplined expense managemen
Slide 9: Adjusted Income per Diluted Share (4Q 2009)
Adjusted Income per Diluted Share (4Q 2009) 4th Qtr. 4th Qtr. Change (Millions, except per share data) 2009 2008 $ % Adjusted income from continuing (1) operations $ 24.1 $ 24.3 $ (0.2) (0.8%) Per Share Per Share Adjusted income from continuing (1) operations per diluted share $ 0.22 $ 0.24 $ (0.02)
Slide 10: Adjusted Income per Diluted Share (Year-End)
Adjusted Income per Diluted Share (Year-End) Year-End Year-End Change (Millions, except per share data) 2009 2008 $ % Adjusted income from continuing ( ) (1) operations $ 149.6 $ 72.9 $ 76.7 105.2% Per Share Per Share Adjusted income from continuing (1) operations per diluted share $ 1.45 $ 0.76 $ 0
Slide 11: Free Cash Flow Reconciliation: Adjusted Consolidated EBITDA to Operating Cash
Free Cash Flow Reconciliation: Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities 4th Qtr. Year-End 2009 2008 2009 2008 Adjusted Consolidated EBITDA $ 94.7 $ 87.5 $ 383.0 $ 341.2 Provision for doubtful accounts 7.8 6.9 33.1 27.0 Professional fees—accounting, tax, and legal
Slide 12: Free Cash Flow Reconciliation: Operating Cash to Adjusted Free Cash Flow
Free Cash Flow Reconciliation: Net Cash provided by Operating Activities to Adjusted Free Cash Flow 4th Qtr. Qtr Year End Year-End (Millions) 2009 2008 2009 2008 Net cash provided by operating activities $ 44.0 $ 77.9 $ 406.1 $ 227.2 Impact of discontinued operations 4.1 (11.9) 13.5 (11.4) Net cash
Slide 13: Debt Reduction and Liquidity
Debt Reduction and Liquidity ($ Billions) Liquidity Dec. 31 D 31, Dec. 31 D 31, 2009 2008 Cash Available $ 80.9 $ 32.1 Revolver Total Line $ 400.0 $ 400.0 Less: – Draws - (40.0) – Letters of credit - (52.7) Available $ 400.0 $ 307.3 Total Liquidity $ 480.9 $ 339.4 Debt to EBITDA 6 6.3x 3x 6 6.3x 3x
Slide 14: 2010 Guidance
2010 Guidance (1) Actual Guidance 2009 2010 Adjusted C lid t d EBITDA(1) Adj t d Consolidated $383.0 $ $397 to $ $ $407 million million Adjusted earnings per share (1)(2) $1.45 $1.60 to $1.70 per share per share (1) Reconciliation R ili ti tto GAAP provided id d on slides lid 34 th through h 35 35.
Slide 15: Business Outlook
Business Outlook Deleveraging Growth, Deleveraging, Growth Reform and Sector Regulation 2010 2011 2012 2013 Deleveraging 3.5x to 4.0x Debt to EBITDA (by YE 2011) (Exclusive of any E&Y settlement) Organic growth through capacity Growth expansion p and de novos (~ $60 million in 2010) IRF acquisitions
Slide 16: Appendix
Appendix 16
Slide 17: Operational Excellence: Sustained Market Share Gains
Operational Excellence: Sustained Market Share Gains HealthSouth vs. Industry (1) UDS Industry Sites Trailing 4 quarters 9.7% HLS Same Store Industry Avg. is 1.0% 8.1% 9 5.7% 4.8% 4 8% 4.7% 5.3% 4.2% HealthSouth s volume growth HealthSouth’s 3.3% 3.6% 2.9% 1.3% 1.6% 0.1% has outpaced competitors’ -0
Slide 18: Operational Excellence = High-Quality Care
Operational Excellence = “High-Quality” Care FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted FIM Change Average ** Average = Expected, Risk-adjusted LOS Efficiency Source: UDSmr Database – On Demand Reports 2008 Year End Report 18
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: IRFs have Lower Readmission Rates
IRFs have Lower Readmission Rates Percent Discharged Percent Percent Post-Acute Care from Hospital to Rehospitalized after Died in PAC ("PAC") Setting PAC Setting Using PAC Setting Setting Skilled Nursing Facility 17.3% 22.0% 5.4% Home Health 16.0% 18.1% 0.8% Long-Term Care Hospital 1.0% 10.0% 15.5%
Slide 21: Organic Growth
Organic Growth Capacity expansions: • Approximately 100 beds added in 2010. • Average investment per bed including renovation: – $100K to $250K C h pay-back: Cash b k 2 – 4 years De novos: Location Installed Beds Operational Date Mesa, AZ 40 Beds Q309 Cash pay-back: Loudoun County, VA 40 Beds Q210 6
Slide 22: Regulatory Uncertainty
Regulatory Uncertainty Future Regulatory Risk IRF SNF LTCH HH Yes; would be Yes; RUGS IV begins required as part of 1. Re-basing payment system No 10/01/10 (Senate bill No healthcare reform delays until 10/01/11) (2014 Senate bill; 2011 House bill) Yes; will occur when 2. Major outlier payment MMSEA
Slide 23: Revenues (Year-End)
Revenues (Year-End) Favorable (Unfavorable) (Millions)) (Milli 2009 2008 Ch Change Inpatient $ 1,743.4 $ 1,651.7 5.6% Outpatient and other 167.7 177.8 (5.7%) Consolidated net operating $ 1,911.1 $ 1,829.5 4.5% (Actual Amounts) Discharges 112,975 107,184 5.4% Net patient revenue / discharge $ 15,432
Slide 24: Expenses (Year-End)
Expenses (Year-End) Favorable/ (Unfavorable) (Millions, except percent) 2009 2008 Change Salaries and benefits $ 948.8 $ 928.2 (2.2%) Percent of net operating revenues 49.6% 50.7% 110 bps EPOB (employees ( l per occupied i dbbed) d) 3 53 3.53 3 62 3.62 2 5% 2.5% Hospital related expenses $ 464.5 $ 4
Slide 25: Revenues (Sequential)
Revenues (Sequential) Favorable (Unfavorable) (Millions, except percent) 4th Qtr. 2009 3rd Qtr. 2009 Change Inpatient $ 445.7 $ 429.2 3.8% Outpatient and other 40.5 41.2 (1.7%) Consolidated net operating $ 486.2 $ 470.4 3.4% (Actual Amounts) Discharges 28,772 28,125 2.3% Net patient revenue / discha
Slide 26: Expenses (Sequential)
Expenses (Sequential) Favorable (Unfavorable) (Millions, except percent) 4th Qtr. 2009 3rd Qtr. 2009 Change S l i and Salaries d benefits b fit $ 243 7 243.7 $ 234 0 234.0 (4 1%) (4.1%) Percent of net operating revenues 50.1% 49.7% (40) bps EPOB (employees per occupied bed) 3.55 3.58 0.8% Hospital r
Slide 27: Operational and Labor Metrics
Operational and Labor Metrics (1) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2009 2009 2009 2009 2008 2008 2008 2008 2009 2008 ( Millions)) (In Net patient revenue-inpatient $ 445.7 $ 429.2 $ 437.2 $ 431.3 $ 416.5 $ 409.3 $ 408.5 $ 417.4 $ 1,743.4 $ 1,651.7 Net patient revenue-outpatient and other revenues 40.5 41.2 4
Slide 28: Payment Sources
Payment Sources Twelve Months Ended Dec. Dec 31 31, 2009 2008 Medicare 67.9% 67.2% Medicaid 2 1% 2.1% 2 2% 2.2% Workers' compensation 1.6% 2.1% (1) Managed care and other discount plans 23.1% 22.4% p yp Other third-party payors y 2.7% 3.5% Patients 1.2% 1.0% Other income 1.4% 1.6% Total 100.0% 100.0
Slide 29: Debt Maturities: No Near-Term Financing Needs
Debt Maturities: No Near-Term Financing Needs (Millions) = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases and term As of December 31, 2009 l loan ti ti amortization 29
Slide 30: Interest Rate Swaps: as of December 31, 2009
Interest Rate Swaps: as of December 31, 2009 (Millions) Floating Floating Rate Debt Balances Dec. 31, 2009 Interest Rate Advances under $400 million revolving credit facility $ - Libor plus 275 Term Loan facility due 2013 452.0 Libor plus 225 (1) Term Loan facility due 2015 299 3 299.3 Libor plus 37
Slide 31: Debt Schedule
Debt Schedule (Millions) Debt Balances Dec. 31, Dec. 31, 2009 YTD Debt 2009 2008 Reduction Advances under Ad d $400 million illi revolving l i credit dit ffacility, ilit March 2012 $ - $ 40.0 $ (40.0) Term loan facility - March 2013, 2015 751.3 783.6 (32.3) Bonds payable: Floatingg Rate Senior Notes
Slide 32: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Dec. 31, 2009 Future Cash Tax Payments • Federal tax recoveries virtually complete. • E Expect pect to pa pay abo aboutt $5 $5-77 million per year ear of income – Approx. $43 million received. tax. – State income tax. • State tax refunds in progress
Slide 33: Outstanding Share Summary
Outstanding Share Summary (Millions) (1) 4th Qtr. 4th Qtr. Year-End Year-End 2009 2008 2009 2008 Weighted Average for the Period (2) (3) Basic Shares outstanding 92.6 87.4 88.8 83.0 (2) (3) (4) Diluted Shares outstanding 107.8 100.7 103.3 96.4 End of Period (1) Year-End Year-End 2009 2008 (2) (3) Ba
Slide 34: Reconciliation of Net Income to Adjusted Income and Adjusted EBITDA
Three & Twelve Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) ((In Millions, Except per Share Data)) Three Months Ended December 31, Year Ended December 31, (2) (2) (2) (2) 2009 Per Share 2008 Per Share 2009 Per Share 2008 P
Slide 35: 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