Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2015 Earnings Presentation
34 slides from Encompass Health's earnings presentation, May 1, 2015
Slide 1: First Quarter 2015 Earnings Call
First Quarter 2015 Earnings Call May 1, 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 Q1 2015 Summary................................................................................................................................................. 4-5 Development .........................................................................................................
Slide 4: Q1 2015 Summary (Q1 2015 vs. Q1 2014)
Q1 2015 Summary (Q1 2015 vs. Q1 2014) HealthSouth Consolidated Q1 2015 Q1 2014 Delta % ($millions) Net operating revenues $ 740.6 $ 591.2 $ 149.4 25.3% Adjusted EBITDA* $ 156.1 $ 144.1 $ 12.0 8.3% Major takeaways for the quarter: u Company began reporting two segments in Q1 2015: Inpatient rehabil
Slide 5: Q1 2015 Summary (cont.)
Q1 2015 Summary (cont.) u Balance sheet enhancements: In January, the Company issued $400 million of additional 5.75% senior notes due 2024 and used the proceeds to pay down a portion of the term loan and revolver. In March 2015, the Company issued $300 million of 5.125% senior notes due 2023 an
Slide 6: Q1 2015 Development
Q1 2015 Development u New inpatient rehabilitation development: Began operating the inpatient rehabilitation hospital in Savannah, GA with our joint venture partner Memorial Health, on April 1, 2015; the joint venture will build a new, 50-bed replacement hospital, which is expected to be completed
Slide 7: Highlights
Highlights u Convertible perpetual preferred stock(2) The Company provided notice to the registered holders of the Company’s 6.5% Series A Convertible Perpetual Preferred Stock and exercised its right to cause all of the outstanding shares of the preferred stock to be automatically converted into
Slide 8: Q1 2015 Inpatient Rehabilitation Segment Revenue
Q1 2015 Inpatient Rehabilitation Segment Revenue Q1 Q1 Favorable/ ($millions) 2015 2014 (Unfavorable) Net operating revenues: Inpatient $ 606.6 $ 558.2 8.7% Outpatient and other 23.7 26.3 (9.9%) Total segment revenue $ 630.3 $ 584.5 7.8% (Actual Amounts) Discharges 35,116 32,889 6.8% New-store disch
Slide 9: Adjusted EBITDA - Inpatient Rehabilitation Segment
Adjusted EBITDA* - Inpatient Rehabilitation Segment Segment Q1 Q1 Adjusted % of % of EBITDA* for the ($millions) 2015 Revenue 2014 Revenue Net operating revenues $630.3 $ 584.5 quarter of $164.4 Less: Provision for doubtful accounts (11.0) 1.7% (7.4) 1.3% million Net operating revenues less provisio
Slide 10: Q1 2015 Home Health and Hospice Segment Revenue
Q1 2015 Home Health and Hospice Segment Revenue Q1 Q1 ($millions) 2015 2014 Home health revenue $ 103.9 $ 6.7 Historical information for Hospice revenue 6.4 — Encompass Home Health Total segment revenue $ 110.3 $ 6.7 and Hospice and (Actual Amounts) HealthSouth's legacy home health agencies can be A
Slide 11: Adjusted EBITDA - Home Health and Hospice Segment
Adjusted EBITDA* - Home Health and Hospice Segment Q1 Q1 % of % of Segment ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 110.3 $ 6.7 Adjusted Less: Provision for doubtful accounts (0.6) 0.5% (0.1) 1.5% EBITDA* for Q1 Net operating revenues less provision for 2015 of $16.9 doubtful a
Slide 12: Earnings per Share
Earnings per Share Q1 Q1 (In Millions, Except Per Share Data) Inpatient Rehabilitation Segment Adjusted EBITDA $ 2015 164.4 $ 2014 166.9 u Diluted earnings(4) per share of $0.44 for Q1 2015 Home Health and Hospice Segment Adjusted EBITDA 16.9 0.6 General and administrative expense (25.2) (23.4) Cons
Slide 13: Adjusted Free Cash Flow
Adjusted Free Cash Flow*(7) $12.0 $11.9 $— ($3.8) ($1.7) ($4.1) $65.1 $79.4 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 3 Mos. 2014 EBITDA Expense Net of Refunds and Other Expenditures Dividends Flow 3 Mos. 2015 (
Slide 14: 2015 Guidance - Adjusted EBITDA
2015 Guidance - Adjusted EBITDA* Adjusted EBITDA u $670 million to $680 million u Inpatient rehabilitation segment considerations for April 1, 2015 through December 31, 2015:(8) Revenue growth between 5.0% and 6.5% Discharge growth between 3.5% and 4.5% Revenue per discharge growth between 2.3
Slide 15: 2015 Guidance - EPS
2015 Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth u $ 2.13 to $ 2.19 EPS Guidance Actual Low High Considerations: (In Millions, Except Per Share Data) 2014 2015 Adjusted EBITDA $ 577.6 $ 670 $ 680 u Higher depreciation and amortization Interest expense and
Slide 16: Appendix
Appendix HEALTHSOUTH.
Slide 17: Adjusted Free Cash Flow History
Adjusted Free Cash Flow(7) History Q1 Full-Year ($millions) 2015 2014 2014 2013 Net cash provided by operating activities $ 102.0 $ 107.1 $ 444.9 $ 470.3 Impact of discontinued operations 0.1 0.2 1.2 1.9 Net cash provided by operating activities of continuing operations 102.1 107.3 446.1 472.2 Capit
Slide 18: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(7) and Tax Assumptions Certain Cash Flow Items(7) Q1 2015 2015 2014 (millions) Actual Assumptions Actual • Cash interest expense(11) $28.5 $106 to $111 $96.5 • Cash payments for taxes, net of refunds $3.1 $15 to $20 $16.4 • Working Capital and Other $25.3 $50 to $60 $55.0 • M
Slide 19: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (in millions) Q1 2015 2015 2014 Actuals Assumptions Actuals Highest Priority IRF bed expansions $3.7 $30 to $40 $23.6 Remains Growth New IRF's in Core - De novos 4.5 40 to 60 53.7 Business - Acquisitions — TBD 20.2 New home health and hospice acquisitions 7.
Slide 20: Debt Schedule
Debt Schedule Pro Forma Credit Rating Pro Forma Post Change in S&P Moody 8.125% Senior Notes Mar. 31, Dec. 31, Debt vs. (16) (15)(16) ($millions) BB- Ba3 Redemption 2015 2014 YE 2014 Advances under $600 million revolving credit facility, September 2019 - LIBOR +175bps(14)(15) BB+ Baa3 $ 170.0 $ 10.0
Slide 21: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. Pro forma March 31, 2015 for Redemption(16)(19) In March 2015, the Company issued ($ in millions) $300 million of 5.125% senior notes Callable beginning due 2023 and called the $290 millio
Slide 22: Our New-Store/Same-Store IRF Growth
Our New-Store/Same-Store IRF Growth HealthSouth's IRF volume growth is driven by bed expansions and new IRFs. Altamonte Springs, FL (50 beds) 10.0 Johnson City, TN (26 beds) Cypress, TX (40 beds) Ocala, FL Augusta, GA (58 beds) Newnan, GA (50 beds) Cincinnati, OH (40 beds) (40 beds) Littleton, CO (4
Slide 23: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health and Rehabilitation Consolidated Hospice Segment Segment Q1 Q1 Q1 Full-Year 2015 2014 2015 2014 2015 2014 2014 Medicare 73.5% 74.8% 83.8% 96.2% 74.9% 75.2% 74.1% Medicaid 2.0% 1.3% 5.6% —% 2.6% 1.3% 1.8% Workers' compensation 1.1% 1.3% —% 0.
Slide 24: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2014 2014 2014 2014 2014 (In Millions) Net patient revenue-inpatient $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Net patient revenue-outpatient and other revenues 23.7 24.9 26.2 27.4 26.3 104.8 Net operating r
Slide 25: 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 Q1 Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Full-Year 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (In Millions) Net home health revenue $ 103.9
Slide 26: Outstanding Share Summary, Warrant Information, and Conversion Price
Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q1 Full-Year (Millions) 2015 2014 2014 2013 2012 Basic shares outstanding(28)(29)(30) 87.1 87.3 86.8 88.1 94.6 Diluted shares outstanding(2)(28)(29)(30) 101.1 100.9 100.7 102.1 108.1 End of Period Q1
Slide 27: History Recast by Segment
History Recast by Segment Three Months Ended March 31, 2015 Three Months Ended March 31, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net operating
Slide 28: History Recast by Segment
History Recast by Segment Twelve Months Ended December 31, 2014 Inpatient Home Health Reclass- HealthSouth Rehabilitation and Hospice ifications Consolidated Net operating revenues $ 2,377.3 $ 28.6 $ — $ 2,405.9 Less: Provision for doubtful accounts (31.2) (0.4) — (31.6) 2,346.1 28.2 — 2,374.3 Opera
Slide 29: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(31) 2015 Q1 (in millions, except per share data) Total Per Share Net Income $ 59.0 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 Net income attributable to noncontrolling interests (16.5) Income from continuing operations attributable
Slide 30: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(31) 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 31: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full-Year (Millions) 2015 2014 2014 2013 Net cash provided by operating activities $ 102.0 $ 107.1 $ 444.9 $ 470.3 Provision for doubtful accounts (11.6) (7.5) (31.6) (26.0) Professional fees—accounting, tax, and legal 2.2 1.
Slide 32: End Notes
End Notes (1) This is a settlement related to sexual harassment and other claims brought by eight former employees against another former employee. The settlement was not covered by insurance and is reported in "Other Operating Expenses." (2) The difference between the basic and diluted shares outst
Slide 33: End Notes, con't.
End Notes, con't. (9) Beginning in Q1 2015, HealthSouth's legacy 25 home health agencies are included in the home health and hospice segment. The 2014 results for these agencies have been recast and reported in the 2014 results for the home health and hospice segment. The $72 million Adjusted EBITDA
Slide 34: End Notes, con't.
End Notes, con't. (25) The leverage ratio is based on trailing 4 quarter Adjusted EBITDA of $589.6 million and 2014 Adjusted EBITDA of $577.6 million, respectively. Pro forma 2015 leverage with trailing 4 quarters Encompass Adjusted EBITDA included would be approx. 3.4x. (26) Represents home health