Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2011 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Jul 27, 2011
Slide 1: Second Quarter 2011 Earnings Call Supplemental Slides
Exhibit 99-2 Second Quarter 2011 Earnings Call Supplemental Slides
Slide 2: Forward-Looking Statements
Exhibit 99-2 The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current views and plans with respect to future events, strategy, capital expenditures and financial performance. These estimates, projections an
Slide 3: Table of Contents
Exhibit 99-2 Table of Contents
Slide 4: Q2 2011 Summary (Q2 2011 vs. Q2 2010)
Exhibit 99-2 Location # of Beds Transaction Date Loudoun County, VA 40 De Novo Q2 2010 Las Vegas, NV 50 Acquired new IRF Q2 2010 Bristol, VA 25 De Novo Q3 2010 Houston, TX 50 Acquired new IRF Q3 2010 Q2 2011 Summary (Q2 2011 vs. Q2 2010) ü Revenue growth of 8.1% ― Inpatient revenue growth of 8.8% dr
Slide 5: Q2 2011 Summary (cont.)
Exhibit 99-2 Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) ü SWB as a percent of revenue decreased 60 bps. ü Hospital-related expenses as a percent of revenue declined 40 bps. ü Adjusted EBITDA (1) grew 14.8%. ü Strong adjusted free cash flow generation (1) ― Higher Adjusted EBITDA ― Offset by antic
Slide 6: Q2 2011 Summary (cont.)
Exhibit 99-2 a The Company reported GAAP earning per basic share; diluted earning per share is antidilutive for the quarter. Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) ü Earnings per share from continuing operations attributable to HealthSouth were impacted by the following non-recurring and tax-
Slide 7: Q2 2011 Summary (cont.)
Exhibit 99-2 Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) ü Pending sale of five long-term acute care hospitals (LTCHs) for approx. $117.5 million. ― The LTCH in Houston will be retained and closed. ― Expect to close on the sale of the five LTCHs next week ― The six LTCHs contributed $121.7 million
Slide 8: Q2 2011 Summary (cont.)
Exhibit 99-2 Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) ü Growth ― De novo : Announced final CON approval for 40-bed inpatient rehabilitation hospital in Marion County (Ocala), FL; expect to begin accepting patients Q1 2013. ― Acquisition: Announced intent to purchase substantially all assets of
Slide 9: HealthSouth Functional Outcomes Continue to Outpace Industry Average
Exhibit 99-2 HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database - On Demand Report: Q2 2011 Report FIM Gain Change in Functional Independence Measurement (based on an
Slide 10: Revenue growth of 8.1%
Exhibit 99-2 Revenue growth of 8.1% Inpatient revenue growth of 8.8% driven by volume and price Discharge growth of 6.1%; same-store discharge growth of 3.5% Continued positive contribution from hospitals opened or acquired in the last 12 months Revenue per discharge increased 2.6% Outpatient and ot
Slide 11: Expenses (Q2 2011 vs. Q2 2010)
Exhibit 99-2 SWB as a percent of revenue decreased 60 bps. Hospital-related expenses as a percent of revenue declined 40 bps. Expenses (Q2 2011 vs. Q2 2010) ü ü
Slide 12: Adjusted EBITDA
Exhibit 99-2 Adjusted EBITDA Change Q2 6 Months +$14.9M +$31.2M +14.8% +15.5% Improvements driven by : Revenue growth driven by higher volumes and price and disciplined expense management. • Adjusted EBITDA (1)
Slide 13: Earnings per Share from Continuing Operations
Exhibit 99-2 Earnings per Share from Continuing Operations (1) Impacted by the following non- recurring and tax-related items that in aggregate decreased earnings per share by $0.33 in Q2 2011 vs. Q2 2010 : $26.1 million, or $0.28 per share, loss (pre-tax) on early extinguishment of debt related to
Slide 14: Adjusted Free Cash Flow
Exhibit 99-2 Continued strong adjusted free cash flow generation Higher Adjusted EBITDA Offset by anticipated increases in interest expense and maintenance capital expenditures Final swap payment of $10.9 million was made in March 2011. Adjusted Free Cash Flow • – – –
Slide 15: Debt, Liquidity, and Swaps
Exhibit 99-2 (1) Based on 2008 and trailing 4 quarter Adjusted EBITDA of $322.6 million and $440.8 million, respectively; reconciliation to GAAP provided on slides 32-35 and 39. Debt, Liquidity, and Swaps Liquidity Credit Ratings
Slide 16: Debt Profile
Exhibit 99-2 (2) Does not include $387.4 million of convertible perpetual preferred stock and capital leases and other note payables. Debt Profile Call schedule: June 15, 2011 (price 105.375); June 15, 2012 (price 103.583); June 15, 2013 (price 101.792); June 15, 2014 and thereafter (price 100.000)
Slide 17: 2011 Guidance - Adjusted EBITDA
Exhibit 99-2 Original Guidance Feb. 17, 2011 $440 million to $450 million ( Inclusive of 12 months LTCH Adjusted EBITDA) Updated July 27, 2011 $447 million to $453 million ( exclusive of any LTCH Adjusted EBITDA) Revised Guidance May 18, 2011 $440 million to $450 million; (The high end of, or greate
Slide 18: 2011 Guidance - EPS
Exhibit 99-2 Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $1.17 to $1.22 Diluted earnings per share on a GAAP basis are the same as basic earnings per share due to the antidilutive impact in the period. 2011 Guidance - EPS Considerations: ü Includes $26.1 milli
Slide 19: 2011 Guidance - EPS (notes)
Exhibit 99-2 (2) Income from continuing operations attributable to HealthSouth (reclassified for the 6 LTCHs moving to discontinued operations) (3) Current period amounts in income tax provision; see slides 36 - 37. (4) Total income tax provision for full-year 2010, including the reversal of a subst
Slide 20: Multi-Year Adjusted Free Cash Flow
Exhibit 99-2 HealthSouth’s GAAP income statement will be affected by a number of items that will not affect adjusted free cash flow: Normalized GAAP tax rate resulting from the valuation allowance reversal in Q4 2010. Loss on early extinguishment of debt Business Model Multi-Year Adjusted Free Cash
Slide 21: Appendix
Exhibit 99-2 Appendix
Slide 22: Income Tax Considerations
Exhibit 99-2 GAAP Considerations: • As of 6/30/11, the Company had an ending balance of approx. $1.4 billion in federal NOLs and a remaining valuation allowance of approx. $106 million, primarily related to state NOLs. • Expect effective tax rate of approx. 40% going forward Future Cash Tax Payments
Slide 23: Volume Growth Compared to Industry
Exhibit 99-2 4.7% 5.9% 5.9% 5.8% 5.9% 2.7% 2.5% 1.3% (1) Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including HealthSouth sites. (2) Includes consolidated HealthSouth inpatient rehabilitation hospitals classifi
Slide 24: Debt Schedule
Exhibit 99-2 Debt Schedule (1) Based on 4 quarter trailing and 2010 Adjusted EBITDA of $440.8 million and $409.6 million, respectively; reconciliation to GAAP provided on slides 32, 33, 35, and 39.
Slide 25: Revenues & Expenses (6 Months)
Exhibit 99-2 Revenues & Expenses (6 Months)
Slide 26: Revenues & Expenses (Sequential)
Exhibit 99-2 Revenues & Expenses (Sequential)
Slide 27: Payment Sources (Percent of Revenue)
Exhibit 99-2 Payment Sources (Percent of Revenue) (1 ) Managed Medicare revenues represent ~ 7%, 8%, 7%, 8%, 8% and 8% of total revenues for Q2 2011, Q2 2010, 6 Months 2011, 6 Months 2010, Full Year 2010 and Historical Reported 2010, respectively, and are included in “Managed care and other discount
Slide 28: Operational and Labor Metrics
Exhibit 99-2 Operational and Labor Metrics (1) (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 94 consolidated hospitals in Q2 2011, Q1 2011, Q4 2010 and Q3 2010, 92 consolidated hospitals in Q2 2010, and 90 consolidated hospi
Slide 29: Operational and Labor Metrics (notes)
Exhibit 99-2 (1) General and administrative excludes stock-based compensation. (2) Represents discharges from HealthSouth’s 94 consolidated hospitals Q1 2011, Q4 2010 and Q3 2010, 92 consolidated hospitals Q2 2010, and 90 consolidated hospitals prior to Q2 2010. (3) Excludes approximately 400 full-t
Slide 30: Share and Warrant Notes
Exhibit 99-2 Notes : (1) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock. Each warrant has a term of ten
Slide 31: Adjusted EBITDA History
Exhibit 99-2 Adjusted EBITDA (1) History
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99-2 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) - Notes on page 35
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99-2 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) - Notes on page 35.
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99-2 Reconciliation of Net Income to Adjusted EBITDA (1) (3) (1) (2) (3) - Notes on page 35.
Slide 35: Reconciliation Notes for Slides 32-34
Exhibit 99-2 Reconciliation Notes for Slides 32-34 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 c
Slide 36: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA (1) (3) (4) Prior Year Historical Reporting Reclassified for LTCH 2010 a @ as a Tull Year {in milfions, except per shore data} Total_Porshare _Tolal PaShare Total PerShare _Tolal_Parshare _Tolal Per share
Slide 37: Reconciliation Notes for Slide
Exhibit 99-2 Reconciliation Notes for Slide 36 1. Adjusted income from continuing operations and Adjusted EBITDA are non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measure. Manag
Slide 38: Adjusted Free Cash Flow
Exhibit 99-2 Adjusted Free Cash Flow (1) Maintenance capital expenditures are expected to be $20 million higher in 2011 than in 2010. (2) Final swap payment of $10.9 million was made in March 2011.
Slide 39: Net Cash Provided by Operating Activities
Exhibit 99-2 Net Cash Provided by Operating Activities