Encompass Health Corporation · NYSE:EHC
Encompass Health — Q4 2013 Earnings Presentation
37 slides from Encompass Health's earnings presentation, Feb 20, 2014
Slide 1: Fourth Quarter 2013 Earnings Call Supplemental Slides
Fourth Quarter 2013 Earnings Call Fe b ru ar y 2 0 , 2 0 1 4 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 Q4 2013 Summary… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …4-7 ……………… Highlights… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 8-9 …………. Quality… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q4 2013 Summary (Q4 2013 vs. Q4 2012)
Q4 2013 Summary (Q4 2013 vs. Q4 2012) Revenue growth of 3.5% ― Inpatient revenue growth of 3.7% was negatively impacted by approx. $9 million for sequestration and approx. $8 million to establish reserves related to RAC audits (1). Discharge growth of 3.8% • Same-store discharge growth of 1.3% (
Slide 5: Q4 2013 Summary (cont.)
Q4 2013 Summary (Q4 2013 vs. Q4 2012) (cont.) Disciplined expense management ― Results benefited from reductions to self-insurance reserves, including $6.7 million attributable to lowering the Company’s statistical confidence level (see table on slide 33). ― Salaries and benefits as a percent of r
Slide 6: Q4 2013 Summary (cont.)
Q4 2013 Summary (Q4 2013 vs. Q4 2012) (cont.) Adjusted EBITDA (1) for the quarter of $142.3 million reflected growth of 10.7%. ― Negatively impacted by approx. $8 million for sequestration and approx. $4 million, net, for RAC audits ― Benefited from a reduction in self-insurance reserves (see tabl
Slide 7: Q4 2013 Summary (cont.)
Q4 2013 Summary (Q4 2013 vs. Q4 2012) (cont.) Balance sheet enhancements ― Exchanged $320 million of new 2.0% Convertible Senior Subordinated Notes due 2043 for 257,110 shares of our 6.5% Series A Convertible Perpetual Preferred Stock (noncash transaction) The exchange will result in an approx.
Slide 8: Highlights
Highlights Capacity expansion and new development ― Relocated into new HealthSouth Rehabilitation Hospital of Western Massachusetts in Ludlow, MA (53 beds) in December 2013. This hospital replaced a leased facility. ― Broke ground in Q4 2013 on three de novos and expect all to be operational in Q4
Slide 9: Highlights (cont.)
Highlights (cont.) New clinical information system now installed in 36 of the Company’s hospitals 96 HealthSouth hospitals have now received certification for one or more disease- specific certifications from The Joint Commission’s Disease-Specific Care Certification Program. Quarterly cash di
Slide 10: Quality
Quality HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDSMR Average* 40.0 4.0 35.0 36.4 3.5 3.27 30.0 31.1 3.0 2.72 25.0 2.5 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSMR Database – On Demand Report: Q4 2013
Slide 11: Revenues (Q4 2013 vs. Q4 2012)
Revenues (Q4 2013 vs. Q4 2012) Q4 Q4 Increase/ (Millions) 2013 2012 (Decrease) Inpatient $ 537.5 $ 518.1 3.7% Outpatient and other 34.6 34.8 (0.6%) Consolidated net operating $ 572.1 $ 552.9 3.5% (Actual Amounts) Discharges 32,906 31,695 3.8% Net patient revenue / discharge $ 16,334 $ 16,346 (0.1%)
Slide 12: Expenses (Q4 2013 vs. Q4 2012)
Expenses (Q4 2013 vs. Q4 2012) Q4 Q4 Increase/ (Millions) 2013 2012 (Decrease) Salaries and benefits $ 272.0 $ 269.5 0.9% Percent of net operating revenues 47.5% 48.7% (120 bps) EPOB (employees per occupied bed) 3.47 3.46 0.3% Hospital-related expenses $ 118.4 $ 114.8 3.1% (1) (other operating , sup
Slide 13: Adjusted EBITDA
Adjusted EBITDA Change Adjusted EBITDA (1) Year-End Q4 Year-End 2013 2012 2013 2012 Q4 2013 __ 2013__ (Millions) Net operating revenues +$13.7M +$45.7M $ 572.1 $ 552.9 $ 2,273.2 $ 2,161.9 +10.7% +9.0% Less: Prov ision for doubtful accounts (3.6) (7.2) (26.0) (27.0) Net operating rev enues less prov
Slide 14: Earnings per Share
Earnings per Share (1) Q4 Year-End Q4 2013 and full-year 2013 reflect: (In Millions, Except Per Share Data) 2013 2012 2013 2012 Adjusted EBITDA $ 142.3 $ 128.6 $ 551.6 $ 505.9 Interest expense and amortization of • $71.6 million, or $0.83 per debt discounts and fees (26.5) (24.3) (100.4) (94.1) shar
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q4 Year-End (Millions) 2013 2012 2013 2012 Net cash provided by operating activities $ 100.9 $ 109.3 $ 470.3 $ 411.5 Impact of discontinued operations 0.5 (0.5) 1.9 (2.0) Net cash provided by operating 101.4 108.8 472.2 409.5 activities of continuing operations Capital expend
Slide 16: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 12 Months Change (Millions) 2013 2012 $ % Adjusted free cash flow (1) $ 330.9 $ 268.0 $ 62.9 23.5% Operating Cash Flows Investing and Financing Cash Flows $45.7 ($5.0) $1.9 $10.5 $8.2 $1.6 $330.9 $268.0 Adjusted Free Adjusted EBITDA Cash Interest Cash Tax Working Capital
Slide 17: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) Adjusted EBITDA $555 million to $565 million Considerations for full-year 2014: Revenue growth of 4.0% to 5.0% before sequestration ― Discharge growth between 2.5% and 3.5% ― Revenue per discharge growth between 2.0% and 2.3% before sequestration ― Lower outpatie
Slide 18: 2014 Guidance - Earnings Per Share
2014 Guidance - Earnings Per Share EPS Guidance Actual Low High Earnings per Share from Continuing (In Millions, Except Per Share Data) 2013 2014 Adjusted EBITDA $ 551.6 $ 555 $ 565 Operations Attributable to Interest expense and amortization HealthSouth (1) of debt discounts and fees Depreciation a
Slide 19: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 12/31/13, the Company’s federal NOL had a gross balance of approx. $929 million. ― Includes the approx. $283 million increase in the federal NOL (on a gross basis) as a result of the April 25, 2013 agreements with the IRS • The Company has a rem
Slide 20: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations Reflects: • Continued investment in the CIS and hospital refresh projects • Timing of maintenance capital expenditures in 2013 and 2014 Adjusted Free Cash Flow (1) Certain Cash Flow Items (2) 2012 2013 2014 (millions) Actual Actual Assumptions (millions) $3
Slide 21: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2012 2013 2014 Actuals Actuals Assumptions Highest Priority Bed expansions (target ~ 80 beds/yr) Growth Remains and unit consolidations $16.6 $24.9 $25 to $35 in Core New IRF's (target 4-6/yr) 41.1 55.5 55 to 75 Business $80 to $110, excluding $57
Slide 22: Appendix
Appendix HEALTHSOUTH,
Slide 23: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Business Model Potential depletion of the federal NOL • Adjusted EBITDA CAGR: 4-8% (2) during the 2014 to 2016 timeframe will affect Cash Flow CAGR. • Continued strong free cash flow generation Strategy 2013 2014 2015 2016 $234 million common Shareholder • Quarterly
Slide 24: Debt Schedule
Debt Schedule Credit Rating Change in S&P Moody Dec. 31, Dec. 31, Debt vs. (Millions) Corporate BB- Ba3 2013 2012 YE 2012 Advances under $600 million revolving credit facility, June 2018 - 1 Month LIBOR +175bps BB+ Baa3 $ 45.0 $ - 45.0 Bonds Payable: 7.25% Senior Notes due 2018 (1) BB- Ba3 272.4 302
Slide 25: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q4 Q3 Increase/ Revenues (millions) 2013 2013 (Decrease) Inpatient $ 537.5 $ 528.8 1.6% Outpatient and other 34.6 35.2 (1.7%) Consolidated net operating $ 572.1 $ 564.0 1.4% (Actual Amounts) Discharges 32,906 32,307 1.9% Net patient revenue / discharge $ 16,334 $ 16,
Slide 26: Revenues & Expenses (12 months)
Revenues & Expenses (12 months) 12 Months 12 Months Increase/ Revenues (millions) 2013 2012 (Decrease) Inpatient $ 2,130.8 $ 2,012.6 5.9% Outpatient and other 142.4 149.3 (4.6%) Consolidated net operating $ 2,273.2 $ 2,161.9 5.1% (Actual Amounts) Discharges 129,988 123,854 5.0% Net patient revenue /
Slide 27: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q4 Full Year 2013 2012 2013 2012 Medicare 74.7% 73.6% 74.5% 73.4% Medicaid 1.2% 1.2% 1.2% 1.2% Workers' compensation 1.2% 1.4% 1.2% 1.5% Managed care and other discount plans, including Medicare Adv antage (1) 18.3% 19.2% 18.5% 19.3% Other third-party payors 1.8
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 (In Millions) Net patient revenue-inpatient $ 537.5 $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 2,130.8 $ 2,012.6 Net patient revenue-outpatient and other revenues 34.6 35.
Slide 29: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) End of Period Q4 Q4 Full Year 2013 2012 2013 2012 2011 Basic shares outstanding (1) (2) (3) (4) 86.4 94.7 88.1 94.6 93.3 Diluted shares outstanding (1) (2) (3) (4) (5) 100.8 108.0 102.1 108.1 109.2 End of Period Q4 Q4 Full Year 2013 2012 2
Slide 30: Outstanding Share Summary, Warrant Information and Conversion Rate Notes
Outstanding Share Summary, Warrant Information and Conversion Rate Notes (1) The Company purchased 9,119,450 common shares in Q1 2013 through a tender offer at a price of $25.50 per share. (2) On July 25, 2013, the Company’s board of directors approved the initiation of a quarterly cash dividend on
Slide 31: Adjusted EBITDA History
Adjusted EBITDA (1) History Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year (Millions) 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 Net operating revenues $ 572.1 $ 564.0 $ 564.5 $ 572.6 $ 552.9 $ 537.0 $ 533.4 $ 538.6 $ 2,273.2 $ 2,161.9 Less: Prov ision for doubtful accounts (3.6) (8.0) (7.0) (7.4) (7.2) (
Slide 32: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q4 Full Year (Millions) 2013 2012 2013 2012 2011 2010 Net cash provided by operating activities $ 100.9 $ 109.3 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discont inued operat ions 0.5 (0.5)
Slide 33: Self-Insurance Reserves
Self-Insurance Reserves The following table presents the changes in our self-insurance reserves for the years ended December 31, 2013 and 2012 (in millions): 2013 2012 Balance at beginning of period, gross $ 148.3 $ 153.3 Less: Reinsurance receivables (29.4) (34.4) Balance at beginning of period, ne
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 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 $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable to
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable to
Slide 36: Reconciliation Notes for Slides 34-35
Reconciliation Notes for Slides 34-35 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 utili
Slide 37: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q4 Full Year (Millions) 2013 2012 2013 2012 Net cash provided by operating activities $ 100.9 $ 109.3 $ 470.3 $ 411.5 Prov ision for doubtful accounts (3.6) (7.2) (26.0) (27.0) Professional fees—accounting, tax, and legal 1.7 2.