Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2009 Earnings Presentation
35 slides from Encompass Health's earnings presentation, Feb 22, 2010
Slide 1: Fourth Quarter 2009 Earnings Call Supplemental Slides
Fourth Quarter 2009 Earnings Call Supplemental Slides
Slide 2: 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. These estimates, projections and other forward-looking information are based on assump
Slide 3: Highlights
Highlights Revenues. Expenses Adjusted Consolidated EBITDA Adjusted Income per Diluted Share. Free Cash Flow Reconciliation. Debt Reduction & Liquidity 2010 Guidance... Business Outlook .. Appendix.. Operational Excellence Readmission Rates. Organic Growth .... Regulatory Uncertainty. Revenues (YE).
Slide 4: Highlights (Q4 2009)
Highlights (Q4 2009) Goal One - Organic Growth ü Achieved 4.6% quarter-over-quarter discharge growth. – Same store discharge growth was 4.2%. ü Revenue growth of 5.5%. – Driven by higher discharge volume and Medicare market basket increase of 2.5% effective October 1, 2009. ü High-quality, cost-effe
Slide 5: Highlights (2009)
Highlights (2009) Goal One - Organic Growth ü Achieved 5.4% year-over-year discharge growth through our sales and marketing initiative. ü Successful start-up of Mesa, AZ, 40-bed inpatient rehabilitation hospital. ü Added capacity for approximately 100 beds at existing hospitals. ü Broke ground on a
Slide 6: Revenues (Q4 2009 vs. Q4 2008)
Revenues (Q4 2009 vs. Q4 2008) • Inpatient revenue growth was driven by strong discharge volumes in Q4 2009 despite tough comparisons in Q4 2008. – Volume growth was driven by the sustained sales and marketing effort. – Same store discharge growth was 4.2%. – Pricing reflects 2.5% Medicare market ba
Slide 7: Expenses
• Salaries and benefits increased as a result of an October 1, 2009, 2.3% merit increase. – Continued improvement on labor productivity demonstrated by lower EPOB. • Hospital-related expenses increased as a result of higher discharge volume.
Slide 8: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA (1) (Millions) (1) Reconciliation to GAAP provided on slides 34 through 35. • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management – 2.5% Medicare market basket increase effective October 1, 2009
Slide 9: Adjusted Income per Diluted Share (4Q 2009)
Adjusted Income per Diluted Share (4Q 2009) (1) Reconciliation to GAAP provided on slides 34 through 35. • The improvement in adjusted earnings per share, driven by higher Adjusted Consolidated EBITDA and lower interest expense, was offset by a $15.6 million loss on early extinguishment of debt. – I
Slide 10: Reconciliation to GAAP
(1) Reconciliation to GAAP provided on slides 34 through 35.
Slide 11: Free Cash Flow Reconciliation
Free Cash Flow Reconciliation: Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities (1) Notes on page 35.
Slide 12: Cash flow notes
(1) Includes capital expenditures for the hospital refresh program. (2) Reflects seasonal use of cash related to interest and insurance payments.
Slide 13: Debt Reduction and Liquidity
Year-End 2011 Goal: 3.5x to 4.0x (1) Based on four quarter trailing Adjusted Consolidated EBITDA of $383.0 million; see related debt schedule on slide 31, and reconciliation to GAAP on slides 34 through 35. Debt to EBITDA 6.3x 6.3x 5.3x 4.3x (1) ($ Billions) Debt Reduction and Liquidity Liquidity
Slide 14: Guidance
Guidance (1) (1) Reconciliation to GAAP provided on slides 34 through 35. (2) Adjusted income from continuing operations per diluted share.
Slide 15: Business Outlook
Deleveraging, Growth, Reform and Sector Regulation Business Outlook 3.5x to 4.0x Debt to EBITDA (by YE 2011) ( Exclusive of any E&Y settlement) Organic growth through capacity expansion and de novos (~ $60 million in 2010) IRF acquisitions/joint ventures Deleveraging Growth Acquisitions of other, co
Slide 16: Appendix
Appendix
Slide 17: Operational Excellence: Sustained Market Share Gains
(1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 90 HealthSouth sites. (2) Includes 90 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Operational Excellence
Slide 18: Operational Excellence = High-Quality Care
FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Reports 2008 Year End Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adjust
Slide 19: Operational Excellence = Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth 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% 0.43% Average Estimated Total Payment per Discharge for FY 2010 $16,452 $16,741 $16,626 $15,996 Average
Slide 20: IRFs have Lower Readmission Rates
IRFs have Lower Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission,
Slide 21: Organic Growth
Capacity expansions : • Approximately 100 beds added in 2010. • Average investment per bed including renovation: – $100K to $250K De novos : • Expanded joint venture with St. Vincent Health System in Little Rock, AR, through the purchase of a 23-bed rehabilitation unit. • Acquired the rehabilitation
Slide 22: Regulatory Uncertainty
Sources : Senate Reform Bill, CMS Regulatory published rules and MMSEA
Slide 23: Revenues (Year-End)
(Millions) Inpatient Outpatient and other Consolidated net operating (Actual Amounts) Discharges Net patient revenue / discharge Favorable (Unfavorable) 2009 2008 Change $ 1,743.4 1,651.7 5.6% 167.7 177.8 (5.7%) $ 1,911.1 1,829.5 4.5% 112,975 107,184 5.4% $ 15,432 15,410 0.1%
Slide 24: 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 496% 50.7% 110 bps EPOB (employees per occupied bed) 3.53 3.62 25% Hospital related expenses $ 464.5 $ 448.9 (3.5%) (other operating, supplies, occupanc
Slide 25: 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 / discharge $ 15,491 $ 15,260
Slide 26: Expenses (Sequential)
Favorable (Unfavorable) (Millions, except percent) 4th Qtr.2009 3rd Qtr. 2009 Change Salaries and benefits $ 243.7 $ 234.0 (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 related expenses $ 119.2 $ 113.9 (4.7%) (other operating,
Slide 27: Operational and Labor Metrics
Operational and Labor Metrics (1) (2) Represents discharges from HealthSouth’s 90 consolidated hospitals, which includes Mesa, Arizona starting in Q3 2009. (3) Excludes approx. 400 full-time equivalents, who are considered part of corporate overhead with their salaries and benefits included in gener
Slide 28: Payment Sources
Payment Sources (1) Managed Medicare revenues represent ~ 8% and 6% of total revenues for 2009 and 2008, respectively, and are included in “Managed care and other discount plans.”
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 loan amortization As of December 31, 2009
Slide 30: Interest Rate Swaps
Interest Rate Swaps: as of December 31, 2009 (Millions) (1) In October 2009, the credit agreement was amended. The maturity for $300 million of the term loan has been extended to 2015. The extended portion of the term loan will bear an interest rate of Libor plus 375. (2) Cash settlements flow throu
Slide 31: Debt Schedule
Debt Schedule (Millions) (1) The Company had $80.9 million in cash and cash equivalents as of December 31, 2009. (2) Based on four quarter trailing Adjusted Consolidated EBITDA of $383.0 million and $341.2 million, respectively. See reconciliation to GAAP on slides 34 through 35. Debt to EBITDA (2)
Slide 32: Cash Refunds and Future Cash Tax Payments
Cash Refunds as of Dec. 31, 2009 • Federal tax recoveries virtually complete. – Approx. $43 million received. • State tax refunds in progress. – Approx. $21 million received. – Approx. $10 million net receivable on the balance sheet. Future Cash Tax Payments • Expect to pay about $5-7 million per ye
Slide 33: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes: (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) 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
Slide 34: Three & Twelve Months Reconciliation of Net Income
Three & Twelve Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 35.
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