Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2012 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Apr 27, 2012
Slide 1: First Quarter 2012 Earnings Call Supplemental Slides
First Quarter 2012 Earnings Call 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 Q1 2012 Summary (Q1 2012 vs. Q1 2011)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-6… … … … … Revenues (Q1 2012 vs. Q1 2011)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …7… … … … … … Expenses (Q1 2012 vs. Q1 2011)… … … … … … … … … … … … … … … … …
Slide 4: Q1 2012 Summary (Q1 2012 vs. Q1 2011)
Q1 2012 Summary (Q1 2012 vs. Q1 2011) Q1 2012 benefited from an additional day in February due to leap year. Revenue growth of 6.4% ― Inpatient revenue growth of 8.3% Discharge growth of 6.0%; same-store discharge growth of 5.0% Revenue per discharge increase of 2.2% ― Outpatient and other r
Slide 5: Q1 2012 Summary (Q1 2012 vs. Q1 2011) (cont.)
Q1 2012 Summary (Q1 2012 vs. Q1 2011) (cont.) Adjusted free cash flow (1) for the quarter of $45.2 million ― Q1 2012 adjusted free cash flow reflected the planned investment in the clinical information system, the anticipated increase in net working capital, and other items, as illustrated on slid
Slide 6: Q1 2012 Summary (cont.): Functional Outcomes vs. Industry
Q1 2012 Summary (Q1 2012 vs. Q1 2011) (cont.) HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* 35.0 3.5 33.9 30.0 3.0 3.02 29.3 25.0 2.5 2.53 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database –
Slide 7: Revenues (Q1 2012 vs. Q1 2011)
Revenues (Q1 2012 vs. Q1 2011) Q1 Q1 Increase/ (Millions) 2012 2011 (Decrease) Inpatient $ 500.6 $ 462.1 8.3% Outpatient and other 38.0 43.9 (13.4%) Consolidated net operating $ 538.6 $ 506.0 6.4% (Actual Amounts) Discharges 30,871 29,127 6.0% Net patient revenue / discharge $16,216 $15,865 2.2% R
Slide 8: Expenses (Q1 2012 vs. Q1 2011)
Expenses (Q1 2012 vs. Q1 2011) Q1 Q1 Increase/ (Millions) 2012 2011 (Decrease) Salaries and benefits $ 261.0 $ 244.0 7.0% Percent of net operating revenues 48.5% 48.2% 30 bps EPOB (employees per occupied bed) 3.34 3.39 (1.5%) Hospital-related expenses $ 112.0 $ 108.3 3.4% (other operating, supplies,
Slide 9: Adjusted EBITDA
Adjusted EBITDA (1) Q1 Adjusted EBITDA Change (Millions) 2012 2011 Q1 2012 Net operating revenues $ 538.6 $ 506.0 +$9.5M Less: Prov ision for doubtful accounts (6.3) (4.8) +8.1% Net operating rev enues less prov ision • Revenue growth for doubtful accounts 532.3 501.2 Operating expenses: • Improved
Slide 10: Earnings per Share
Earnings per Share Earnings per Share from Continuing Operations (3) Q1 (In Millions, Except Per Share Data) 2012 2011 Adjusted EBITDA $ 127.0 $ 117.5 Q1 2012 reflects: Interest expense and amortization of debt discounts and fees (23.3) (35.1) • Higher Adjusted EBITDA Depreciation and amortization (
Slide 11: Adjusted Free Cash Flow
Adjusted Free Cash Flow(1) Q1 Change (Millions, except per share data) 2012 2011 $ % (1) Adjusted free cash flow $ 45.2 $ 48.2 $ (3.0) (6.2%) Operating Cash Flows Investing Cash Flows $11.5 (2) $9.5 $10.9 (5) $48.2 ($16.5) (3) $7.7 $45.2 ($10.0) (6) ($16.1) (4) Adjusted Free Adjusted Cash Interest A
Slide 12: Adjusted Free Cash Flow (cont.)
Adjusted Free Cash Flow (cont.) Q1 Full Year (Millions) 2012 2011 2011 Net cash provided by operating activities $ 81.0 $ 89.5 $ 342.7 Impact of discontinued operations (0.4) (2.1) (9.1) Net cash provided by operating 80.6 87.4 333.6 activities of continuing operations Capital expenditures for maint
Slide 13: 2012 Guidance – Adjusted EBITDA
2012 Guidance – Adjusted EBITDA (1) 2012 Adjusted EBITDA $475 million to $485 million Based on results of Q1 2012, HealthSouth expects its 2012 full year results to be at the high end of, or greater than, this guidance range. Considerations: Revenue growth of 3.8% to 5.2% (April through December 2
Slide 14: 2012 Guidance - EPS
2012 Guidance - EPS Based on results of Q1 2012, HealthSouth expects its 2012 full year results to be at the high end of, Earnings per Share from Continuing or greater than, this guidance range. Operations Attributable to EPS Guidance HealthSouth (1) Actual Low High (In Millions, Except Per Share Da
Slide 15: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 3/31/12, the Company had an ending balance of approx. $1.2 billion in federal NOLs and a remaining valuation allowance of approx. $50 million, primarily related to state NOLs. • 2011 effective tax rate was approx. 19%. (1)(2) • Expect effective
Slide 16: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2012 adjusted free cash flow growth reflects increased The increase in 2012 maintenance capital expenditures and working maintenance CAPEX is driven by the capital. clinical information system roll-out, two Multi-year adjusted free cash flow CAGR of 12%
Slide 17: Priorities for Reinvesting Free Cash Flows
Priorities for Reinvesting Free Cash Flows (millions) 2012 Q1 2012 Assumptions Actual •Growth in core business Bed expansions $20 to $25 $5.5 (80-100 beds) Priorities De novo hospitals $50 to $70 $9.2 Growth (complete Ocala; start 4 others) Acquisitions (target 2/year) TBD - − Free standing IR
Slide 18: Portfolio Growth
Portfolio Growth • All projects have minimum IRR of 15% (pre-tax). De novos Acquisitions • Cash Payback (1) = 5 to 7 years • Cash Payback (1) = 4 to 6 years • Longer payback period due to: • Target: 2 acquisitions/Year − Design and construction period − Initial ramp-up of operations • Target 4 openi
Slide 19: Appendix
Appendix HEALTHSOUTH,
Slide 20: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1)(2) • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Achieved < 3.0x Delevering (3) Debt to EBITDA < 3.0x Debt to EBITDA (subject to operating environment) Same-store Growth (Includes bed expansio
Slide 21: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Medicare Pricing 72% (1) FY 2012 FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (2) 2
Slide 22: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses 2012 2013 2014 • Other operating expenses and Merit increases (2) 2.25-2.5% 2.25-2.5% 2.25-2.5% supply costs tracking with inflation • Occupancy costs relatively Benefit costs increases 5-8% 5-8% 5-8% constant as
Slide 23: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry HealthSouth’s volume growth has outpaced competitors’ Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly 6.5% UDS Industry Sites (1) 120,000 5.0% HLS Same Store (2) 2.1% Q4 4.7% 5.9% 90,000 3.3% 1.9% 5.9% 2.7% 5.1% Q3 1.8% 1.4% 1.0% 60,000 -1
Slide 24: Our Track Record
Our Track Record ($ in millions) Revenue Discharge Volume $2,027 $2,060 $1,878 120,098 $1,785 118,354 $1,701 112,514 $1,608 109,106 103,356 96,700 2007 2008 2009 2010 2011 Trailing 4Qtrs 2007 2008 2009 2010 2011 Trailing 4Qtrs Income from Continuing Operations Adjusted EBITDA (1) Attributable to Hea
Slide 25: Our Track Record
Our Track Record Total Debt Adjusted Free Cash Flow (1) (billions) (millions) $2.25 7 $230 6.7x Leverage Ratio (1) $229 $243 $240 6 Interest Expense $2.00 $2.04 $180 5 $181 $155 $130 $1.75 $1.81 4 $108 $1.66 2.7x 3 $80 $1.50 $1.51 Swap Cash Payments 2 $11 $30 $1.25 $9 $1.25 $1.27 1 2007 2008 2009 20
Slide 26: Debt and Liquidity
Debt and Liquidity Debt Outstanding Liquidity March 31, Dec. 31, 2012 2011 5.6x(1) Cash Available $ 44.3 $ 30.1 Revolver Total Line $ 500.0 $ 500.0 $1.81 Less: – Draws (125.0) (110.0) $1.66 – Letters of credit (44.4) (44.6) 2.7x(1) Available $ 330.6 $ 345.4 (billions) $1.51 Total Liquidity $ 374.9 $
Slide 27: Debt Maturity Profile
Debt Maturity Profile HealthSouth is now positioned with a lower-cost, flexible capital structure… Additional debt pre-payment opportunities and flexible covenants (1) No near-term maturities and well-spaced debt maturities Limited exposure to higher interest rates March 31, 2012 (2) 10% 10of
Slide 28: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody March 31, Dec. 31, in Debt (Millions) Corporate B+ B1 2012 2011 vs. YE 2011 Advances under $500 million revolving credit facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 $ 125.0 $ 110.0 $ 15.0 Term loan facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 9
Slide 29: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q1 Q4 Increase/ Revenues (millions) 2012 2011 (Decrease) Inpatient $ 500.6 $ 480.1 4.3% Outpatient and other 38.0 38.0 0.0% Consolidated net operating $ 538.6 $ 518.1 4.0% (Actual Amounts) Discharges 30,871 30,066 2.7% Net patient revenue / discharge $ 16,216 $ 15,96
Slide 30: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q1 Full Year 2012 2011 2011 Medicare 73.5% 71.5% 72.0% Medicaid 1.1% 1.7% 1.6% Workers' compensation 1.5% 1.7% 1.6% Managed care and other discount plans (1) 19.3% 19.7% 19.8% Other third-party payors 1.7% 2.1% 2.0% Patients 1.4% 1.1% 1.2% Other income 1.5% 2.2%
Slide 31: Operational and Labor Metrics
Operational and Labor Metrics (1) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 3 Months 3 Months Full Year 2012 2012 2012 2012 2011 2011 2011 2011 2012 2011 2011 (In Millions) Net patient revenue-inpatient $ 500.6 $ 480.1 $ 458.8 $ 465.4 $ 462.1 $ 500.6 $ 462.1 $ 1,866.4 Net patient revenue-outpatient and other revenues
Slide 32: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Weighted Average for the Period Q1 Q1 FY FY 2012 2011 2011 2010 Basic shares outstanding (1) (2) 94.5 93.1 93.3 92.8 (1) (2) (3) Diluted shares outstanding 108.7 109.0 109.2 108.5 End of Period Q1 Q1 FY FY 2012 2011 2011 2010 Basic shares
Slide 33: Adjusted EBITDA History
Adjusted EBITDA (1) History Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 3 Months 3 Months Full Year (Millions) 2012 2012 2012 2012 2011 2011 2011 2011 2012 2011 2011 Net operating revenues $ 538.6 $ 518.1 $ 497.7 $ 505.1 $ 506.0 $ 538.6 $ 506.0 $ 2,026.9 Less: Prov ision for doubtful accounts (6.3) (6.1) (5.1) (5.0) (4
Slide 34: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q1 Full Year (Millions) 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 81.0 $ 89.5 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of discontinued operations
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2012 Q1 (in millions, except per share data) Total Per Share Net income $ 56.8 Loss from disc ops, net of tax, attributable to HealthSouth 0.4 Net income attributable to noncontrolling interests (12.6) Income from continuing operations attributa
Slide 36: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2011 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 $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable
Slide 37: Reconciliation of Net Income to Adjusted EBITDA
(1) (3) Reconciliation of Net Income to Adjusted EBITDA Full Year 2007 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 718.7 $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (462.4)
Slide 38: Reconciliation Notes for Slides 35-37
Reconciliation Notes for Slides 35-37 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 util
Slide 39: Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities
Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities Q1 Full Year (Millions) 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 81.0 $ 89.5 $ 342.7 $ 331.0 $ 406.1 $227.2 $230.6 Prov ision for doubtful accounts (6.3) (4.8) (21.0) (16.4) (30.7) (23.0) (2