Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2014 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Oct 28, 2014
Slide 1: Third Quarter 2014 Earnings Call
Third Quarter 2014 Earnings Call October 28, 2014 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 Q3 2014 Summary ........................................................................................................................................... 4-7 Development ..............................................................................................................
Slide 4: Q3 2014 Summary (Q3 2014 vs. Q3 2013)
Q3 2014 Summary (Q3 2014 vs. Q3 2013) ü Revenue growth of 5.8% ― Inpatient revenue growth of 6.6% (200 bps attributable to Fairlawn(1)) ▪ Discharge growth of 3.8% (compared to 5.7% in prior year) • Same-store discharge growth of 1.9% (negatively impacted by 40 bps for closure of 40 SNF beds) • New-s
Slide 5: Q3 2014 Summary (cont.)
Q3 2014 Summary (Q3 2014 vs. Q3 2013) (cont.) ü Salaries and benefits as a percent of revenue increased 80 bps mainly attributable to the following items: ― Approx. $3.3 million lower reduction in self-insurance reserves in Q3 2014 versus Q3 2013 ▪ Due to favorable trends in claims, the Company's re
Slide 6: Q3 2014 Summary (cont.)
Q3 2014 Summary (Q3 2014 vs. Q3 2013) (cont.) ü Adjusted EBITDA (1) for the quarter of $140.0 million increased by 3.3% impacted by: ― Approx. $4.8 million in lower reductions to self-insurance reserves in Q3 2014 versus Q3 2013 ― Approx. $2.0 million related to an additional equity interest in Fair
Slide 7: Q3 2014 Summary (cont.)
Q3 2014 Summary (cont.) ü Balance sheet enhancements: ― Amended credit facility to add a $150 million term loan commitment to our existing $600 million revolver and extend the maturity to 2019 ― Issued an additional $175 million of our existing 5.75% senior notes due 2024 ― Redeemed all $271 million
Slide 8: Development
Development ü Continued construction of three de novos: ― Altamonte Springs, FL (50 beds); expect to open October 29, 2014 ― Newnan, GA (50 beds); expect to open December 2014 ― Middletown, DE (34 beds); expect to open December 2014 ü New development: ― Continued progress towards owning and operatin
Slide 9: Quality
Quality (1) ü HealthSouth functional outcomes continue to outpace industry average HealthSouth Average UDSMR Average(1) without HealthSouth 40.0 4.0 FIM® Gain (2) FIM® is a tool for measuring 35.0 3.5 functional independence. (FIM® 30.0 3.0 Gain is based on the change from admission to discharge of
Slide 10: Revenues (Q3 2014 vs. Q3 2013)
Revenues (Q3 2014 vs. Q3 2013) Q3 Q3 Increase/ (Millions) 2014 2013 (Decrease) Inpatient $ 563.7 $ 528.8 6.6% Outpatient and other 33.2 35.2 (5.7%) Consolidated net operating $ 596.9 $ 564.0 5.8% (Actual Amounts) Discharges 33,541 32,307 3.8% Net patient revenue / discharge $ 16,806 $ 16,368 2.7% ü
Slide 11: Expenses (Q3 2014 vs. Q3 2013)
Expenses (Q3 2014 vs. Q3 2013) Q3 Q3 Increase/ (Millions) 2014 2013 (Decrease) Salaries and benefits $ 290.0 $ 269.5 7.6% Percent of net operating revenues 48.6% 47.8% 80 bps EPOB (employees per occupied bed) 3.48 3.48 0.0% Hospital-related expenses $ 123.6 $ 116.9 5.7% (1) (other operating , suppli
Slide 12: Adjusted EBITDA
Adjusted EBITDA (1) Adjusted EBITDA Change Q3 9 Months Q3 2014 9 Mos. 2014 (Millions) 2014 2013 2014 2013 Net operating revenues $ 596.9 $ 564.0 $ 1,792.5 $ 1,701.1 +$4.5M +$27.5M Less: Provision for doubtful accounts (8.2) (8.0) (25.0) (22.4) +3.3% +6.7% Net operating revenues less provision for Q3
Slide 13: Earnings per Share
Earnings per Share Q3 2014 reflects: Q3 9 Months • Higher Adjusted (In Millions, Except Per Share Data) 2014 2013 2014 2013 Adjusted EBITDA $ 140.0 $ 135.5 $ 436.8 $ 409.3 EBITDA, interest Interest expense and amortization of debt discounts and fees (27.8) (25.3) (83.5) (73.9) expense and Depreciati
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Q3 9 Months (Millions) 2014 2013 2014 2013 Net cash provided by operating activities $ 139.6 $ 142.6 $ 374.7 $ 369.4 Impact of discontinued operations (0.2) 1.2 1.0 1.4 Net cash provided by operating activities of continuing operations 139.4 143.8 375.7 370.8 Capital expe
Slide 15: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) 9 Months Change (Millions) 2014 2013 $ % (1) Adjusted free cash flow $265.9 $264.6 1.3 0.5% Operating Cash Flows Investing and Investing and Financing Financing Operating Cash Flows Cash Flows Cash Flows $27.5 $12.5 ($3.2) ($6.4) ($20.1) ($11.6) $265.9 $264.6 Adjusted Fre
Slide 16: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) $575 million to $580 million (previous guidance $570 million to $580 million) Considerations for October through December: ü Revenue growth of 6.3% to 7.4% ― Discharge growth between 4.8% and 5.6% ― Revenue per discharge growth between 2.3% and 2.6% ― Lower outpati
Slide 17: 2014 Guidance - EPS
2014 Guidance - EPS EPS Guidance Earnings per Share from Continuing Actual Low High Operations Attributable to HealthSouth (1) (In Millions, Except Per Share Data) 2013 2014 Adjusted EBITDA $ 551.6 $ 575 $ 580 $ 2.24 to $ 2.27 Interest expense and amortization of debt discounts and fees (100.4) (110
Slide 18: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 9/30/14, the Company’s federal NOL had a gross balance of approx. $688 million. • The Company has a remaining valuation allowance of approx. $30 million related to state NOLs. Cash Tax Payment: • In 2014, the Company expects to pay approx. $12 m
Slide 19: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations Adjusted free cash flow for 2014 is expected to increase over 2013. 9 months (1) Certain Cash Flow Items (2) 2013 2014 Adjusted Free Cash Flow 2014 (millions) Actual Assumptions Actual (millions) (3) • Cash interest expense $95.4 $74.1 $97 • Cash payments f
Slide 20: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow « (millions) 2013 9 Months 2014 Highest Priority Growth Actuals Actuals Assumptions in Core Remains Bed expansions (target~ 80 beds/yr) Business and unit consolidations $24.9 $16.4 $25 to $35 New IRF's (target 4-6/yr) 55.5 44.9 55 to 75 Fairlawn transaction
Slide 21: Appendix
Appendix HEALTHSOUTH.
Slide 22: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Business Model Potential depletion of the federal NOL during the 2014 to 2016 timeframe will affect • Adjusted EBITDA CAGR: 4-8% (2) Cash Flow CAGR. • Continued strong free cash flow generation Strategy 2013 2014 2015 2016 Shareholder $234 million common • Quarterly
Slide 23: Our New-Store/Same-Store Growth
Our New-Store/Same-Store Growth HealthSouth's volume growth is driven by bed expansions and new IRFs 10.0 Augusta, GA (58 beds) Bristol, VA (25 beds) Ocala, Fl Littleton, CO (40 beds) Sugar Land, TX (50 beds) (40 beds) Stuart, FL (34 beds) Cypress, TX (40 beds) 8.0 Cincinnati, OH (40 beds) 6.0 4.0 2
Slide 24: Debt Schedule
Debt Schedule Pro Forma Credit Rating Pro Forma Change in S&P Moody Post Issuance Sept. 30, Dec. 31, Debt vs. (1) (Millions) Corporate BB- Ba3 and Redemption 2014 2013 YE 2013 Advances under $600 million revolving credit facility, September 2019 - 1 Month LIBOR +175bps (1) BB+ Baa3 $ — $ — $ 45.0 $
Slide 25: Debt Maturity Profile
Debt Maturity Profile HealthSouth is positioned with a cost-efficient, flexible capital structure.. Pro forma September 30, 2014 (1) (2) for Issuance, Redemption and Credit Facility Amendment ($ in millions) • 10% of the outstanding principal is callable per Call schedule: annum at 103%. • February
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) 2014 2014 (Decrease) Inpatient $ 563.7 $ 569.7 (1.1%) Outpatient and other 33.2 34.7 (4.3%) Consolidated net operating $ 596.9 $ 604.4 (1.2%) (Actual Amounts) Discharges 33,541 33,620 (0.2%) Net patient revenue / discharge $ 16,806
Slide 27: Revenues & Expenses (9 months)
Revenues & Expenses (9 months) 9 Months 9 Months Increase/ Revenues (millions) 2014 2013 (Decrease Inpatient $ 1,691.6 $ 1,593.3 6.2% Outpatient and other 100.9 107.8 (6.4%) Consolidated net operating $ 1,792.5 $ 1,701.1 5.4% (Actual Amounts) Discharges 100,050 97,082 3.1% Net patient revenue / disc
Slide 28: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q3 9 Months Full Year 2014 2013 2014 2013 2013 2012 Medicare 73.5% 74.1% 74.1% 74.5% 74.5% 73.4% Medicaid 2.2% 1.5% 1.8% 1.2% 1.2% 1.2% Workers' compensation 1.1% 1.3% 1.2% 1.3% 1.2% 1.5% Managed care and other discount plans, including Medicare Advantage (1) 18
Slide 29: Operational and Labor Metrics
Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2014 2014 2014 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 (In Millions) Net patient revenue- inpatient $ 563.7 $ 569.7 $ 558.2 $ 537.5 $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 2,130.8 $ 2,012.6 Net patie
Slide 30: Operational and Labor Metrics Impact of Fairlawn Rehabilitation Hospital Consolidation
Operational and Labor Metrics Impact of Fairlawn Rehabilitation Hospital Consolidation Fairlawn Fairlawn Fairlawn Fairlawn Rehabilitation Rehabilitation Rehabilitation Rehabilitation Hospital Hospital as Hospital Hospital as as Consolidated Equity Method as Consolidated Equity Method Entity (1) Enti
Slide 31: Outstanding Share Summary, Warrant Information, and Conversion Price
Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q3 9 months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 Basic shares outstanding (1) (2) (3) 86.5 86.2 86.8 88.7 88.1 94.6 93.3 Diluted shares outstanding (1) (2) (3) (4) 100.5 100.4 100.
Slide 32: Outstanding Share Summary, Warrant Information, and Conversion Price Notes
Outstanding Share Summary, Warrant Information, and Conversion Price 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) 10 million warrants (pre-October 2006 reverse split) were issued in connection with a January 2004 loan r
Slide 33: Adjusted EBITDA History
Adjusted EBITDA History (1) 9 9 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Months Months Full Year (Millions) 2014 2014 2014 2013 2013 2013 2013 2014 2013 2013 2012 Net operating revenues $ 596.9 $ 604.4 $ 591.2 $ 572.1 $ 564.0 $ 564.5 $ 572.6 $1,792.5 $1,701.1 $2,273.2 $2,161.9 Less: Provision for doubtful accounts (8.2
Slide 34: Adjusted Free Cash Flow History
Adjusted Free Cash Flow (1) History Q3 9 Months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 Net cash provided by operating activities $ 139.6 $ 142.6 $ 374.7 $ 369.4 $ 470.3 $ 411.5 $ 342.7 Impact of discontinued operations (0.2) 1.2 1.0 1.4 1.9 (2.0) (9.1) Net cash provided by operating
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 2014 Q1 Q2 Q3 9 Months Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Net Income $ 61.5 $ 97.9 $ 64.8 $ 224.2 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.1 (3.8) 0.9 (
Slide 36: Reconciliation of Net Income to Adjusted EBITDA - Impact of Consolidation of Fairlawn
Reconciliation of Net Income to Adjusted EBITDA (1)- Impact of Consolidation of Fairlawn Rehabilitation Hospital (3) Fairlawn Fairlawn Fairlawn Rehabilitation Rehabilitation Fairlawn Rehabilitation Hospital Hospital Rehabilitation Hospital Hospital as Consolidated as Equity Method as Consolidated as
Slide 37: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 2013 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 $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable to
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 utili
Slide 39: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 months Full Year (Millions) 2014 2013 2014 2013 2013 2012 Net cash provided by operating activities $ 139.6 $ 142.6 $ 374.7 $ 369.4 $ 470.3 $ 411.5 Provision for doubtful accounts (8.2) (8.0) (25.0) (22.4) (26.0) (27.0) Pro