Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2011 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Apr 28, 2011
Slide 1: First Quarter 2011 Earnings Call Supplemental Slides
Exhibit 99.2 First 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: Q1 2011 Summary (Q1 2011 vs. Q1 2010)
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 Exhibit 99.2 Q1 2011 Summary (Q1 2011 vs. Q1 2010) ü Revenue growth of 9.6% ― Inpatient revenue growth of 9.2% dr
Slide 5: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Exhibit 99.2 Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) ü SWB as a percent of revenue decreased 110 bps. ― Higher volumes and improved productivity ― Revenue related to state provider tax refunds contributed 30 bps to the improvement. ü Hospital-related expenses as a percent of revenue declined 1
Slide 6: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Exhibit 99.2 Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) ü Income from continuing operations attributable to HealthSouth was $0.60 per diluted share. ― Increase driven by an income tax benefit, higher Adjusted EBITDA, and lower nonrecurring items § The income tax benefit of $0.27 per diluted share
Slide 7: Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.)
Exhibit 99.2 Q1 2011 Summary (Q1 2011 vs. Q1 2010) (cont.) ü Additional capital structure enhancements ― Raised $122 million by reopening the 2018 and 2022 senior notes § Utilized proceeds to repay $45 million outstanding under the revolving credit facility § Held $77 million in cash for repayment o
Slide 8: 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: Q1 2011 Report FIM Gain Change in Functional Independence Measurement (based on an
Slide 9: Revenue growth of 9.6%
Revenue growth of 9.6% Inpatient revenue growth of 9.2% driven by volume and price Discharge growth of 7.1%; same-store discharge growth of 4.5% Against soft volume growth in Q1 2010 Continued positive contribution from hospitals opened or acquired in the last 12 months Revenue per discharge increas
Slide 10: Expenses (Q1 2011 vs. Q1 2010)
SWB as a percent of revenue decreased 110 bps. Higher volumes and improved productivity Revenue related to state provider tax refunds contributed to the improvement. Hospital-related expenses as a percent of revenue declined 10 bps. Provision for bad debt benefited from recovery of prior period writ
Slide 11: Adjusted EBITDA
Adjusted EBITDA Change Q1 2011 +$17.0M +16.0% Improvements driven by : Revenue growth driven by higher volumes and price, disciplined expense management, lower general and administrative expense, and lower bad debt expense Improvements benefited from : Net state provider tax refunds of $1.1 million
Slide 12: Earnings per Share from Continuing Operations
Earnings per Share from Continuing Operations (1) Q1 2011 +$0.20 +50% Increase driven by : Income tax benefit (6) , higher Adjusted EBITDA and lower nonrecurring expenses The settlement resulted in an increase to our federal NOLs, which had an ending balance of approx. $1.45 billion as of 3/31/11. C
Slide 13: Adjusted Free Cash Flow (Q1 2011 vs. Q1 2010)
Continued strong adjusted free cash flow generation (1) Q1 2011 benefited from higher Adjusted EBITDA Offset by anticipated increases in working capital, interest expense and maintenance capital expenditures Final swap payment of $10.9 million was made in March 2011. Exhibit 99.2 Adjusted Free Cash
Slide 14: Debt, Liquidity, and Swaps
Swaps (2) The final cash settlement on our net $884 million swaps for $10.9 million was made in Q1 2011. Exhibit 99.2 (1) Based on 2008 and trailing 4 quarter Adjusted EBITDA of $341.2 million and $444.4 million, respectively; reconciliation to GAAP provided on slides 30 - 34 and 38. (2) Cash settle
Slide 15: Debt Maturity 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) Exhibit 99.2 (1) Does not include $387.4 million of convertible perpetual preferred stock and ~$123 million of capital leases and other note payabl
Slide 16: Business Outlook: 2011 to 2013
Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Delevering (2) Goal: < 4.0x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA (3.5x goal achieved at year-end 2010) Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisiti
Slide 17: Business Outlook: Revenue Assumptions
Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Managed Care Exhibit 99.2 Business Outlook: Revenue Assumptions Revenue Other (1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increa
Slide 18: Business Outlook: Expense Assumptions
Salaries & Benefits (1) Hospital Expenses • Other operating and supplies tracking with inflation Salaries & Benefits Hospital Expenses Exhibit 99.2 Business Outlook: Expense Assumptions Expense 4.5% of revenue (excludes stock-based compensation) (1) Salaries, Wages and Benefits: 85% Salaries and Wag
Slide 19: 2011 Guidance - Adjusted EBITDA
Adjusted EBITDA (1) $440 million to $450 million Based on strong results for Q1 2011, HealthSouth expects its 2011 full-year results to be at the high end of, or greater than, this guidance range. Exhibit 99.2 2011 Guidance - Adjusted EBITDA (1) Reconciliation to GAAP provided on slides 30 - 34 and
Slide 20: GAAP Considerations
GAAP Considerations: • As of 3/31/11, the Company had a remaining valuation allowance of approximately $106 million, primarily related to state NOLs. • Q1 2011 tax provision reflects a tax benefit of $0.27 per diluted share related to the Company’s settlement with the IRS for tax years 2007 and 2008
Slide 21: Business Outlook: Adjusted Free Cash Flow
HealthSouth’s GAAP income statement will be affected by a number of items that will not affect cash flow from operating activities or adjusted free cash flow: Normalized GAAP tax rate resulting from the valuation allowance reversal in Q4 2010. Loss on early extinguishment of debt Multi-Year Adjusted
Slide 22: Diluted Earnings per Share Guidance
Diluted Earnings per Share from Continuing Operations Attributable to HealthSouth (2) $1.28 to $1.33 (5) Based on strong results for Q1 2011, HealthSouth expects its 2011 full-year results to be at the high end of, or greater than, this guidance range. Exhibit 99.2 Considerations: ü Includes $0.27 p
Slide 23: Appendix
Exhibit 99.2 Appendix
Slide 24: Volume growth versus industry
10.7% 9.4% 5.6% 2.6% 4.6% 5.5% 5.8% 5.8% 5.3% 2.5% 2.2% 1.1% Exhibit 99.2 (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 rehabilitati
Slide 25: Debt Schedule
Exhibit 99.2 Debt Schedule (1) Based on 4 quarter trailing and 2010 Adjusted EBITDA of $444.4 million and $427.4 million, respectively; reconciliation to GAAP provided on slides 30, 31, 34 and 38.
Slide 26: Revenues & Expenses (Sequential)
Exhibit 99.2 Revenues & Expenses (Sequential)
Slide 27: Payment Sources
Exhibit 99.2 Payment Sources (1 ) Managed Medicare revenues represent ~ 7%, 7%, and 8% of total revenues for Q1 2011, Q1 2010, and 2010, respectively, and are included in “Managed care and other discount plans.”
Slide 28: Employee and EPOB notes
Exhibit 99.2 (2) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with their salaries and benefits included in general and administrative expenses in the Company’s consolidated statements of operations. Full-time equivalents included in the above table
Slide 29: Outstanding Share Summary
Exhibit 99.2 Outstanding Share Summary (Millions) 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 s
Slide 30: 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 34.
Slide 31: 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 34.
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 34.
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.2 Reconciliation of Net Income to and Adjusted EBITDA (1) (3) (1) (2) (3) - Notes on page 34.
Slide 34: Reconciliation Notes for Slides 30-33
Exhibit 99.2 Reconciliation Notes for Slides 30-33 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 35: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Exhibit 99.2 Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA (1) (3) (4) (1) (2) (3) (4) - Notes on page 36.
Slide 36: Reconciliation Notes for Slide
Exhibit 99.2 Reconciliation Notes for Slide 35 1. Adjusted income from continuing operations and Adjusted EBITDA are 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. Manage
Slide 37: 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 38: Net Cash Provided by Operating Activities
Exhibit 99.2 Net Cash Provided by Operating Activities