Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2016 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Apr 27, 2016
Slide 1: First Quarter 2016 Earnings Call
First Quarter 2016 Earnings Call April 27, 2016 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 Q1 2016 Summary................................................................................................................................................. 4-5 Inpatient Rehabilitation Segment ....................................................................................
Slide 4: Q1 2016 Summary (Q1 2016 vs. Q1 2015)
Q1 2016 Summary (Q1 2016 vs. Q1 2015) Growth (In Millions) Q1 2016 Q1 2015 Dollars Percent HealthSouth Consolidated Net operating revenues $ 909.8 $ 740.6 $ 169.2 22.8% Adjusted EBITDA* $ 192.1 $ 156.1 $ 36.0 23.1% Inpatient Rehabilitation Segment Net operating revenues $ 749.2 $ 630.3 $ 118.9 18.9%
Slide 5: Q1 2016 Summary (cont.)
Q1 2016 Summary (cont.) u Balance sheet Reduced debt by $55.3 million - See page 21. ü Redeemed $50 million of 7.75% Senior Notes due 2022 in March 2016 ü Issued notice for redemption of an additional $50 million of the 2022 Notes to be completed in May 2016 Reduced leverage ratio by 0.3x to 4.3
Slide 6: Inpatient Rehabilitation Segment - Revenue
Inpatient Rehabilitation Segment - Revenue Q1 Q1 Favorable/ ($millions) 2016 2015 (Unfavorable) Net operating revenues: Inpatient $ 719.4 $ 606.6 18.6% Outpatient and other 29.8 23.7 25.7% Total segment revenue $ 749.2 $ 630.3 18.9% (Actual Amounts) Discharges 41,098 35,116 17.0% New-store discharge
Slide 7: Inpatient Rehabilitation Segment - Adjusted EBITDA
Inpatient Rehabilitation Segment - Adjusted EBITDA* Q1 Q1 Segment Adjusted % of % of ($millions) 2016 Revenue 2015 Revenue EBITDA for the quarter Net operating revenues $ 749.2 $ 630.3 of $196.9 million Less: Provision for doubtful accounts (15.6) 2.1% (11.0) 1.7% - Salaries and benefits as a Net op
Slide 8: Home Health and Hospice Segment - Revenue
Home Health and Hospice Segment - Revenue Q1 Q1 Favorable/ ($millions) 2016 2015 (Unfavorable) Net operating revenues: Home health revenue $ 150.9 $ 103.9 45.2 % Hospice revenue 9.7 6.4 51.6 % Total segment revenue $ 160.6 $ 110.3 45.6 % (Actual Amounts) Admissions 25,763 16,499 56.1 % New-store adm
Slide 9: Home Health and Hospice Segment - Adjusted EBITDA
Home Health and Hospice Segment - Adjusted EBITDA* Q1 Q1 % of % of ($millions) 2016 Revenue 2015 Revenue Net operating revenues $ 160.6 $ 110.3 Segment Adjusted Less: Provision for doubtful accounts (0.9) 0.6% (0.6) 0.5% EBITDA for the Net operating revenues less provision for doubtful accounts 159.
Slide 10: Earnings per Share - As Reported
Earnings per Share - As Reported Q1 u Earnings per share for the first (In Millions, Except Per Share Data) 2016 2015 quarter of 2016 were impacted by: Inpatient rehabilitation segment Adjusted EBITDA $ 196.9 $ 164.4 Higher interest expense related to Home health and hospice segment Adjusted EBITD
Slide 11: Adjusted Earnings per Share
Adjusted Earnings per Share(1) Q1 2016 2015 Earnings per share, as reported $ 0.61 $ 0.44 Adjustments, net of tax: Government, class action, and related settlements — 0.05 Professional fees — accounting, tax, and legal — 0.01 Mark-to-market adjustment for stock appreciation rights(5) (0.01) — Loss o
Slide 12: Adjusted Free Cash Flow
Adjusted Free Cash Flow*(6) $22.1 $0.6 $1.6 $36.0 $2.4 ($12.6) $129.5 $79.4 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 3 Mos. 2015 EBITDA Expense Net of Refunds and Other Expenditures Dividends Flow 3 Mos. 2016 u
Slide 13: Revised Guidance
Revised Guidance Projected Initial 2016 Full-Year Revised 2016 Full-Year Growth Guidance Guidance Over 2015 Net Operating Revenues +$30 Net Operating Revenues 13% million to $3,550 million to $3,650 million $3,580 million to $3,680 million 16% Adjusted EBITDA +$5 Adjusted EBITDA 13% million to $765
Slide 14: Guidance Considerations
Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Full-year contribution from Reliant u Full-year contribution from and other 2015 acquisitions and CareSouth and other 2015 openings acquisitions and openings Transitioning to Encompass business Transitioning to HLS busine
Slide 15: Appendix
Appendix HEALTHSOUTH.
Slide 16: HealthSouth: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care 58% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass location. Encompass Inpatient Rehabilitation Home Health and Hospice Portfolio - As of March 31, 2016 IRF Marketshare Portfolio – As of March 31, 2016 Inpatient Rehabilita
Slide 17: Expansion Activity
Expansion Activity Inpatient Rehabilitation Facilities Home Health and Hospice # of New Beds # of 2016 2017 2018 locations De Novo: December 31, 2015 213 Modesto, CA 50 — — Acquisitions — Pearland, TX — 40 — De Novo 1 Murrieta, CA — — 50 Merged / Closed Locations (1) Joint Ventures: March 31, 2016 2
Slide 18: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Inpatient Rehabilitation Home Health & Hospice Volume • 10+% annual episode growth • 3+% annual discharge growth • • 10% to15% annual episode Includes $30-$40 million per growth annum in agency acquisitions • Includes $35-$40 million per Approx. 74% of Revenue a
Slide 19: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow*(6) and Tax Assumptions Certain Cash Flow Items Q1 2016 2016 2015 (millions) Actual Assumptions Actual • Cash interest expense $41.1 $165 to $175 $128.6 (net of amortization of debt discounts and fees) GAAP Tax Considerations: • Cash payments for taxes, net of • Gross federal
Slide 20: Free Cash Flow Priorities
Free Cash Flow Priorities (In Millions) Q1 2016 2016 2015 Highest Priority Actuals Assumptions Actuals IRF bed expansions $4.1 $20 to $30 $20.8 Growth New IRF’s in Core - De novos 17.3 70 to 90 47.8 Business - Acquisitions — 0 to 20 786.2 New home health and hospice acquisitions — 30 to 40 200.2 $21
Slide 21: Debt Schedule
Debt Schedule Change in Mar. 31, Dec. 31, Debt vs. ($millions) 2016 2015 YE 2015 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps $ 130.0 $ 130.0 $ — Term loan facility, July 2020 - LIBOR +200bps 437.8 443.3 (5.5) Bonds Payable: 7.75% Senior Notes due 2022 124.8 174.3
Slide 22: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of March 31, 2016* ($ in millions) Callable beginning March 2018 Callable beginning November 2017 $1,200 Callable beginning $435 Became callable in September 2015 Senior September 2020
Slide 23: New-Store/Same-Store IRF Growth
New-Store/Same-Store IRF Growth 25.0 Reliant (857 beds) Hot Springs, AR (27 beds) 20.0 Franklin, TN (40 beds) Altamonte Springs, FL (50 beds) Augusta, GA (58 beds) 15.0 Johnson City, TN (26 beds) Littleton, CO (40 beds) Newnan, GA (50 beds) Lexington, KY (158 beds) Stuart, FL (34 beds) Middletown, D
Slide 24: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2016 2015 2016 2015 2016 2015 2015 Medicare 73.8% 73.5% 83.5% 83.8% 75.4% 74.9% 74.9% Medicare Advantage 7.6% 8.3% 8.7% 7.3% 7.8% 8.2% 7.9% Managed care 11.0% 11.2%
Slide 25: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 (In Millions) Net patient revenue-inpatient $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Net patient revenue-outpatient and other revenues 29.8 29.1 26.5 26.6 23.7 105.9 Net operating r
Slide 26: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 (In Millions) Net home health revenue $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Net hospice and other revenue 9.7 9.0 8.7 7.6 6.4 31.7 Net operating revenues $ 160.6 $ 153.4 $ 127.0 $ 119.1 $ 110
Slide 27: Share Information
Share Information Weighted Average for the Period Q1 Full Year (Millions) 2016 2015 2015 2014 2013 Basic shares outstanding(7) 89.5 87.1 89.4 86.8 88.1 Convertible perpetual preferred stock(7)(18) — 3.2 1.0 3.2 10.5 Convertible senior subordinated notes(18) 8.4 8.2 8.3 8.2 1.0 Restricted stock award
Slide 28: Segment Operating Results
Segment Operating Results Q1 2016 Q1 2015 Home HealthSouth Home HealthSouth Health and Reclasses Consolidated Health and Reclasses Consolidated IRF Hospice IRF Hospice Net operating revenues $ 749.2 $ 160.6 $ — $ 909.8 $ 630.3 $ 110.3 $ — $ 740.6 Less: Provision for doubtful accounts (15.6) (0.9) —
Slide 29: Segment Operating Results
Segment Operating Results Year Ended December 31, 2015 Home Health and HealthSouth IRF Hospice Reclasses Consolidated Net operating revenues $ 2,653.1 $ 509.8 $ — $ 3,162.9 Less: Provision for doubtful accounts (44.7) (2.5) — (47.2) 2,608.4 507.3 — 3,115.7 Operating Expenses: Inpatient Rehabilitatio
Slide 30: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(20) 2016 Q1 (in millions, except per share data) Total Per Share Net Income $ 76.7 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 Net income attributable to noncontrolling interests (18.7) Income from continuing operations attributable
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(20) 2015 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 $ 59.0 $ 60.2 $ 67.8 $ 65.8 $ 252.8 Loss (income) from disc ops, net of tax, attributable to
Slide 32: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full Year (Millions) 2016 2015 2015 Net cash provided by operating activities $ 159.7 $ 102.0 $ 484.8 Provision for doubtful accounts (16.5) (11.6) (47.2) Professional fees—accounting, tax, and legal 0.2 2.2 3.0 Interest expe
Slide 33: Reconciliation of Segment Adjusted EBITDA to Income Before Income Tax
Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Year Ended March 31, December 31, 2016 2015 2015 (In Millions) Total segment Adjusted EBITDA $ 219.5 $ 181.3 $ 774.1 General and administrative expenses (31.9) (34.6) (133.3) D
Slide 34: Reconciliation of Net Cash from Operating Activities to Adjusted Free Cash Flow
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow(6) Full Q1 Year ($millions) 2016 2015 2015 Net cash provided by operating activities $ 159.7 $ 102.0 $ 484.8 Impact of discontinued operations 0.2 0.1 0.7 Net cash provided by operating activities of continuing op
Slide 35: Adjusted EPS - Q1 2016
Adjusted EPS(1) - Q1 2016 For the Three Months Ended March 31, 2016 Adjustments Mark-to- Professional Market Fees - Adjustment Accounting, for Stock Loss on Early As Tax, and Appreciation Extinguishment As Reported Legal Rights of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA
Slide 36: Adjusted EPS - Q1 2015
Adjusted EPS(1) - Q1 2015 For the Three Months Ended March 31, 2015 Adjustments Professional Government, Fees - Class Action, Accounting, Loss on Early As and Related Tax, and Extinguishment As Reported Settlements Legal of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 156
Slide 37: End Notes
End Notes (1) HealthSouth is providing adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to inves
Slide 38: End Notes, con't.
End Notes, con’t. (12) Data provided by Uniform Data System for Medical Rehabilitation, a division of UB Foundation Activities, Inc., a data gathering and analysis organization for the rehabilitation industry; represents ~70% of industry, including HealthSouth sites (13) Represents discharges from H