Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2011 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Oct 27, 2011
Slide 1: Third Quarter 2011 Earnings Call Supplemental Slides
Exhibit 99.2 Third 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 outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditure
Slide 3: Table of Contents
Exhibit 99.2 Table of Contents
Slide 4: Q3 2011 Summary (Q3 2011 vs. Q3 2010)
Exhibit 99.2 Location # of Beds Transaction Date Bristol, VA 25 De Novo Q3 2010 Houston, TX 50 Acquired new IRF Q3 2010 Q3 2011 Summary (Q3 2011 vs. Q3 2010) ü Revenue growth of 8.0% ― Inpatient revenue growth of 8.6% § Discharge growth 5.1% • Strong same-store discharge growth of 4.0% § Revenue per
Slide 5: Q3 2011 Summary (cont.)
Exhibit 99.2 Expect full-year adjusted free cash flow to be at least $210 million reflecting growth over full-year 2010 of at least 16% Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.) ü Adjusted EBITDA (1) for the quarter of $110.5 million reflects growth of 15.2%. ü Adjusted free cash flow (1) for th
Slide 6: Q3 2011 Summary (cont.) - Leverage ratio reduced to 2.9x
Exhibit 99.2 Leverage ratio reduced to 2.9x (1) Q3 2011 Summary (Q3 2011 vs. Q3 2010) (cont.) ü Completed the sale of five long-term acute care hospitals (LTCHs) for approx. $117.5 million. ü Additional capital structure enhancements ― Completed the retirement of the10.75% senior notes due 2016 ü Te
Slide 7: 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: Q3 2011 Report FIM Gain Change in Functional Independence Measurement (based on an
Slide 8: Revenue (Q3 2011 vs. Q3 2010)
Exhibit 99.2 Inpatient revenue growth of 8.6% Discharge growth of 5.1% Strong same-store discharge growth of 4.0% Continued positive contribution from hospitals opened or acquired in the last 12 months Revenue per discharge increased 3.3% Medicare (2.25%) and managed care price adjustments Q3 2010 i
Slide 9: Expenses (Q3 2011 vs. Q3 2010)
Exhibit 99.2 Disciplined expense management and improved operating leverage SWB as a percent of revenue decreased 110 bps. Q3 2010 results impacted by the ramping up of new hospitals. Hospital-related expenses as a percent of revenue decreased 10 bps. Improved operating leverage offset by higher bad
Slide 10: Adjusted EBITDA
Exhibit 99.2 Adjusted EBITDA Change Q3 9 Months +$14.6M +$45.8M +15.2% +15.4% Revenue growth driven by higher volumes and price Disciplined expense management and improved operating leverage • •
Slide 11: Income and Earnings per Share
Exhibit 99.2 (1) Income from continuing operations attributable to HealthSouth (2) Actual tax provision recorded for the period (3) Cash income taxes for the 3 and 9 months ended September 30, 2011 were $1.7 million and $5.9 million, respectively. (4) During Q3 2010 and 9 months 2010, the Company ma
Slide 12: Adjusted Free Cash Flow
Exhibit 99.2 Adjusted free cash flow for the quarter was affected by: Benefited from higher Adjusted EBITDA Benefited from the absence of a swap payment ($10.6 million Q3 2010) Offset by approx. $16 million for the timing of interest payments Offset by approx. $17 million increase in accounts receiv
Slide 13: Debt and Liquidity
Exhibit 99.2 (1) Based on 2008 and trailing four-quarter Adjusted EBITDA of $322.6 million and $455.4 million, respectively; reconciliation to GAAP provided on slides 31 - 34 and 38. Debt and Liquidity Liquidity Credit Ratings
Slide 14: Debt Profile
Exhibit 99.2 10% of the outstanding principal is currently callable per annum at $103 Debt Profile $500 Revolver L+225 September 30 , 2011 (3) $ 276 Undrawn (1) Based on trailing four-quarter Adjusted EBITDA of $455.4 million; reconciliation to GAAP provided on slides 31, 32, 34, and 38. (2) The cre
Slide 15: Reinvesting Free Cash Flow
Exhibit 99.2 Reinvesting Free Cash Flow • Additional debt prepayment (revolver, term loan and senior notes) • Growth in core business • Bed expansions • De novo hospitals • Hospital acquisitions • Acute care IRF unit acquisitions/consolidations • Purchase properties under operating leases • Lower ca
Slide 16: 2011 Guidance - Adjusted EBITDA
Exhibit 99.2 Original Guidance Feb. 17, 2011 $440 million to $450 million ( Inclusive of 12 months LTCH Adjusted EBITDA) July 27, 2011 $447 million to $453 million May 18, 2011 $440 million to $450 million; (The high end of, or greater than) Guidance effectively raised by the 2011 expected LTCH Adju
Slide 17: 2011 Guidance - EPS
Exhibit 99.2 ü The Adjusted EBITDA ($17.5 million in 2010) associated with the Company’s six LTCHs has been reclassified to discontinued operations. Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $1.18 to $1.23 Diluted earnings per share on a GAAP basis are the s
Slide 18: 2011 Guidance - EPS Reconciliation
Exhibit 99.2 (2) Income from continuing operations attributable to HealthSouth (reclassified for the 6 LTCHs moving to discontinued operations) (3) Current period amounts in income tax provision; see slides 35 - 36. (4) Total income tax provision for full-year 2010, including the reversal of a subst
Slide 19: 2011 Guidance - Adjusted Free Cash Flow
Exhibit 99.2 HealthSouth’s GAAP income statement will be affected by a number of items that will not affect adjusted free cash flow: Normalized GAAP tax rate resulting from the valuation allowance reversal in Q4 2010. Loss on early extinguishment of debt Expect full-year adjusted free cash flow to b
Slide 20: Appendix
Exhibit 99.2 Appendix
Slide 21: Business Model
Exhibit 99.2 Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) (1) Reconciliation to GAAP provided on slides 31 - 38. (2) Exclusive of any E&Y recovery.
Slide 22: Income Tax Considerations
Exhibit 99.2 GAAP Considerations: • As of 9/30/11, the Company had an ending balance of approx. $1.3 billion in federal NOLs and a remaining valuation allowance of approx. $105 million, primarily related to state NOLs. • Expect effective tax rate of approx. 40% going forward Future Cash Tax Payments
Slide 23: Our Historic Discharge Growth vs. Industry
Exhibit 99.2 HealthSouth’s volume growth has outpaced competitors’ 4.7% 5.9% 5.9% 5.8% 5.9% 2.7% 2.5% 1.3% • TeamWorks = standardized and enhanced sales & marketing • Bed additions will help facilitate continued organic growth 5.1% 6.1% 7.8% Yearly Discharge 6.9% 5.6% 3.1% Growth (2) Includes consol
Slide 24: Debt Schedule
Exhibit 99.2 Debt Schedule (1) Based on 4 quarter trailing and 2010 Adjusted EBITDA of $455.4 million and $409.6 million, respectively; reconciliation to GAAP provided on slides 31, 32, 34, and 38.
Slide 25: Revenues & Expenses (9 Months)
Exhibit 99.2 Revenues & Expenses (9 Months)
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions) 2011 2011 (Decrease) Inpatient $ 4588 $ 4054 (1.4%) Outpatient and other 38.9 S97, (2.0%) Consolidated net operating $ 497.7 $ 505.1 (1.5%) (Actual Amounts) Discharges 29,350. 29,811 (1.5%) Net patient revenue / discharge $ 15,632
Slide 27: Payment Sources (Percent of Revenue)
Exhibit 99.2 Payment Sources (Percent of Revenue) (1 ) Managed Medicare revenues represent ~ 7%, 8%, 7%, 8%, and 8% of total revenues for Q3 2011, Q3 2010, 9 Months 2011, and 9 Months 2010, Full Year 2010, respectively, and are included in “Managed care and other discount plans.”
Slide 28: Operational and Labor Metrics
Exhibit 99.2 Operational and Labor Metrics (1) (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 94 consolidated hospitals in Q3 2011, Q2 2011, Q1 2011, Q4 2010 and Q3 2010, 92 consolidated hospitals in Q2 2010, and 90 consolida
Slide 29: Share Count and Warrant Notes
Exhibit 99.2 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 stock. Each warrant has a term of ten
Slide 30: Adjusted EBITDA History
Exhibit 99.2 Adjusted EBITDA (1) History
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.2 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) (4) - 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) (4) - Notes on page 34.
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.2 Reconciliation of Net Income to Adjusted EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 34.
Slide 34: Reconciliation Notes for Slides 31-33
Exhibit 99.2 Reconciliation Notes for Slides 31-33 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
Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA (1) (3) (4) (in mitions, except per share data} Net income Income ftom disc ops, net of tox attributable to Healthsouth Net income attributable to noncontroling interests Income from continuing operations
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 measures. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measure. Manag
Slide 37: Adjusted Free Cash Flow
Exhibit 99.2 Adjusted Free Cash Flow (1) Maintenance capital expenditures are expected to be $10 to $15 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