Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2011 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Jul 27, 2011
Slide 1: Second Quarter 2011 Earnings Call Supplemental Slides
Second Quarter 2011 Earnings g 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 views and plans with respect to future events, strategy, capital expenditures and financial performance. These estimates,
Slide 3: Table of Contents
Table of Contents Q2 2011 Summary (Q2 2011 vs. vs Q2 2010)… 2010) … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-8 48 High-Quality Care… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … 9 Revenues (Q2 2011 vs. Q2 2010)… … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q2 2011 Summary (Q2 2011 vs. Q2 2010)
Q2 2011 Summary (Q2 2011 vs. Q2 2010) Revenue growth of 8.1% 8 1% ― Inpatient revenue growth of 8.8% driven by volume and price Discharge growth 6.1%; same-store discharge growth 3.5% • Continued positive contribution from hospitals opened or acquired in the last 12 months Location # of Beds Tra
Slide 5: Q2 2011 Summary (cont.)
Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) SWB as a percent of revenue decreased 60 bps. Hospital-related expenses as a percent of revenue declined 40 bps. Adjusted EBITDA(1) grew 14.8%. Strong adjusted free cash flow generation (1) ― Higher Adjusted EBITDA ― Offset by anticipated increas
Slide 6: Q2 2011 Summary (cont.)
Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) Earnings per share from continuing operations attributable to HealthSouth were impacted by the following non-recurring and tax-related items that in aggregate decreased earnings per share by $0.33 per share in the second quarter of 2011 compared to the
Slide 7: Q2 2011 Summary (cont.)
Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) Pending P di sale l off five fi long-term l t acute t care hospitals h it l (LTCHs) (LTCH ) for f approx. $117.5 $117 5 million. illi ― The LTCH in Houston will be retained and closed. ― Expect to close on the sale of the five LTCHs next week ― The six
Slide 8: Q2 2011 Summary (cont.)
Q2 2011 Summary (Q2 2011 vs. Q2 2010) (cont.) Growth ― De novo: Announced final CON approval for 40-bed inpatient rehabilitation hospital in Marion County ((Ocala), ) FL; expect to begin g accepting g patients Q1 2013. ― Acquisition: Announced intent to purchase substantially all assets of Drake C
Slide 9: High-Quality Care
High-Quality Care H lthS th Functional HealthSouth F ti l Outcomes O t Continue C ti to t Outpace O t Industry I d t Average A HealthSouth Average UDS Average* 35.0 3.5 32.6 30.0 3.0 28.6 2.88 25.0 2.5 2.47 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr D
Slide 10: Revenues (Q2 2011 vs. Q2 2010)
Revenues (Q2 2011 vs. Q2 2010) Q2 Q2 Increase/ (Millions) 2011 2010 (Decrease) Inpatient $ 465.4 $ 427.6 8.8% Outpatient and other 39 7 39.7 39 7 39.7 00 0.0 Consolidated net operating $ 505.1 $ 467.3 8.1% (Actual Amounts) Discharges 29,811 28,098 6.1% Net patient revenue / discharge $15,612 $15,218
Slide 11: Expenses (Q2 2011 vs. Q2 2010)
Expenses (Q2 2011 vs. Q2 2010) Q2 Q2 Increase/ (Millions) 2011 2010 (Decrease) Salaries and benefits $ 241.6 $ 226.2 6.8% Percent of net operating revenues 47.8% 48.4% (60 bps) EPOB (employees per occupied bed) 3.47 3.47 0.0% Hospital-related expenses $ 118.7 $ 111.7 6.3% (other operating, supplies,
Slide 12: Adjusted EBITDA
Adjusted EBITDA Change Adjusted EBITDA (1) Q2 6 Months Q2 6 Months (Millions) 2011 2010 2011 2010 +$14.9M $14 9M +$31.2M $31 2M Net operating revenues $ 505.1 $ 467.3 $ 1,011.1 $ 925.9 +14.8% +15.5% Operating expenses: Salaries and benefits (241.6) (226.2) (485.6) (452.5) Hospital-related expenses:
Slide 13: Earnings per Share
Earnings per Share Earnings per Share from Continuing Operations (1) (1) GAAP EPS Measure Q2 6 Months Impacted p by y the following g non- (In Millions, Except Per Share Data) 2011 2010 2011 2010 recurring and tax-related items Adjusted EBITDA $ 115.3 $ 100.4 $ 232.8 $ 201.6 that in aggregate decrea
Slide 14: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided byy Operating p g Activities to Adjusted Free Cash Flow Q2 6 Months (Millions) 2011 2010 2011 2010 Net cash provided by operating activities $ 67.8 $88.3 $ 156.9 $ 173.1 Impactt off discontinued di ti d operations ti ( ) (5.1) ( 8) (5.8) (
Slide 15: Debt, Liquidity, and Swaps
Debt, Liquidity, and Swaps Debt Outstanding Liquidity June 30, Dec. 31, 5.6x(1) 2011 2010 Cash Available $ 60.3 $ 48.3 Revolver Tot al Line $ 500 0 500.0 $ 500 0 500.0 Less: $1.81 – Draws (140.0) (78.0) 3.3x(1) – Lett ers of credit (48.1) (45.6) Available $ 311.9 $ 376.4 $1 66 $1.66 Tot al Liquidity
Slide 16: Debt Profile
Debt Profile Retirement of the 10.75% Senior Notes Completed call of $335 million in principal on June 15, 2011 (cash use approx. $353 million) The Company intends to use the proceeds from the sale of five LTCHs along with revolver capacity and cash on hand to retire the remaining 10.75% senior
Slide 17: 2011 Guidance – Adjusted EBITDA
2011 Guidance – Adjusted EBITDA(1) Original Guidance Revised Guidance Updated Feb. 17, 2011 May 18, 2011 July 27, 2011 $440 million to $450 million $440 million to $450 million; $447 million to $453 million ((Inclusive of 12 months LTCH ((The high g end of, or g greater than, ((exclusive of any y LT
Slide 18: 2011 Guidance – EPS
2011 Guidance – EPS Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (1) Diluted earnings per share on a GAAP basis are the same as basic earnings per $1 17 to $1.22 $1.17 $1 22 share due to the antidilutive impact in the period. Considerations: Includes $26.1 millio
Slide 19: 2011 Guidance – EPS
2011 Guidance – EPS EPS Guidance Transition (LTCHs Reclassified to Disc. Ops.) (1) ((2)) Prior EPS Measure GAAP EPS Measure Actual Actual Low High Low High (In Millions, Except Per Share Dat a) 2010 2010 Original 2011 Revised 2011 Adjusted EBITDA $ 409.6 $ 409.6 $ 440 $ 450 $ 447 $ 453 Int erest exp
Slide 20: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations Adjusted Free Cash Flow (1) HealthSouth’s H lthS th’ GAAP income i statement t t t will ill be b affected ff t d by b (millions) $181 a number of items that will not affect adjusted free cash $155 flow: • Normalized GAAP tax rate resulting from the valuatio
Slide 21: Appendix
Appendix HEALTHSOUTH,
Slide 22: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 6/30/11, the Company had an ending balance of approx. $1.4 billion in federal NOLs and a remaining valuation allowance of approx. $106 million, primarily related to state NOLs. NOLs • Expect effective tax rate of approx. 40% going forward Future
Slide 23: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry UDS Industry Sites ((1)) HealthSouth vs. vs Industry HLS Same Store (2) • HealthSouth’s 6.9% 5.5% 5.0% volume growth has 3.4% 4.2% 3.5% outpaced 1 8% 1.8% 1.0% 4% 1.4% 1 5% 1.5% 0.6%0.8% competitors’. competitors 0.5% TBD • TeamWorks = -1.4% -1.8% -1.4% standar
Slide 24: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody June 30, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $500 million revolving credit facility May 2016 - 3 Month LIBOR +250bps facility, BB Ba1 $ 140 0 140.0 $ 78 0 78.0 62 0 62.0 Term loan facility, May 2016 - 3 Month L
Slide 25: Revenues & Expenses (6 Months)
Revenues & Expenses (6 Months) 6 Months Increase/ Revenues (millions) 2011 2010 (Decrease) Inpatient $ 927.5 $ 847.8 9.4% Outpatient and other 83.6 78.1 7.0% Consolidated net operating $ 1 011 1 1,011.1 $ 925 9 925.9 9 2% 9.2% (Actual Amounts) Discharges 58,938 55,121 6.9% Net patient revenue / disc
Slide 26: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 Q1 Increase// Revenues (millions) 2011 2011 (Decrease) Inpatient $ 465.4 $ 462.1 0.7% Outpatient and other 39.7 43.9 (9.6%) Consolidated net operating $ 505.1 $ 506.0 (0.2%) (Actual Amounts) Discharges 29,811 29,127 2.3% Net patient revenue / discharge $ 15,612 $
Slide 27: Payment Sources (Percent of Revenue)
Payment Sources (Percent of Revenue) Historical Reporting Prior to Recast for LTCH Q2 6 Months Full Year Full Year 2011 2010 2011 2010 2010 2010 Medicare 72 0% 72.0% 70 0% 70.0% 71 7% 71.7% 70 3% 70.3% 70 5% 70.5% 70 5% 70.5% Medicaid 1.8% 1.8% 1.7% 1.8% 1.8% 1.7% Workers' compensation 1.7% 1.7% 1.7
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics (1) Q2 Q1 Q4 Q3 Q2 Q1 6 Months 6 Months Full Year 2011 2011 2010 2010 2010 2010 2011 2011 2010 (In Millions) Net patient revenue-inpatient $ 465.4 $ 462.1 $ 452.3 $ 422.6 $ 427.6 $ 420.2 $ 927.5 $ 847.8 $ 1,722.7 Net patient revenue-outpatient and other revenues 39.7 43
Slide 29: Original vs. Reclassified Data for LTCH Sale
Original vs. Reclassified Data for LTCH Sale Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q1 2010 FY 2010 Reclass Original Reclass Original Reclass Original Reclass Original Reclass Original Reclass Original Revenues (millions) Net patient revenue-inpatient 462.1 493.4 452.3 481.3 422.6 451.8 427.6 456.2 420.2 4
Slide 30: Outstanding Share Summary
Outstanding Share Summary (Millions) Weighted Average for the Period Q2 Q2 6 Months 6 Months FY FY 2011 2010 2011 2010 2010 2009 (1) (2) Basic Shares outstanding 93.3 92.8 93.2 92.7 92.8 88.8 (1) (2) (3) Dil t d Shares Diluted Sh outstanding t t di 109 5 109.5 108 2 108.2 109 3 109.3 108 2 108.2 108
Slide 31: Adjusted EBITDA History
Adjusted EBITDA (1) History Q2 Q1 Q4 Q3 Q2 Q1 Full Year (Millions) 2011 2011 2010 2010 2010 2010 2010 Net operating revenues $ 505.1 $ 506.0 $ 490.9 $ 460.8 $ 467.3 $ 458.6 $ 1,877.6 Operating expenses: Salaries and benefits (2) (241.6) (244.0) (237.5) (231.5) (226.2) (226.3) (921.5) Hospital-relate
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA Prior to Reclassified for LTCHs Moving to Discontinued Reclassification Operations for LTCHs 2011 2011 Q1 Q2 6 Months Q1 (in millions, millions except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 9
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA Q2 2010 2010 Reclassified for LTCHs Moving to Discontinued Operations Prior to Prior to Reclassification for Reclassification 2010 LTCHs for LTCHs Q1 Q2 Q3 Q4 Full Year Q2 Full Year (in millions, except per share data) Total Per Share Total Per
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
(1) (3) Reconciliation of Net Income to Adjusted EBITDA Reclassified for LTCHs Moving g to Discontinued Operations p Full Year 2008 2009 (in millions, except per share data) Total Per Share Total Per Share Net income $ 281.8 $ 128.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5
Slide 35: Reconciliation Notes for Slides 32-34
Reconciliation Notes for Slides 32-34 1 Adjusted 1. Adj t d EBITDA isi a non-GAAP GAAP financial fi i l measure. Th The Company’s C ’ leverage l ratio ti (total (t t l consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non- GAAP financial measure. Management and som
Slide 36: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and (1) (3) (4) Adjusted EBITDA Prior Year Historical Reporting Reclassified for LTCH 2010 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 S
Slide 37: Reconciliation Notes for Slide 36
Reconciliation Notes for Slide 36 1 Adjusted 1. Adj t d income i from f continuing ti i operations ti and d Adjusted Adj t d EBITDA are non-GAAPGAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP f
Slide 38: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by y Operating p g Activities to Adjusted j Free Cash Flow Prior to Reclassified for LTCHs Moving to Discontinued Operations Reclassification for LTCHs Q2 6 Months Full Year Full Year (Millions) 2011 2010 2011 2010 2010 2009 2008 2010 Net c
Slide 39: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA Prior to Reclassification Reclassified for LTCHs Moving to Discontinued Operations for LTCHs Q2 6 Months Full Year Full Year (Millions) 2011 2010 2011 2010 2010 2009 2008 2010 Net