Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2011 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Feb 24, 2012
Slide 1: Fourth Quarter 2011 Earnings Call Supplemental Slides
Fourth 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 outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capit
Slide 3: Table of Contents
Table of Contents Q4 2011 Summary S (Q4 2011 vs. Q4 2010)… 2010) … … … … … … … … … … … … … … … … … … … … … … … … … … … … 4-6 46 Revenues (Q4 2011 vs. Q4 2010)… … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …7 Expenses (Q4 2011 vs. Q4 2010)… … … … … … … … … … … … … … … … … … … … … … …
Slide 4: Q4 2011 Summary (Q4 2011 vs. Q4 2010)
Q4 2011 Summary (Q4 2011 vs. Q4 2010) Revenue growth of 5.5% ― Inpatient revenue growth of 6.1% Discharge growth of 2.1%; same-store discharge growth of 1.7% Revenue per discharge increase of 4.0% Improved operating leverage and labor productivity 74.7% 75.8% 80% 3 60 3.60 General & Administ
Slide 5: Q4 2011 Summary (cont.)
Q4 2011 Summary (Q4 2011 vs. Q4 2010) (cont.) Completed clinical information system (CIS) pilot ― Five-year, system wide roll-out beginning in 2012 Strengthened the balance sheet ― Reduced debt by approx. $73 million ― Exercised option to purchase the property associated with the lease on H lthS
Slide 6: Q4 2011 Summary (cont.): Functional Outcomes vs Industry
Q4 2011 Summary (Q4 2011 vs. Q4 2010) (cont.) HealthSouth H lthS th Functional 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 33.7 30.0 3.0 3 01 3.01 29.1 25.0 2.5 2 54 2.54 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average =
Slide 7: Revenues (Q4 2011 vs. Q4 2010)
Revenues (Q4 2011 vs. Q4 2010) Q4 Q4 Increase/ (Millions) 2011 2010 (Decrease) Inpatient $ 480.1 $ 452.3 6.1% Outpatient and other 38.0 38.6 (1.6%) Consolidated net operating $ 518 1 518.1 $ 490 9 490.9 5 5% 5.5% (Actual Amounts) Discharges 30,066 30 066 29,462 29 462 2.1% 2 1% Net patient revenue /
Slide 8: Expenses (Q4 2011 vs. Q4 2010)
Expenses (Q4 2011 vs. Q4 2010) Q4 Q4 Increase/ (Millions) 2011 2010 (D (Decrease)) Salaries and benefits $ 251.4 $ 237.5 5.9% Percent of net operating revenues 48.5% 48.4% 10 bps EPOB (employees per occupied bed) 3.46 3.50 ( %) (1.1%) Hospital-related expenses $ 111.8 $ 111.7 0.1% (other operating,
Slide 9: Adjusted EBITDA
Adjusted EBITDA (1) Adjusted EBITDA Change Q4 Full Year (Millions) 2011 2010 2011 2010 Q4 Full Year Net operating revenues $ 518.1 $ 490.9 $ 2,026.9 $ 1,877.6 +$10.8M +$56.6M Operating expenses: +9.6% +13.8% Salaries and benefits (2) (251.4) (237.5) (982.0) (921.5) p Hospital-related expenses: p • R
Slide 10: Earnings per Share
Earnings per Share Earnings per Share from Continuing Operations (1) Q4 Full Year (In Millions, Millions Except Per Share Data) 2011 2010 2011 2010 Adjusted EBITDA $ 122.9 $ 112.1 $ 466.2 $ 409.6 Interest expense and amortization of Q4 2011 reflects: debt discounts and fees (23.1) (34.2) (119.4) (12
Slide 11: Adjusted Free Cash Flow
Adjusted Free Cash Flow Q4 Full Year (Millions) 2011 2010 2011 2010 Net cash provided by operating activities $ 129.6 $ 67.1 $ 342.7 $ 331.0 Impact of discontinued operations 0.3 (2.8) (9.1) (13.2) Net cash provided by operating 129.9 64.3 333.6 317.8 activities of continuing g operations Capital ex
Slide 12: Adjusted Free Cash Flow (cont.)
Adjusted Free Cash Flow(1) (cont.) Full Year Change (Millions, except per share data) 2011 2010 $ % Adjusted free cash flow (1) $ 243.3 243 3 $ 181.4 181 4 $ 61.9 61 9 34 1% 34.1% $40 7 $40.7 $4.1 $56.6 ($12.9) $243.3 ($26.6) $181.4 Adjusted Free Adjusted EBITDA Cash Interest Swap-Related Maintenanc
Slide 13: 2012 Guidance – Adjusted EBITDA
2012 Guidance – Adjusted EBITDA (1) 2012 Adjusted EBITDA $475 million to $485 million Reflects: • 1.9% to 4.0% growth over 2011 • 7.7% to 8.8% two year CAGR since 2010 Considerations: Revenue growth of 3.8% to 5.2% ― Discharge growth between 2.5% and 3.5% ― Revenue per discharge growth between 2.0
Slide 14: 2012 Guidance - EPS
2012 Guidance - EPS Diluted earnings per share on a GAAP basis are the same as basic earningsg per share due to the Earnings per Share from Continuing antidilutive impact in the period. Operations Attributable to EPS Guidance HealthSouth (1) Actual Low High (In Millions, Except Per Share Data) 2011
Slide 15: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 12/31/11, the Company had an ending balance of approx. $1.3 billion in federal NOLs and a remaining valuation allowance of approx. $50 million, primarily related to state NOLs. • 2011 effective tax rate was approx. 19%(1)(2) • Expect p effective
Slide 16: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2012 adjusted free cash flow growth will be impacted The increase in 2012 by increased maintenance capital expenditures and maintenance CAPEX is driven by the working capital. clinical information system roll roll-out, out, two Multi-year adjusted free
Slide 17: Priorities for Reinvesting HealthSouth's Free Cash Flows
Priorities for Reinvesting HealthSouth’s Free Cash Flows • Growth in core business Bed expansions Priorities De novo hospitals Growth Acquisitions − Free standing IRFs − Hospital H it l unit it IRFs IRF Debt • Debt prepayment Opportunities Altternate Reduction • Purchase leased properties (lim
Slide 18: Priorities for Reinvesting Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) •Growth in core business 2012 Assumptions (millions) Bed expansions $20 to $25 (80-100 beds) De novo hospitals $50 to $70 Priorities (complete Ocala; start 4 others) Growth Acquisitions (target 2/year) TBD − Free standing g IRFs
Slide 19: Priorities for Reinvesting Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) Capital Allocation Considerations: Relative risk/return characteristics (e.g. cash payback period, IRR, etc.) Financial leverage (subject to operating environment) Depth of liquidity in the market External factors (regulatory,
Slide 20: Appendix
Appendix HEALTHSOUTH,
Slide 21: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model 5 8% (1)(2) • Adjusted EBITDA CAGR: 5-8% • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Achieved A hi d < 3.0x 30 Delevering (3) Debt to EBITDA < 3.0x Debt to EBITDA (subject to operating environment) Same-store Growth (Includ
Slide 22: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth ( (excludes l d acquisitions) i iti ) • Includes bed expansions, de novos and unit consolidations Medicare Medicare Pricing 72% (1) FY 2012 FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 (2) Market b
Slide 23: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses 2012 2013 2014 • Other operating expenses and Merit increases (2) 2.25-2.5% 2.25-2.5% 2.25-2.5% supply l costs tracking ki with i h iinflation fl i • Occupancy costs relatively Benefit costs increases 5-8% 5-8% 5
Slide 24: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry HealthSouth’ss volume growth has outpaced competitors’ HealthSouth competitors Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly y 6 5% 6.5% UDS Industry Sites (1) 120,000 5.0% HLS Same Store (2) Q4 2.1% 5.9% 3.3% 4.7% 80,000 Q3 1.8% 1.9% 5.
Slide 25: Our Track Record
Our Track Record ($ in millions, except p EPS)) Discharge Growth Revenue 118,354 $2,027 112,514 109,106 $1,878 $1 878 $1,785 103,356 $1,701 2008 2009 2010 2011 2008 2009 2010 2011 Adjusted EBITDA (1) GAAP EPS (2) $8.20 $466 $410 $364 $323 $2.28 $1.42 $0.58 2008 2009 2010 2011 2008 2009 2010 2011 (1)
Slide 26: Debt and Liquidity
Debt and Liquidity Debt Outstanding Liquidity Dec. 31, Dec. 31, 2011 2010 5.6x(1) Cash Available $ 30.1 $ 48.3 Revolver Tot al Line $ 500 0 500.0 $ 500 0 500.0 $1.81 Less: – Draws (110.0) (78.0) $1.66 – Lett ers of credit (44.6) (45.6) 2.7x 2 7x(1) Available $ 345.4 $ 376.4 (billions) $1.51 Tot al L
Slide 27: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody Dec. 31, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $ $500 million revolving g credit facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 $ 110.0 $ 78.0 $ 32.0 Term loan facility, May 2016 - 3 Month LIBOR +225bps BB Ba1
Slide 28: Revenues & Expenses (2011 vs. 2010)
Revenues & Expenses (2011 vs. 2010) Full Year Increase/ Revenues (millions) 2011 2010 (Decrease) Inpatient $ 1,866.4 $ 1,722.7 8.3% Outpatient and other 160.5 154.9 3.6% Consolidated net operating $ 2 026 9 2,026.9 $ 1 877 6 1,877.6 8 0% 8.0% (Actual Amounts) Discharges 118,354 112,514 5.2% Net pati
Slide 29: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q4 Q3 Increase// Revenues (millions) 2011 2011 (Decrease) Inpatient $ 480.1 $ 458.8 4.6% Outpatient and other 38.0 38.9 (2.3%) Consolidated net operating $ 518.1 $ 497.7 4.1% (Actual Amounts) Discharges 30,066 29,350 2.4% Net patient revenue / discharge $ 15,968 $ 15
Slide 30: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Q4 Full Year 2011 2010 2011 2010 Medicare 72.8% 71.6% 72.0% 70.5% Medicaid di id 1.4% 4% 1.6% 6% 1.6% 6% 1.8% 8% Workers' compensation 1.5% 1.5% 1.6% 1.6% Managed care and other discount plans (1) 19.5% 20.6% 19.8% 21.3% Oth third-party Other thi d t payors 2 0%
Slide 31: Operational and Labor Metrics
Operational and Labor Metrics (1) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2011 2011 2011 2011 2010 2010 2010 2010 2011 2010 (In Millions) Net patient revenue-inpatient $ 480.1 $ 458.8 $ 465.4 $ 462.1 $ 452.3 $ 422.6 $ 427.6 $ 420.2 $ 1,866.4 $ 1,722.7 Net patient revenue-outpatient and other rev
Slide 32: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information ((Millions)) Weighted Average for the Period Q4 Q4 FY FY 2011 2010 2011 2010 (1) (2) Basic Shares outstanding 93.3 92.8 93.3 92.8 (1) (2) (3) Diluted Shares outstanding 109.1 108.8 109.2 108.5 End of Period Q4 Q4 FY FY 2011 2010 2011 2010 (1) (2) B i
Slide 33: Adjusted EBITDA History
Adjusted EBITDA (1) History Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year (Millions) 2011 2011 2011 2011 2010 2010 2010 2010 2011 2010 Net operating revenues $ 518.1 $ 497.7 $ 505.1 $ 506.0 $ 490.9 $ 460.8 $ 467.3 $ 458.6 $ 2,026.9 $ 1,877.6 Operating expenses: ( 2) Salaries and benefits (251.4) (245.0) (241.6)
Slide 34: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating g Activities to Adjusted j Free Cash Flow Q4 Full Year (Millions) 2011 2010 2011 2010 2009 2008 Net cash provided by operating activities $ 129.6 $ 67.1 $ 342.7 $ 331.0 $ 406.1 $ 227.2 Impact of discontinued operations 0.3 (2.8
Slide 35: Reconciliation of Net Income to Adjusted EBITDA (2011)
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2011 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 Share Net income $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable
Slide 36: Reconciliation of Net Income to Adjusted EBITDA (2010)
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 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 Share Net income $ 50.5 $ 57.5 $ 41.9 $ 789.9 $ 939.8 Income from disc ops, net of tax, attributable to Hea
Slide 37: Reconciliation of Net Income to Adjusted EBITDA (2008-2009)
(1) (3) Reconciliation of Net Income to Adjusted EBITDA 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) (17.7) Net income attributable to noncontrolling interests
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 it u
Slide 39: Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities
Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities Q4 Full Year (Millions) 2011 2010 2011 2010 2009 2008 Net cash provided by operating activities $ 129.6 $ 67.1 $ 342.7 $ 331.0 $ 406.1 $227.2 Prov ision for doubtful accounts (6.1) (1.6) (21.0) (16.4) (30.7) (23.0) Professional