Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2015 Earnings Presentation
38 slides from Encompass Health's earnings presentation, Jul 30, 2015
Slide 1: Second Quarter 2015 Earnings Call Supplemental Slides
Second Quarter 2015 Earnings Call July 30, 2015 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 Q2 2015 Summary................................................................................................................................................. 4-5 Development .........................................................................................................
Slide 4: Q2 2015 Summary (Q2 2015 vs. Q2 2014)
Q2 2015 Summary (Q2 2015 vs. Q2 2014) Q2 YTD HealthSouth Consolidated 2015 2014 Delta % 2015 2014 Delta % ($millions) Net operating revenues $ 764.4 $ 604.4 $ 160.0 26.5 % $1,505.0 $1,195.6 $ 309.4 25.9 % Adjusted EBITDA* $ 169.5 $ 152.7 $ 16.8 11.0 % $ 325.6 $ 296.8 $ 28.8 9.7 % Major takeaways for
Slide 5: Q2 2015 Summary (cont.)
Q2 2015 Summary (cont.) u Balance sheet enhancements: Completed the call of the $290 million of 8.125% senior notes due 2020 Converted the residual 6.5% Series A Convertible Perpetual Preferred Stock(3b) into 3,271,415 common shares, which increased the basic share count but did not change the d
Slide 6: Q2 2015 Development
Q2 2015 Development u New inpatient rehabilitation development: Announced Reliant acquisition on June 11, 2015; expected to close in Q4 2015 Began operating a 50-bed inpatient rehabilitation hospital in Savannah, GA with our joint venture partner, Memorial Health, on April 1, 2015; the joint ven
Slide 7: Q2 2015 Development
Q2 2015 Development u New inpatient rehabilitation development (cont.): Continued the construction of a 50-bed inpatient rehabilitation hospital in Modesto, CA; expect to be operational in Q2 2016 Continued the permitting process for the 50-bed inpatient rehabilitation hospital in Murrieta, CA;
Slide 8: Reliant Transaction Summary
$730 million purchase price Transaction Summary —Expect to realize approx. $125 million to $150 million (NPV) tax benefit —The cash purchase price will be reduced based on any remaining limited partner • Acquisition adds 11 inpatient rehabilitation hospitals in equity interests at closing (limited
Slide 9: Highlights
Highlights u Surgical Care Affiliates (SCA) option In connection with the 2007 sale of its surgery centers division (now known as Surgical Care Affiliates), the Company received an option to purchase up to a 5% equity interest in SCA. In April 2015, the Company exercised the option resulting in
Slide 10: Q2 2015 Inpatient Rehabilitation Segment Revenue
Q2 2015 Inpatient Rehabilitation Segment Revenue Q2 Q2 Favorable/ ($millions) 2015 2014 (Unfavorable) Net operating revenues: Inpatient $ 618.7 $ 569.7 8.6% Outpatient and other 26.6 27.4 (2.9%) Total segment revenue $ 645.3 $ 597.1 8.1% (Actual Amounts) Discharges 36,408 33,620 8.3% New-store disch
Slide 11: Adjusted EBITDA - Inpatient Rehabilitation Segment
Adjusted EBITDA* - Inpatient Rehabilitation Segment Adjusted Segment Q2 Q2 EBITDA* for the % of % of quarter of $170.5 ($millions) 2015 Revenue 2014 Revenue Net operating revenues $645.3 $ 597.1 million Less: Provision for doubtful accounts (10.2) 1.6% (9.2) 1.5% Net operating revenues less Q2 2015
Slide 12: Q2 2015 Home Health and Hospice Segment Revenue
Q2 2015 Home Health and Hospice Segment Revenue Q2 Q2 ($millions) 2015 2014 Home health revenue $ 111.5 $ 7.3 Historical information for Hospice revenue 7.6 — Encompass Home Health Total segment revenue $ 119.1 $ 7.3 and Hospice and (Actual Amounts) HealthSouth's legacy home health agencies can be A
Slide 13: Adjusted EBITDA - Home Health and Hospice Segment
Adjusted EBITDA* - Home Health and Hospice Segment Q2 Q2 % of % of ($millions) 2015 Revenue 2014 Revenue Net operating revenues $ 119.1 $ 7.3 Less: Provision for doubtful accounts (0.7) 0.6% (0.1) 1.4% Segment Adjusted Net operating revenues less provision for doubtful accounts 118.4 7.2 EBITDA* for
Slide 14: Earnings per Share
Earnings per Share Q2 6 Months (In Millions, Except Per Share Data) 2015 2014 2015 2014 u Earnings per share for the Inpatient Rehabilitation Segment Adjusted EBITDA $ 170.5 $ 174.7 334.9 341.6 quarter and 6 months of 2015 Home Health and Hospice Segment Adjusted EBITDA 19.0 1.2 35.9 1.8 were negati
Slide 15: 2015 Adjusted Free Cash Flow Through 6 Months
2015 Adjusted Free Cash Flow(10) Through 6 Months* $28.8 $6.4 $11.3 $— ($7.0) ($28.6) $163.0 $173.9 Adjusted Free Cash Adjusted Cash Interest Cash Tax Payments, Working Capital Maintenance Capital Preferred Adjusted Free Cash Flow 6 Mos. 2014 EBITDA Expense Net of Refunds and Other Expenditures Divi
Slide 16: 2015 Guidance - Adjusted EBITDA
2015 Guidance - Adjusted EBITDA* Adjusted EBITDA u $670 million to $680 million HealthSouth currently expects its 2015 Adjusted EBITDA guidance for 2015 to be in the lower end of this range. u Inpatient rehabilitation segment considerations for July 1, 2015 through December 31, 2015: u Net Adjusted
Slide 17: 2015 Guidance - EPS
2015 Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth u $ 2.11 to $ 2.17 HealthSouth currently expects its 2015 EPS guidance for 2015 to be in the lower end of this range. EPS Guidance Actual Low High Considerations: (In Millions, Except Per Share Data) 2014 2
Slide 18: Appendix
Appendix HEALTHSOUTH.
Slide 19: Adjusted Free Cash Flow History
Adjusted Free Cash Flow(10) History Q2 6 Months Full-Year ($millions) 2015 2014 2015 2014 2014 Net cash provided by operating activities $ 102.9 $ 128.0 $ 204.9 $ 235.1 $ 444.9 Impact of discontinued operations 0.2 1.0 0.3 1.2 1.2 Net cash provided by operating activities of continuing operations 10
Slide 20: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(10) and Tax Assumptions 6 Months Certain Cash Flow Items(10) 2015 2014 2015 (millions) Assumptions Actual GAAP Tax Considerations: Actual • As of 6/30/15, the Company’s federal NOL had a gross • Cash interest expense(12) $56.4 $106 to $111 $96.5 balance of approx. $485 millio
Slide 21: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow* (in millions) 6 Months 2015 2015 2014 Actuals Assumptions Actuals Highest Priority IRF bed expansions $10.1 $30 to $40 $23.6 Remains Growth New IRF's in Core - De novos 15.0 40 to 60 53.7 Business - Acquisitions 56.5 TBD 20.2 New home health and hospice acq
Slide 22: Debt Schedule
Debt Schedule Change in June 30, Dec. 31, Debt vs. (16)(17) ($millions) 2015 2014 YE 2014 Advances under $600 million revolving credit facility, September 2019 - LIBOR +200bps(15)(16) $ 153.0 $ 325.0 $ (172.0) Term loan facility, September 2019 - LIBOR +200bps(15)(16) 195.0 450.0 (255.0) Bonds Payab
Slide 23: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. As of June 30, 2015 (20) ($ in millions) Callable beginning March 2018 Callable beginning November 2017 $414 Callable beginning September 2015 Undrawn $850 Senior Notes Holders have a 5.75
Slide 24: Our New-Store/Same-Store IRF Growth
Our New-Store/Same-Store IRF Growth Cypress, TX (40 beds) Augusta, GA (58 beds) Lexington, KY (158 beds) Cincinnati, OH (40 beds) Littleton, CO (40 beds) Savannah, GA (50 beds) 10.0 Stuart, FL (34 beds) Ocala, FL (40 beds) Altamonte Springs, FL (50 beds) 8.0 Johnson City, TN (26 beds) Newnan, GA (50
Slide 25: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q2 Q2 Q2 6 Months Full-Year 2015 2014 2015 2014 2015 2014 2015 2014 2014 Medicare 72.7% 73.9% 83.9% 96.8% 74.5% 74.1% 74.7% 74.7% 74.1% Medicaid 2.6% 1.8% 5.8% —% 3.1% 1.8% 2.9% 1.5% 1
Slide 26: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 (In Millions) Net patient revenue-inpatient $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Net patient revenue-outpatient and other revenues 26.6 23.7 24.9 26.2 27.4 26.3
Slide 27: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Home Health & Encompass Home Health and Hospice HealthSouth's 25 Legacy Home Health Agencies Hospice Segment Q2 Q1 Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (In Millions) Net home health revenue
Slide 28: Outstanding Share Summary, Warrant Information, and Conversion Price
Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q2 6 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 Basic shares outstanding(9)(28)(29) 89.8 86.7 88.4 87.0 86.8 88.1 94.6 Diluted shares outstanding(3)(9)(28)(29) 101.5 100.6 101.3 1
Slide 29: History Recast by Segment
History Recast by Segment Three Months Ended March 31, 2015 Three Months Ended March 31, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net operating
Slide 30: History Recast by Segment
History Recast by Segment Three Months Ended June 30, 2015 Three Months Ended June 30, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net operating re
Slide 31: History Recast by Segment
History Recast by Segment Six Months Ended June 30, 2015 Six Months Ended June 30, 2014 Inpatient Home Reclass- HealthSouth Inpatient Home Reclass- HealthSouth Rehabili- Health and ifications Consolidated Rehabili- Health and ifications Consolidated tation Hospice tation Hospice Net operating revenu
Slide 32: History Recast by Segment
History Recast by Segment Twelve Months Ended December 31, 2014 Inpatient Home Health Reclass- HealthSouth Rehabilitation and Hospice ifications Consolidated Net operating revenues $ 2,377.3 $ 28.6 $ — $ 2,405.9 Less: Provision for doubtful accounts (31.2) (0.4) — (31.6) 2,346.1 28.2 — 2,374.3 Opera
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(30) 2015 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net Income $ 59.0 $ 60.2 $ 119.2 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 1.6 1.9 Net income attributable to noncontroll
Slide 34: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(30) 2014 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 $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable to
Slide 35: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q2 6 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 Net cash provided by operating activities $ 102.9 $ 128.0 $ 204.9 $ 235.1 $ 444.9 $ 470.3 Provision for doubtful accounts (10.9) (9.3) (22.5) (16.8) (31.6) (26.0) Pr
Slide 36: End Notes
End Notes (1) CMS periodically retroactively updates Supplemental Security Income ("SSI") ratios that are used to determine the adjustments to Medicare payment rates for low-income patients. In June 2015, CMS updated ratios for fiscal year 2013, and we retroactively recorded adjustments to full-year
Slide 37: End Notes, con't.
End Notes, con't. (9) The agreement to settle our class action securities litigation received final court approval in January 2007. These shares of common stock and warrants were issued on September 30, 2009. The 5.0 million of common shares are included in the outstanding shares. The warrants to pu
Slide 38: End Notes, con't.
End Notes, con't. (23) Represents discharges from HealthSouth’s 108 consolidated hospitals in Q2 2015; 106 consolidated hospitals in Q1 2015 and Q4 2014; 102 consolidated hospitals in Q3 2014 and Q2 2014; and 101 consolidated hospitals in Q1 2014 (24) Excludes approximately 400 full-time equivalents