HEALTHSOUTH CORP BIRMINGHAM, Ala., July 28, 2014 /PRNewswire/ -- HealthSouth Corporation (NYSE: HLS), the nation's largest owner and operator of inpatient rehabilitation hospitals, today reported its results of operations for the second quarter ended June 30, 2014.
"The second quarter was another excellent quarter for HealthSouth," said Jay Grinney, HealthSouth President and Chief Executive Officer. "We achieved revenue growth of 7.1%, increased our Adjusted EBITDA by 13.5%, and saw our adjusted free cash flow grow to $97.9 million from $72.5 million when compared to the second quarter of 2013. We also continued to invest in the future growth of the company with the ongoing development of three new hospitals that are scheduled to open in the fourth quarter of this year, the execution of a joint venture agreement with Mountain States Health Alliance to own and operate Quillen Rehabilitation Hospital in Johnson City, Tennessee, and the execution of an agreement with Memorial Health to form a joint venture to own and operate an inpatient rehabilitation hospital in Savannah, Georgia. And, as a result of the company's strong results, we raised our full-year Adjusted EBITDA and earnings per share guidance."
Second Quarter Results
-- Consolidated net operating revenues were $604.4 million for the second
quarter of 2014 compared to $564.5 million for the second quarter of
2013, or an increase of 7.1%. This increase was attributable to a 3.0%
increase in patient discharges and a 4.9% increase in net patient
revenue per discharge. Discharge growth included a 1.4% increase in
same-store discharges. Approximately 60 basis points of discharge growth
from new stores resulted from the consolidation of Fairlawn
Rehabilitation Hospital ("Fairlawn") in Worcester, Massachusetts
effective June 1, 2014, as discussed below. The increase in net patient
revenue per discharge resulted from price adjustments, higher average
acuity for the patients served, and contributions from hospitals that
opened in the second quarter of 2013 and were undergoing Medicare
certification.
-- Income from continuing operations attributable to HealthSouth per
diluted share for the second quarter of 2014 was $0.81 per share
compared to $1.66 per share for the second quarter of 2013. Earnings per
share for the second quarter of 2014 included strong operating results
and the $27.2 million, or $0.27 per diluted share, nontaxable gain
related to the increase in ownership and consolidation of Fairlawn.
Earnings per share for the second quarter of 2013 included a $1.15 per
diluted share benefit associated with a settlement with the Internal
Revenue Service.
-- Cash flows provided by operating activities were $235.1 million for the
six months ended June 30, 2014 compared to $226.8 million for the six
months ended June 30, 2013. This increase was primarily due to increased
net operating revenues and continued disciplined expense management.
-- Adjusted EBITDA (see attached supplemental information) for the second
quarter of 2014 was $152.7 million compared to $134.5 million for the
second quarter of 2013, or an increase of 13.5%. This improvement was
due primarily to continued revenue growth and disciplined expense
management, including contributions from hospitals that opened in the
second quarter of 2013. Adjusted EBITDA in the second quarter of 2014
also included a $1.4 million benefit from the increase in ownership and
consolidation of Fairlawn.
-- Adjusted free cash flow (see attached supplemental information) for the
second quarter of 2014 was $97.9 million compared to $72.5 million for
the second quarter of 2013. Adjusted free cash flow for the second
quarter of 2014 benefited from higher Adjusted EBITDA, lower working
capital, and a reduction in preferred dividends.
"The strength of our cash flow generation was again evidenced by first half 2014 adjusted free cash flow of $163 million," said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. "The cash we generated supported $52.7 million in discretionary capital expenditures, $43.1 million in common stock repurchases, $31.6 million in common stock dividends, and the purchase of our increased equity ownership in Fairlawn."
Acquisition of Additional Ownership Interest in Joint Venture Hospital
As previously announced, in June 2014, the Company acquired an additional 30% equity interest from UMass Memorial Health Care, its joint venture partner in Fairlawn. This transaction increased the Company's ownership interest from 50% to 80% and resulted in a change in accounting for this hospital from the equity method of accounting to a consolidated entity. As a result of its consolidation of this hospital and the remeasurement of its previously held equity interest at fair value, the Company recorded a $27.2 million gain as part of other income during the three and six months ended June 30, 2014. The transaction was funded using cash on hand.
2014 Guidance
Based on its results for the first half of 2014, including the impact of the increase in ownership and consolidation of Fairlawn, the Company is:
-- raising its full-year 2014 Adjusted EBITDA guidance to a range of $570
million to $580 million from a range of $555 million to $565 million.
-- raising its full-year 2014 guidance for income from continuing
operations attributable to HealthSouth per diluted share to $2.25 to
$2.31 per share from $1.86 to $1.91 per share.
Earnings Conference Call and Webcast
The Company will host an investor conference call at 9:00 a.m. Eastern Time on Tuesday, July 29, 2014 to discuss its results for the second quarter of 2014. For reference during the call, the Company will post certain supplemental slides at http://investor.healthsouth.com.
The conference call may be accessed by dialing 877-587-6761 and giving the pass code 55539778. International callers should dial 706-679-1635 and give the same pass code. Please call approximately ten minutes before the start of the call to ensure you are connected. The conference call will also be webcast live and will be available at http://investor.healthsouth.com by clicking on an available link.
An on-line replay of the conference call will be available after the live broadcast at http://investor.healthsouth.com.
About HealthSouth
HealthSouth is the nation's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged, revenues, and number of hospitals. Operating in 28 states across the country and in Puerto Rico, HealthSouth serves patients through its network of inpatient rehabilitation hospitals, outpatient rehabilitation satellite clinics, and home health agencies. HealthSouth's hospitals provide a higher level of rehabilitative care to patients who are recovering from conditions such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations. HealthSouth can be found on the Web at www.healthsouth.com.
Other Information
The information in this press release is summarized and should be read in conjunction with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (the "June 2014 Form 10-Q"), when filed, as well as the Company's Current Report on Form 8-K filed on July 28, 2014. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com for reference during its July 29, 2014 earnings call.
When filed, the June 2014 Form 10-Q can be found on the Company's website at http://investor.healthsouth.com and the SEC's website at www.sec.gov.
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2014 2013 2014 2013
---- ---- ---- ----
(In Millions)
Net operating revenues $604.4 $564.5 $1,195.6 $1,137.1
Less: Provision for doubtful accounts (9.3) (7.0) (16.8) (14.4)
---- ---- ----- -----
Net operating revenues less provision for doubtful accounts 595.1 557.5 1,178.8 1,122.7
----- ----- ------- -------
Operating expenses:
Salaries and benefits 285.3 273.6 571.4 548.2
Other operating expenses 86.3 81.0 170.8 159.1
Occupancy costs 10.3 11.9 20.8 24.1
Supplies 27.8 26.6 55.4 52.8
General and administrative expenses 30.2 29.5 60.9 59.7
Depreciation and amortization 26.4 23.1 52.8 45.2
Government, class action, and related settlements (0.8) (2.0) (0.8) (2.0)
Professional fees-accounting, tax, and legal 2.0 2.2 3.6 3.6
--- --- --- ---
Total operating expenses 467.5 445.9 934.9 890.7
Interest expense and amortization of debt discounts and fees 27.8 24.4 55.7 48.6
Other income (28.2) (1.9) (29.9) (2.6)
Equity in net income of nonconsolidated affiliates (2.6) (3.3) (6.9) (6.2)
---- ---- ---- ----
Income from continuing operations before income tax expense 130.6 92.4 225.0 192.2
(benefit)
Provision for income tax expense (benefit) 36.5 (86.5) 69.3 (53.0)
---- ----- ---- -----
Income from continuing operations 94.1 178.9 155.7 245.2
Income (loss) from discontinued operations, net of tax 3.8 0.1 3.7 (0.3)
--- --- --- ----
Net income 97.9 179.0 159.4 244.9
Less: Net income attributable to noncontrolling interests (14.8) (13.8) (29.6) (28.4)
----- ----- ----- -----
Net income attributable to HealthSouth 83.1 165.2 129.8 216.5
Less: Convertible perpetual preferred stock dividends (1.5) (5.8) (3.1) (11.5)
Net income attributable to HealthSouth common shareholders $81.6 $159.4 $126.7 $205.0
===== ====== ====== ======
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2014 2013 2014 2013
---- ---- ---- ----
(In Millions, Except Per Share Data)
Weighted average common shares outstanding:
Basic 86.7 86.1 87.0 90.0
==== ==== ==== ====
Diluted 100.6 99.8 100.8 103.4
===== ==== ===== =====
Earnings per common share:
Basic earnings per share attributable to HealthSouth
common shareholders:
Continuing operations $0.89 $1.82 $1.40 $2.24
Discontinued operations 0.04 - 0.04 -
---- --- ---- ---
Net income $0.93 $1.82 $1.44 $2.24
===== ===== ===== =====
Diluted earnings per share attributable to HealthSouth
common shareholders:
Continuing operations $0.81 $1.66 $1.29 $2.09
Discontinued operations 0.04 - 0.04 -
---- --- ---- ---
Net income $0.85 $1.66 $1.33 $2.09
===== ===== ===== =====
Cash dividends per common share $0.18 $ - $0.36 $ -
===== === === ===== === ===
Amounts attributable to HealthSouth common shareholders:
Income from continuing operations $79.3 $165.1 $126.1 $216.8
Income (loss) from discontinued operations, net of tax 3.8 0.1 3.7 (0.3)
--- --- --- ----
Net income attributable to HealthSouth $83.1 $165.2 $129.8 $216.5
===== ====== ====== ======
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2014 2013
---- ----
(In Millions)
Assets
Current assets:
Cash and cash equivalents $65.8 $64.5
Accounts receivable, net of allowance for doubtful accounts of $24.8 in 2014; $23.1 272.3 261.8
in 2013
Deferred income tax assets 138.9 139.0
Other current assets 103.9 115.1
----- -----
Total current assets 580.9 580.4
Property and equipment, net 976.5 910.5
Goodwill 491.7 456.9
Intangible assets, net 103.3 88.2
Deferred income tax assets 276.1 354.3
Other long-term assets 148.0 144.1
----- -----
Total assets $2,576.5 $2,534.4
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $55.7 $61.9
Accrued expenses and other current liabilities 243.6 249.7
----- -----
Total current liabilities 299.3 311.6
Long-term debt, net of current portion 1,475.1 1,505.2
Other long-term liabilities 141.1 142.2
----- -----
1,915.5 1,959.0
------- -------
Commitments and contingencies
Convertible perpetual preferred stock 93.2 93.2
---- ----
Redeemable noncontrolling interests 12.4 13.5
---- ----
Shareholders' equity:
HealthSouth shareholders' equity 413.7 344.6
Noncontrolling interests 141.7 124.1
----- -----
Total shareholders' equity 555.4 468.7
----- -----
Total liabilities and shareholders' equity $2,576.5 $2,534.4
======== ========
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
-------------------------
2014 2013
---- ----
(In Millions)
Cash flows from operating activities:
Net income $159.4 $244.9
------ ------
(Income) loss from discontinued operations (3.7) 0.3
---- ---
Adjustments to reconcile net income to net cash provided by operating activities-
Provision for doubtful accounts 16.8 14.4
Depreciation and amortization 52.8 45.2
Equity in net income of nonconsolidated affiliates (6.9) (6.2)
Distributions from nonconsolidated affiliates 6.5 5.0
Stock-based compensation 14.3 12.8
Deferred tax expense (benefit) 62.7 (53.5)
Gain on consolidation of Fairlawn Rehabilitation Hospital (27.2) -
Other 6.1 0.3
(Increase) decrease in assets-
Accounts receivable (35.6) (38.8)
Other assets 8.4 (0.7)
Increase (decrease) in liabilities-
Accounts payable 2.7 9.5
Other liabilities (20.0) (6.2)
Net cash used in operating activities of discontinued operations (1.2) (0.2)
---- ----
Total adjustments 79.4 (18.4)
---- -----
Net cash provided by operating activities 235.1 226.8
----- -----
Cash flows from investing activities:
Purchases of property and equipment (89.5) (69.0)
Capitalized software costs (11.0) (11.9)
Acquisition of business, net of cash acquired (15.9) (28.9)
Other 9.4 8.4
Net cash used in investing activities (107.0) (101.4)
------ ------
Cash flows from financing activities:
Borrowings on revolving credit facility 65.0 132.0
Payments on revolving credit facility (95.0) (59.0)
Repurchases of common stock, including fees and expenses (43.1) (234.1)
Dividends paid on common stock (31.6) -
Dividends paid on convertible perpetual preferred stock (3.1) (11.5)
Distributions paid to noncontrolling interests of consolidated affiliates (25.4) (23.9)
Other 6.4 7.0
--- ---
Net cash used in financing activities (126.8) (189.5)
------ ------
Increase (decrease) in cash and cash equivalents 1.3 (64.1)
Cash and cash equivalents at beginning of period 64.5 132.8
---- -----
Cash and cash equivalents at end of period $65.8 $68.7
===== =====
HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
QTD
---
Q2 2014 Q2 2013
------- -------
(In Millions, Except Per Share
Data)
Adjusted
EBITDA $152.7 $134.5
Interest
expense and
amortization
of debt
discounts and
fees (27.8) (24.4)
Depreciation
and
amortization (26.4) (23.1)
Stock-based
compensation
expense (7.0) (6.5)
Noncash loss
on disposal
of assets (1.7) (1.7)
----
89.8 78.8
Certain
nonrecurring
expenses:
Government,
class action,
and related
settlements 0.8 2.0
Professional
fees-
accounting,
tax, and
legal (2.0) (2.2)
Gain on
consolidation
of Fairlawn
Rehabilitation
Hospital 27.2 -
Pre-tax income 115.8 78.6
Income tax
(expense)
benefit (1) (36.5) (2) 86.5 (3)
----- ----
Income from
continuing
operations
(4) $79.3 $165.1
===== ======
Basic shares 86.7 86.1
==== ====
Diluted shares 100.6 99.8
===== ====
Basic earnings
per share (4) $0.89 $1.82
===== =====
Diluted
earnings per
share (4) $0.81 $1.66
===== =====
((1) )Current income tax expense (benefit) for the three months ended June 30, 2014 and 2013 was $3.0 million and ($1.3) million, respectively.
((2) )The Company's effective income tax rate was reduced as a result of the nontaxable gain related to its acquisition of an additional 30% equity interest in Fairlawn Rehabilitation Hospital, as discussed elsewhere in this document.
((3) )Includes an approximate $115 million, or $1.15 per diluted share, benefit related to the Company's settlement with the IRS related to the previous restatement of its 2000 and 2001 financial statements, as well as certain other tax matters, through December 31, 2008.
((4) )Income from continuing operations attributable to HealthSouth.
HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
YTD
---
Q2 2014 Q2 2013
------- -------
(In Millions, Except Per Share
Data)
Adjusted
EBITDA $296.8 $273.8
Interest
expense and
amortization
of debt
discounts and
fees (55.7) (48.6)
Depreciation
and
amortization (52.8) (45.2)
Stock-based
compensation
expense (14.3) (12.8)
Noncash loss
on disposal
or impairment
of assets (3.0) (1.8)
---- ----
171.0 165.4
Certain
nonrecurring
expenses:
Government,
class action,
and related
settlements 0.8 2.0
Professional
fees-
accounting,
tax, and
legal (3.6) (3.6)
Gain on
consolidation
of Fairlawn
Rehabilitation
Hospital 27.2 -
Pre-tax income 195.4 163.8
Income tax
(expense)
benefit (1) (69.3) (2) 53.0 (3)
----- ----
Income from
continuing
operations
(4) $126.1 $216.8
====== ======
Basic shares 87.0 90.0
==== ====
Diluted shares 100.8 103.4
===== =====
Basic earnings
per share (4) $1.40 $2.24
===== =====
Diluted
earnings per
share (4) $1.29 $2.09
===== =====
((1) )Current income tax expense for the six months ended June 30, 2014 and 2013 was $6.6 million and $0.5 million, respectively.
((2) )The Company's effective income tax rate was reduced as a result of the nontaxable gain related to its acquisition of an additional 30% equity interest in Fairlawn Rehabilitation Hospital, as discussed elsewhere in this document.
((3) )Includes an approximate $115 million, or $1.11 per diluted share, benefit related to the Company's settlement with the IRS related to the previous restatement of its 2000 and 2001 financial statements, as well as certain other tax matters, through December 31, 2008.
((4) )Income from continuing operations attributable to HealthSouth.
HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Income to Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
---- ---- ---- ----
(In Millions)
Net income $97.9 $179.0 $159.4 $244.9
(Income) loss from discontinued operations, net of (3.8) (0.1) (3.7) 0.3
tax, attributable to HealthSouth
Provision for income tax expense (benefit) 36.5 (86.5) 69.3 (53.0)
Interest expense and amortization of debt discounts 27.8 24.4 55.7 48.6
and fees
Professional fees-accounting, tax, and legal 2.0 2.2 3.6 3.6
Government, class action, and related settlements (0.8) (2.0) (0.8) (2.0)
Net noncash loss on disposal or impairment of assets 1.7 1.7 3.0 1.8
Depreciation and amortization 26.4 23.1 52.8 45.2
Stock-based compensation expense 7.0 6.5 14.3 12.8
Net income attributable to noncontrolling interests (14.8) (13.8) (29.6) (28.4)
Gain on consolidation of Fairlawn Rehabilitation (27.2) - (27.2) -
Hospital
Adjusted EBITDA $152.7 $134.5 $296.8 $273.8
====== ====== ====== ======
HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
Three Months Ended Six Months Ended Year Ended
June 30, June 30, December 31,
--------
2014 2013 2014 2013 2013
---- ---- ---- ---- ----
(In Millions)
Net cash provided by operating activities $128.0 $105.4 $235.1 $226.8 $470.3
Impact of discontinued operations 1.0 (0.5) 1.2 0.2 1.9
--- ---- --- --- ---
Net cash provided by operating activities of 129.0 104.9 236.3 227.0 472.2
continuing operations
Capital expenditures for maintenance (17.6) (16.8) (47.8) (35.7) (74.8)
Dividends paid on convertible perpetual preferred (1.5) (5.8) (3.1) (11.5) (23.0)
stock
Distributions paid to noncontrolling interests of (13.4) (10.7) (25.4) (23.9) (46.3)
consolidated affiliates
Nonrecurring items:
Premium paid on redemption of bonds - - - - 1.7
Cash paid (received) for:
Professional fees-accounting, tax, and legal 2.0 2.2 3.6 3.6 7.0
Government, class action, and related settlements (0.6) (1.3) (0.6) (1.3) (5.9)
---- ---- ---- ---- ----
Adjusted free cash flow $97.9 $72.5 $163.0 $158.2 $330.9
===== ===== ====== ====== ======
For the three months ended June 30, 2014, net cash used in investing activities was $39.2 million and resulted primarily from capital expenditures and acquisition activity. Net cash used in financing activities during the three months ended June 30, 2014 was $76.1 million and resulted primarily from net debt payments, repurchases of common stock, cash dividends on common stock, and distributions paid to noncontrolling interests of consolidated affiliates.
For the three months ended June 30, 2013, net cash used in investing activities was $53.5 million and resulted primarily from capital expenditures and acquisition activity. Net cash used in financing activities during the three months ended June 30, 2013 was $63.3 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company's convertible perpetual preferred stock.
For the six months ended June 30, 2014, net cash used in investing activities was $107.0 million and resulted primarily from capital expenditures and acquisition activity. Net cash used in financing activities during the six months ended June 30, 2014 was $126.8 million and resulted primarily from repurchases of common stock, net debt payments, cash dividends on common stock, and distributions paid to noncontrolling interests of consolidated affiliates.
For the six months ended June 30, 2013, net cash used in investing activities was $101.4 million and resulted primarily from capital expenditures and acquisition activity. Net cash used in financing activities during the six months ended June 30, 2013 was $189.5 million and resulted primarily from repurchases of common stock as part of the tender offer completed in the first quarter of 2013.
For the year ended December 31, 2013, net cash used in investing activities was $226.2 million and resulted primarily from increased capital expenditures and the acquisition of Walton Rehabilitation Hospital. Net cash used in financing activities during the year ended December 31, 2013 was $312.4 million and resulted primarily from repurchases of common stock as part of the tender offer completed in the first quarter of 2013.
HealthSouth Corporation and Subsidiaries
Forward-Looking Statements
Statements contained in this press release which are not historical facts, such as the financial guidance, are forward-looking statements. In addition, HealthSouth, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such estimates, projections, and forward-looking information speak only as of the date hereof, and HealthSouth undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information, involve a number of risks and uncertainties, and relate to, among other things, future events, HealthSouth's plan to repurchase its debt or equity securities, dividend strategies, effective income tax rates, HealthSouth's business strategy, its financial plans, its future financial performance, its projected business results or model, its projected capital expenditures, or its leverage ratio. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual events or results to differ materially from those estimated by HealthSouth include, but are not limited to, the price of HealthSouth's common or preferred stock as it affects the Company's willingness and ability to repurchase shares and the financial and accounting effects of any repurchases; any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings involving HealthSouth, including its pending DOJ and HHS-OIG investigations; potential disruptions, breaches, or other incidents affecting the proper operation, availability, or security of HealthSouth's information systems, including unauthorized access to or theft of patient information; significant changes in HealthSouth's management team; HealthSouth's ability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures consistent with its growth strategy; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for HealthSouth's services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels, including as part of national healthcare reform and deficit reduction; competitive pressures in the healthcare industry and HealthSouth's response thereto; HealthSouth's ability to obtain and retain favorable arrangements with third-party payors; HealthSouth's ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and the impact on HealthSouth's labor expenses from potential union activity and staffing shortages; general conditions in the economy and capital markets; the increase in the costs of defending and insuring against alleged professional liability claims and HealthSouth's ability to predict the estimated costs related to such claims; and other factors which may be identified from time to time in HealthSouth's SEC filings and other public announcements, including HealthSouth's Form 10?K for the year ended December 31, 2013 and Form 10-Q for the quarters ended March 31, 2014, and June 30, 2014, when filed.
Media Contact
Casey Lassiter, 205-410-2777
casey.lassiter@healthsouth.com
Investor Relations Contact
Mary Ann Arico, 205-969-6175
maryann.arico@healthsouth.com
SOURCE HealthSouth Corporation
