HEALTHSOUTH Reports Results For Fourth Quarter And Full Year 2015

BIRMINGHAM, Ala., Feb. 23, 2016/PRNewswire/ -- HealthSouth Corporation (NYSE: HLS), one of the nation's largest providers of post-acute healthcare services, offering both facility-based and home-based post-acute services, today reported its results of operations for the fourth quarter and year ended December 31, 2015.

"The fourth quarter was a solid conclusion to 2015 that established a firm foundation for continued growth in 2016 and beyond," said Jay Grinney, HealthSouth President and Chief Executive Officer. "We were very pleased with the strong organic growth in both segments and the contributions from the rehabilitation hospitals acquired from Reliant Hospital Partners and the home health and hospice agencies acquired from CareSouth Health System in the fourth quarter. Most importantly, we generated $83 million of adjusted free cash flow in the quarter, which brought full-year adjusted free cash flow to $389 million, a 25% increase over full-year 2014."

Fourth Quarter Results

Consolidated Results

• The Company's consolidated net operating revenues increased by $265.9 million, or 43.3%, in the fourth quarter of 2015 compared to the fourth quarter of 2014. This increase primarily resulted from strong volume growth in both of the Company's operating segments and included the effect of the Company's acquisitions of Encompass Home Health and Hospice ("Encompass") on December 31, 2014, Reliant Hospital Partners, LLC and affiliated entities ("Reliant") on October 1, 2015, and CareSouth Health System, Inc. ("CareSouth") on November 2, 2015.
• Income from continuing operations attributable to HealthSouth per diluted share (see attached supplemental information) for the fourth quarter of 2015 was $0.48 per diluted share compared to $0.41 per diluted share for the same quarter of 2014.
• Cash flows provided by operating activities were $116.6 million for the fourth quarter of 2015 compared to $70.2 million for the fourth quarter of 2014. This increase primarily resulted from revenue growth. Cash flows provided by operating activities for the fourth quarter of 2015 were also impacted by higher cash interest expense due to the debt used to fund the acquisitions of Encompass, Reliant, and CareSouth.
• Adjusted EBITDA (see attached supplemental information) for the fourth quarter of 2015 was $191.5 million compared to $140.8 million for the fourth quarter of 2014, an increase of 36.0%.
• Adjusted free cash flow (see attached supplemental information) for the fourth quarter of 2015 was $83.0 million compared to $45.4 million for the fourth quarter of 2014, an increase of 82.8%, primarily due to the Company's growth in Adjusted EBITDA. Adjusted free cash flow in the fourth quarter of 2015 included increased cash interest expense related to acquisitions.

Inpatient Rehabilitation Segment Results

• Net operating revenues for the inpatient rehabilitation segment were $725.9 million for the fourth quarter of 2015 compared to $605.8 million for the fourth quarter of 2014, an increase of 19.8%. This increase was attributable to an 18.6% increase in patient discharges and a 1.1% increase in net patient revenue per discharge. Discharge growth included a 3.0% increase in same-store discharges. Discharge growth from new stores resulted from three de novo hospitals that opened in the fourth quarter of 2014 (Altamonte Springs, Florida; Newnan, Georgia; and Middletown, Delaware) and one de novo hospital that opened in December 2015 (Franklin, Tennessee), the Company's acquisitions of Reliant (October 2015), Quillen Rehabilitation Hospital in Johnson City, Tennessee (November 2014) and Cardinal Hill Rehabilitation Hospital in Lexington, Kentucky (May 2015), and the Company's joint venture with Memorial Health in Savannah, Georgia (April 2015).
• Adjusted EBITDA (see attached supplemental information) from the inpatient rehabilitation segment for the fourth quarter of 2015 was $189.9 million compared to $162.2 million for the fourth quarter of 2014, an increase of 17.1%. Adjusted EBITDA for the inpatient rehabilitation segment for the fourth quarter of 2015 was impacted by continued year-over-year increases in group medical and bad debt expenses.

Home Health and Hospice Segment Results

The Company's home health and hospice segment reported $153.4 million of net operating revenues and $26.5 million of Adjusted EBITDA for the fourth quarter of 2015. The results of operations for the home health and hospice segment in 2014 included only HealthSouth's legacy hospital-based home health agencies. The increase in net operating revenues and Adjusted EBITDA (see attached supplemental information) for the Company's home health and hospice segment in 2015 resulted from its acquisition of Encompass on December 31, 2014, as well as the acquisition of CareSouth on November 2, 2015.

Within Encompass, revenue and volume growth were driven both by locations Encompass owned prior to 2014 and those Encompass acquired during 2014. In the fourth quarter of 2015, for those locations Encompass owned prior to 2014, admissions increased 18.6% and episodes increased 15.2%, all as compared to the fourth quarter of 2014. This growth included volumes resulting from Encompass' integration of HealthSouth's legacy home health agencies that were relocated or merged into existing Encompass locations (i.e., market consolidations).

Capital Structure Transactions

Repurchases of Common Stock

During the fourth quarter of 2015, the Company repurchased 1,360,974 shares of its common stock for approximately $47 million in the open market. As of December 31, 2015, the Company had a remaining repurchase authorization of approximately $160 million.

Redemption of Senior Notes

In September 2015, the Company's 7.75% Senior Notes due 2022 (the "2022 Notes") became fully callable.

In November 2015, the Company redeemed $50 million of the outstanding principal amount of the 2022 Notes. Pursuant to the terms of these notes, this optional redemption was made at a price of 103.875%, which resulted in a total cash outlay of approximately $52 million. The redemption was funded using a draw under the Company's revolving credit facility. As a result of this redemption, the Company recorded a $2.4 million loss on early extinguishment of debt in the fourth quarter of 2015.

In February 2016, the Company gave notice of its intent to redeem an additional $50 million of the outstanding principal amount of the 2022 Notes. This optional redemption also will be made at a price of 103.875%. The Company plans to use cash on hand and capacity under its revolving credit facility to fund the redemption, which is expected to close in March 2016. As a result of this redemption, the Company expects to record an approximate $2 million loss on early extinguishment of debt in the first quarter of 2016.

The above redemptions are expected to result in cash interest savings of approximately $4 million in 2016. After the March 2016 redemption, the Company will have approximately $126 million of the 2022 Notes outstanding.

Full-Year Consolidated Results

• The Company's consolidated net operating revenues increased by $757.0 million, or 31.5%, in 2015 compared to 2014. This increase primarily resulted from strong volume growth in both of the Company's operating segments and included the effect of the Company's acquisitions of Encompass, Reliant, and CareSouth.
• Income from continuing operations attributable to HealthSouth per diluted share (see attached supplemental information) for 2015 was $1.92 per diluted share compared to $2.24 per diluted share for 2014.
• Cash flows provided by operating activities were $484.8 million for 2015 compared to $444.9 million for 2014. This increase primarily resulted from revenue growth. Cash flows provided by operating activities in 2015 were also impacted by increased cash interest expense and higher working capital, as discussed below.
• Adjusted EBITDA (see attached supplemental information) for 2015 was $682.5 million compared to $577.6 million for 2014, an increase of 18.2%.
• Adjusted free cash flow (see attached supplemental information) for 2015 was $389.0 million compared to $311.3 million for 2014, an increase of 25.0%, primarily due to the Company's growth in Adjusted EBITDA. Adjusted free cash flow for 2015 also included higher cash interest expense due to acquisitions and higher working capital mainly attributable to growth in accounts receivable due to additional claims denials and continued delays at the administrative law judge hearing level.

"Our 2015 results provide further evidence of the strength and consistency of our free cash flow generation," said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. "Our priorities for free cash flow allocation in 2016 are to pursue core growth opportunities in both segments, selectively prepay debt, and continue to fund shareholder distributions. The magnitude of our free cash flow facilitates deployment across all of these alternatives."

2016 Guidance

In a Current Report on Form 8-K dated January 11, 2016, the Company provided its initial guidance ranges for 2016. The Company is confirming the following net operating revenues and Adjusted EBITDA guidance ranges for 2016 and updating its 2016 guidance range for adjusted earnings per share:

Net Operating Revenues: $3,550 million to $3,650 million

Adjusted EBITDA: $765 million to $785 million

Adjusted Earnings per Share: $2.32 to $2.44 per diluted share

The Company is transitioning from providing guidance on earnings per share, a measure in accordance with generally accepted accounting principles in the United States of America ("GAAP"), to adjusted earnings per share, a non-GAAP measure.

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