HEALTHSOUTH Reports Results For Third Quarter 2014

BIRMINGHAM, Ala., Oct. 27, 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 third quarter ended September 30, 2014.

“The third quarter was another solid quarter for HealthSouth,” said Jay Grinney, President and Chief Executive Officer of HealthSouth. “Discharges grew 3.8% against growth of 5.7% in the third quarter of 2013. We also made excellent progress in the quarter on setting the stage for growth in 2015. We expect the continued construction of three de novo hospitals, the continued progress with Mountain States Health Alliance toward owning and operating Quillen Rehabilitation Hospital in Johnson City, Tennessee, and the continued capacity expansion of our existing hospitals will allow us to add 211 new beds to our existing portfolio prior to January 2015.”

Third Quarter Results

• Consolidated net operating revenues were $596.9 million for the third quarter of 2014 compared to $564.0 million for the third quarter of 2013, an increase of 5.8%. This increase was attributable to a 3.8% increase in patient discharges and a 2.7% increase in net patient revenue per discharge. Discharge growth included a 1.9% increase in same-store discharges. Same-store discharges were negatively impacted by 40 basis points due to the closure of 40 skilled nursing facility beds in June 2014. Discharge growth from new stores resulted from the consolidation of Fairlawn Rehabilitation Hospital (“Fairlawn”) in Worcester, Massachusetts effective June 1, 2014. The increase in net patient revenue per discharge resulted from Medicare and managed care price adjustments.
• Income from continuing operations attributable to HealthSouth per diluted share for the third quarter of 2014 was $0.53 per share compared to $0.59 per share for the third quarter of 2013. Earnings per share for the third quarter of 2014 reflected continued revenue growth and a lower income tax rate. Earnings per share for the third quarter of 2013 benefited from a $21.3 million, or $0.13 per diluted share after tax, gain in government, class action, and related settlements associated with recoveries on judgments against former officers and related matters.
• Cash flows provided by operating activities were $374.7 million for the nine months ended September 30, 2014 compared to $369.4 million for the nine months ended September 30, 2013. This increase primarily resulted from continued revenue growth.
• Adjusted EBITDA (see attached supplemental information) for the third quarter of 2014 was $140.0 million compared to $135.5 million for the third quarter of 2013, an increase of 3.3%. The comparison to last year was negatively impacted by approximately $4.8 million attributable to lower reductions in the Company’s self-insurance reserves in the third quarter of 2014 than in the third quarter of 2013. Based on favorable trends in claims, the Company’s reserves for group medical, workers’ compensation, and general and professional liability insurance were reduced by an aggregate of $3.0 million in the third quarter of 2014 compared to $7.8 million in the third quarter of 2013.
• Adjusted free cash flow (see attached supplemental information) for the third quarter of 2014 was $103.3 million compared to $106.4 million for the third quarter of 2013. Adjusted free cash flow for the third quarter of 2014 benefited from higher Adjusted EBITDA and lower dividends paid on the Company’s preferred stock offset by growth in accounts receivable related to an increase in medical necessity claims denials primarily by one fiscal intermediary.

Debt Transactions

In September 2014, the Company issued an additional $175 million of its 5.75% Senior Notes due 2024 at a price of 103.625% of the principal amount, which resulted in approximately $182 million in net proceeds from the public offering. The Company also amended its existing credit agreement to, among other things, add a new $150 million term loan commitment to its existing $600 million revolving credit facility and extend the maturity date to 2019. In October 2014, the Company used the net proceeds from the additional offering of senior notes, a $75 million draw under its term loan facility, and cash on hand to redeem all of the outstanding principal amount of its 7.25% Senior Notes due 2018. Pursuant to the terms of the 7.25% Senior Notes due 2018, this redemption was made at a price of 103.625%, which resulted in a total cash outlay of approximately $281 million to retire the approximately $271 million in principal. Additionally, in October 2014, the Company gave notice to redeem approximately $25 million of the outstanding principal amount of its existing 7.75% Senior Notes due 2022. This optional redemption will represent 10% of the outstanding principal amount of the notes at a price of 103%, which will result in a total cash outlay of approximately $26 million when the transaction closes in December 2014. As a result of these redemptions, the Company expects to record an approximate $13 million loss on early extinguishment of debt in the fourth quarter of 2014.

“The debt transactions we recently executed further enhanced our flexibility to choose how we invest our cash and return value to shareholders,” said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. “Specifically, we continue to invest in organic growth at our existing hospitals, construct de novo hospitals in new markets, and pay cash dividends on our common stock. We also believe we are well positioned to take advantage of acquisition opportunities should they arise.”

2014 Guidance

Based on its year-to-date results and the debt transactions discussed above, the Company is:

• narrowing its full-year 2014 Adjusted EBITDA guidance to a range of $575 million to $580 million from a range of $570 million to $580 million.
• revising its full-year 2014 guidance for income from continuing operations attributable to HealthSouth per diluted share to a range of $2.24 to $2.27 per share from a range of $2.25 to $2.31 per share.

The Company’s previous guidance estimates did not include the approximate $13 million, or $0.08 per diluted share, loss on early extinguishment of debt to be recorded in the fourth quarter of 2014.

Earnings Conference Call and Webcast

The Company will host an investor conference call at 9:00 a.m. Eastern Time on Tuesday, October 28, 2014 to discuss its results for the third 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 8019902. 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 September 30, 2014 (the “September 2014 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on October 27, 2014. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com for reference during its October 28, 2014 earnings call.

When filed, the September 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.