BIRMINGHAM, Ala., Feb. 24, 2015 /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, 2014.
"The fourth quarter marked the conclusion of another solid year of operational performance for HealthSouth," said Jay Grinney, HealthSouth President and Chief Executive Officer. "Fourth quarter revenues grew 7.2% fueled by a 4.7% increase in the number of patients we treated in our hospitals and a 3.2% increase in our inpatient pricing. We also opened four new hospitals in the quarter and, although we incurred approximately $6 million in net start-up costs associated with these new facilities in the quarter, they position the Company to achieve strong discharge growth in 2015. We also closed on our acquisition of Encompass Home Health and Hospice on December 31st. This acquisition provides new, incremental growth and positions us to offer a broader range of post-acute services which will enhance our ability to compete in the evolving healthcare delivery system."
Fourth Quarter Results
- Consolidated net operating revenues were $613.4 million for the fourth quarter of 2014 compared to $572.1 million for the fourth quarter of 2013, an increase of 7.2%. This increase was attributable to a 4.7% increase in patient discharges and a 3.2% increase in net patient revenue per discharge. Discharge growth included a 2.2% increase in same-store discharges. Same-store discharges in the fourth quarter of 2014 were negatively impacted by 30 basis points due to the closure of 40 skilled nursing facility beds in June 2014. Discharge growth from new stores of 2.5% primarily resulted from the consolidation of Fairlawn Rehabilitation Hospital ("Fairlawn") in Worcester, Massachusetts effective June 1, 2014 and also included three de novo hospitals that opened in the fourth quarter (Altamonte Springs, Florida; Newnan, Georgia; and Middletown, Delaware) and the acquisition of Quillen Rehabilitation Hospital in Johnson City, Tennessee. Delays encountered in opening three of these hospitals negatively impacted their contribution to new-store discharge growth in the quarter. The increase in net patient revenue per discharge resulted from Medicare and managed care price adjustments offset by the ramping up of new hospitals which are required to treat a minimum of 30 patients for zero revenue as part of the Medicare certification process. Net patient revenue per discharge for the fourth quarter of 2013 was negatively impacted by contractual allowances related to Recovery Audit Contractor audits.
- Income from continuing operations attributable to HealthSouth for the fourth quarter of 2014 was $0.41 per diluted share compared to $(0.31) per basic share for the same period of 2013. Earnings per share for the fourth quarter of 2014 were impacted by a $13.2 million, or $0.08 per share, loss on early extinguishment of debt and $9.3 million, or $0.06 per share, of transaction costs associated with the acquisition of Encompass Home Health and Hospice. Earnings per share for the fourth quarter of 2013 included the $71.6 million, or $(0.83) per share, repurchase premium associated with the exchange transactions involving the Company's convertible perpetual preferred stock and 2.00% Convertible Senior Subordinated Notes due 2043 in November 2013. The Company's basic and diluted earnings per share were the same in the fourth quarter of 2013.
- Cash flows provided by operating activities were $70.2 million for the fourth quarter of 2014 compared to $100.9 million for the fourth quarter of 2013. This decrease primarily resulted from growth in accounts receivable, as discussed below.
- Adjusted EBITDA (see attached supplemental information) for the fourth quarter of 2014 was $140.8 million compared to $142.3 million for the fourth quarter of 2013. Adjusted EBITDA in the fourth quarter of 2014 was negatively impacted by approximately $6 million in net start-up costs at hospitals that opened during the quarter. Adjusted EBITDA for the fourth quarter of 2014 was positively impacted by approximately $2 million related to the increase in ownership and consolidation of Fairlawn.
- Adjusted free cash flow (see attached supplemental information) for the fourth quarter of 2014 was $45.4 million compared to $66.3 million for the fourth quarter of 2013. Adjusted free cash flow in the fourth quarter of 2014 was negatively impacted by growth in accounts receivable related to additional claims denials predominantly by one Medicare Administrative Contractor and continued delays at the administrative law judge hearing level. Adjusted free cash flow for the quarter benefited from lower dividends paid on the Company's preferred stock.
Full Year Results
- Consolidated net operating revenues were $2,405.9 million for 2014 compared to $2,273.2 million for 2013, an increase of 5.8%. This increase was attributable to a 3.5% increase in patient discharges and a 3.1% increase in net patient revenue per discharge. Discharge growth included a 1.3% increase in same-store discharges. Same-store discharges were negatively impacted by winter storms in the first quarter of 2014 (40 basis points) and the closure of 40 skilled nursing facility beds in June 2014 (20 basis points). Discharge growth from new stores primarily resulted from the consolidation of Fairlawn effective June 1, 2014. Net patient revenue per discharge in 2014 benefited from Medicare and managed care price adjustments and higher average acuity for the patients served. Net patient revenue per discharge was negatively impacted in 2014 by approximately $9 million for sequestration, which anniversaried on April 1, 2014. Net patient revenue per discharge in 2013 was negatively impacted by contractual allowances established in the fourth quarter of 2013 related to Recovery Audit Contractor audits.
- Income from continuing operations attributable to HealthSouth for 2014 was $2.24 per diluted share compared to $2.59 per basic share for 2013. Earnings per share for 2014 reflected continued revenue growth, increases in interest expense and depreciation and amortization, and a higher income tax rate. Earnings per share for 2014 were also impacted by three items having a net, favorable after-tax impact of approximately $0.04 per share. These items included the $27.2 million gain on the consolidation of Fairlawn offset by the $13.2 million loss on early extinguishment of debt and $9.3 million of Encompass transaction expenses (see attached supplemental information).
Earnings per share in 2013 were impacted by three items having a net, favorable after-tax impact of approximately $0.65 per share. These items included an approximate $115 million settlement with the Internal Revenue Service and approximately $24 million of gains related to government, class action, and related settlements offset by the $71.6 million repurchase premium on the preferred stock included in the Company's November 2013 exchange transactions (see attached supplemental information). The Company's basic and diluted earnings per share were the same in 2013. - Cash flows provided by operating activities were $444.9 million for 2014 compared to $470.3 million for 2013. This decrease was due primarily to growth in accounts receivable, as discussed below.
- Adjusted EBITDA (see attached supplemental information) for 2014 was $577.6 million compared to $551.6 million for 2013. The year-over-year growth in Adjusted EBITDA was due primarily to continued revenue growth, as well as an approximate $6 million contribution to Adjusted EBITDA from the increase in ownership and consolidation of Fairlawn. The comparison to last year was negatively impacted by approximately $14 million attributable to lower reductions in the Company's self-insurance reserves in 2014 than in 2013. Adjusted EBITDA in 2014 also included approximately $8 million for the negative impact of sequestration in the first quarter of 2014 and approximately $4 million in higher net start-up costs, year over year, for new hospitals.
- Adjusted free cash flow (see attached supplemental information) for 2014 was $311.3 million compared to $330.9 million for 2013. Adjusted free cash flow in 2014 was negatively impacted by growth in accounts receivable related to additional claims denials predominantly by one Medicare Administrative Contractor and continued delays at the administrative law judge hearing level. Additionally, adjusted free cash flow benefited from lower dividends paid on the Company's preferred stock and was negatively impacted by the timing of maintenance capital expenditures related to approximately $12 million of equipment purchased at the end of 2013 for which payment was not required until January 2014.
"During 2014, we demonstrated the advantages of our strong free cash flow generation and balance sheet," said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. "We used these advantages to fund capacity additions in our core inpatient rehabilitation business, further increase our shareholder distributions via $43 million in common stock repurchases and a 16.7% increase in our quarterly cash dividend on our common stock, and support the year-end acquisition of Encompass Home Health and Hospice. We will use these same advantages in 2015 to support growth opportunities in both of our business segments and to continue our strategy of shareholder distributions."
Acquisition of Encompass Home Health and Hospice
As previously announced, the acquisition of Encompass Home Health and Hospice was completed on December 31, 2014.
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