HealthSouth Reports Solid Results for First Quarter 2014

           HealthSouth Reports Solid Results for First Quarter 2014

Revenue Growth of 3.2% and Discharge Growth of 2.4%

Cash Provided by Operating Activities of $107.1 million

Adjusted EBITDA Increased by 3.4%

PR Newswire

BIRMINGHAM, Ala., April 28, 2014

BIRMINGHAM, Ala., April 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
first quarter ended March31, 2014.

"HealthSouth's first quarter results provide a very good start to the year,"
said Jay Grinney, HealthSouth President and Chief Executive Officer. "Despite
disruption to operations in many of our markets as a result of unprecedented
winter storms and the negative effect of sequestration, we achieved growth in
discharges, revenues, and Adjusted EBITDA. Discharge growth in April is on
track, and we expect our full-year Adjusted EBITDA and earnings per share to
be at the high end of their respective guidance ranges."

First Quarter Results

  oConsolidated net operating revenues were $591.2 million for the first
    quarter of 2014 compared to $572.6 million for the first quarter of 2013,
    or an increase of 3.2%. Discharge growth of 2.4% was negatively impacted
    by approximately 100 basis points due to winter storms, all of which
    occurred in same-store markets where discharge growth was 0.4%. Net
    patient revenue per discharge, which increased by 1.5%, was negatively
    impacted in the first quarter of 2014 by approximately $9 million for
    sequestration. Excluding the impact of sequestration, net patient revenue
    per discharge would have increased by 3.2%.
  oIncome from continuing operations attributable to HealthSouth for the
    first quarter of 2014 was $0.48 per diluted share compared to $0.48 per
    basic share for the same period of 2013. Earnings per share for the first
    quarter of 2014 reflected the impact of sequestration and lower volumes
    resulting from the winter storms, as well as higher depreciation and
    amortization related to recent capital expenditures.
  oCash flows provided by operating activities were $107.1 million for the
    three months ended March 31, 2014 compared to $121.4 million for the same
    period of 2013, reflective of anticipated increases in working capital
    during the first quarter of 2014. Specifically, payroll tax withholdings
    related to the vesting of employee restricted stock awards and timing
    differences in accounts payable caused the increase in working capital.
  oAdjusted EBITDA (see attached supplemental information) for the first
    quarter of 2014 was $144.1 million compared to $139.3 million for the same
    period of 2013, or an increase of 3.4%. This improvement was due primarily
    to continued revenue growth and disciplined expense management offset by
    the negative impacts of approximately $8 million due to sequestration, as
    well as the lower volumes resulting from winter storms. Adjusted EBITDA
    for the first quarter of 2014 included approximately $2 million from the
    sale of two investments.
  oAdjusted free cash flow (see attached supplemental information) for the
    first quarter of 2014 was $65.1 million compared to $85.7 million for the
    same period of 2013. Adjusted free cash flow in the first quarter of 2014
    benefited from higher Adjusted EBITDA offset by increases in working
    capital, as discussed above, and maintenance capital expenditures,
    including approximately $12 million of equipment purchases that were
    invoiced in 2013 and paid in early 2014.

"Our significant free cash flow continued to provide flexibility to return
capital to our shareholders, and we did so in the first quarter via the
payment of the $0.18 per share quarterly cash dividend on our common stock, as
well as by repurchasing 808,880 common shares under our $250 million share
buyback authorization," said Doug Coltharp, Executive Vice President and Chief
Financial Officer of HealthSouth.

2014 Guidance

In the Company's Current Report on Form 8-K dated February 19, 2014 and
related earnings release, the Company provided 2014 guidance which consisted
of Adjusted EBITDA in the range of $555 million to $565 million and income
from continuing operations attributable to HealthSouth per diluted share in
the range of $1.86 to $1.91. Based on its results for the first quarter of
2014, the Company expects its 2014 full-year Adjusted EBITDA and earnings per
share to be at the high end of these guidance ranges.

Earnings Conference Call and Webcast

The Company will host an investor conference call at 9:00 a.m. Eastern Time on
Tuesday, April29, 2014 to discuss its results for the first 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 13329070. 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 March31, 2014 (the "March 2014 Form 10-Q"), when filed, as well as the
Company's Current Report on Form 8-K filed on April28, 2014. In addition, the
Company will post supplemental slides today on its website at
http://investor.healthsouth.com for reference during its April29, 2014
earnings call.

When filed, the March 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 March 31,
                                                  2014             2013
                                                  (In Millions)
Net operating revenues                            $   591.2        $  572.6
Less: Provision for doubtful accounts             (7.5)            (7.4)
Net operating revenues less provision for         583.7            565.2
doubtful accounts
Operating expenses:
Salaries and benefits                             286.1            274.6
Other operating expenses                          84.5             78.1
Occupancy costs                                   10.5             12.2
Supplies                                          27.6             26.2
General and administrative expenses               30.7             30.2
Depreciation and amortization                     26.4             22.1
Professional fees—accounting, tax, and legal      1.6              1.4
Total operating expenses                          467.4            444.8
Interest expense and amortization of debt         27.9             24.2
discounts and fees
Other income                                      (1.7)            (0.7)
Equity in net income of nonconsolidated           (4.3)            (2.9)
affiliates
Income from continuing operations before income   94.4             99.8
tax expense
Provision for income tax expense                  32.8             33.5
Income from continuing operations                 61.6             66.3
Loss from discontinued operations, net of tax     (0.1)            (0.4)
Net income                                        61.5             65.9
Less: Net income attributable to noncontrolling   (14.8)           (14.6)
interests
Net income attributable to HealthSouth            46.7             51.3
Less: Convertible perpetual preferred stock       (1.6)            (5.7)
dividends
Net income attributable to HealthSouth common     $   45.1         $  45.6
shareholders



HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Continued)
(Unaudited)
                                          Three Months Ended March 31,
                                          2014                  2013
                                          (In Millions, Except Per Share Data)
Weighted average common shares
outstanding:
Basic                                     87.3                  94.0
Diluted                                   100.9                 107.1
Earnings per common share:
Basic earnings per share attributable to
HealthSouth common shareholders:
Continuing operations                     $     0.51            $    0.48
Discontinued operations                   —                     —
Net income                                $     0.51            $    0.48
Diluted earnings per share attributable
to HealthSouth common shareholders:
Continuing operations                     $     0.48            $    0.48
Discontinued operations                   —                     —
Net income                                $     0.48            $    0.48
Cash dividends per common share           $     0.18            $    —
Amounts attributable to HealthSouth
common shareholders:
Income from continuing operations         $     46.8            $    51.7
Loss from discontinued operations, net of (0.1)                 (0.4)
tax
Net income attributable to HealthSouth    $     46.7            $    51.3



HealthSouth Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                      March 31,   December 31,
                                                      2014       2013
                                                      (In Millions)
Assets
Current assets:
Cash and cash equivalents                             $ 53.1      $  64.5
Accounts receivable, net of allowance for doubtful    272.7       261.8
accounts of $23.9 in 2014; $23.1 in 2013
Deferred income tax assets                            138.9       139.0
Other current assets                                  120.5       115.1
Total current assets                                  585.2       580.4
Property and equipment, net                           930.7       910.5
Goodwill                                              456.9       456.9
Intangible assets, net                                89.6        88.2
Deferred income tax assets                            325.3       354.3
Other long-term assets                                151.4       144.1
Total assets                                          $ 2,539.1   $  2,534.4
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable                                      $ 48.5      $  61.9
Accrued expenses and other current liabilities        253.5       249.7
Total current liabilities                             302.0       311.6
Long-term debt, net of current portion                1,503.1     1,505.2
Other long-term liabilities                           145.6       142.2
                                                      1,950.7     1,959.0
Commitments and contingencies
Convertible perpetual preferred stock                 93.2        93.2
Redeemable noncontrolling interests                   13.0        13.5
Shareholders' equity:
HealthSouth shareholders' equity                      355.6       344.6
Noncontrolling interests                              126.6       124.1
Total shareholders' equity                            482.2       468.7
Total liabilities and shareholders' equity            $ 2,539.1   $  2,534.4



HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                  Three Months Ended March 31,
                                                  2014             2013
                                                  (In Millions)
Cash flows from operating activities:
Net income                                        $   61.5         $   65.9
Loss from discontinued operations                 0.1              0.4
Adjustments to reconcile net income to net cash
provided by operating activities—
Provision for doubtful accounts                   7.5              7.4
Depreciation and amortization                     26.4             22.1
Equity in net income of nonconsolidated           (4.3)            (2.9)
affiliates
Distributions from nonconsolidated affiliates     3.4              3.4
Stock-based compensation                          7.3              6.3
Deferred tax expense                              29.2             31.7
Other                                             3.1              0.8
(Increase) decrease in assets—
Accounts receivable                               (24.7)           (24.3)
Other assets                                      (4.7)            1.4
Increase (decrease) in liabilities—
Accounts payable                                  2.6              12.1
Other liabilities                                 (0.1)            (2.2)
Net cash used in operating activities of          (0.2)            (0.7)
discontinued operations
Total adjustments                                 45.5             55.1
Net cash provided by operating activities         107.1            121.4
Cash flows from investing activities:
Purchases of property and equipment               (56.6)           (30.1)
Capitalized software costs                        (7.0)            (8.1)
Escrow deposit — acquisition of business          —                (11.0)
Other                                             (4.2)            1.3
Net cash used in investing activities             (67.8)           (47.9)
Cash flows from financing activities:
Borrowings on revolving credit facility           40.0             122.0
Payments on revolving credit facility             (42.0)           —
Repurchase of common stock, including fees and    (26.3)           (232.6)
expenses
Dividends paid on common stock                    (15.8)           —
Dividends paid on convertible perpetual preferred (1.6)            (5.7)
stock
Distributions paid to noncontrolling interests of (12.0)           (13.2)
consolidated affiliates
Proceeds from exercise of stock warrants          6.3              —
Other                                             0.7              3.3
Net cash used in financing activities             (50.7)           (126.2)
Decrease in cash and cash equivalents             (11.4)           (52.7)
Cash and cash equivalents at beginning of period  64.5             132.8
Cash and cash equivalents at end of period        $   53.1         $   80.1



HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
                                           Q1 2014           Q1 2013
                                           (In Millions, Except Per Share
                                           Data)
Adjusted EBITDA                            $   144.1         $   139.3
Interest expense and amortization of debt  (27.9)            (24.2)
discounts and fees
Depreciation and amortization              (26.4)            (22.1)
Stock-based compensation expense           (7.3)             (6.3)
Noncash loss on disposal of assets         (1.3)             (0.1)
                                           81.2              86.6
Certain nonrecurring expenses:
Professional fees—accounting, tax, and     (1.6)             (1.4)
legal
Pre-tax income                             79.6              85.2
Income tax expense ^(1)                    (32.8)            (33.5)
Income from continuing operations ^(2)     $   46.8          $   51.7
Basic shares                               87.3              94.0
Diluted shares                             100.9             107.1
Basic earnings per share ^(2)              $   0.51          $   0.48     ^(3)
Diluted earnings per share ^(2)            $   0.48          $   0.48     ^(3)

^(1) Current income tax expense for the three months ended March 31, 2014 and
     2013 was $3.6 million and $1.8 million, respectively.
^(2)    Income from continuing operations attributable to HealthSouth.
        Adding back the dividends for the Convertible perpetual preferred
        stock to Income from continuing operations attributable to HealthSouth
^(3)    common shareholders causes a per share increase when calculating
        diluted earnings per common share resulting in an antidilutive per
        share amount.



Reconciliation of Net Income to Adjusted EBITDA
                                                  Three Months Ended March 31,
                                                  2014             2013
                                                  (In Millions)
Net income                                        $   61.5         $  65.9
Loss from discontinued operations, net of tax,    0.1              0.4
attributable to HealthSouth
Provision for income tax expense                  32.8             33.5
Interest expense and amortization of debt         27.9             24.2
discounts and fees
Professional fees—accounting, tax, and legal      1.6              1.4
Net noncash loss on disposal of assets            1.3              0.1
Depreciation and amortization                     26.4             22.1
Stock-based compensation expense                  7.3              6.3
Net income attributable to noncontrolling         (14.8)           (14.6)
interests
Adjusted EBITDA                                   $   144.1        $  139.3



HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free
Cash Flow
                                                                  Year Ended
                                    Three Months Ended March 31,
                                                                  December 31,
                                    2014             2013         2013
                                    (In Millions)
Net cash provided by operating      $    107.1       $   121.4    $    470.3
activities
Impact of discontinued operations   0.2              0.7          1.9
Net cash provided by operating      107.3            122.1        472.2
activities of continuing operations
Capital expenditures for            (30.2)           (18.9)       (74.8)
maintenance
Dividends paid on convertible       (1.6)            (5.7)        (23.0)
perpetual preferred stock
Distributions paid to
noncontrolling interests of         (12.0)           (13.2)       (46.3)
consolidated affiliates
Nonrecurring items:
Premium paid on redemption of bonds —                —            1.7
Cash paid for:
Professional fees—accounting, tax,  1.6              1.4          7.0
and legal
Government, class action, and       —                —            (5.9)
related settlements
Adjusted free cash flow             $    65.1        $   85.7     $    330.9



For the three months ended March31, 2014, net cash used in investing
activities was $67.8 million and resulted primarily from capital expenditures.
Net cash used in financing activities during the three months ended March31,
2014 was $50.7 million and resulted primarily from repurchases of common
stock, cash dividends on common stock, and distributions paid to
noncontrolling interests of consolidated affiliates.

For the three months ended March31, 2013, net cash used in investing
activities was $47.9 million and resulted primarily from capital expenditures
and acquisition activity. Net cash used in financing activities during the
three months ended March31, 2013 was $126.2 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 December31, 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 December31, 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; 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 December31, 2013 and Form 10-Q for
the quarter ended March31, 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

Website: http://www.healthsouth.com
 
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