Healthsouth Corporation experiences positive trends in second quarter

HealthSouth Corporation (NYSE: HLS), the nation's largest provider of inpatient rehabilitative healthcare services, today reported its results of operations for the quarter ended June 30, 2010.

"The positive trends we experienced in the first quarter of 2010 continued into the second quarter as good volume growth, solid pricing, and disciplined expense management resulted in growth in all key, financial metrics," said Jay Grinney, President and Chief Executive Officer of HealthSouth. "In addition to strong performance across our existing portfolio, we purchased a new hospital in Las Vegas, Nevada in the quarter and recently announced the signing of a definitive agreement to purchase another hospital in Sugar Land, Texas, as well as our plans to begin construction of a new 40-bed hospital in the Cypress area of northwest Houston during the fourth quarter of 2010. Our growth pipeline remains strong, and we will continue to pursue disciplined acquisitions that will bring high-quality rehabilitative services to new markets and value to our shareholders."

Second Quarter Results

• Consolidated net operating revenues were $496.9 million for the second quarter of 2010 compared to $481.6 million for the second quarter of 2009, or an increase of 3.2%. This increase was attributable to higher net patient revenue per discharge and a 2.2% increase in patient discharges. Net patient revenue per discharge increased 2.1% quarter over quarter due primarily to the Medicare pricing changes that became effective October 1, 2009. Same store discharges were 1.3% higher quarter over quarter.
• Reported net income per diluted share for the second quarter of 2010 was $0.44 per share compared to a $0.14 loss per diluted share for the second quarter of 2009, which included a net charge of $48.7 million, or $0.48 per diluted share, associated with government, class action, and related settlements. Furthermore, there was a 6.6% quarter-over-quarter increase in diluted weighted average common shares outstanding in the second quarter of 2010 due primarily to the five million shares issued on September 30, 2009 in full satisfaction of the Company's obligation to do so under the 2006 securities litigation settlement.
• Adjusted income from continuing operations (see attached supplemental information) per diluted share grew 12.8% from $0.39 per diluted share for the second quarter of 2009 to $0.44 per diluted share for the second quarter of 2010. The Company experienced quarter-over-quarter growth due primarily to increased revenues and effective expense management offset partially by the increased share count discussed above. Adjusted income from continuing operations for the second quarter of 2010 included a $4.6 million increase in professional liability reserves. Adjusted income from continuing operations for the second quarter of 2009 included a $4.9 million charge related to equity in net income of nonconsolidated affiliates.
• Cash flows provided by operating activities were $172.7 million for the six months ended June 30, 2010 compared to $229.2 million for the same period of 2009, which included approximately $128 million related to the Company's settlement with UBS and the receipt of income tax refunds related to prior periods. Cash flows provided by operating activities for the six months ended June 30, 2010 included $9.7 million of state income tax refunds associated with prior periods.
• Adjusted Consolidated EBITDA (see attached supplemental information) for the second quarter of 2010 was $103.7 million compared to $94.0 million in the second quarter of 2009, or an increase of 10.3%. Adjusted Consolidated EBITDA for the second quarter of 2010 included the same $4.6 million increase in professional liability reserves noted above. Adjusted Consolidated EBITDA for the second quarter of 2009 included the same $4.9 million charge noted above for equity in net income of nonconsolidated affiliates.

"Our strong operating results for the quarter facilitated the further strengthening of our balance sheet," said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. "We ended the quarter with in excess of $170 million of cash-on-hand and no borrowings under our $400 million revolving credit facility. The continued growth in our Adjusted Consolidated EBITDA resulted in further reduction in our leverage ratio to 4.1x at the end of June 2010."

2010 Guidance

In the Company's Current Report on Form 8-K dated February 22, 2010 and related earnings release, the Company provided 2010 guidance which consisted of adjusted income from continuing operations in the range of $1.60 to $1.70 per diluted share and Adjusted Consolidated EBITDA in the range of $397 million to $407 million. As a result of its strong operating results for the first six months of 2010, the Company is increasing its previously provided guidance for 2010. Guidance for adjusted income from continuing operations has been increased to a range of $1.66 to $1.74 per diluted share, while guidance for Adjusted Consolidated EBITDA has been increased to a range of $402 million to $410 million.