Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Barclays Capital Global Healthcare Conference 2009
35 slides from Encompass Health's conference presentation, Mar 9, 2009
Slide 1: HealthSouth
Exhibit 99.1 HealthSouth Barclays Capital Global Healthcare Conference Miami, Florida March 10, 2009 1
Slide 2: Cautionary Statements
Cautionary Statements Note Regarding Forward-Looking Statements The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current views with respect to future events and financial performance. These estimates, proje
Slide 3: HealthSouth Today
HealthSouth Today Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Operational Components 93 Rehabilitation Hospitals and Outpatient Departments 6 Long-Term Acute Care Hospitals 49 Outpatient Satellites 25 Hospital-Based Home Health Agencies Major Services IRH LTCH Develo
Slide 4: Strategy
Strategy: To create shareholder value as the preeminent provider of rehabilitative care in the U.S. by: Creating a strong balance sheet through deleveraging; Driving organic growth through operational excellence; and Pursuing disciplined, opportunistic growth. Target: 5-8% annual Adjusted Consolidat
Slide 5: Highlight: Debt Reduction
Highlight: Debt Reduction No near-term refinancing Revolver = 2012 ($ Billions) Term Loan = 2013 Bonds = 2014 & 2016 Future deleveraging: Excess cash from operations Derivative proceeds UBS settlement; received ~ $60 million in cash E&Y and Scrushy litigation on-going Debt to EBITDA 6.3X 6.3X 5.3X 5
Slide 6: Highlight: Free Cash Flow
Highlight: Free Cash Flow Year Ended (Millions) December 31, 2008 (1) Adjusted Consolidated EBITDA $ 341.8 Cash interest expense (158.5) Change in working capital (12.2) Estimated state tax expense (5.0) (2) Capital expenditures for maintenance (37.3) Net settlements on interest rate swap (20.7) Div
Slide 7: Highlight: Disciplined Use of Cash
Highlight: Disciplined Use of Cash Adjusted Free Cash Flow(1) Debt Reduction (Major Focus) Acquisitions/ Non-Operating Cash Consolidations (Opportunistic) Bed Tax refunds Expansions ($15-20 million) Derivative proceeds De novo’s Digital Hospital (3rd-party financed) proceeds (1) After maintenance CA
Slide 8: Highlight: Strong Organic Growth
Highlight: Strong Organic Growth (1) (2) HealthSouth’s volume growth continues to outpace competitors’ growth Same store discharges were +9.7% for HLS in Q408 Bed expansions will help facilitate organic growth: 65 – 75 new beds in 2009; another 44 in 2010 % Discharges of HLS vs. UDS Industry Sites(1
Slide 9: Organic Growth Enhanced Through Bed Expansions
Organic Growth Enhanced Through Bed Expansions Greater than 85% occupancy Q408 Q407 Hospitals 14 10 Hospitals with greater than 85% occupancy are candidates for bed expansion We expect to add 65-75 beds by the end of 2009 and at least another 44 beds in 2010 Average cost per bed: With new constructi
Slide 10: Highlight: Development Growth
Highlight: Development Growth Operational Location Announced Type of Investment Installed Beds Date Acquisition of free Vineland, NJ Aug-08 standing 34 Beds Q308 Acquisition and Arlington, TX Aug-08 consolidation n/a Q308 Acquisition and Midland, TX Sep-08 consolidation n/a Q308 (1) Mesa, AZ Oct-08
Slide 11: Highlight: 2008 Goals vs. Results
Highlight: 2008 Goals vs. Results Goal One – Organic Growth Achieved 7.0% year-over-year discharge growth through the implementation of the TeamWorks sales and marketing initiative Goal Two – Delever the Balance Sheet Reduced debt by $228 million and leverage from 6.3X to 5.3X Equity issuance of 8.8
Slide 12: Q109 Initial Observations
Q109 Initial Observations Volume: Through February discharge growth in-line with expectations Reminder: Q1 is typically a seasonally strong quarter; February 2008 had one extra day. Pricing: No significant sequential change in pricing vs. Q408 Reminder: Quarter-over-quarter comparables will show dec
Slide 13: 2009 Guidance
2009 Guidance Adjusted Consolidated EBITDA(1) 2008 Actual: $341.8 million Adjusted for non-comparables $335 million 2009: Expected to be in the range of $342.0 million to $352.0 million Adjusted Earnings per Share(1)(2) 2008 Actual: $0.75 per share 2009: Expected to be in the range of $0.85 to $0.90
Slide 14: Political and Regulatory Landscape
Political and Regulatory Landscape: “How the sausage is made…” (e.g. Congress directing Congress / Legislative CMS to change 75% Directive threshold through legislation) President’s Healthcare Policies & MedPAC(1) Annual Budget Regulations (e.g. Recommend market basket increases) Health & Human Serv
Slide 15: Observations on "Bundling"
Observations on “Bundling” Background Longstanding concept: Combine payments of acute care and post-acute providers and pay “bundled” rate to acute care hospital Most recently included in the December 2008 CBO report which listed 115 budget options (1) Also included as a proposal in President George
Slide 16: Observations on "Bundling" (cont'd)
Observations on “Bundling” (cont’d) Comments: Existing post-acute system is highly fragmented and burdened by inefficient regulations If bundling proposal eliminates these barriers, it could be a positive for patients and HealthSouth HLS could utilize its asset base more efficiently Would be consist
Slide 17: Investment Considerations
Investment Considerations Turnaround Complete: management focused on operations and growth Industry Leader in Attractive Industry Strong Cash Flows: flexibility in the use of FCF Deleveraging as Priority: reduce leverage to 4.5X or less by YE 2010 Solid Organic Growth: TeamWorks initiative will help
Slide 18: Appendix and Reconciliations
Appendix and Reconciliations 18
Slide 19: Revenues (Q408 vs. Q407)
Revenues (Q408 vs. Q407) (Millions) 4th Qtr. 2008 4th Qtr. 2007 Change Inpatient $ 418.4 $ 388.4 7.7% Outpatient and other 45.4 46.1 (1.5%) Consolidated net operating $ 463.8 $ 434.5 6.7% (Actual Amounts) Discharges 27,654 25,005 10.6% Net patient revenue/discharge $ 15,130 $ 15,533 (2.6%) Inpatient
Slide 20: Expenses (Q408 vs. Q407)
Expenses (Q408 vs. Q407) (Millions, except percent) 4th Qtr. 2008 4th Qtr. 2007 Change Salaries and benefits $ 233.7 $ 217.4 7.5 % Percent of net operating revenues 50.4% 50.0% 40 bps Hospital related expenses $ 113.2 $ 102.8 10.1 % (other operating, supplies, occupancy, bad debts) Percent of net op
Slide 21: Revenues (Year End)
Revenues (Year End) (Millions) 2008 2007 Change Inpatient $ 1,659.5 $ 1,544.0 7.5% Outpatient and other 182.9 193.5 (5.5%) Consolidated net operating $ 1,842.4 $ 1,737.5 6.0% (Actual Amounts) Discharges 107,780 100,738 7.0% Net patient revenue/discharge $ 15,397 $ 15,327 0.5% Inpatient revenue growt
Slide 22: Expenses (Year End)
Expenses (Year End) (Millions, except percent) 2008 2007 Change Salaries and benefits $ 934.7 $ 863.6 8.2 % Percent of net operating revenues 50.7% 49.7% 100 bps Hospital related expenses $ 454.8 $ 430.1 5.7 % (other operating, supplies, occupancy, bad debts) Percent of net operating revenues 24.7%
Slide 23: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA(1)(2) (Millions) 4th Qtr. 4th Qtr. Q408 vs. Q407 2008 2007 Strong volume growth in Q408 helped offset the absence of Medicare price $ 87.8 $ 86.4 increase Q407 Medicare pricing: $7-8 million benefit Full-Year Full-Year 2008 vs. 2007 2008 2007 (3) Year-over-year improveme
Slide 24: Adjusted Income (Loss) per Share
Adjusted Income (Loss) per Share 4th Qtr. 4th Qtr. Full-Year Full-Year (Millions, except per share data) 2008 2007 2008 2007 Income (loss) from continuing operations $ 172.9 $ (27.3) $ 234.8 $ 198.3 Adjusted income (loss) from continuing (1) operations $ 24.3 $ (0.7) $ 71.9 $ (58.5) Per Share Per Sh
Slide 25: Operational and Labor Metrics
Operational and Labor Metrics Three Months Ended Year Ended December 31, December 31, 2008 2007 2008 2007 (In Millions) Net patient revenue-inpatient $ 418.4 $ 388.4 $ 1,659.5 $ 1,544.0 Net patient revenue-outpatient and other revenues 45.4 46.1 182.9 193.5 Net operating revenues $ 463.8 $ 434.5 $ 1
Slide 26: Supplemental Information
Supplemental Information Payment Source For the Year Ended December 31, 2008 2007 2006 Medicare 67.2% 67.8% 68.6% Medicaid 2.2% 2.0% 2.1% Workers' compensation 2.1% 2.3% 2.6% Managed care and other discount plans 19.0% 18.5% 18.5% Other third-party payors 7.0% 6.3% 5.0% Patients 0.7% 0.6% 0.4% Other
Slide 27: Liquidity
Liquidity (Millions) December 31, 2008 Cash Available $ 32.2 Revolver Total line $ 400.0 Less: – Draws (40.0) (1) – Letters of credit (52.7) (2) Available $ 307.3 Total Liquidity (available cash and revolver) $ 339.5 (1) In February 2009, draws under the revolver were reduced to zero. (2) Includes a
Slide 28: Debt Maturities and Swap
Debt Maturities and Swap (Millions) December 31, Floating Rate Debt Balances 2008 Floating Interest Rate (1) Advances under $400 million revolving credit facility $ 40.0 Libor plus 325 (1)(2) Term loan facility 783.6 Libor plus 250 Floating Rate Senior Notes due 2014 366.0 6 month Libor +6% Total $
Slide 29: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds Future Cash Tax Payments $55.9 million receivable on balance sheet at With over $2.5 billion in NOLs and tax December 31, 2008. deductions, we do not expect to pay significant $24 million tax refund + applicable interest federal income tax for the next 10
Slide 30: Outstanding Share Summary
Outstanding Share Summary 4th Qtr.(4) 4th Qtr. Year-End(4) Year-End (Millions) 2008 2007 2008 2007 Average for the Period Basic shares outstanding(2)(3) 87.4 78.6 83.0 78.7 (1)(2)(3) Diluted shares outstanding 100.7 91.9 96.4 92.0 End of Period Basic shares outstanding(2)(3) 88.0 78.7 88.0 78.7 (1)(
Slide 31: Debt Schedule
Debt Schedule Debt Balances February 28, December 31, 2009 Debt (1) (Millions) 2009 2008 Reduction Advances under $400 million revolving credit facility, March 2012 $ - $ 40.0 $ (40.0) Term loan facility - March 2013 759.1 783.6 (24.5) Bonds Payable: 8.375% Senior Notes due 2011 0.3 0.3 - 7.625% Sen
Slide 32: Fourth Quarter Reconciliation of Net Income (Loss) to Adjusted Income
Fourth Quarter Reconciliation of Net Income (Loss) to Adjusted Income (Loss) from Continuing Operations and Adjusted Consolidated EBITDA (1)(3)(4) Three Months Ended December 31, (2) (2) 2008 Per Share 2007 Per Share (In Millions, Except Per Share Data) Net income (loss) $ 181.9 $ 2.08 $ (45.9) $ (0
Slide 33: Twelve Month Reconciliation of Net Income to Adjusted Income
Twelve Month Reconciliation of Net Income to Adjusted Income (Loss) from Continuing Operations and Adjusted Consolidated EBITDA(1)(3)(4) Year Ended December 31, (2) (2) 2008 Per Share 2007 Per Share (In Millions, Except Per Share Data) Net income $ 252.4 $ 3.04 $ 653.4 $ 8.30 Income from discontinue
Slide 34: 2008 Reconciliation of Adjusted Consolidated EBITDA to Operating Cash
2008 Reconciliation of Adjusted Consolidated EBITDA(1) to Net Cash Provided by Operating Activities Year Ended December 31, 2008 Adjusted Consolidated EBITDA $ 341.8 Compensation expense under FASB Statement No. 123(R) (11.7) Provision for doubtful accounts 27.8 Professional fees—accounting, tax, an
Slide 35: Reconciliation Notes
Reconciliation Notes 1. Adjusted income (loss) from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. Management and some members of the investment community utilize adjusted income (loss) from continuing operations as a financial measure and Adjusted Consolidat
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