Select Medical Holdings Corporation · NYSE:SEM
Select Medical — J.P. Morgan Global High Yield and Leveraged Finance Conference 2014
41 slides from Select Medical's conference presentation, Feb 24, 2014
Slide 1: J.P. Morgan Global High Yield and Leveraged Finance Conference
J.P. Morgan Global High Yield and Leveraged Finance Conference February 24, 2014
Slide 2: Forward-Looking Statements
2 This presentation may contain forward-looking statements based on current management expectations. Numerous factors, including those related to market conditions and those detailed from time-to-time in the Company’s filings with the Securities and Exchange Commission, may cause results to differ m
Slide 3: Select Medical Overview
3 108 LTAC Hospitals 1,006 Outpatient Rehab Clinics Founded – 1996 123 specialty hospitals, 1,006 outpatient clinics, operations in 44 states plus D.C. $3.0 Billion Net Revenue 2013 $373 Million Adjusted EBITDA 2013(1) 31,200 Employees 15 Inpatient Rehab Hospitals 499 Contract Therapy Note: Statisti
Slide 4: Strategy
4 Strategy Be the “preferred” provider of post acute services in our markets - Structured partnerships - Hospital in hospital model - Outpatient critical mass
Slide 5: Significant Scale and Breadth
DC 3 1 2 1 1 1 91 2 3 9 5 1 5 5 14 2 11 5 3 1 4 3 1 1 8 3 2 1 1 3 3 15 7 60 45 4 3 70 18 1 1 17 13 3 5 27 2 145 4 42 23 3 2 60 13 148 40 1 5 13 15 2 100 39 20 9 64 1 21 27 3 9 7 17 12 33 24 19 14 1 9 1 22 15 3 1 2 2 1 2 3 3 2 118 Significant Scale and Breadth LTACH 107 Owned Hospitals 1 Managed Hosp
Slide 6: Post Acute Care Continuum
6 Post Acute Care Continuum LTACH Rehab SNF Outpatient Rehab Hospice Homehealth SEM Market Share 2nd largest 2nd largest -- largest -- -- 2012 Market Size - units (1) 430 239 freestanding 927 units 1,166 Total ˜15,000 ˜16,000 ˜3,700 ˜12,300 2012 Industry Size $5.5B $6.7B $29.0B $10B $15.7B $18.0B 20
Slide 7: 2013 Highlights
8 2013 Highlights LTAC Hospitals patient criteria legislation Rehab Joint Ventures - OhioHealth - Scottsdale Health - San Antonio - UCLA/Cedar Sinai (executed) LTACH Joint Venture - Emory Health System (executed)
Slide 8: Specialty Hospitals Long Term Acute Care
9 Specialty Hospitals Long Term Acute Care
Slide 9: LTACH Overview
10 LTACH Overview Major provider of LTACH services in U.S. 108 hospitals - 78 are hospital-in-hospital (3,005 beds); average size 39 beds - 29 are freestanding (1,580 beds); average size 54 beds - 1 managed freestanding hospital Ownership of freestanding LTACHs - 17 owned - 12 leased
Slide 10: LTACH Legislation
11 LTACH Legislation Passed in late December 2013 as part of Budget bill and SGR Bill provides - Full LTACH DRG rates for patients • 3 day prior short term hospital ICU stay or • Ventilation patients for > 96 hours in the LTACH - Other patients receive “site neutral” rate which is lesser • IPPS per
Slide 11: LTACH Legislation (con't)
12 LTACH Legislation (con’t) Effective Date – cost report period beginning on or after October 1, 2015 Site Neutral Payments - Phased in over three years. Patients paid under this rate excluded from 25 ALOS - After FY 2020, those hospitals with 50% or less of their discharges at LTACH DRG will conve
Slide 12: LTACH Legislation – Select Impact
13 LTACH Legislation – Select Impact Positives: - Degree of segment certainty with phase-in - 25% Rule extension - Select high CMI - HiH Strategy Neutral: - Moratorium Negatives: - Loss of some volume - Reduced rates for IPPS patients
Slide 13: Patient Criteria Opportunity
14 Patient Criteria Opportunity 2012 LTACH Discharges 2012 STACH Eligible Patients Major Diagnostic Categories (MDC) % of LTACH Discharges to Eligible Patients ˜2,400,000 ˜145,000 Respiratory System 12.3% Infectious and Parasitic DDS 7.2% Musculoskeletal System & Connective Tissue 11.8% Non-healing
Slide 14: Specialty Hospitals Inpatient Rehabilitation
15 Specialty Hospitals Inpatient Rehabilitation
Slide 15: Rehabilitation Hospitals
16 Wholly Owned Hospitals (4) - Kessler Institute (3 hospitals) – New Jersey - West Gables Rehabilitation – Miami, FL Consolidated Joint Ventures (5) - Penn State Hershey Rehabilitation – Hershey, PA - SSM Rehabilitation Network (2 hospitals and 1 managed unit) – St. Louis, MO - Select Rehabilitatio
Slide 16: Kessler Overview
17 Rehabilitation Overview Founded in 1948 Largest licensed rehab hospital in U.S. (three campuses) 21 consecutive years U.S. News & World Report best hospital One of eight rehabilitation centers in U.S. to have Model System designation for both traumatic brain injury and spinal cord injury #1 Rehab
Slide 17: Strategy
18 Strategy Partner in joint ventures with premier acute care hospitals and systems to build post acute networks c Scottsdale c UCLA/Cedar Sinai San Antonio Emory Baylor OhioHealth PSU SSM c c c c c c
Slide 18: Rehab JV Overview
19 Rehab JV Overview - 2 inpatient hospitals - 1 managed inpatient rehab unit - 36 outpatient locations - 15 contract therapy locations - 3 occupational health clinics - 4 day institute clinics - 4 inpatient hospitals - 3 managed inpatient rehab units - 48 outpatient locations - 1 contract therapy l
Slide 19: Inpatient Rehab Regulatory Environment
20 Inpatient Rehab Regulatory Environment CMS Final Rule FY 2014 effective 10/1/13 - Standard Payment Conversion Factor increase 3.5% • Net Market basket increase of 1.8% • Other Budget Neutrality adjustments increasing standard payment rate 1.7% Budget Sequestration cuts effective April 1, 2013
Slide 20: Outpatient Rehabilitation Outpatient Rehab Clinics
21 Outpatient Rehabilitation Outpatient Rehab Clinics
Slide 21: Outpatient Rehabilitation – Industry Overview
22 Outpatient Rehabilitation – Industry Overview 1,006 575 400 284 Select Physio Therapy USPH ATI Source: Company public filings and websites as of December 31, 2013
Slide 22: Outpatient Clinic Strategy
23 Outpatient Clinic Strategy Establish and grow critical mass of clinics in key geographic marketplaces • Collaborate with market dominant physicians • Pricing power • Labor management efficiencies • Snap on acquisitions in marketplace
Slide 23: 2014 Outpatient Initiatives
24 2014 Outpatient Initiatives Continued growth in workers’ comp business by illustrating historical ROI benefits of working with Select - Payors - Employers Expand hand therapy services to more clinics Expand concussion management program Continued development of start-up clinics
Slide 24: Outpatient Rehab Regulatory Environment
25 Outpatient Rehab Regulatory Environment Commercial - Stable Medicare - MPPR changes to therapy payments (effective April 2013) • 25% reductions increased to 50% reductions to practice expense component for 2nd and subsequent codes
Slide 25: Outpatient Rehabilitation Contract Therapy
26 Outpatient Rehabilitation Contract Therapy
Slide 26: Contract Services
27 Contract Services 499 contracts in 30 states and the District of Columbia 2013 Net Revenue of $183.5M Organic growth only
Slide 27: Minority Investments
28 Minority Investments Allevant Rural Hospital Management Services (Mayo Clinic JV) Amplion Alarm alert technology company Haven Health Inpatient Psychiatric hospital company naviHealth Post acute managed care company U.S. Physiatry Physician practice management company
Slide 28: Strategic Priorities
29 Strategic Priorities Use of capital – opportunistic - Acquisitions – primarily inpatient and outpatient rehab - Dividends • Special dividend $1.50/share @ 12/2012 • Dividend payment of $.30/share in 2013 - Stock buyback – $129.5M in 2011-13 (avg. price $7.75) - Debt repayment – net leverage of 3.
Slide 29: Financial Overview
F | Y Select MEDICAL Financial Overview
Slide 30: Net Revenue and Adjusted EBITDA Trends
31 2008 2009 2010 2011 2012 2013 Specialty Outpatient Other 2008 2009 2010 2011 2012 2013 Specialty Outpatient $2,390 $2,240 $2,153 Note: In Millions CAGR 6.7 % CAGR 6.6 % $307 $330 $270 Net Revenue Adjusted EBITDA $2,805 $386 Net Revenue and Adjusted EBITDA Trends $2,949 $406 $2,976 $373
Slide 31: Volume Analysis
Volume Analysis 400,000 200,000 a a a a a a @ @ 2010 2011 20122013, zoo 2011 2012 2013, Specialty Hospital - Patient Days a3 a 3 a3 zoo 2011, 2012 2013 a... MEDICAL a at at at 2010 2011 20122013, Select Medical: Improving Quality of Life
Slide 32: Volume Analysis
33 Volume Analysis NOTE: Data through Q1 2011 excludes reported visits from clinics transferred to the Baylor JV that no longer consolidate
Slide 33: Key Financial Metrics Pricing and Volume Trends
34 Key Financial Metrics Pricing and Volume Trends Specialty Hospital Revenue per Patient Day1 / Admissions Outpatient Rehab Revenue per Visit2 / Visits (Admissions in Thousands) (Visits in Thousands) $101 $103 $103 $104 4,567 4,470 4,569 4,781 0 20 40 60 80 100 120 140 2010 2011 2012 2013 $1,474 $1
Slide 34: Annual Capital Expenditures
35 2008 2009 2010 2011 2012 2013 Maintenance Development $52 $46 $57 $58 $68 $74 Annual Capital Expenditures ($ in millions)
Slide 35: Focus on Free Cash Flow Generation
36 Free Cash Flow $51 $108 $93 $171 $231 $119 2008 2009 2010 2011 2012 2013 Free Cash Flow1 ($ in millions) Note: Free Cash Flow calculated as Net Cash Provided by Operating Activities less Purchases of Property and Equipment 1 See Slide 41 for non-GAAP reconciliation Focus on Free Cash Flow Generat
Slide 36: Capitalization Details
37 As of 12/31/08 As of 12/31/09 As of 12/31/10 As of 12/31/11 As of 12/31/12 As of 12/31/13 Cash and Equivalents $ 64 $ 84 $ 4 $ 12 $ 40 $ 4 Revolving Credit Facility ($300mm) 150 0 25 40 130 20 Term Loan B 657 483 482 838 1,097 808 Sr. Unsecured Notes due 2021 - - - - - 600 Other Debt 5 6 6 5 6 17
Slide 37: 2014 Operational Focus
38 2014 Operational Focus Improve LTACH education process to STACHs Reduce variations in physician practice patterns Tighter labor management efficiencies Accelerate procurement savings Speed up real time data delivery to line level operators
Slide 38: 2014 Financial Guidance
39 2014 Financial Guidance Net Revenue $ 3,050M - $ 3,150M Adjusted EBITDA $ 365M - $ 385M Adjusted EPS $ 0.84 - $ 0.93
Slide 39: Appendix: Additional Materials
40 Appendix: Additional Materials
Slide 40: Non-GAAP Reconciliation
41 Non-GAAP Reconciliation 2008 2009 2010 2011 2012 2013 Net Income $ 25 $ 79 $ 82 $ 113 $ 154 $ 123 (+) Income tax 26 37 42 71 90 75 (+/-) Equity in losses/(earnings) of unconsolidated subsidiaries - - 1 (3) (8) (2) (+/-) Other expense / (income) - 1 (1) - - - (+) Interest expense, net 146 132 112
Slide 41: Sclect
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