Select Medical Holdings Corporation · NYSE:SEM
Select Medical — J.P. Morgan Healthcare Conference 2014
41 slides from Select Medical's conference presentation, Jan 13, 2014
Slide 1: J.P. Morgan Healthcare Conference January 13, 2014
J.P. Morgan Healthcare Conference January 13, 2014
Slide 2: Forward-Looking Statements
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 mat
Slide 3: Select Medical Overview
108 LTAC Hospitals 4,585 beds in 28 states 997 Outpatient Rehab Clinics in 32 states and the District of Columbia Founded – 1996 123 specialty hospitals, 997 outpatient clinics, operations in 44 states plus D.C. $3.0 Billion Net Revenue LTM Q3 ‘13 $385 Million Adjusted EBITDA LTM Q3 ’13(1) 31,300 Em
Slide 4: Strategy
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 90 2 3 9 5 1 5 5 14 2 11 5 3 1 4 3 1 1 8 3 2 1 1 3 3 17 7 73 44 4 3 74 19 2 1 17 8 3 6 2 26 2 142 4 42 23 3 2 60 13 144 40 1 5 13 15 2 101 39 20 9 62 1 21 25 3 8 7 17 11 34 24 20 14 1 9 1 18 15 3 1 2 2 1 2 3 2 2 116 Significant Scale and Breadth LTACH 107 Owned Hospitals 1 Managed Hos
Slide 6: Post Acute Care Continuum
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 o 15,000 o 16,000 o 3,700 o 12,300 2012 Industry Size $5.5B $6.7B $29.0B $10B $15.7B $18.0B
Slide 7: Revenue Mix
Revenue Mix Note: LTM as of September 30, 2013 Medicare Inpatient 59% Outpatient 9% 4% Medicaid Total Company
Slide 8: 2013 Highlights
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 9: Specialty Hospitals: Long Term Acute Care
Specialty Hospitals Long Term Acute Care
Slide 10: LTACH Overview
LTACH Overview Major provider of LTACH services in U.S. 108 hospitals 78 are hospital-in-hospital (2,885 beds); average size 37 beds 29 are freestanding (1,700 beds); average size 59 beds 1 managed freestanding hospital Ownership of freestanding LTACHs 18 owned 11 leased
Slide 11: LTACH Legislation
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 diem (plus ou
Slide 12: LTACH Legislation (con't)
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 convert to I
Slide 13: LTACH Legislation – Select Impact
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 14: Patient Criteria Opportunity
Patient Criteria Opportunity 2012 LTACH Discharges 2012 STACH Eligible Patients Major Diagnostic Categories (MDC) % of LTACH Discharges to Eligible Patients o 2,400,000 o 145,000 Respiratory System 12.3% Infectious and Parasitic DDS 7.2% Musculoskeletal System & Connective Tissue 11.8% Non-healing W
Slide 15: Specialty Hospitals: Inpatient Rehabilitation
Specialty Hospitals Inpatient Rehabilitation
Slide 16: Rehabilitation Hospitals
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 Rehabilitation – San Anton
Slide 17: Kessler Overview
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 Rehabili
Slide 18: Strategy
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 19: Rehab JV Overview
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 location 54-bed rehab ho
Slide 20: Inpatient Rehab Regulatory Environment
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 21: Outpatient Rehabilitation: Outpatient Rehab Clinics
Outpatient Rehabilitation Outpatient Rehab Clinics
Slide 22: Outpatient Rehabilitation – Industry Overview
Outpatient Rehabilitation – Industry Overview Source: Company public filings and websites as of September 30, 2013 997 550 466 250 Select Physio Therapy USPH ATI
Slide 23: Outpatient Clinic Strategy
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 24: 2014 Outpatient Initiatives
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 25: Outpatient Rehab Regulatory Environment
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 26: Outpatient Rehabilitation: Contract Therapy
Outpatient Rehabilitation Contract Therapy
Slide 27: Contract Services
Contract Services 507 contracts in 30 states and the District of Columbia LTM Q3 ‘13 Net Revenue of $181.5M Organic growth only
Slide 28: Minority Investments
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 29: Strategic Priorities
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 3.8x @ 9/30/13
Slide 30: Financial Overview
F | Y Select MEDICAL Financial Overview
Slide 31: Net Revenue and Adjusted EBITDA Trends
$2,390 $2,240 $2,153 Note: In Millions CAGR 7.0% CAGR 7.8% $307 $330 $270 Net Revenue Adjusted EBITDA $2,805 $386 Net Revenue and Adjusted EBITDA Trends $2,949 $406 $2,971 $385 2008 2009 2010 2011 2012 LTM Q3'13 Specialty Outpatient Other 2008 2009 2010 2011 2012 LTM Q3'13 Specialty Outpatient
Slide 32: Volume Analysis
Volume Analysis Select MEDICAL Specialty Hospital - Patient Days 400,000 350000 220,900 20000 200,000 150000 100000 50,000 a a a aq - a a @ @ - a 603) G3 G3 - as as ae elo 2011 2012 2013 2ol0 2011 2012 2013, «=—=—«aot0 zon 2012 2013 «aot. 20112012
Slide 33: Volume Analysis
Volume Analysis NOTE: Data through Q1 2011 excludes reported visits from clinics transferred to the Baylor JV that no longer consolidate
Slide 34: Key Financial Metrics
Key Financial Metrics Pricing and Volume Trends Specialty Hospital Revenue per Patient Day1 / Admissions Outpatient Rehab Revenue per Visit2 / Visits (Admissions in Thousands) (Visits in Thousands) 1 Net revenue per patient day is calculated by dividing specialty hospital direct patient service reve
Slide 35: Annual Capital Expenditures
Annual Capital Expenditures ($ in millions) 2008 2009 2010 2011 2012 LTM Q3'13 Maintenance Development $52 $ 46 $57 $58 $ 68 $ 68
Slide 36: Free Cash Flow
Free Cash Flow 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 40 for non-GAAP reconciliation Focus on Free Cash Flow Generation $51 $108 $93 $171 $231 $152 2008 2009 2010 2011 2012 LTM
Slide 37: 2014 Operational Focus
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
2014 Financial Guidance Net Revenue $ 3,050M - $ 3,150M Adjusted EBITDA $ 365M - $ 385M Adjusted EPS $ 0.84 - $ 0.93
Slide 39: Appendix: Additional Materials
Appendix: Additional Materials
Slide 40: Non-GAAP Reconciliation
Non-GAAP Reconciliation 2008 2009 2010 2011 2012 Q3’ 12 YTD Q3’ 13 YTD Q3’ 13 LTM Net Income $ 25 $ 79 $ 82 $ 113 $ 154 $ 113 $ 92 $ 133 (+) Income tax 26 37 42 71 90 71 57 76 (+/-) Equity in losses/(earnings) of unconsolidated subsidiaries - - 1 (3) (8) (6) (1) (3) (+/-) Other expense / (income) -
Slide 41: Select Medical
ai Sclect MEDICAL
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