Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 30th Annual J.P. Morgan Healthcare Conference (January 2012)
25 slides from Encompass Health's conference presentation, Jan 6, 2012
Slide 1: 30th Annual J.P. Morgan Healthcare Conference
Exhibit 99.1 1 30 th Annual J.P. Morgan Healthcare Conference San Francisco | January 9, 2012 Jay Grinney, President and Chief Executive Officer
Slide 2: Forward-Looking Statements
Exhibit 99.1 The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditure
Slide 3: Portfolio - As of Jan. 6, 2011
Portfolio - As of Jan. 6, 2011 Inpatient Rehabilitation Hospitals (“IRF”) • 29 operate as JV’s with Acute Care Hospitals Outpatient Rehabilitation Satellite Clinics Hospital-Based Home Health Agencies Number of States Employees Revenue Inpatient Discharges Outpatient Visits Most Common Conditions (Q
Slide 4: 2011 Milestones
Exhibit 99.1 2011 Milestones ü Completed the sale of five long-term acute care hospitals (LTCH)s for approx. $117.5 million (cash and retained working capital) ü Strengthened our balance sheet ― Retired the 10.75% senior notes due 2016 ― Reduced total debt by approx. $257 million ü Implemented TeamW
Slide 5: Results through September 30, 2011
Exhibit 99.1 Results through September 30, 2011 Adjusted EBITDA (1) Revenue Discharge Volume Earnings Per Share (2) 2011 2010 2011 2010 Q3 9 Months 2011 2010 2011 2010 Q3 9 Months (1) Reconciliation to GAAP provided on slides 21, 22, 23, and 25. (2) Income from continuing operations attributable to
Slide 6: Q4 2011 Preliminary Observations
Q4 and YE 2011 results and 2012 guidance will be provided after market close on Feb. 23, 2012, and discussed during an investor conference call at 9:30 a.m. EST on Feb. 24, 2012. Exhibit 99.1 – Inpatient revenue growth of 6.1% vs. Q4 2010 § Discharge growth of 2.0% vs. Q4 2010 (5.2% FY 2011 vs. FY 2
Slide 7: 2011 Adjusted EBITDA Guidance
Jan. 6, 2012 $455 million to $458 million Reflects 11.1% to 11.8% growth over 2010 Oct. 27, 2011 $450 million to $455 million Raised Guidance Exhibit 99.1 (1) Reconciliation to GAAP provided on slides 21, 22, 23, and 25. (2) The Company has not yet closed its books for Q4 and YE 2011. (3) Exclusive
Slide 8: 2011 Guidance: EPS (as of January 6, 2012)
Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (2) (3) $1.18 to $1.23 Basic Earnings per Share from Continuing Operations Attributable to HealthSouth (1) (2) (3) $1.22 to $1.25 Raised Guidance Exhibit 99.1 2011 Guidance: EPS (1) (as of January 6, 2012) Considerations
Slide 9: Strategy
Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Delevering (2) Achieved < 3.0x debt to EBITDA < 3.0x debt to EBITDA (subject to operating environment) Growth Same-store growth (Includes bed expansions and unit consolidations) De novos (target of 4/year) Opp
Slide 10: Certain Uses of Cash Flows
Certain Uses of Cash Flows (1) (Millions) ( 2010 Actual 2011 Estimates 2012 Assumptions § Maintenance CAPEX $37.9 ~$50 $75 to $85 § Cash interest expense (2) $119.3 ~$116 $90 to $95 § Cash income taxes $8 $5 to $8 $5 to $8 § Net cash settlements on interest rate swaps $44.7 $10.9 $0 § Dividends paid
Slide 11: Priorities for Reinvesting HealthSouth's Free Cash Flows
Exhibit 99.1 Priorities for Reinvesting HealthSouth’s Free Cash Flows • Debt prepayment • Purchase leased properties (limited opportunity) • Growth in core business § Bed expansions § De novo hospitals § Acquisitions − Free standing IRFs − Hospital unit IRFs • Share repurchase ($125 million authoriz
Slide 12: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)
Capital Allocation Considerations: Financial leverage (subject to operating environment) Relative risk/return characteristics (e.g. cash payback period, IRR, etc.) Required cash outlay Nature of opportunity (unique; time sensitive; otherwise limited; etc.) External factors (regulatory, macro-economi
Slide 13: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)
Capital Allocation Considerations: Relative risk/return characteristics (e.g. cash payback period, IRR, etc.) Financial leverage (subject to operating environment) Depth of liquidity in the market External factors (regulatory, macro-economic) Exhibit 99.1 Priorities for Reinvesting HealthSouth’s Fre
Slide 14: HealthSouth: Strong and Sustainable Business Fundamentals
Growth Opportunities Financial Strength Industry Leading Position Attractive Healthcare Sector Cost-Effectiveness Real Estate Portfolio Exhibit 99.1 HealthSouth: Strong and Sustainable Business Fundamentals (1) Inclusive of non-consolidated entities
Slide 15: Appendix
Exhibit 99.1 Appendix
Slide 16: Business Outlook: Revenue Assumptions
Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Pricing Medicare Managed Care 2% Sequestration (3) Exhibit 99.1 Business Outlook: Revenue Assumptions Revenue Other (1) We believe based on the 2012 Medicare rule for IRFs, HealthS
Slide 17: Business Outlook: Expense Assumptions
Salaries & Benefits (1) Hospital Expenses • Other operating and supplies tracking with inflation Salaries & Benefits Hospital Expenses Exhibit 99.1 Business Outlook: Expense Assumptions Expense ~4.5% of revenue (excludes stock-based compensation) (1) Salaries, Wages and Benefits: ~ 90% Salaries and
Slide 18: Medicare Post-Acute Spending and Margins
Exhibit 99.1 Note: These numbers are program spending only and do not include beneficiary copayments. Sources : Center for Medicare & Medicaid Services, Medicare Trustees Report May 2011 - Page 45, MedPAC Data Book, June 2011 - page 122, MedPAC December 2011 Public Meeting, Assessing Payment Adequac
Slide 19: MedPAC IRF Assessment Summary
Exhibit 99.1 MedPAC IRF Assessment Summary • Capacity ― IRF capacity and supply were relatively stable in 2010 • Volume ― Volume remained relatively stable in 2010 • Mix ― Patent mix has changed since 2004: Increase in share of IRF cases that meet the compliance threshold (stroke, brain injury, neur
Slide 20: Debt Schedule
Exhibit 99.1 Debt Schedule (1) Based on 4-quarter trailing and 2010 Adjusted EBITDA of $455.4 million and $409.6 million, respectively; reconciliation to GAAP provided on slides 21, 22, 23, and 25.
Slide 21: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) (4) - Notes on page 23.
Slide 22: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) (4) - Notes on page 23.
Slide 23: Reconciliation Notes for Slides 21-22
Exhibit 99.1 Reconciliation Notes for Slides 21-22 1. Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non- GAAP financial measure. Management and some members of the investment c
Slide 24: Adjusted Free Cash Flow
Exhibit 99.1 Adjusted Free Cash Flow (1) Maintenance capital expenditures are expected to be approx. $50 million in 2011 and $75 million to $85 million in 2012. (2) Final swap payment of $10.9 million was made in March 2011.
Slide 25: Net Cash Provided by Operating Activities
Exhibit 99.1 Net Cash Provided by Operating Activities
HealthSouth — 30th Annual J.P. Morgan Healthcare Conference (January 2012) on 6ix