Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (March 2011)
35 slides from Encompass Health's investor presentation, Mar 8, 2011
Slide 1: Exhibit 99.1
Exhibit 99.1
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 views with respect to future events, strategy, capital expenditures and financial performance. These estimates, projections and other fo
Slide 3: Our Company
Inpatient Rehabilitation Hospitals (“IRF”) Outpatient Rehabilitation Satellite Clinics Long-Term Acute Care Hospitals (“LTCH”) Hospital-Based Home Health Agencies Employees Revenue in 2010 Inpatient Discharges in 2010 Outpatient Visits in 2010 Number of States Exchange (Symbol) Largest Provider of I
Slide 4: Our Hospitals
Exhibit 99.1 Our Hospitals Major Services • Rehabilitation Physicians: manage and treat medical needs of patients • Rehabilitation Nurses: oversee treatment programs of patients • Physical Therapists: address physical function, mobility, safety • Occupational Therapists: promote independence and re-
Slide 5: Our Patients
Exhibit 99.1 Our Patients Most Common Conditions (2010) 1. Stroke 17.2% 2. Neurological 15.2% 3. Debility 11.3% 4. Fracture of the lower extremity 11.0% 5. Knee/Hip replacement 9.5% 6. Other orthopedic conditions 9.5% 7. Brain injury 7.4% 8. Cardiac conditions 4.3% 9. Spinal cord injury 3.6% 10. All
Slide 6: Our Quality
Exhibit 99.1 Our Quality FIM Gain Change in Functional Independence Measurement (based on an 18 point assessment) from admission to discharge (1) Average = Expected, Risk-adjusted • Inpatient rehabilitation hospitals evaluate all patients at admission and upon discharge to determine their functional
Slide 7: Our Cost-Effectiveness
HealthSouth differentiates itself by providing superior quality care at a lower cost. Exhibit 99.1 (1) The 1,171 total and the 91 for HLS do not include HealthSouth Rehabilitation Hospital of Northern Virginia; Rehabilitation Hospital of Southwest Virginia; Rehabilitation Hospital of Mesa, AZ; and R
Slide 8: Our Payors (2010)
Payment Methodology Payor Source 70.5% 21.5% 2.3 % 4.0% Exhibit 99.1 Our Payors (2010) Prospective Payment System (“PPS”) • Payments based on Case Mix Groups (“CMGs”) – Diagnosis of patient’s illness • Fixed payment per CMG adjusted for: – Acuity/severity – Regional wage differential • Per diems for
Slide 9: Our Track Record
Exhibit 99.1 Our Track Record (1) Reconciliation to GAAP provided on slides 29 and 31-35.
Slide 10: Historical Performance
Exhibit 99.1 Historical Performance Leverage Ratio (1) (billions) (1) Reconciliation to GAAP provided on slides 29-35. Interest Expense $229 $126
Slide 11: Business Outlook: 2011 to 2013
Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Deleveraging (2) Goal: < 4.0x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA (3.5x goal achieved at year-end 2010) Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisi
Slide 12: Business Outlook: Revenue Assumptions
Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Managed Care Exhibit 99.1 Business Outlook: Revenue Assumptions Revenue Other (1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increa
Slide 13: 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: 85% Salaries and Wag
Slide 14: Adjusted Free Cash Flow Assumptions
HealthSouth’s GAAP income statement will be affected by a number of items that will not affect cash flow from operating activities or adjusted free cash flow: Normalized GAAP tax rate resulting from the valuation allowance reversal in Q4 2010. Loss on early extinguishment of debt Multi-Year Adjusted
Slide 15: Free Cash Flow Reinvestment
Adjusted free cash flow CAGR: 12-17% Exhibit 99.1 Free Cash Flow Reinvestment • $500 million of 10.75% notes callable June 2011 • Growth in core business • Bed expansions • Hospital acquisitions • Acute care IRF unit acquisition/consolidation • De novo hospitals • Lower capital cost • Share repurcha
Slide 16: 2011 Guidance - Adjusted EBITDA
Adjusted EBITDA (1) $440 million to $450 million Reflects: 2.9% to 5.3% growth over 2010 7.2% to 8.4% CAGR over 2009 Exhibit 99.1 2011 Guidance - Adjusted EBITDA (1) Reconciliation to GAAP provided on slides 29 and 31-35. Considerations: ü 2010 bad debt expense was 0.9% of revenue; expect 2011 bad d
Slide 17: Income Tax Considerations
GAAP Considerations: • Valuation allowance reduced at YE 2010 by approximately $825 million resulting in a $736.6 million benefit to 2010 income tax provision. • As of 12/31/10, the Company had a remaining valuation allowance of approximately $113 million, primarily related to state NOLs. Future Cas
Slide 18: 2011 Guidance - EPS
Diluted Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $1.01 to $1.06 HealthSouth is transitioning EPS guidance to a GAAP measure. Exhibit 99.1 2011 Guidance - EPS Considerations: ü Assumes provision for income tax of 40%; cash taxes expected to be $6-$8 million. ü Gui
Slide 19: Recent Developments: Volume, Pricing, Senior Notes Offering
Exhibit 99.1 • Volume: – January and February 2011 exhibited strong discharge growth against easy comps from Q1 2010. – Full-year 2011 on track for 2.5% to 3.5 % discharge growth (comps become tougher as the year progresses). • Pricing : – Includes net Medicare price increase of approximately 2% eff
Slide 20: The HealthSouth Value Proposition
Poised for Growth Financial Strength/Strong Cash Flow Generation Industry Leading Position Attractive Healthcare Sector Exhibit 99.1 (1) Reconciliation to GAAP provided on slides 29-35. The HealthSouth Value Proposition
Slide 21: Appendix
Exhibit 99.1 Appendix
Slide 22: Debt Maturity Profile
S&P Moodys Corporate Rating B+ B1 Revolver Rating BB Ba1 Senior Notes Rating B+ B2 Call schedule: June 15, 2011 (price 105.375); June 15, 2012 (price 103.583); June 15, 2013 (price 101.792); June 15, 2014 and thereafter (price 100.000) Exhibit 99.1 (2) Includes $77.0 million of the net proceeds from
Slide 23: Options for Addressing the 10.75% Senior Notes
Sources $ Million (1) Assumed Call Price (3) Annual Cash Savings Cash on hand $100.0 105.375 $10.2 Revolving credit facility (LIBOR + 350 bps) (2) $100.0 105.375 $6.4 New senior notes (assumed yield of 7.00%) $100.0 105.375 $3.2 Accounting effect for early repayment/ refinancing : “Loss on early ext
Slide 24: Debt Schedule and Interest Expense
Exhibit 99.1 Debt Schedule and Interest Expense (1) The annualized interest expense does not reflect any anticipated pay down of the 10.75% or the impact of the re-opening of the 7.25% and the 7.75% senior notes. (2) On March 7, 2011, the Company closed on a public offering of $60 million in aggrega
Slide 25: Historic Discharge Growth vs. Industry
10.7% 9.4% 5.6% 2.6% 4.6% 5.5% 5.8% 5.8% 5.3% 2.5% 2.2% 1.1% Exhibit 99.1 (1) Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including HealthSouth sites. (2) Includes consolidated HealthSouth inpatient rehabilitati
Slide 26: Medicare Trustees Report
Exhibit 99.1 Note: These numbers are program spending only and do not include beneficiary copayments. Source : Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2010 Data Book - Page 130), 2009 and 2010 Medicare Trustees Report Medicare Spending on Post-Acute Services Sk
Slide 27: Future Regulatory Risk
Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 implemented October 1, 2010 No Yes; would be required as part of PPACA starting in 2014 Yes: Required by PPACA b
Slide 28: CMS Fiscal Year 2011 IRF Rate Setting File Analysis
Exhibit 99.1 CMS Fiscal Year 2011 IRF Rate Setting File Analysis Notes: (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2011 IRF rate setting Final Rule file found at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#To
Slide 29: Net Cash Provided by Operating Activities
Exhibit 99.1 (1) Notes on page 35. Net Cash Provided by Operating Activities
Slide 30: Adjusted Free Cash Flow
Exhibit 99.1 Adjusted Free Cash Flow (1) Q4 2010 and full-year 2010 working capital benefited from a shift in timing of interest payments related to the refinancing in Q4 2010. (2) Q4 2010 and full-year 2010 were negatively affected by the $6.9 million unwind fee related to the termination of two fo
Slide 31: Reconciliation of Net Income to Adjusted Income and Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA (1) (3) (4) (1) (2) (3) (4) - Notes on page 35.
Slide 32: (1 ) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 35.
Slide 33: (1 ) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 35.
Slide 34: (1 ) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 35.
Slide 35: Reconciliation Notes
Exhibit 99.1 Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted EBITDA are non-GAAP financial measures. 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 som