Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Goldman Sachs Leveraged Finance Healthcare Conference 2014
30 slides from Encompass Health's conference presentation, Mar 4, 2014
Slide 1: Goldman Sachs Leveraged Finance Healthcare Conference
Goldman Sachs Leveraged Finance Healthcare Conference New York, NY│March 4, 2014 Ed Fay, Treasurer Andy Price, Chief Accounting Officer
Slide 2: Forward-Looking Statements
Forward-Looking Statements 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, capit
Slide 3: Our Company
Our Company Portfolio – As of December 31, 2013 Inpatient Rehabilitation Hospitals (―IRF‖) 103 • 31 operate as JV’s with Acute Care Hospitals 20 Outpatient Rehabilitation Satellite Clinics 25 Hospital-Based Home Health Agencies 28 + Puerto Rico Number of States ~ 23,600 Employees Key Statistics – 20
Slide 4: Our Hospitals
Our Hospitals 96 of our hospitals hold one or more disease-specific certifications from The Joint Commission’s Disease- Specific Care Certification Program. (1) Major Services • Rehabilitation Physicians: manage and treat medical needs of patients • Rehabilitation Nurses: oversee treatment programs
Slide 5: Our Patients
Our Patients Admission to an IRF Average Age of a HealthSouth Patient: • Physicians and acute care hospital case • All patients = 72 managers are key decision makers. • Medicare FFS = 76 • All IRF patients must meet reasonable Referral Sources and necessary criteria and must be 93% Acute Care Hospit
Slide 6: Our Assets
Our Assets 103 (1) Inpatient Rehabilitation Hospitals: 6,825 Licensed Beds(2) HealthSouth expects to purchase one 3,344 Licensed Beds leased property in 2014 and has the option in CON States to purchase two leased properties in the next five years (2016 and 2018). 49 Own Building and Land 26 Own Bui
Slide 7: Our Track Record
Our Track Record Total Debt Adjusted Free Cash Flow (1) 4 5 (billions) (millions) 4.6x 325 140 4.5 $331 $119 Cash Interest Expense Leverage Ratio (1) 120 3 4 275 $268 $95 100 3.5 225 $243 80 2 3 2.8x 175 $181 60 $1.66 2.5 $155 $1.51 $1.52 125 1 $1.25 $1.25 2 40 75 1.5 20 0 1 25 0 2009 2010 2011 2012
Slide 8: Debt and Liquidity
Debt and Liquidity Debt Outstanding Liquidity $2.00 6 Dec. 31, Dec. 31, 2013 2012 5 Cash Available $ 64.5 $ 132.8 4.6x (1) Revolver Total Line $ 600.0 $ 600.0 $1.75 4 Less: - Draws (45.0) - 2.8x (1) 3 - Letters of Credit (36.5) (39.5) $1.66 Available $ 518.5 $ 560.5 (billions) $1.50 2 $1.51 $1.52 To
Slide 9: Debt Maturity Profile
Debt Maturity Profile HealthSouth is positioned with a cost-efficient, flexible capital structure… No near-term maturities and well-spaced debt maturities Limited exposure to higher interest rates December 31, 2013 (1) (2) ($ in millions) • 10% of the outstanding principal is $600 callable per a
Slide 10: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Business Model Potential depletion of the federal NOL • Adjusted EBITDA CAGR: 4-8% (2) during the 2014 to 2016 timeframe will affect Cash Flow CAGR. • Continued strong free cash flow generation Strategy 2013 2014 2015 2016 $234 million common Shareholder • Quarterly
Slide 11: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2012 2013 2014 Actuals Actuals Assumptions Highest Priority Bed expansions (target ~ 80 beds/yr) Growth Remains and unit consolidations $16.6 $24.9 $25 to $35 in Core New IRF's (target 4-6/yr) 41.1 55.5 55 to 75 Business $80 to $110, excluding $57
Slide 12: Our Strong and Sustainable Business Fundamentals
Our Strong and Sustainable Business Fundamentals • Favorable demographic trends Attractive Healthcare Sector • Nondiscretionary nature of many conditions treated in IRFs • Highly fragmented industry • #1 market share: above industry same-store growth and margins Industry Leading Position • Consisten
Slide 13: Appendix
Appendix HEALTHSOUTH,
Slide 14: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) 2014 Adjusted EBITDA $555 million to $565 million Considerations for full-year 2014: Revenue growth of 4.0% to 5.0% before sequestration ― Discharge growth between 2.5% and 3.5% ― Revenue per discharge growth between 2.0% and 2.3% before sequestration ― Lower out
Slide 15: 2014 Guidance - Earnings Per Share
2014 Guidance - Earnings Per Share EPS Guidance Actual Low High Earnings per Share from Continuing (In Millions, Except Per Share Data) 2013 2014 Adjusted EBITDA $ 551.6 $ 555 $ 565 Operations Attributable to Interest expense and amortization HealthSouth (1) of debt discounts and fees (100.4) (112)
Slide 16: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 12/31/13, the Company’s federal NOL had a gross balance of approx. $929 million. ― Includes the approx. $283 million increase in the federal NOL (on a gross basis) as a result of the April 25, 2013 agreements with the IRS • The Company has a rem
Slide 17: Debt Schedule
Debt Schedule Credit Rating Change in S&P Moody Dec. 31, Dec. 31, Debt vs. (Millions) Corporate BB- Ba3 2013 2012 YE 2012 Advances under $600 million revolving credit facility, June 2018 - 1 Month LIBOR +175bps BB+ Baa3 $ 45.0 $ - 45.0 Bonds Payable: 7.25% Senior Notes due 2018 (1) BB- Ba3 272.4 302
Slide 18: Credit Agreement Key Covenants
Credit Agreement Key Covenants (1) All Transactions are subject to no defaults under covenants and pro forma leverage of less than 4.5x and interest coverage of at least 2.75x Transaction Limitations Acquisitions No additional limitations Unsecured debt issuance No additional limitations Restricted
Slide 19: Our Quality
Our Quality 38 HealthSouth 36 UDS Average (1) 34 FIM Gain is based on the 32 change from 30 admission to discharge of 28 an 18 point 26 assessment. 24 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 • Inpatient rehabilitation hospitals evaluate all patients at a
Slide 20: Our Cost-Effectiveness
Our Cost-Effectiveness Total Inpatient Rehabilitation Facilities (IRFs): 1,134 • The Avg. Est. Total Payment per Discharge has not been reduced by 2% for sequestration (4) Avg. Est. Avg. Est. Total Avg. Total Cost Payment Avg. Medicare Case per per • Medicare pays Beds Discharges Mix Discharge Disch
Slide 21: CMS Fiscal Year 2014 IRF Final Rule Rate Setting File Analysis
CMS Fiscal Year 2014 IRF Final Rule Rate Setting File Analysis Notes: (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2014 IRF Final Rule rate setting file found at http://www.cms.gov/Medicare/Medicare-Fee-for-Service- Payment/Inp
Slide 22: HealthSouth has successfully managed through Medicare payment cuts and an economic recession
HealthSouth has successfully managed through Medicare payment cuts and an economic recession… Adjusted EBITDA ($million) Discharges $145 Recession 34,000 $135 33,000 $125 32,000 $115 31,000 $105 30,000 $95 29,000 $85 28,000 $75 27,000 $65 26,000 $55 25,000 Medicare 1st Price CMS Implements PPACA MMS
Slide 23: Reconciliations to GAAP
Reconciliations to GAAP 23 HEALTHSOUTH,
Slide 24: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q4 Full Year (Millions) 2013 2012 2013 2012 2011 2010 2009 Net cash provided by operating activities $ 100.9 $ 109.3 $ 470.3 $ 411.5 $ 342.7 $ 331.0 $ 406.1 I mpact of discontinued operatio
Slide 25: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q4 Full Year (Millions) 2013 2012 2013 2012 2011 2010 2009 Net cash provided by operating activities $ 100.9 $ 109.3 $ 470.3 $ 411.5 $ 342.7 $ 331.0 $ 406.1 Provision for doubtful accounts (3.6) (7.2) (26.0) (27.0) (21.0) (16.4)
Slide 26: Reconciliation of Net Income to Adjusted EBITDA (2013)
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable to
Slide 27: Reconciliation of Net Income to Adjusted EBITDA (2012)
(1) Reconciliation of Net Income to Adjusted EBITDA 2012 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable to
Slide 28: Reconciliation of Net Income to Adjusted EBITDA (2011)
Reconciliation of Net Income to Adjusted EBITDA (1) 2011 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable to
Slide 29: Reconciliation of Net Income to Adjusted EBITDA (2008-2010)
Reconciliation of Net Income to Adjusted EBITDA (1) 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net income $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) (9.2) Net income attributable to nonc
Slide 30: Reconciliation Notes for Slides 25-28
Reconciliation Notes for Slides 25-28 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 community utili
HealthSouth — Goldman Sachs Leveraged Finance Healthcare Conference 2014 on 6ix