Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Barclays Capital Global Healthcare Conference 2010
42 slides from Encompass Health's conference presentation, Mar 22, 2010
Slide 1: Barclays Capital Global Healthcare Conference
Barclays Capital Global Healthcare Conference March 23, 2010
Slide 2: Cautionary Statements and Contents
Cautionary Statements... Company Overview........ The Basics... : Performance Highlights . Business Outlook... Regulatory Uncertainty ... 2010 Guidance ... Q110 Initial Observations .. Summary Appendix. Operational Excellence. Organic Growth Readmission Rates. Revenues (Q409 vs. Q408) Expenses (Q409
Slide 3: Note Regarding Forward-Looking Statements
Note Regarding Forward-Looking Statements 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 and financial performance. These estimates, projections and other forwar
Slide 4: Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.
Portfolio Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. IRH LTCH 93 Rehabilitation Hospitals 40 Outpatient Rehabilitation Satellites 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Agencies Sites under Construction Exchange (Symbol) : NYSE (HLS) Employee
Slide 5: "The Basics": Our Rehabilitation Hospitals
“The Basics”: Our Rehabilitation Hospitals Major Services: • Physicians : manage and treat medical needs of patients • Rehabilitation Nursing : oversees treatment program of patient • Physical Therapy : addresses physical function, mobility, safety • Occupational Therapy : promotes independence and
Slide 6: "The Basics": Our Patients
“The Basics”: Our Patients 94% 5% 1% Referral Sources Acute Care Hospitals Physician Offices Skilled Nursing Facilities All patients are admitted by a physician : Most Common Cases (2009) 1. Stroke 17.5% 2. Neurological 13.3% 3. Fracture of the lower extremity 11.7% 4. Debility 11.5% 5. Knee/Hip rep
Slide 7: "The Basics": Our Competitors
“The Basics”: Our Competitors Competitors • Freestanding IRFs • Hospital IRF units • Skilled nursing homes Patients Total Inpatient Rehabilitation Facilities (IRFs): 1,181 Sources : FY 2010 CMS Rate Setting File and MedPAC March 2009 report; Internal HLS reports for HLS data;
Slide 8: Solid, Sustained Operating Results
Solid, Sustained Operating Results Discharges Consolidated Net Operating Revenues ($ Millions) +4.5% +5.4% Dollar Amounts $928.2 $948.8 $448.9 $464.5 $93.8 $91.1 EPOB (3) 3.62 3.53 30 bps Improvement 20 bps Improvement 110 bps Improvement Expenses (1) (2) (Thousands)
Slide 9: Solid EBITDA and EPS Growth
Solid EBITDA and EPS Growth Adjusted Income from Continuing Operations per Diluted Share (1) Adjusted Consolidated EBITDA ($ Millions) +12.3% 90.8% (1) Reconciliation to GAAP provided on slides 41 through 42. Key Drivers : ü Increased volumes ü Improved labor productivity ü Disciplined expense manag
Slide 10: Performance Highlights: Strong Free Cash Flow
(1) Notes on page 42. Performance Highlights: Strong Free Cash Flow
Slide 11: Performance Highlights: Strong Free Cash Flow
(1) Includes capital expenditures for the hospital refresh program. (2) Reflects seasonal use of cash related to interest and insurance payments. Performance Highlights: Strong Free Cash Flow
Slide 12: Continued Debt Reduction and Deleveraging
Year-End 2011 Goal: 3.5x to 4.0x Continued Debt Reduction and Deleveraging (1) Based on four quarter trailing Adjusted Consolidated EBITDA of $383.0 million; see related debt schedule on slide 37, and reconciliation to GAAP on slides 41 through 42. Debt to EBITDA 6.3x 6.3x 5.3x 4.3x (1) Liquidity Pe
Slide 13: Business Outlook: Deleveraging, Growth, Reform and Sector Regulation
Deleveraging, Growth, Reform and Sector Regulation Business Outlook 3.5x to 4.0x Debt to EBITDA (by YE 2011) ( Exclusive of any E&Y settlement) Organic growth through capacity expansion and de novos (~ $60 million in 2010) IRF acquisitions/joint ventures Deleveraging Growth Acquisitions of other, co
Slide 14: Regulatory Uncertainty
Regulatory Uncertainty Sources : Senate Reform Bill, CMS Regulatory published rules and MMSEA
Slide 15: 2010 Guidance
2010 Guidance (1) Guidance Philosophy Appropriately conservative at beginning of year; consistent with past practices; does not include acquisitions. +4% to +6% Considerations : ü Continued market share gains ü Medicare pricing ü IT “pilot” investment Adjusted EPS (1)(2) : $1.60 to $1.70 +10% to +17
Slide 16: Q110 Initial Observations
Q110 Initial Observations Volume : ü January - strong December discharges created steeper ramp up in January. ü February - heavy snow falls affected some markets (e.g. Pennsylvania, Virginia, Tennessee, New Jersey and Arkansas). ü March - volume growth mid-month on track. Expenses : ü Expense manage
Slide 17: Value Proposition
Value Proposition Summary ü Industry Leader : Largest provider in attractive healthcare segment. ü Strong Cash Flows : Directed toward debt reduction and growth. ü Continued Deleveraging : Reduce leverage to between 3.5x and 4.0x no later than YE 2011. ü Solid Organic Growth : Volume growth + expens
Slide 18: Appendix
Appendix
Slide 19: Operational Excellence: Sustained Market Share Gains
(1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 90 HealthSouth sites. (2) Includes 90 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Operational Excellence
Slide 20: Operational Excellence = High-Quality Care
FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Reports 2009 Year End Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adjust
Slide 21: Operational Excellence = Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 228 953 1,181 94 Average # of Discharges per IRF 649 237 316 822 Outlier Payments as % of Total Payments 1.32% 4.08% 3.00% 0.43% Average Estimated Total Payment per Discharge for FY 2010 $16,452 $16,741 $16,626 $15,996 Average
Slide 22: Organic Growth
Capacity expansions : • Approximately 100 beds to be added in 2010. • Average investment per bed including renovation: – $100K to $250K De novos : • Expanded joint venture with St. Vincent Health System in Little Rock, AR, through the purchase of a 23-bed rehabilitation unit. • Acquired the rehabili
Slide 23: IRFs have Lower Readmission Rates
IRFs have Lower Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission,
Slide 24: Revenues (Q4 2009 vs. Q4 2008)
Revenues (Q4 2009 vs. Q4 2008) • Inpatient revenue growth was driven by strong discharge volumes in Q4 2009 despite tough comparisons in Q4 2008. – Volume growth was driven by the sustained sales and marketing effort. – Same store discharge growth was 4.2%. – Pricing reflects 2.5% Medicare market ba
Slide 25: Expenses (Q4 2009 vs. Q4 2008)
• Salaries and benefits increased as a result of an October 1, 2009, 2.3% merit increase. – Continued improvement on labor productivity demonstrated by lower EPOB. • Hospital-related expenses increased as a result of higher discharge volume.
Slide 26: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA (1) (Millions) (1) Reconciliation to GAAP provided on slides 41 through 42. • Improvements driven by: – Increased volumes – Improved labor productivity – Disciplined expense management – 2.5% Medicare market basket increase effective October 1, 2009
Slide 27: Adjusted Income per Diluted Share (4Q 2009)
Adjusted Income per Diluted Share (4Q 2009) (1) Reconciliation to GAAP provided on slides 41 through 42. • The improvement in adjusted earnings per share, driven by higher Adjusted Consolidated EBITDA and lower interest expense, was offset by a $15.6 million loss on early extinguishment of debt. – I
Slide 28: Reconciliation to GAAP
(1) Reconciliation to GAAP provided on slides 41 through 42.
Slide 29: Revenues (Year-End)
(Millions) Inpatient Outpatient and other Consolidated net operating (Actual Amounts) Discharges Net patient revenue / discharge Favorable (Unfavorable) 2009 2008 Change $ 1,743.4 1,651.7 5.6% 167.7 177.8 (5.7%) $ 1,911.1 1,829.5 4.5% 112,975 107,184 5.4% $ 15,432 15,410 0.1%
Slide 30: Expenses (Year-End)
Favorable/ (Unfavorable) (Millions, except percent) 2009 2008 Change Salaries and benefits $ 948.8 $ 928.2 (2.2%) Percent of net operating revenues 496% 50.7% 110 bps EPOB (employees per occupied bed) 3.53 3.62 25% Hospital related expenses $ 464.5 $ 448.9 (3.5%) (other operating, supplies, occupanc
Slide 31: Revenues (Sequential)
Favorable (Unfavorable) (Millions, except percent) 4th Qtr. 2009 3rd Qtr. 2009 Change Inpatient $ 445.7 $ 429.2 3.8% Outpatient and other 40.5 41.2 (1.7%) Consolidated net operating $ 486.2 $ 470.4 3.4% (Actual Amounts) Discharges 28,772 28,125 2.3% Net patient revenue / discharge $ 15,491 $ 15,260
Slide 32: Expenses (Sequential)
Favorable (Unfavorable) (Millions, except percent) 4th Qtr.2009 3rd Qtr. 2009 Change Salaries and benefits $ 243.7 $ 234.0 (4.1%) Percent of net operating revenues 50.1% 49.7% (40) bps EPOB (employees per occupied bed) 3.55 3.58 0.8% Hospital related expenses $ 119.2 $ 113.9 (4.7%) (other operating,
Slide 33: Operational and Labor Metrics
Operational and Labor Metrics (1) (2) Represents discharges from HealthSouth’s 90 consolidated hospitals, which includes Mesa, Arizona starting in Q3 2009. (3) Excludes approx. 400 full-time equivalents, who are considered part of corporate overhead with their salaries and benefits included in gener
Slide 34: Payment Sources
Payment Sources (1) Managed Medicare revenues represent ~ 8% and 6% of total revenues for 2009 and 2008, respectively, and are included in “Managed care and other discount plans.”
Slide 35: Debt Maturities: No Near-Term Financing Needs
Debt Maturities: No Near-Term Financing Needs (Millions) = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases and term loan amortization As of December 31, 2009
Slide 36: Interest Rate Swaps
Interest Rate Swaps (Millions) (1) In October 2009, the credit agreement was amended. The maturity for $300 million of the term loan has been extended to 2015. The extended portion of the term loan will bear an interest rate of Libor plus 375. (2) Cash settlements flow through investing activities.
Slide 37: Debt Schedule
Debt Schedule (Millions) (1) The Company had $80.9 million in cash and cash equivalents as of December 31, 2009. (2) Based on four quarter trailing Adjusted Consolidated EBITDA of $383.0 million and $341.2 million respectively. See reconciliation to GAAP on slides 41 through 42. Debt to EBITDA (2) 4
Slide 38: Corporate Credit Rating
Corporate Credit Rating Outlook Bank Debt Term loan facility - March 2013 Term loan facility - March 2015 Bonds 10.75% Senior Notes due 2016 8.125% Senior Notes due 2020 Moody's B2 Stable Prices Feb. 26, 2010 Ba3 $ 96.69 Ba3 $ 99.63 Caa1 $ 108.00 Caa1 $ 97.50
Slide 39: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Dec. 31, 2009 • Federal tax recoveries virtually complete. – Approx. $43 million received. • State tax refunds in progress. – Approx. $21 million received. – Approx. $10 million net receivable on the balance sheet. Future Cash Tax Payments • Expect
Slide 40: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes: (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants
Slide 41: Reconciliation of Net Income to Adjusted Income and Adjusted EBITDA
Three & Twelve Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 42.
Slide 42: Reconciliation Notes
Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (Total Consolidated Debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial measure. Manag
HealthSouth — Barclays Capital Global Healthcare Conference 2010 on 6ix