Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Goldman Sachs Leveraged Finance Healthcare Conference 2012
29 slides from Encompass Health's conference presentation, May 1, 2012
Slide 1: Goldman Sachs Leveraged Finance Healthcare Conference 2012
Goldman Sachs Leveraged Finance Healthcare Conference 2012 New York | May 1, 2012 Ed Fay, SVP and 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 Portfolio – As of March 31, 2012
Our Company Portfolio – As of March 31, 2012 Inpatient Rehabilitation Hospitals (―IRF‖) 99 • 29 operate as JV’s with Acute Care Hospitals Outpatient Rehabilitation Satellite 26 Clinics 25 Hospital-Based Home Health Agencies 27 + Puerto Rico Number of States Key Statistics – Trailing 4 Quarters ~ 22,
Slide 4: Our Hospitals
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-integration •
Slide 5: Q1 2012 Summary (Q1 2012 vs. Q1 2011)
Q1 2012 Summary (Q1 2012 vs. Q1 2011) HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* 35.0 3.5 33.9 30.0 3.0 3.02 29.3 25.0 2.5 2.53 20.0 2.0 15.0 1.5 FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database – On Deman
Slide 6: Our Track Record
Our Track Record ($ in millions) Revenue Discharge Volume $2,027 $2,060 $1,878 120,098 $1,785 118,354 $1,701 112,514 $1,608 109,106 103,356 96,700 2007 2008 2009 2010 2011 Trailing 4Qtrs 2007 2008 2009 2010 2011 Trailing 4Qtrs Income from Continuing Operations Adjusted EBITDA (1) Attributable to Hea
Slide 7: Our Track Record
Our Track Record Total Debt Adjusted Free Cash Flow (1) (billions) (millions) $2.25 7 $230 6.7x Leverage Ratio (1) $229 $243 $240 6 Interest Expense $2.00 $2.04 $180 5 $181 $155 $130 $1.75 $1.81 4 $108 $1.66 2.7x 3 $80 $1.50 $1.51 Swap Cash Payments 2 $11 $30 $1.25 $9 $1.25 $1.27 1 2007 2008 2009 20
Slide 8: Debt Maturity Profile
Debt Maturity Profile HealthSouth is now positioned with a lower-cost, flexible capital structure… Additional debt pre-payment opportunities and flexible covenants (1) No near-term maturities and well-spaced debt maturities Limited exposure to higher interest rates March 31, 2012 (2) 10% 10of
Slide 9: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations 2012 adjusted free cash flow growth reflects increased The increase in 2012 maintenance capital expenditures and working maintenance CAPEX is driven by the capital. clinical information system roll-out, two Multi-year adjusted free cash flow CAGR of 12%
Slide 10: Priorities for Reinvesting Free Cash Flows
Priorities for Reinvesting Free Cash Flows (millions) 2012 Q1 2012 Assumptions Actual •Growth in core business Bed expansions $20 to $25 $5.5 (80-100 beds) Priorities De novo hospitals $50 to $70 $9.2 Growth (complete Ocala; start 4 others) Acquisitions (target 2/year) TBD - − Free standing IR
Slide 11: Strong and Sustainable Business Fundamentals
Strong and Sustainable Business Fundamentals • Favorable demographic trends Attractive Healthcare Sector • Non-discretionary nature of many conditions treated in IRFs • Highly fragmented industry • #1 market share: above industry same-store growth and margins Industry Leading Position • Consistent a
Slide 12: Appendix
Appendix HEALTHSOUTH,
Slide 13: 2012 Guidance – Adjusted EBITDA
2012 Guidance – Adjusted EBITDA (1) 2012 Adjusted EBITDA $475 million to $485 million Based on results of Q1 2012, HealthSouth expects its 2012 full year results to be at the high end of, or greater than, this guidance range. Considerations: Revenue growth of 3.8% to 5.2% (April through December 2
Slide 14: 2012 Guidance - EPS
2012 Guidance - EPS Based on results of Q1 2012, HealthSouth expects its 2012 full year results to be at the high end of, Earnings per Share from Continuing or greater than, this guidance range. Operations Attributable to EPS Guidance HealthSouth (1) Actual Low High (In Millions, Except Per Share Da
Slide 15: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 3/31/12, the Company had an ending balance of approx. $1.2 billion in federal NOLs and a remaining valuation allowance of approx. $50 million, primarily related to state NOLs. • 2011 effective tax rate was approx. 19% (1)(2) • Expect effective t
Slide 16: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1)(2) • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Achieved < 3.0x Delevering (3) Debt to EBITDA < 3.0x Debt to EBITDA (subject to operating environment) Same-store Growth (Includes bed expansio
Slide 17: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Medicare Pricing 72% (1) FY 2012 FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (2) 2
Slide 18: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses 2012 2013 2014 • Other operating expenses and Merit increases (2) 2.25-2.5% 2.25-2.5% 2.25-2.5% supply costs tracking with inflation • Occupancy costs relatively Benefit costs increases 5-8% 5-8% 5-8% constant as
Slide 19: Historic Discharge Growth vs. Industry
Historic Discharge Growth vs. Industry HealthSouth’s volume growth has outpaced competitors’ Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly 6.5% UDS Industry Sites (1) 120,000 5.0% HLS Same Store (2) 2.1% Q4 4.7% 5.9% 90,000 3.3% 1.9% 5.9% 2.7% 5.1% Q3 1.8% 1.4% 1.0% 60,000 -1
Slide 20: Our Cost-Effectiveness
Our Cost-Effectiveness Total Inpatient Rehabilitation Facilities (IRFs): 1,152 Avg. Est. Total Avg. Est. Avg. Payment Total Cost Avg. Medicare per per HealthSouth Beds per Discharges Discharge Discharge differentiates IRF per IRF (2) for FY 2011 for FY 2011 itself by HLS (1) = 96 68 932 $16,800 $13,
Slide 21: CMS Fiscal Year 2012 IRF Rate Setting File Analysis
CMS Fiscal Year 2012 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 2012 IRF rate setting Correction Notice file found at http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#. The data p
Slide 22: Debt and Liquidity
Debt and Liquidity Debt Outstanding Liquidity March 31, Dec. 31, 2012 2011 5.6x(1) Cash Available $ 44.3 $ 30.1 Revolver Total Line $ 500.0 $ 500.0 $1.81 Less: – Draws (125.0) (110.0) $1.66 – Letters of credit (44.4) (44.6) 2.7x(1) Available $ 330.6 $ 345.4 (billions) $1.51 Total Liquidity $ 374.9 $
Slide 23: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody March 31, Dec. 31, in Debt (Millions) Corporate B+ B1 2012 2011 vs. YE 2011 Advances under $500 million revolving credit facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 $ 125.0 $ 110.0 $ 15.0 Term loan facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 9
Slide 24: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q1 Full Year (Millions) 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 81.0 $ 89.5 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of discontinued operations
Slide 25: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2012 Q1 (in millions, except per share data) Total Per Share Net income $ 56.8 Loss from disc ops, net of tax, attributable to HealthSouth 0.4 Net income attributable to noncontrolling interests (12.6) Income from continuing operations attributa
Slide 26: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 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
Slide 27: Reconciliation of Net Income to Adjusted EBITDA
(1) (3) Reconciliation of Net Income to Adjusted EBITDA Full Year 2007 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 718.7 $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (462.4)
Slide 28: Reconciliation Notes for Slides 25-27
Reconciliation Notes for Slides 25-27 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 util
Slide 29: Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities
Adjusted EBITDA Reconciled to Net Cash Provided by Operating Activities Q1 Full Year (Millions) 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 81.0 $ 89.5 $ 342.7 $ 331.0 $ 406.1 $227.2 $230.6 Prov ision for doubtful accounts (6.3) (4.8) (21.0) (16.4) (30.7) (23.0) (2
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