Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Wells Fargo Healthcare Conference 2010
37 slides from Encompass Health's conference presentation, Jun 23, 2010
Slide 1: Wells Fargo Healthcare Conference June 23-24, 2010
Exhibit 99.1 Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Portfolio 95 Rehabilitation Hospitals 38 Outpatient Rehab Satellite Clinics 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Agencies 22,000 Employees IRH LTCH Sites under construction Wells Fargo
Slide 2: Cautionary Statements
Exhibit 99.1 Cautionary 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 esti
Slide 3: Strategy Recap
Exhibit 99.1 Strategy Recap ü Priority: Reduce our leverage and strengthen our balance sheet - No obvious near-term debt repayment opportunities - 10 ¾ Senior Notes callable June 2011 at 105 ⅜ - 2010 focus: growing Adjusted Consolidated EBITDA (1) to reduce leverage ü Near-term: Capitalize on our ma
Slide 4: Our Differentiation: High-Quality Care
Exhibit 99.1 Our Differentiation: High-Quality Care Goal: Teach patients to walk, dress, bathe, eat and manage daily life in the community. FIM Gain = Change in Functional Independent Measurement (based LOS Efficiency = Functional gain on an 18 point assessment) from divided by length of stay Admiss
Slide 5: Our Differentiation: Cost-Effective Care
Exhibit 99.1 Our Differentiation: Cost-Effective Care CMS Fiscal Year 2010 IRF Rate Setting File Analysis (1) HealthSouth Freestanding (2) Units (2) Total 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%
Slide 6: Solid, Sustained Operating Results
Exhibit 99.1 Solid, Sustained Operating Results Discharges ($ Millions) Consolidated Net Operating Revenues +3.8% +1.1% Flat despite Expenses wage increase 90 bps Improvement Flat Dollar Amounts $233.3 $241.9 $114.1 $113.7 $21.8 $22.5 (1) (2) EPOB (3) 3.47 3.41 6
Slide 7: Performance Highlights
Exhibit 99.1 Performance Highlights Solid EBITDA and EPS Growth ($ Adjusted Income from Continuing Adjusted Consolidated EBITDA (1) Millions) Operations per Diluted Share (1) +12.3% +90.8% +8.1% +23.1% Key Drivers: ü2.5% Medicare market basket increase effective October 1, 2009 üDischarge growth of
Slide 8: Performance Highlights: Strong Free Cash Flow
Exhibit 99.1 Performance Highlights: Strong Free Cash Flow (1) Notes on page 36. 8
Slide 9: Performance Highlights: Strong Free Cash Flow
Exhibit 99.1 Performance Highlights: Strong Free Cash Flow 9
Slide 10: Performance Update
Exhibit 99.1 Performance Update • Reminder: On May 4, 2010, based on the results of Q1, the Company raised its 2010 full-year performance forecast to the high end of the guidance ranges. • Good performance through May (volume, expense management and pricing) compared to same period last year. § Volu
Slide 11: Summary
Exhibit 99.1 Summary Value Proposition 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 Growth: Above industry volume growth, enhanced by capacity expansions and adding new hospitals in underse
Slide 12: Appendix
Exhibit 99.1 Appendix 12
Slide 13: About HealthSouth: Our Patients, Our Care and Our Team
Exhibit 99.1 About HealthSouth Our Patients, Our Care and Our Team • Patients come to HealthSouth with diagnoses of stroke, brain injury, trauma, neurological conditions, pulmonary/cardiac disease, amputations and orthopedic conditions/surgeries. • ~ 72% of inpatient rehabilitation patients are over
Slide 14: "The Basics": Medicare Spending on Post-Acute Services
Exhibit 99.1 “The Basics”: Medicare Spending on Post-Acute Services • Inpatient rehabilitation is less than 12% of Medicare post-acute spending. Source: Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2009 Data Book - Page 124) 14
Slide 15: "The Basics": Our Industry
Exhibit 99.1 “The Basics”: Our Industry HealthSouth Market Share ~ 8% of IRFs ~ 18% of Licensed Beds ~ 21% of Patients Served ü Highly fragmented industry • ~ 81% Units • ~ 19% Free-standing ü Industry mainly nonprofit • ~ 62% Nonprofit • ~ 14% Government • ~ 24% For-profit ü On average, HLS hospita
Slide 16: "The Basics": Our Patients
Exhibit 99.1 “The Basics”: Our Patients (~ 72% are > 65 years old) Referral Sources Most Common Cases (2009) 1. Stroke 17.5% 94% 2. Neurological 13.3% Acute Care Hospitals 3. Fracture of the lower extremity 11.7% 4. Debility 11.5% 5% Physician Offices 5. Knee/Hip replacement 9.6% 6. Other orthopedic
Slide 17: "The Basics": Discharge Growth - Historical
Exhibit 99.1 “The Basics”: Discharge Growth - Historical (1) (2) ü HealthSouth’s volume growth has outpaced competitors’ ü TeamWorks = standardized sales & marketing ü Capacity expansions will help facilitate organic growth: • ~ 100+ beds will be added in 2010 (1) Data provided by UDSMR, a data gath
Slide 18: Business Outlook
Exhibit 99.1 Business Outlook Deleveraging, Growth, Reform and Sector Regulation 2010 2011 2012 2013 Deleveraging 3.5x to 4.0x Debt to EBITDA (by YE 2011) (Exclusive of any E&Y settlement) Organic growth through Growth capacity expansion and in ($60+ million de2010) novos IRF acquisitions/joint vent
Slide 19: Regulatory Uncertainty
Exhibit 99.1 Regulatory Uncertainty Future Regulatory Risk IRF SNF LTCH HH Yes; RUGS IV Yes; would be required as 1. Re-basing payment system No delayed until 10/01/11 No part of (per PPACA) PPACA starting in 2014 Yes; will occur when Yes; 10% cap per agency; 2.5% 2. Major outlier payment adjustment
Slide 20: Readmission Rates
Exhibit 99.1 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, “A
Slide 21: Growth
Exhibit 99.1 Growth Target Cash pay-back Capacity Expansions: • ~ 100+ beds 2010 2 - 4 years (1) De novos: 6 - 7 years (2) Acquisitions/Joint Ventures: 6 - 7 years • Acquired the rehabilitation unit in Altoona, PA, through a newly formed joint venture and relocated its operations to one of our hospi
Slide 22: Growth: Market Assessment Process
Exhibit 99.1 Growth: Market Assessment Process National Market Target Opportunity Existing IRF Regional Assessment List Assessment President (160 Assessment Opportunities Identified) • Population and Demographics • Acute Care Referral Sources Strategic • Inpatient Rehab Approach Corporate Active Com
Slide 23: Growth: De Novo Evaluation Process and Cost
Exhibit 99.1 Growth: De Novo Evaluation Process and Cost CON Approval Site Selection Cost • Permitting Assessment • Contract for land Proforma • Cash payback analysis Financials NO Target Cash Pay-back Execution GO GO 6-7 years 23
Slide 24: Exhibit 99.1 Hospital EBITDA = earnings before interest, taxes, depreciation and amortization directly attributable
Exhibit 99.1 (1) Hospital EBITDA = earnings before interest, taxes, depreciation and amortization directly attributable to the related hospital. 24
Slide 25: Growth: De Novo Timeline
Exhibit 99.1 Growth: De Novo Timeline With CON Planning & Design Zoning Groundbreaking Internal Approval Opening Day 1 Month 20 Month 32 Without CON Planning & Design Zoning Groundbreaking Internal Approval Opening Day 1 Month 11 Month 20 25
Slide 26: Debt Profile and Swap Settlement
Exhibit 99.1 Debt Profile and Swap Settlement Call Schedule = Term Loan maturities Debt Maturities Date Price = 10.75% Fixed As of March 31, 2010 June 15, 2011 105.375 = 8.125% Fixed June 15, 2012 103.583 June 15, 2013 101.792 = Capital leases & term June 15, 2014 100.000 loan amortization and there
Slide 27: Revenues & Expenses (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Revenues & Expenses (Q1 2010 vs. Q1 2009) Revenues (millions) Inpatient Outpatient and other Consolidated net operating (Actual Amounts) Discharges Net patient revenue / discharge Expenses (millions) Salaries and benefits Percent of net operating revenues EPOB (employees per occupied be
Slide 28: Revenues & Expenses (Sequential)
Exhibit 99.1 Revenues & Expenses (Sequential) Favorable (Unfavorable) Revenues (millions) Q1 2010 Q4 2009 Change Inpatient $ 451.8 $ 445.7 1.4% Outpatient and other 39.2 40.5 (3.2%) Consolidated net operating $ 491.0 $ 486.2 1.0% (Actual Amounts) Discharges 27,998 28,772 (2.7%) Net patient revenue /
Slide 29: Adjusted Consolidated EBITDA (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Adjusted Consolidated EBITDA(1) (Q1 2010 vs. Q1 2009) (Millions) Q1 2010 Q1 2009 2009 Net operating revenues $ 491.0 $ 472.9 $ 1,911.1 Operating expenses: Salaries and benefits 241.9 233.3 948.8 Hospital-related expenses: Other operating expenses 66.9 66.9 271.4 Supplies 28.3 27.4 112.4
Slide 30: Payment Sources (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Payment Sources (Q1 2010 vs. Q1 2009) (1) Managed Medicare revenues represent ~ 7%, 8% and 8% of total revenues for Q1 2010, Q1 2009 and 2009, respectively, and are included in “Managed care and other discount plans.” 30
Slide 31: Operational and Labor Metrics
Exhibit 99.1 Operational and Labor Metrics (1) (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 90 consolidated hospitals and 6 LTCHs. (3) Excludes approximately 400 full-time equivalents, who are considered part of corporate o
Slide 32: Debt Schedule and Liquidity
Exhibit 99.1 Debt Schedule and Liquidity (Millions) (1) Based on trailing four quarter Adjusted Consolidated EBITDA of $391.0 million; reconciliation to GAAP provided on slides 35 and 36. 32
Slide 33: Non-Operating Cash/Tax Position
Exhibit 99.1 Non-Operating Cash/Tax Position Cash Refunds as of Mar. 31, 2010 Future Cash Tax Payments • Federal tax recoveries virtually complete. • Expect to pay about $5-7 million per year of income • State tax refunds in progress. tax. – State income tax. – Approx. $6.5 million received in Q1 –
Slide 34: Outstanding Share Summary
Exhibit 99.1 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 iss
Slide 35: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1 (in Miers, Except per Share Dats) Net income Loss (icorme) tom escorts operations, ret of tx, atriutabie b HeathSouh Netincame atrtutatie b noncontufing interests Income from c
Slide 36: Reconciliation Notes
Exhibit 99.1 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 m
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