Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Conference Presentation (August 2010)
32 slides from Encompass Health's conference presentation, Aug 18, 2010
Slide 1: Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.
Page 1 Portfolio Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. IRH LTCH Sites under construction Discussion Materials August 18-19, 2010 96 Rehabilitation Hospitals 38 Outpatient Rehab Satellite Clinics 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Age
Slide 2: Forward-Looking Statements
Page 2 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 forward-looking information are based on
Slide 3: Business Outlook
Page 3 Business Outlook Business Model: • 5 - 8 % annual Adjusted Consolidated EBITDA growth (1) • 15 - 20% annual Adjusted EPS growth (1) (2) Strategy (1) Reconciliation to GAAP provided on slides 31 and 32. (2) Adjusted income from continuing operations per diluted share. (3) Exclusive of any E&Y
Slide 4: "The Basics": Healthcare Continuum
Page 4 Preventive Outpatient Acute-Care • Wellness Programs • Disease Management • Genetic research • O/P Surgery • O/P Imaging • O/P Rehabilitation • Renal dialysis • O/P Cardiac • O/P Laboratory • General, acute care hospitals • Specialty hospitals (e.g. Cardiac, Orthopedic, etc) • Inpatient Rehab
Slide 5: "The Basics": Medicare Spending on Post-Acute
Page 5 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) “The Basics”: Medicare Spending on Post-Acute Services
Slide 6: "The Basics": Our Industry
Page 6 HealthSouth Market Share “The Basics”: Our Industry Sources : FY 2010 CMS Rate Setting File and MedPAC March 2009 report; Internal HLS reports for HLS data (1) Does not include HealthSouth Rehabilitation Hospital of Northern Virginia or the Rehabilitation Hospital of Southwest Virginia. ü Hig
Slide 7: Solid, Sustained Operating Results
Page 7 Solid, Sustained Operating Results (2) Includes 89 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. HealthSouth vs. Industry ü HealthSouth’s volume growth has outpaced competitors’ ü Standardized sales & marketing = TeamWorks initiative ü Capacity exp
Slide 8: Solid, Sustained Operating Results
Page 8 Solid, Sustained Operating Results Consolidated Net Operating Revenues ($ Millions) +3.2% Dollar Amounts $237.8 $241.6 $117.3 $122.7 $22.0 $22.7 EPOB (3) 3.51 3.48 80 bps Improvement Flat 30 bps Increase Expenses (1) (2) ü Relatively stable inpatient pricing environment • Traditional Medicare
Slide 9: Solid EBITDA and EPS Growth
Page 9 Solid EBITDA and EPS Growth Adjusted Income from Continuing Operations per Diluted Share (1) Adjusted Consolidated EBITDA (1) ($ Millions) +9.2% (1) Reconciliation to GAAP provided on slides 31 and 32. Performance Highlights +10.3% +16.5% +12.8% Improvements driven by : • Pricing, volume and
Slide 10: Net Cash Provided by Operating Activities
Page 10 (1) Notes on page 32. Net Cash Provided by Operating Activities
Slide 11: Adjusted Free Cash Flow
Page 11 Adjusted Free Cash Flow
Slide 12: Debt Outstanding, Liquidity and Swaps
Page 12 Year-End 2010 Goal: 3.75x to 4.00x Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.1x (1) ($ Billions) Liquidity Debt Outstanding, Liquidity and Swaps (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $400.7 million; reconciliation to GAAP provided on slides 31 and 32. (2) Cash settle
Slide 13: Capital Structure Strategy: Objectives
Page 13 Longer-term Leverage Ratio 3.0x Capital Structure Strategy: Objectives • Ensure the Company maintains adequate liquidity to : - Support the execution of its operating and strategic plans - Weather temporary disruptions in the capital/credit markets and/or general business environment • Incre
Slide 14: Capital Structure: Priorities
Page 14 Capital Structure: Priorities = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases & term loan amortization 3 month LIBOR plus 225 bps 3 month LIBOR plus 375 bps Call Schedule Date Price June 15, 2011 105.375 June 15, 2012 103.583 June 15, 2013 101.792 June 15, 2014 100.000
Slide 15: Capital Structure: Priorities
Page 15 Capital Structure: Priorities 1. Extend the maturity date of the $400 million Revolving Credit Facility to 2014 or beyond 2. Refinance all or substantially all of the approximately $450 million Term Loan due in March 2013 - Serves as “gating” item to the extension of the Revolving Credit Fac
Slide 16: Growth: Organic and Acquisitions/Joint Ventures
Page 16 Organic Growth • Capacity Expansions : Ø ~ 100+ beds in 2010 IRF Acquisitions/Joint Ventures Growth 6 - 7 years (2) 2 - 4 years (1) (1) Assumes average investment per bed: $100K to $250K. (2) Assumes average investment per bed: ~ $450K. 6 - 7 years Target Cash pay-back
Slide 17: 2010 Guidance - Revised
Page 17 2010 Guidance - Revised (1) Reconciliation to GAAP provided on slides 31 and 32. (2) Adjusted income from continuing operations per diluted share. Considerations : ü IT “pilot” investment ü Integration of acquisitions ü Start-up costs at two new hospitals ü TeamWorks investment ü 2 nd half 2
Slide 18: Appendix
Page 18 Appendix
Slide 19: High-Quality Care: FIM Gain and LOS Efficiency
Page 19 FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Report: Q2 2010 Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adju
Slide 20: Cost-Effective Care: CMS FY 2010 IRF Rate Setting File Analysis
Page 20 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
Slide 21: Future Regulatory Risk
Page 21 Future Regulatory Risk IRF SNF LTCH HH 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012 No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adjustments No No Yes; will occur when MMSEA relief expires (short stay outliers)
Slide 22: Readmission Rates
Page 22 0 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 Da
Slide 23: Revenues & Expenses (Q2 2010 vs. Q2 2009)
Revenues & Expenses (Q2 2010 vs. Q2 2009) Q2 Q2 Increase/ Revenues ions) 2010 2009 (Decrease) Inpatient $ 456.2 §$ 437.2 4.3% Outpatient and other 40.7 444 (8.3%) Consolidated net operating $ 496.9 §$ 481.6 3.2% (Actual Amounts) Discharges 29,016 28,379 2.2% Net patient revenue / discharge $ 15,722
Slide 24: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q2 ai Increase/ Revenues (millions) 2010 2010 (Decrease) Inpatient $ 456.2 $ 451.8 1.0% Outpatient and other 40.7 39.2 3.8% Consolidated net operating $ 496.9 $ 491.0 1.2% (Actual Amounts) Discharges 29,016 27,998 3.6% Net patient revenue / discharge $ 15,722 $ 16,13
Slide 25: Revenues & Expenses (6 Months 2010 vs. 2009)
Revenues & Expenses (6 Months 2010 vs. 6 Months 2009) 6 Months 6 Months Increase/ Revenues 2010 2009 (Decrease) Inpatient $ 908.1 $ 868.5 46% Outpatient and other 79.8 86.0 (7.2%) Consolidated net operating $ 987.9 $ 954.5 3.5% (Actual Amounts) Discharges 57,014 56,078 1.7% Net patient revenue / dis
Slide 26: Payment Sources
Page 26 Payment Sources (1) Managed Medicare revenues represent ~ 8%, 9%, 8%, 8% and 8% of total revenues for Q2 2010, Q2 2009, 6 months 2010, 6 months 2009 and 2009, respectively, and are included in “Managed care and other discount plans.”
Slide 27: Operational and Labor Metrics
Page 27 Operational and Labor Metrics (1) (2) Represents discharges from HealthSouth’s 92 consolidated hospitals and 6 LTCHs in Q2 2010 and 90 consolidated hospitals and 6 LTCHs prior to Q2 2010. (3) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with
Slide 28: Debt Profile
Page 28 Debt Profile = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases & term loan amortization 3 month LIBOR plus 225 bps 3 month LIBOR plus 375 bps Call Schedule Date Price June 15, 2011 105.375 June 15, 2012 103.583 June 15, 2013 101.792 June 15, 2014 100.000 and thereafter $4
Slide 29: Non-Operating Cash/Tax Position
Page 29 Non-Operating Cash/Tax Position Cash Refunds as of June 30, 2010 • Federal tax recoveries virtually complete. • State tax refunds in progress. – Approx. $3.1 million received in Q2 2010. – Approx. $5.7 million net receivable on the balance sheet. Future Cash Tax Payments • Expect to pay abou
Slide 30: Outstanding Share Summary
Page 30 Outstanding Share Summary (Millions) Notes : (1) 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 to the lender to purchase two million shares of our common stock.
Slide 31: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (4),(3) (4). ns, ‘Three Months Ended June 3 Year Ended December 3, Wid _PorSrare 7009 PerSharo 2010 PerShare 200 __ParShare _ 7007 Por Share Ti milfons, xcept per Share Dai) Netincome $55 $ 08
Slide 32: Reconciliation Notes
Page 32 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 measur