Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Morgan Stanley Healthcare Conference 2010
30 slides from Encompass Health's conference presentation, Sep 14, 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 Morgan Stanley Healthcare Conference September 14, 2010 96 Rehabilitation Hospitals 38 Outpatient Rehab Satellite Clinics 6 Long-Term Acute Care Hospitals 25 Hospital-Based
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 29 and 30. (2) Adjusted income from continuing operations per diluted share. (3) Exclusive of any E&Y
Slide 4: The Basics: Our Industry
Page 4 HealthSouth Market Share ~ 4 out of 5 industry discharges are Medicare “The Basics”: Our Industry Sources : FY 2011 CMS Rate Setting File, MedPAC Data Book 2009 and The Advisory Board Company (1) Does not include HealthSouth Rehabilitation Hospital of Northern Virginia; Rehabilitation Hospita
Slide 5: Trustee Report
Page 5 Source : Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2010 Data Book - Page 130), 2009 and 2010 Medical Trustee Report Inpatient rehabilitation spending as a % of Medicare has been declining. ($ Billions)
Slide 6: Solid EBITDA and EPS Growth
Page 6 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 29 and 30. Performance Highlights +10.3% +16.5% +12.8% Improvements driven by : • Pricing, volume and
Slide 7: Adjusted Free Cash Flow
Page 7 Adjusted Free Cash Flow
Slide 8: Capital Structure Strategy: Objectives
Page 8 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 • Enhance the flexibility of the capital
Slide 9: Capital Structure: Priorities
Page 9 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 a
Slide 10: Cash Payback Period
Page 10 Cash Payback Period Growth ~ 100+ beds in 2010 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Acquisitions Bed Expansions (2) De novos (1) (1) Assumes average investment per bed: ~ $450K. (2) Assumes average investment per bed: $100K to $250K. • All projects target minimum return of 15%. •
Slide 11: 2010 Guidance
Page 11 2010 Guidance (1) Reconciliation to GAAP provided on slides 29 and 30. (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 Considerations : ü $3 m
Slide 12: Appendix
Page 12 Appendix
Slide 13: The Basics: Healthcare Continuum
Page 13 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 Reha
Slide 14: High-Quality Care: FIM Gain and LOS Efficiency
Page 14 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 15: Cost-Effective Care
Page 15 Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 230 941 1,171 91 Average # of Discharges per IRF 708 243 335 942 Outlier Payments as % of Total Payments 1.45% 4.08% 3.00% 0.26% Average Estimated Total Payment per Discharge for FY 2010 $16,777 $17,231 $17,042 $16,197
Slide 16: Discharge Growth - Trend
Page 16 (1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 89 HealthSouth sites. (2) Includes 89 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. Discharge Grow
Slide 17: Future Regulatory Risk
Page 17 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 18: Readmission Rates
Page 18 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 Data
Slide 19: Revenues & Expenses (Q2 2010 vs. Q2 2009)
Page 19 Revenues & Expenses (Q2 2010 vs. Q2 2009)
Slide 20: 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 21: 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 22: Payment Sources
Page 22 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 23: Operational and Labor Metrics
Page 23 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 wit
Slide 24: Debt Outstanding, Liquidity and Swaps
Page 24 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 29 and 30. (2) Cash settle
Slide 25: Debt Profile
Page 25 Debt Profile 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 $400.0 = Term Loan maturities = 10.75% Fixed = 8.125% Fixed = Capital leases & term loan amortiza
Slide 26: Non-Operating Cash/Tax Position
Page 26 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 27: Outstanding Share Summary
Page 27 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 28: Net Cash Provided by Operating Activities
Page 28 (1) Notes on page 30. Net Cash Provided by Operating Activities
Slide 29: 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 (1) (3) (4) “Three Months Ended June 3 ‘Si Months Ended June 30, Year Ended December 3, Wid _PorSrare 7009 PerSharo 2010 PerShare 200 __ParShare _ 7007 Por Share Ti milfons, xcept per Share Da
Slide 30: Reconciliation Notes
Page 30 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
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