Encompass Health Corporation · NYSE:EHC

Encompass Health — Raymond James 33rd Annual Institutional Investors Conference 2012

26 slides from Encompass Health's conference presentation, Mar 6, 2012

  1. Slide 1: Raymond James 33rd Annual Institutional Investors Conference

    Raymond James 33rd Annual Institutional Investors Conference Orlando | March 5 – 7, 2012 Jay Grinney, President and Chief Executive Officer

  2. 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

  3. Slide 3: Our Company Portfolio – As of Dec. 31, 2011

    Our Company Portfolio – As of Dec. 31, 2011 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 ~ 22,000 Employees ~ $2.0 Bi

  4. Slide 4: Our Track Record

    Our Track Record ($ in millions) Discharge Volume Revenue $2,027 118,354 $1,878 112,514 $1,785 109,106 $1,701 103,356 $1,608 96,700 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Income from Continuing Operations Adjusted EBITDA (1) Attributable to HealthSouth (2) $890 $466 $410 $364 $307 $323 $1

  5. Slide 5: Our Track Record

    Our Track Record Total Debt Adjusted Free Cash Flow (1) (billions) (millions) $2.25 7 $229 $230 6.7x Leverage Ratio (1) Interest Expense $243 6 $2.00 $2.04 $180 5 $181 $155 $130 $1.75 $1.81 4 $119 $1.66 2.7x 3 $80 $1.50 $1.51 Swap Cash Payments 2 $11 $30 $1.25 $9 $1.25 1 2007 2008 2009 2010 2011 ($2

  6. Slide 6: Our Historic Discharge Growth vs. Industry

    Our Historic Discharge Growth vs. Industry HealthSouth’s volume growth has outpaced competitors’ Same Store HealthSouth vs. Industry Quarterly Discharge Growth Yearly 6.5% 120,000 UDS Industry Sites (1) 5.0% HLS Same Store (2) Q4 2.1% 3.3% 5.9% 4.7% 1.8% 1.9% 80,000 Q3 1.4% 5.1% 1.0% 2.7% 5.9% -1.4%

  7. Slide 7: 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 expans

  8. Slide 8: 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 72% Medicare Pricing FY 2012 (1) FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (2) 2

  9. Slide 9: 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

  10. Slide 10: 2012 Guidance – Adjusted EBITDA

    2012 Guidance – Adjusted EBITDA (1) (as of March 5, 2012) 2012 Adjusted EBITDA $475 million to $485 million Reflects: • 1.9% to 4.0% growth over 2011 Considerations: • 7.7% to 8.8% two year CAGR since 2010  Revenue growth of 3.8% to 5.2% ― Discharge growth between 2.5% and 3.5% ― Revenue per discha

  11. Slide 11: 2012 Guidance – EPS

    2012 Guidance – EPS (as of March 5, 2012) Diluted earnings per share on a GAAP basis are Earnings per Share from Continuing the same as basic earnings per share due to the Operations Attributable to antidilutive impact in the period. HealthSouth (1) EPS Guidance $1.32 to $1.39 (In Millions, Except P

  12. Slide 12: Q1 2012 Initial Observations

    Q1 2012 Initial Observations (as of March 5, 2012) • Volume: – January and February 2012 discharge growth was on track against tough volume comps in Q1 2011 (7.8% growth). – Full-year 2012 discharge growth expected to be 2.5% to 3.5% • Adjusted EBITDA: – Q1 2011 Adjusted EBITDA benefited by approx.

  13. Slide 13: Adjusted Free Cash Flow Considerations

    Adjusted Free Cash Flow (1) (2) Considerations  2012 adjusted free cash flow growth will be impacted by The increase in 2012 increased maintenance capital expenditures and working maintenance CAPEX capital. is driven by the clinical information  Multi-year adjusted free cash flow CAGR (3) of 12% t

  14. Slide 14: Priorities for Reinvesting HealthSouth's Free Cash Flows

    Priorities for Reinvesting HealthSouth’s Free Cash Flows • Growth in core business  Bed expansions Priorities  De novo hospitals Growth  Acquisitions − Free standing IRFs − Hospital unit IRFs Debt • Debt prepayment Opportunities Alternate Reduction • Purchase leased properties (limited opportunit

  15. Slide 15: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)

    Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) •Growth in core business 2012 Assumptions (millions)  Bed expansions $20 to $25 (80-100 beds)  De novo hospitals $50 to $70 Priorities (complete Ocala; start 4 others) Growth  Acquisitions (target 2/year) TBD − Free standing IRFs −

  16. Slide 16: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)

    Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) Capital Allocation Considerations:  Relative risk/return characteristics (e.g. cash payback period, IRR, etc.)  Financial leverage (subject to operating environment)  Depth of liquidity in the market  External factors (regulatory,

  17. Slide 17: Portfolio Growth

    Portfolio Growth • All projects have minimum IRR of 15% (pre-tax). De novos Acquisitions • Cash Payback (1) = 5 to 7 years • Cash Payback (1) = 4 to 6 years • Target: 4/Year • Target: 2/Year • Longer payback period due to: − Design and construction period − Initial ramp-up of operations Location Ins

  18. Slide 18: 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

  19. Slide 19: Appendix

    Appendix HEALTHSOUTH,

  20. Slide 20: Adjusted Free Cash Flow

    Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q4 Full Year (Millions) 2011 2010 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 129.6 $ 67.1 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of discontinued operations

  21. Slide 21: Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA

    Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA Q4 Full Year (Millions) 2011 2010 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 129.6 $ 67.1 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $230.6 Prov ision for doubtful accounts (6.1) (1.6) (21.0) (16.4) (30.7)

  22. Slide 22: Reconciliation of Net Income to Adjusted EBITDA (2011)

    (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

  23. Slide 23: Reconciliation of Net Income to Adjusted EBITDA (2010)

    (1)(3) Reconciliation of Net Income to Adjusted EBITDA 2010 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 $ 50.5 $ 57.5 $ 41.9 $ 789.9 $ 939.8 Income from disc ops, net of tax, attributable to Hea

  24. Slide 24: Reconciliation of Net Income to Adjusted EBITDA (2008-2009)

    (1) (3) Reconciliation of Net Income to Adjusted EBITDA Full Year 2008 2009 (in millions, except per share data) Total Per Share Total Per Share Net income $ 281.8 $ 128.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) Net income attributable to noncontrolling interests

  25. Slide 25: Reconciliation of Net Income to Adjusted EBITDA (2007)

    (1) (3) Reconciliation of Net Income to Adjusted EBITDA 2007 (in millions, except per share data) Total Per Share Net income $ 718.7 Income from disc ops, net of tax, attributable to HealthSouth (462.4) Net income attributable to noncontrolling interests (65.3) Income from continuing operations attr

  26. Slide 26: Reconciliation Notes for Slides 22-25

    Reconciliation Notes for Slides 22-25 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

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