Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 28th Annual J.P. Morgan Healthcare Conference (January 2010)
37 slides from Encompass Health's conference presentation, Jan 11, 2010
Slide 1: 28th Annual J.P. Morgan Healthcare Conference
28th Annual J.P. Morgan Healthcare Conference January 11, 2010
Slide 2: Table of contents
Cautionary Statements... Company Overview . Performance Highlights Q409 Initial Observations Year-End Initial Observations Business Outlook ..... Summary... Appendix and Reconciliations Operational Excellence... Regulatory Uncertainty Readmission Rates . Revenues and Expenses (3” Quarter) . Revenues
Slide 3: Note Regarding Forward-Looking 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 estimates, projections and other forwar
Slide 4: Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.
Portfolio Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. IRH LTCH Rehabilitation Hospitals (1) 44 Outpatient Rehabilitation Satellites 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Agencies Sites under Construction Exchange (Symbol) : NYSE (HLS) Employe
Slide 5: The Basics: Our Rehabilitation Hospitals
“The Basics”: Our Rehabilitation Hospitals Major Services: • Physicians : manage and treat medical needs of patients • Rehabilitation Nursing : oversees treatment program of patient • Physical Therapy : addresses physical function, mobility, safety • Occupational Therapy : promotes independence and
Slide 6: The Basics: Our Patients
“The Basics”: Our Patients 94% 5% 1% Referral Sources Acute Care Hospitals Physician Offices Skilled Nursing Facilities All patients are admitted by a physician : Most Common Cases (YTD Q309) 1. Stroke 17.7% 2. Neurological 13.3% 3. Fracture of the lower extremity 11.7% 4. Debility 11.4% 5. Other or
Slide 7: The Basics: Our Competitors
“The Basics”: Our Competitors Competitors • Freestanding IRFs • Hospital IRF units • Skilled nursing homes Patients Total Inpatient Rehabilitation Facilities (IRFs): 1,181 Sources : FY 2010 CMS Rate Setting File and MedPAC March 2009 report; Internal HLS reports for HLS data; HLS includes Baton Roug
Slide 8: Solid, Sustained Operating Results
Solid, Sustained Operating Results Discharges Consolidated Net Operating Revenues ($ Millions) +4.1% +5.5% Dollar Amounts $700.8 $709.2 $339.4 $346.9 $70.3 $66.5 EPOB (3) 3.62 3.52 bps Improvement bps Improvement bps Improvement Expenses (1) (2) (Thousands)
Slide 9: Solid EBITDA and EPS Growth
Solid EBITDA and EPS Growth Adjusted Income from Continuing Operations per Diluted Share (1) Adjusted Consolidated EBITDA ($ Millions) +13.7% +129.4% (1) Reconciliation to GAAP provided on slides 34 through 37. Key Drivers : ü Strong volume growth ü Disciplined expense management ü Debt reduction 9M
Slide 10: Strong Cash Flow
Strong Cash Flow (2) Benefited by approximately $19 million for the seasonal effect on working capital related to the interest payment accrual.
Slide 11: Enhanced Capital Structure
Enhanced Capital Structure Amended and Extended Credit Agreement • Converted $300 million of term loan from March 2013 maturity to September 2015 maturity, with 150 bp incremental interest expense. • Amendment: – Permits future extension of all, or a portion of all, term loans and revolvers. – Permi
Slide 12: Continued Debt Reduction and Deleveraging
Continued Debt Reduction and Deleveraging (1) Proforma represents completion of tender and redemption of the 2014 note and issuance of 2020 notes.
Slide 13: Q409 Initial Observations
Q409 Initial Observations Volume : ü 4+% discharge growth. • Reminder : 10.6% discharge growth Q408 vs. Q407. Pricing : ü Received a 2.5% CMS market basket increase on October 1, 2009. Expenses : ü Continued improvement in productivity. • Reminder : An average 2.3% merit increase went into effect on
Slide 14: Year-End Initial Observations
Guidance : Adjusted Consolidated EBITDA Adjusted Earnings per Diluted Share $375 to $380 $1.45 to $1.50 Million Per Share Year-End Initial Observations ü The Company has not yet closed its books for the fourth quarter and year-end 2009. ü Q409 and YE09 results and 2010 guidance will be provided on e
Slide 15: Business Outlook: Deleveraging, Growth and Healthcare Reform
Deleveraging, Growth and Healthcare Reform Business Outlook 3.5x to 4.0x Debt to EBITDA (by YE 2011) ( Exclusive of any E&Y settlement) Organic growth through capacity expansion and de novos IRF acquisitions/joint ventures DELEVERAGING GROWTH 2010 2011 2012 2013 Acquisitions of other, complementary
Slide 16: Organic Growth
Organic Growth Capacity expansions : • Approximately 100 beds added in 2009; a similar amount will be added in 2010. • Average investment per bed: – Internal renovation = $15 - 45K – New construction = $100 - 250K De novos : Cash pay-back: 5 - 6 years Cash pay-back: 1 - 3 years Goal: launch three ne
Slide 17: Value Proposition Summary
Value Proposition Summary ü Industry Leader : Largest provider in attractive healthcare segment. 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 Solid Organic Growth : Volume growth + expens
Slide 18: Appendix and Reconciliations
Appendix and Reconciliations
Slide 19: Operational Excellence: Sustained Market Share Gains
% ∆ Discharges (1) (1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 90 HealthSouth sites. (2) Includes 90 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals. (1)
Slide 20: Operational Excellence = High-Quality Care
FIM Gain LOS Efficiency LOS Efficiency = Functional gain divided by length of stay Source : UDSmr Database - On Demand Reports 2008 Year End Report FIM Gain = Change in Functional Independent Measurement (based on an 18 point assessment) from Admission to Discharge ** Average = Expected, Risk-adjust
Slide 21: Operational Excellence = Cost-Effective Care
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 Average
Slide 22: Regulatory Uncertainty
Regulatory Uncertainty Sources : Senate Reform Bill, CMS Regulatory published rules and MMSEA
Slide 23: IRFs have Lower Readmission Rates
IRFs have Lower 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,
Slide 24: Revenues (Q3 2009 vs. Q3 2008)
Revenues (Q3 2009 vs. Q3 2008) • Inpatient revenue growth was driven by strong discharge volumes. – Volume growth was driven by the sustained sales and marketing effort. – Same store discharge growth was 5.3%. – Pricing essentially flat for the quarter. Q3 2009 marks the end of the Medicare pricing
Slide 25: Expenses (Q3 2009 vs. Q3 2008)
Expenses (Q3 2009 vs. Q3 2008) • Continued improvement on labor productivity demonstrated by lower EPOB. • Hospital-related expenses: – Despite increased volume, hospital expenses remained essentially flat producing strong operating leverage. – Increased provision for doubtful accounts to reflect ag
Slide 26: Revenues (9 Months)
(Millions) Inpatient Outpatient and other Consolidated net operating (Actual Amounts) Discharges Net patient revenue / discharge Favorable 9 Months 9 Months (Unfavorable) 2009 2008 Change $ 1,303.4 $ 1,241.1 5.0% 128.1 135.2 (6.3%) $ 1,431.5 $ 1,376.3 4.0% 84,542 80,126 5.5% $ 15,417 $ 15,489 (0.5%)
Slide 27: Expenses (9 Months)
Favorable/ 9 Months 9 Months (Unfavorable) (Millions, except percent) 2009 2008 Change Salaries and benefits $ 709.2 $ 700.8 (1.2%) Percent of net operating revenues 49.5% 50.9% 140 bps EPOB (employees per occupied bed) 3.52 3.62 28% Hospital related expenses $ 346.9 $ 339.4 (2.2%) (other operating,
Slide 28: Operational and Labor Metrics
Operational and Labor Metrics (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 91 consolidated hospitals, which includes Mesa, Arizona starting in Q3 2009. (3) Excludes approx. 400 full-time equivalents, who are considered part
Slide 29: Payment Sources
Payment Sources (1) Managed Medicare revenues represent ~ 8% of total revenues and are included in “Managed care and other discount plans.”
Slide 30: Debt Maturities: No Near-Term Financing Needs
As of September 30, 2009 Debt Maturities: No Near-Term Financing Needs (Millions) As of December 15, 2009 = Term Loan = FRN = 10.75% Fixed = 8.125% Fixed (1) Proforma represents completion of tender and redemption of the 2014 note and issuance of 2020 notes.
Slide 31: Interest Rate Swaps
Interest Rate Swaps: as of September 30, 2009 (Millions) (1) In October 2009, the credit agreement was amended. The maturity for $300 million of the term-loan has been extended to 2015. The extended portion of the term loan will bear an interest rate of Libor plus 375. (2) Cash settlements flow thro
Slide 32: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds as of Sept. 30, 2009 • Federal tax recoveries virtually complete. – Approx. $43 million received. • State tax refunds in progress. – Approx. $17 million received. – Approx. $9 million net receivable on the balance sheet. Future Cash Tax Payments • Expect
Slide 33: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes : (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants
Slide 34: Three & Nine Months Reconciliation of Net Income to Adjusted EBITDA
Three & Nine Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) Notes on page 37.
Slide 35: 2007 and 2008 Year-End Reconciliation
2007 and 2008 Year-End Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1),(3) {In Miions, Except Per Share Data) 2008 Per Share” 2007 Per Share” Net income Ss mie S$ 3 “$ eT $§ af8 Income fram discontinued operations, net of tax, attributa
Slide 36: YTD Reconciliation of Adjusted EBITDA to Operating Cash Flow
YTD Reconciliation of Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities (1) Notes on page 37.
Slide 37: Reconciliation Notes
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 measure. Mana
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