Slide 1: Investor Presentation June 2003
Investor Presentation June 2003 (r)
Slide 2: Forward-looking statements
Select Medical Corporation This presentation may contain forward-looking statements based on current management expectations. Numerous factors, including those related to market conditions and those detailed from time-to-time in the Company's filings with the Securities and Exchange commission, may
Slide 3: Select Medical Presentation
Select Medical Presentation Business Overview Financial Performance 3
Slide 4: Select Medical Operations
Select Medical Operations Largest operator of long term acute care hospitals 72 hospitals operating in 24 states 68 operate as hospital within a hospital model Second largest operator of outpatient rehabilitation clinics 739 clinics operating in 32 states, DC, and 7 Canadian provinces 607 owned U.S.
Slide 5: Company History
Company History 1996 1997 1998 1999 2000 December: Company founded February: Commenced operations June: Acquired American Transitional Hospitals (15 LTAC hospitals) December: Acquired Intensiva Healthcare Corporation (22 LTAC hospitals) Opened 2 LTAC hospitals November: Acquired NovaCare Outpatient
Slide 6: Historical Revenue Growth
Revenue Inpatient Outpatient Other 1997 0 11.1 0.1 1998 62.7 83.1 3.2 1999 307.5 141.7 6.8 2000 378.9 416.8 10.2 2001 503.1 440.8 15.1 2002 625.2 485.1 16.2 Historical Revenue Growth Net Revenue - Breakdown ($ in millions) CAGR: 18% (1) (1) 2000 - 2002 6
Slide 7: Historical EBITDA Growth
Historical EBITDA Growth EBITDA ($ in millions) (EBITDA $ in Million) EBITDA Outpatient Other (1) 1997 -2.546 0 0 1998 3.6 -12.152 1999 42.2 -16.382 2000 91.7 -18.3 2001 112 -19.743 2002 127.3 CAGR: 18% (1) (1) 2000 - 2002 7
Slide 8: 1st Quarter Growth
1st Quarter Growth Q1 '02 Q1 '03 30.1 38.4 Q1 '02 Q1 '03 271.9 312.3 $271.9 $312.3 $30.1 $38.4 ($ in millions) ($ in millions) Net Revenue EBITDA 28% 15% 8
Slide 9: Performance vs. Expectations
Performance vs. Expectations EPS 9 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2001 2002 2003
Slide 10: Balanced Business and Payor Mix
Balanced Business and Payor Mix Inpatient 0.56 Outpatient 0.43 Other 0.01 Revenue By Business Medicare 0.42 Commercial/Other 0.57 Commercial/ Other Medicaid 0.01 Revenue By Payor Commercial/ Other 57% Note: For twelve months ended March 31, 2003 Medicaid 1% Diversified Mix of Business and Payor Sour
Slide 11: Select Specialty Hospitals
Select Specialty Hospitals
Slide 12: Long-Term Acute Care Hospital Industry
Long-Term Acute Care Hospital Industry ? $2.5 billion industry with substantial growth prospects ? Medically complex patient -- Average length of stay > 25 days ? Approximately 290 hospitals 12 Specializing in High Acuity Patients
Slide 13: Select Hospital Within a Hospital
Select Hospital Within a Hospital Largest Hospital in Hospital (HIH) operator in the U.S. 68 of 72 current specialty hospitals operate HIH model 2,616 total licensed beds Facilities typically have 30-40 beds Over 50% of admissions come from general acute care hospitals other than host hospitals 13
Slide 14: Actual Hospital Development
Actual Hospital Development 1998 1999 2000 2001 2002 2 6 10 10 8 2 6 10 10 14 New Hospitals Opened Each Year 8
Slide 15: Development Model - Inpatient
Breakeven: Month seven Maturity: Two to three years Average revenue per patient day: $1,106 Average operating cost per patient day: $952 EBITDA margins: 12-16% Development Model - Inpatient Lease: $10,000 - 12,000 per bed per year Five year lease with two five year renewal periods Leasehold improvem
Slide 16: Inpatient Payor Mix
Inpatient Payor Mix Medicare 0.65 Medicaid 0.02 Commercial/Other 0.32 Commercial/ Other Work 0.01 Commercial/ Managed Care 32% Note: For twelve months ended March 31, 2003 Medicare 65% Medicaid 2% Workers Comp. 1% LTACH Payor Mix 16
Slide 17: LTACH PPS Reimbursement
LTACH PPS Reimbursement DRG Based System - payment based on acuity Budget Neutral Effective for cost reporting periods beginning on or after October 1, 2002 Types of Cases - - LTC-DRG - - Short-stay outlier - - Interrupted stay - - High-cost outlier Hospital-in-Hospital Rules Unchanged 17
Slide 18: LTACH PPS Reimbursement
LTACH PPS Reimbursement Standard Federal Rate - $34,956 Select Medical 2002 average cost per Medicare case - $24,623 Select's Top 5 LTC-DRGs 18
Slide 19: Select Outpatient Rehabilitation
Select Outpatient Rehabilitation
Slide 20: Outpatient Rehabilitation Industry
Outpatient Rehabilitation Industry ? $35+ billion industry (1) ? CAGR of 5% since 1992 (2) - Growth driven by increasing demand ? Predominantly commercial pay - Limited exposure to government reimbursement (1) Source: Dorlan's Biomedical, Medical & Healthcare Marketplace Guide 2001-2002 (2) Source:
Slide 21: Outpatient Clinic Growth
Outpatient Clinic Growth Legend Text Inpatient 1998 115 1999 658 2000 679 2001 717 2002 737 Q1 '03 739 21 Select Outpatient Rehabilitation Clinics NovaCare Acquisition Represents total clinics owned and operated through management arrangements
Slide 22: Outpatient Volume
Outpatient Volume 2000 2001 2002 Q1 02 Q1 03 East 3.713 3.92 3.98 0.964 1.08 U.S. Outpatient Rehab Visits 22 0.96 0.98 3.71 3.77 3.84 Visits in millions
Slide 23: Outpatient Rate
Outpatient Rate Legend Text Inpatient Outpatient 1Q 79 2Q 78 3Q 79 4Q 78 1Q 81 2Q 81 3Q 82 4Q 84 1Q 86 2Q 86 3Q 87 4Q 87 1Q 88 23 2000 2001 2002 U.S. Outpatient Net Revenue per Visit 2003
Slide 24: Development Model - Outpatient
Average breakeven: month 3 Net revenue per visit: $88 Cost per visit: $71 - $75 EBITDA margins: 15% - 19% Lease: $40 - $60k per year Five year lease with three year buyout provisions Tenant improvements: $30 - $40k Equipment: $40 - $50k Start-up losses: $20 - $25k Working capital: $70 - $80k Develop
Slide 25: Outpatient Rehabilitation Payor Mix
Outpatient Rehabilitation Payor Mix Note: For twelve months ended March 31, 2003 Medicare 0.08 Workers Compensation 0.18 Commercial/Managed Care 0.7 Commercial/ Other Capitalization 0.04 Work 0.01 Outpatient Payor Mix Medicare 9% Capitation 3% Workers Compensation 18% Commercial / Managed Care 70% 2
Slide 26: Financial Overview
Financial Overview
Slide 27: Proven Performance - Inpatient
Proven Performance - Inpatient Q1 '02 Q1 '03 148.8 183.4 2001 2002 57.6 70.9 Q1 '02 Q1 '03 15.7 25.5 2001 2002 503 625.2 Net Revenue EBITDA 24% 23% 23% 62% $503.0 $625.2 $148.8 $183.4 $57.6 $70.9 $15.7 $25.5 27 ($ in millions) Margins 11.4% 11.3% 10.5% 13.9% Same Store Margins 12.8% 13.4% 11.0% 15.3
Slide 28: Proven Performance - Outpatient
Proven Performance - Outpatient Q1 '02 Q1 '03 119.7 125.6 2001 2002 76.1 81.1 Q1 '02 Q1 '03 21 19.5 2001 2002 440.8 485.1 Net Revenue EBITDA 10% 7% 5% (7%) $440.8 $485.1 $119.7 $125.6 $76.1 $81.1 $21.0 $19.5 28 ($ in millions) Margins 17.3% 16.7% 17.6% 15.5%
Slide 29: Strong ROIC - Development
Strong ROIC - Development (000's) (1) Average annual EBITDA over 3 year period. (2) Includes start-up period prior to generation of EBITDA: Hospitals - 6 months O/P Rehab - 3 months 29
Slide 30: Improved Receivables Management
Improved Receivables Management Legend Text Inpatient Outpatient 1Q 111 2Q 106 3Q 121 4Q 119 1Q 89 2Q 81 3Q 86 4Q 85 1Q 81 2Q 80 3Q 79 4Q 77 1Q 74 2Q 76 3Q 76 4Q 73 1Q 64 One Day Improvement in DSO Equals $3.5 million 30 Days Sales Outstanding 1999 2000 2001 2002 2003
Slide 31: Balance Sheet Improvement
Balance Sheet Improvement Legend Text T o t a l D e b t / B o o k C a p T o t a l D e b t / E B I T D A 1999 0.67 4.7 2000 0.63 3.3 2001 0.55 2.6 2002 0.5 2.1 2003 0.428 1.7 31 NOTE: 1999 is Proforma for NovaCare acquisition E B I T D A / N e t I n t e r e s t 1999 2 2000 2.6 2001 3.8 2002 4.7 2003
Slide 32: Free Cash Flow
Free Cash Flow (Sin millions) 2000 2001 2002 Q1 03 Operating Cash Flow $ 225 $ 95.8 $1208 $ 24.4 Capital Expenditures (22.4) (24.0) = (43.2) (7.0) Preferred Dividends : (19.2) : : Free Cash Flow $ 0.1 $ 52.6 $776 $ 17.4
Slide 33: Q1 2003 Actual vs. Guidance
Q1 2003 Actual vs. Guidance 33
Slide 34: 2003 Financial Objectives
2003 Financial Objectives 34
Slide 35: Key Selling Points
Key Selling Points Proven management team Balanced business and payor mix Demonstrated development expertise Impressive financial performance with significant upside potential 35 Attractive long- term industry dynamics Two strong and growing business lines