Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (March 2007)
20 slides from Encompass Health's investor presentation, Mar 12, 2007
Slide 1: Unlocking Value
Unlocking Value Investor Presentation March 2007
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 views with respect to future events and financial performance. These estimates, projections and other forward- looking info
Slide 3: Form 10-K / 4th Quarter Consolidated Results
Form 10-K / 4th Quarter Consolidated Results (In Millions) 4th Quarter Full Year 2006 2005 2006 2005 Net Operating Revenues $730.2 $733.4 $3,000.1 $3,117.0 Expenses: Salaries and Benefits $354.4 $343.5 $1,398.4 $1,386.1 Supplies 72.5 72.7 287.8 294.2 Other 181.1 207.1 721.0 1,027.3 Provision for Dou
Slide 4: Form 10-K / 4th Quarter Highlights
Form 10-K / 4th Quarter Highlights Fourth quarter signaled a turning point for the Company as we experienced improved Net Operating Revenues and Operating Earnings in our two largest segments Inpatient Net Operating Revenues were up both sequentially and quarter-over-quarter Compliance case growth u
Slide 5: Form 10-K / 4th Quarter Highlights (cont'd)
Form 10-K / 4th Quarter Highlights (cont’d) Surgery Net Operating Revenues were up 3.1% vs. 4Q 2005 Operating Earnings showed both quarter-over-quarter and sequential improvement Increased by $12.8 million quarter over quarter as a result of improved revenues and labor and supply cost management ini
Slide 6: Strategic Repositioning
Strategic Repositioning August 14, 2006: In an effort to deleverage its Balance Sheet and reposition the Company as a “pure-play” post-acute provider, HealthSouth announced it would seek strategic alternatives for its Surgery and Outpatient business segments Diagnostic business segment previously de
Slide 7: Strategic Repositioning (cont'd)
Strategic Repositioning (cont’d) Sale of Outpatient segment announced January 29, 2007 Purchaser: Select Medical Sales Price: $245M Closing: Estimated April 30, 2007 The “new” HealthSouth = Near-term focus on Inpatient Rehabilitation Facilities (“IRFs”) Future growth in other post-acute segments: Lo
Slide 8: Future: Focus on Inpatient Rehabilitation
Future: Focus on Inpatient Rehabilitation Overview Payor Mix(1) for the year ended 12/31/2006 Nation's largest provider of inpatient rehabilitation facilities (IRFs) 173 locations (92 IRFs, 81 outpatient satellites) Typical IRF: 40 bed 60 bed Size (sq. ft.): 42,000 62,000 CAPEX: $15-17mm $20-24mm Ma
Slide 9: Aging Baby Boomers will Continue to Fuel Demand for IRF Services
Aging “Baby Boomers” will Continue to Fuel Demand for IRF Services Projected percentage of US population National Annual Acute Care Bed Demand in US 65 years or older through 2050 (1) 2002-2027 Projections (2) % Beds per Population Thousand Post-Acute Usage After Discharge Projected Medicare Complia
Slide 10: Not All Potential Compliant Cases Go To IRFs
Not All Potential Compliant Cases Go To IRFs On average ~16% of Potential Compliant Cases “Convert” to an IRF Admission 10 NOTES: Internal assessment of compliant case yields; HealthCare Concepts
Slide 11: IRFs Provide Greater Nursing and Rehabilitative Patient Care
IRFs Provide Greater Nursing and Rehabilitative Patient Care to Patients… with significantly shorter length-of-stay (“LOS”) Providers with Consistently (1) Days Low Costs High Costs SNF average LOS 37.4 30.1 IRF average LOS 10.9 13.3 NOTE: (1) Source: Post-Acute care providers: An Overview of Issues
Slide 12: Growth = Significant Organic and Development Opportunities
Growth = Significant Organic and Development Opportunities 2-3% Pricing Organic* Mid- to high-single 1-2% SS Volume digit EBITDA growth “Steady-state” basis Development: 5-8 new facilities per year Development Strategies LTCH IRF J.V. 1. Consolidation (Existing markets) Acquire IRF 2. De-novo (Exist
Slide 13: IRF Segment Highly Fragmented = Creates Consolidation Opportunities
IRF Segment Highly Fragmented = Creates Consolidation Opportunities Type of IRF(1) 2005 HLS = 92 All IRFs 1,231 7.5% Urban 1,000 Rural 231 Freestanding 217 42.4% Hospital-Based(2) 1,014 Non-Profit 765 For-Profit 305 30.2% Government 161 (1) Source: Report to Congress: Medicare Payment Policy; March
Slide 14: Illustrative Development Examples
Illustrative Development Examples (In Thousands) Consolidation - Joint Venture DeNovo - Proforma (40 Bed) (1) (1) (1) (1) Revenue EBITDA % Revenue EBITDA % Stand Alone $10,000 $2,000 20% Year 1 $8,500 $1,275 15% (2) Joint Venture $14,000 $3,200 23% Year 2 $10,500 $2,500 23% - Minority Interest ($640
Slide 15: Development Achievements: Growth is Occurring Ahead of Plan
Development Achievements: Growth is Occurring Ahead of Plan 2006 Opened new 40-bed IRF in Petersburg, VA Created joint venture/market consolidation in Tucson, AZ Merged competitor’s 20-bed IRF with existing HLS 80-bed IRF Broke ground on new 40-bed IRF in Fredericksburg, VA Approved new 50-bed IRF i
Slide 16: 2007 Guidance: Focus on Inpatient Segment
2007 Guidance: Focus on Inpatient Segment Inpatient Corporate will still have “noise” Volume growth: 1–2% Continuing restructuring costs (winding Net Revenue growth: 2-3% down substantially by year-end) Operating Earnings General Ledger upgrade costs Transition services for divested Growth: 3-4% seg
Slide 17: Summary
Summary The “new” HealthSouth: new Board; new management team; new balance sheet; and new direction. By divesting of three divisions, the Company will be well- positioned to become a “pure-play” post-acute provider and a consolidator in the fragmented $126 B post-acute space. These divestures – alon
Slide 18: Appendix: Non-GAAP Financial Reconciliations
Appendix Non-GAAP Financial Reconciliations For the Year Ended December 31, 2006 2005 (In Millions) Net loss $ (625.0 ) $ (446.0) Loss from discontinued operations 26.0 67.2 Provision for income tax expense 41.1 38.4 Loss on interest rate swap 10.5 – Loss on sale of marketable securities 0.3 – Inter
Slide 19: Appendix (cont'd): Non-GAAP Financial Reconciliations
Appendix (cont’d) Non-GAAP Financial Reconciliations For the year ended December 31, 2006 2005 (In Millions) Adjusted Consolidated EBITDA $ 535.5 $ 627.6 Compensation expense under FASB Statement No. 123(R) (15.5) – Restructuring charges under FASB Statement No. 146 (5.1) (8.1) Sarbanes-Oxley relate
Slide 20: Appendix (cont'd): Non-GAAP Financial Reconciliations
Appendix (cont’d) Non-GAAP Financial Reconciliations HealthSouth Corporation and Subsidiaries Supplemental Non-GAAP Disclosures (In Millions) Three Months Ended December 31, 2006 2005 Net loss $ (71.4) $ (113.9) Loss from discontinued operations, net of tax 0.9 29.9 Income tax expense 9.4 7.8 Deprec