Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Robert W. Baird Growth Stock Conference 2010
33 slides from Encompass Health's conference presentation, May 19, 2010
Slide 1: Robert W. Baird Growth Stock Conference
Exhibit 99.1 Robert W. Baird Growth Stock Conference May 19, 2010 1
Slide 2: Cautionary Statements
Exhibit 99.1 Cautionary 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 esti
Slide 3: Table of Contents
Exhibit 99.1 Table of Contents 3
Slide 4: Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.
Exhibit 99.1 Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Portfolio 93 Rehabilitation Hospitals (1) 38 Outpatient Rehab Satellite Clinics 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Agencies 22,000 Employees IRH LTCH HealthSouth Market Share Sites u
Slide 5: "The Basics": Our Industry
Exhibit 99.1 “The Basics”: Our Industry Total Inpatient Rehabilitation Facilities (IRFs): 1,181 ü Highly fragmented industry • ~ 81% Units • ~ 19% Free-standing ü Industry mainly nonprofit • ~ 62% Nonprofit • ~ 14% Government • ~ 24% For-profit ü On average, HLS hospitals tend to be larger and treat
Slide 6: "The Basics": Our Patients
Exhibit 99.1 “The Basics”: Our Patients Referral Sources Most Common Cases (2009) 1. Stroke 17.5% 94% 2. Neurological 13.3% Acute Care Hospitals 3. Fracture of the lower extremity 11.7% 4. Debility 11.5% 5% Physician Offices 5. Knee/Hip replacement 9.6% 6. Other orthopedic conditions 9.5% 7. Brain i
Slide 7: "The Basics": Our Rehabilitation Hospitals
Exhibit 99.1 “The Basics”: Our Rehabilitation Hospitals Note: IRF hospitals are not CAPEX intensive: ü No Emergency Rooms, ORs, Cath Labs, etc. Major Services: • Physicians: manage and treat medical needs of patients • Rehabilitation Nursing: oversees treatment program of patient • Physical Therapy:
Slide 8: Performance Highlights
Exhibit 99.1 Performance Highlights High-Quality Care FIM Gain = Change in Functional LOS Efficiency = Functional gain Independent Measurement (based divided by length of stay on an 18 point assessment) from Admission to Discharge FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted FIM Chang
Slide 9: Solid, Sustained Operating Results
Exhibit 99.1 Solid, Sustained Operating Results ($ Millions) Discharges Consolidated Net Operating Revenues +1.1% +3.8% Flat despite Expenses wage increase 90 bps Improvement Flat Dollar Amounts $233.3 $241.9 $114.1 $113.7 $21.8 $22.5 (1) (2) EPOB (3) 3.47 3.41 9
Slide 10: Performance Highlights: Solid EBITDA and EPS Growth
Exhibit 99.1 Performance Highlights Solid EBITDA and EPS Growth ($ Adjusted Income from Continuing Adjusted Consolidated EBITDA (1) Millions) Operations per Diluted Share (1) +12.3% +90.8% +8.1% +23.1% Key Drivers: ü2.5% Medicare market basket increase effective October 1, 2009 üDischarge growth of
Slide 11: Performance Highlights: Strong Free Cash Flow
Exhibit 99.1 Performance Highlights: Strong Free Cash Flow (1) Notes on page 33. 11
Slide 12: Performance Highlights: Strong Free Cash Flow
Exhibit 99.1 Performance Highlights: Strong Free Cash Flow 12
Slide 13: Continued Debt Reduction and Deleveraging
Exhibit 99.1 Performance Highlights Continued Debt Reduction and Deleveraging ($ Billions) Liquidity Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.2x (1) Year-End 2011 Goal: 3.5x to 4.0x (1) Based on trailing four quarter Adjusted Consolidated EBITDA of $391.0 million; reconciliation to GAAP provided on slid
Slide 14: Business Outlook
Exhibit 99.1 Business Outlook Deleveraging, Growth, Reform and Sector Regulation 2010 2011 2012 2013 Deleveraging 3.5x to 4.0x Debt to EBITDA (by YE 2011) (Exclusive of any E&Y settlement) Organic growth through Growth capacity expansion and in ($60+ million de2010) novos IRF acquisitions/joint vent
Slide 15: Growth
Exhibit 99.1 Growth Target Cash pay-back Capacity Expansions: • 100+ beds 2010 2 - 4 years (1) De novos: 6 - 7 years (2) Acquisitions/Joint Ventures: 6 - 7 years • Acquired the rehabilitation unit in Altoona, PA, through a newly formed joint venture and relocated its operations to one of our hospita
Slide 16: 2010 Guidance
Exhibit 99.1 2010 Guidance (1) Guidance Philosophy Based on the results of the first quarter, the Company expects its 2010 full-year performance will be at the high end of the guidance range. Adjusted Consolidated EBITDA Considerations: (1) ü IT “pilot” investment ü Integration of acquisitions $397M
Slide 17: Summary
Exhibit 99.1 Summary Value Proposition 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 Growth: Above industry volume growth, enhanced by capacity expansions and adding new hospitals in under s
Slide 18: Appendix
Exhibit 99.1 Appendix 18
Slide 19: Discharge Growth - Historical
Exhibit 99.1 Discharge Growth - Historical (1) Trailing 4 quarters (2) Industry Avg. is 1.0% ü HealthSouth’s volume growth has outpaced competitors’ ü TeamWorks = standardized sales & marketing Quarterly Discharges ü Capacity expansions will help facilitate organic growth: – 100+ beds will be added
Slide 20: Cost-Effective Care
Exhibit 99.1 Cost-Effective Care CMS Fiscal Year 2010 IRF Rate Setting File Analysis (1) HealthSouth Freestanding (2) Units (2) Total 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
Slide 21: Readmission Rates
Exhibit 99.1 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
Slide 22: Regulatory Uncertainty
Exhibit 99.1 Regulatory Uncertainty Future Regulatory Risk IRF SNF LTCH HH Yes; RUGS IV Yes; would be required as 1. Re-basing payment system No delayed until 10/01/11 No part of (per PPACA) PPACA starting in 2014 Yes; will occur when Yes; 10% cap per 2. Major outlier payment adjustments No No MMSEA
Slide 23: Revenues & Expenses (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Revenues & Expenses (Q1 2010 vs. Q1 2009) Favorable (Unfavorable) Revenues (millions) Q1 2010 Q1 2009 Change Inpatient $ 451.8 $ 431.3 4.8% Outpatient and other 39.2 41.6 (5.8%) Consolidated net operating $ 491.0 $ 472.9 3.8% (Actual Amounts) Discharges 27,998 27,699 1.1% Net patient re
Slide 24: Revenues & Expenses (Sequential)
Exhibit 99.1 Revenues & Expenses (Sequential) Favorable (Unfavorable) Revenues (millions) Q1 2010 Q4 2009 Change Inpatient $ 451.8 $ 445.7 1.4% Outpatient and other 39.2 40.5 (3.2%) Consolidated net operating $ 491.0 $ 486.2 1.0% (Actual Amounts) Discharges 27,998 28,772 (2.7%) Net patient revenue /
Slide 25: Adjusted Consolidated EBITDA (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Adjusted Consolidated EBITDA(1) (Q1 2010 vs. Q1 2009) (Millions) Q1 2010 Q1 2009 2009 Net operating revenues $ 491.0 $ 472.9 $ 1,911.1 Operating expenses: Salaries and benefits 241.9 233.3 948.8 Hospital-related expenses: Other operating expenses 66.9 66.9 271.4 Supplies 28.3 27.4 112.4
Slide 26: Payment Sources (Q1 2010 vs. Q1 2009)
Exhibit 99.1 Payment Sources (Q1 2010 vs. Q1 2009) (1) Managed Medicare revenues represent ~ 7%, 8% and 8% of total revenues for Q1 2010, Q1 2009 and 2009, respectively, and are included in “Managed care and other discount plans.” 26
Slide 27: Operational and Labor Metrics
Exhibit 99.1 Operational and Labor Metrics (1) (1) Numbers have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 90 consolidated hospitals and 6 LTCHs. (3) Excludes approximately 400 full-time equivalents, who are considered part of corporate o
Slide 28: Debt Profile
Exhibit 99.1 Debt Profile Call Schedule = Term Loan maturities Debt Maturities Date Price = 10.75% Fixed As of March 31, 2010 June 15, 2011 105.375 June 15, 2012 103.583 = 8.125% Fixed June 15, 2013 101.792 = Capital leases & term June 15, 2014 100.000 loan amortization and thereafter 3 LIBOR month
Slide 29: Interest Rate Swaps
Exhibit 99.1 Interest Rate Swaps (Millions) Mar. 31, Floating Floating Rate Debt Balances 2010 Interest Rate Advances under $400 million revolving credit facility $ - Libor plus 300 Term Loan facility due 2013 450.9 Libor plus 225 Term Loan facility due 2015 (1) 298.5 Libor plus 375 (1) Total $ 749.
Slide 30: Non-Operating Cash/Tax Position
Exhibit 99.1 Non-Operating Cash/Tax Position Cash Refunds as of Mar. 31, 2010 Future Cash Tax Payments • Federal tax recoveries virtually complete. • Expect to pay about $5-7 million per year of income • State tax refunds in progress. tax. – State income tax. – Approx. $6.5 million received in Q1 –
Slide 31: Outstanding Share Summary
Exhibit 99.1 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 iss
Slide 32: Reconciliation of Net Income to Adjusted Income and Adjusted Consolidated EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (4) a Three Months Ended Three’ ‘Year Ended March 31,2010 March 31,2009 December 31,2009 December 31, 2008 (In Mitos, Excest per Share Dats) Per Share” Per Share™ Por Shar
Slide 33: Reconciliation Notes
Exhibit 99.1 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 m
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