Select Medical Holdings Corporation · NYSE:SEM
Select Medical — 29th Annual J.P. Morgan Healthcare Conference (January 2011)
41 slides from Select Medical's conference presentation, Jan 10, 2011
Slide 1: 29th Annual J.P. Morgan Healthcare Conference
29th Annual J.P. Morgan Healthcare Conference
Slide 2: Disclosure
Disclosure 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 cause results to
Slide 3: Key Investment Highlights
Key Investment Highlights Complementary businesses in attractive market segmentsHigh quality operator with significant scale and breadth Strong track record of growth through acquisitions, de novos and JVsBalanced payor mix and well-positioned for healthcare reformExperienced management team with pr
Slide 4: Select Medical Today
Select Medical Today 110 LTAC Hospitals with 4,601 beds in 28 States 950 Outpatient Rehab Clinics in 36 States and the District of Columbia491 Contract Therapy locations in 30 states and the District of Columbia $2.3 Billion Net Revenue LTM Q3 '10$327.8 Million Adjusted EBITDA LTM Q3 '10125,900 Empl
Slide 5: Significant Scale and Breadth
Contract Therapy 491 locations 30 states and District of Columbia Note: Hospital counts as of Jan. 1, 2011, Outpatient Clinics & Contracts as of Sep. 30, 2010 Outpatient Rehab 950 clinics 36 states and District of Columbia LTAC 110 hospitals 28 states Inpatient Rehab 8 hospitals/1 unit 5 states Sign
Slide 6: Recent Events
Recent Events Acquisition of Regency Hospital Company - closed September 1, 201023 LTAC Hospitals in 9 statesBaylor Health System - Received regulatory approval Deal should close by April 1, 2011 $100.0 million Share Buyback Program Miami Rehab addition - January 1, 2011
Slide 7: Strong Track Record of Growth
1998 2000 2002 2004 2006 2008 2009 LTM Q3 2010 149 806 1127 1602 1851 2153 2240 2326 (2003) (1999) Strong Track Record of Growth Company has Struck the Right Balance of Both Organic and Acquisitive Growth De Novo - 62 specialty hospitals and 293 outpatient clinics opened since inception - Sept. 2010
Slide 8: Balanced Payor Mix
Balanced Payor Mix Specialty Payor Mix Outpatient Payor Mix Overall Payor Mix Commercial Payors and Other 89% Medicare/ Medicaid11% Commercial & Other Medicare East 36 64 West Medicare/Medicaid 65% Commercial Payors and Other 35% 2005 2006 2007 2008 2009 2010 LTMQ3 Medicare/Medicaid 0.585 0.55 0.503
Slide 9: Business Strategy
Business Strategy
Slide 10: Operating and Growth Strategy
Operating and Growth Strategy Organic Joint Venture Acquisition LTAC - maturing new hospitalsRegency- margin improvementOutpatient Rehab - margin improvement Draw on reputation for JV developmentExpand into existing and contiguous marketsFocus on leading systems and university hospitals1 to 2 per ye
Slide 11: Operating Segments
Operating Segments Specialty HospitalsLTACHsInpatient RehabilitationOutpatient RehabilitationOutpatient Rehab ClinicsContract Therapy
Slide 12: Specialty Hospitals: LTACH
Specialty HospitalsLTACH
Slide 13: Largest provider of LTACH services in U.S.
Largest provider of LTACH services in U.S. (# of hospitals)110 hospitals80 are hospital-in-hospital (2,754 beds)29 are freestanding (1,847 beds)1 managed freestanding hospital LTACHs Note: As of Jan. 1, 2011
Slide 14: Maturing New Hospitals
Maturing New Hospitals New Hospitals Added 2008-09 ? 10 LTACs and 2 Rehab Adjusted EBITDA 2008 ($25.0)MAdjusted EBITDA 2009 ($ 1.6)MAdjusted EBITDA YTD Q3 '10 $ 6.1 M
Slide 15: Acquisition of Regency Hospital Company
Acquisition of Regency Hospital Company On September 1, 2010, Select closed the acquisition of Regency Hospitals for $210M less assumed liabilities23 long-term acute care hospitals with 898 licensed beds in 9 states Revenue (1) $375M EBITDA (1) $ 28MCorporate services and back office functions fully
Slide 16: Integration of Regency Hospital Company
Integration of Regency Hospital Company Synergies and margin enhancementCorporate CostsPre-Acquisition - $ ? 25MPost acquisition - $ ? 4-5MFacility level - Margins
Slide 17: LTAC Hospital Regulatory Environment Summary
LTAC Hospital Regulatory Environment Summary MMSEA 2007 - extended through December 2012Hospital in Hospital Rules - suspended at 50%Very Short Stay Outlier Rule - suspendedMoratorium on new LTAC hospital licensesFuture - post-2012Patient/Facility Criteria (Supported by Industry, AHA, FAH, etc.)Exte
Slide 18: Specialty Hospitals: Inpatient Rehabilitation
Specialty HospitalsInpatient Rehabilitation
Slide 19: Rehabilitation Hospitals
Rehabilitation Hospitals Eight hospitals - 550 beds, one managed unitKessler Institute (3)Penn State Hershey Rehabilitation (1)SSM Rehabilitation (1)Dallas, TX area (2)Miami, FL (1)Baylor Joint Venture expected to close by April 1, 20112 I/P rehab hospitals and 3 I/P rehab units30 outpatient clinics
Slide 20: Rehabilitation Hospitals: Kessler Institute
Rehabilitation Hospitals Kessler InstituteFounded 1948Largest licensed rehab hospital in U.S. (three campuses)18 consecutive years U.S. News & World Report best hospitalOne of six rehab hospitals in U.S. to have model system designation for head injury and spinal cord injury
Slide 21: Kessler Institute for Rehabilitation Rank
Kessler Institute for Rehabilitation Rank Hospital #1 Rehabilitation Institute of Chicago, Chicago, IL #2 Kessler Institute for Rehabilitation, West Orange, NJ #3 University of Washington Medical Center, Seattle, WA #4 Spaulding Rehabilitation Hospital, Boston, MA #5 TIRR Memorial Hermann, Houston,
Slide 22: Inpatient Rehab Facility JV Strategy
Inpatient Rehab Facility JV Strategy
Slide 23: SSM Rehab Joint Venture
SSM Rehab Joint Venture The PartnersSSM Health Care St. Louis network with seven acute care hospitals, 12,000 employees, 2,500 staff physiciansSelect Medical 51% owner of joint venture with management responsibilityThe Services80 inpatient rehab beds33 outpatient locations (18 SSM, 15 Select)6 contr
Slide 24: Baylor Joint Venture
Baylor Joint Venture The PartnersBaylor Select Medical The ServicesTwo inpatient rehab hospitals with 136 bedsThree managed inpatient rehab units with 57 beds30 outpatient locations (Select 18 & Baylor 12)The FutureExpect immediate growth in the Outpatient business
Slide 25: Inpatient Rehabilitation Regulatory Environment
Inpatient Rehabilitation Regulatory Environment Stable75% Rule issue resolved in 2007 part of MMSEA frozen at 60%10/1/10 net 1.7% increase in Medicare rates
Slide 26: Outpatient Rehabilitation Segment: Outpatient Rehab Clinics
Outpatient Rehabilitation SegmentOutpatient Rehab Clinics
Slide 27: Outpatient Rehabilitation Clinics
Outpatient Rehabilitation Clinics Outpatient Rehab Facilities (Number of Facilities) ^ 950 Source: Company public filings and websites as of Sept. 30, 2010.
Slide 28: Outpatient Rehabilitation - Philadelphia/South Jersey locations
Outpatient Rehabilitation - Philadelphia/South Jersey 80 locations
Slide 29: Outpatient Rehabilitation - North Jersey locations
Outpatient Rehabilitation - North Jersey 79 locations
Slide 30: Outpatient Rehabilitation - St. Louis, MO locations
Outpatient Rehabilitation - St. Louis, MO 36 locations
Slide 31: Outpatient Margin Opportunity
Outpatient Margin Opportunity Continue to expand former HealthSouth clinics' EBITDA margins2008 EBITDA margin differential - greater than 7%2009 EBITDA margin differential - greater than 5%Former HealthSouth clinics' revenue - ^ $200MJoint Venture outpatient opportunities
Slide 32: Outpatient Rehabilitation Regulatory Environment
Outpatient Rehabilitation Regulatory Environment Commercial - StableMedicareMPPR changes to therapy payments (effective Jan. 2011)25% reductions to practice expense component for 2nd and subsequent codesContract Therapy rates
Slide 33: Outpatient Rehabilitation Segment: Contract Therapy
Outpatient Rehabilitation SegmentContract Therapy
Slide 34: Contract Services
Contract Services 491 contracts in 30 states and the District of ColumbiaLTM Revenue $159.3M as of 9/30/10Strong ROI with organic growth only
Slide 35: Financial Overview
Financial Overview
Slide 36: Historical Net Revenue and Adjusted EBITDA
Revenue Specialty Outpatient Other 2007 1386.4 603.4 1.8 2008 1488.4 664.8 0.2 2009 1557.8 681.9 0.2 LTM 9/30/10 1635.961 690.4 0.1 EBITDA Specialty Outpatient 2007 217 75 2008 236 77 2009 290 89 LTM 9/30/10 285 87 $2,240 $2,153 $1,992 Historical Net Revenue and Adjusted EBITDA Note: In Millions CAG
Slide 37: Key Financial Metrics: Pricing and Volume Trends
Key Financial Metrics Pricing and Volume Trends Specialty Hospital Revenue per Patient Day1 / Admissions Outpatient Rehab Revenue per Visit2 / Visits (Admissions in Thousands) (Visits in Thousands) 1 Net revenue per patient day is calculated by dividing specialty hospital direct patient service reve
Slide 38: Intense Focus on Free Cash Flow Generation
Free Cash Flow Revenue Free Cash Flow 2007 -80.1 2008 50.9 2009 108 LTM 9/30/10 121 Free Cash Flow1 Note: Free Cash Flow calculated as Net Cash Provided by Operating Activities less Purchases of Property and Equipment 1 See slide 40 for non-GAAP reconciliation Intense Focus on Free Cash Flow Generat
Slide 39: Appendix: Additional Materials
Appendix: Additional Materials
Slide 40: Non-GAAP Reconciliation
2007 2008 2009 LTM 9/30/10 Net Income $ 57 $ 25 $ 79 $ 92 (+) Income tax 29 26 37 44 (+) Equity in losses of unconsolidated subsidiaries - - - 0 (+/-) Other expense / (income) 5 - 1 0 (+) Interest expense, net 103 146 132 118 (-/+) (Gain) / Loss on debt retirement - (1) (13) 3 (+) Depreciation and A
Slide 41: Select Medical Corporation
ak. Select Medical Corporation
Select Medical Holdings — 29th Annual J.P. Morgan Healthcare Conference (January 2011) on 6ix