Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Lazard Healthcare Conference 2009
33 slides from Encompass Health's conference presentation, Nov 16, 2009
Slide 1: Lazard Healthcare Conference
Lazard Healthcare Conference November 17, 2009 Exhibit 99.1 Exhibit 99.1
Slide 2: Table of contents
Cautionary Statements... Company Summary HealthSouth Strategy. Financial Performance: Our Patients.......... Our Competitors. Operational Excellence. Market Share Gains. Free Cash Flow... Deleveraging.. 2009 Guidance...... Business Outlook. Summary........ Appendix and Reconciliations. Revenues (Qua
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.
Operational Components Major Services Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Provider of Additional Post-Acute Services HealthSouth IRH LTCH 94 Rehabilitation Hospitals 44 Outpatient Satellites 6 Long-Term Acute Care Hospitals 25 Hospital-Based Home Health Agenc
Slide 5: HealthSouth Strategy
to HealthSouth Near term To create shareholder value as the preeminent provider of rehabilitative care in the U.S. by: – Driving organic growth through operational excellence ; – Creating a strong balance sheet through deleveraging ; and – Pursuing disciplined, opportunistic growth . Longer Term We
Slide 6: Financial Performance
Financial Performance Discharge Volume Consolidated Net Operating Revenues ($ Millions) Adjusted Income from Continuing Operations per Diluted Share (1) Adjusted Consolidated EBITDA ($ Millions) + 4.1% + 5.5% +13.7% + 129.4% + 7.0% + 6.1% +6.6% + 219.0% (1 ) Reconciliation to GAAP provided on slides
Slide 7: "The Basics": Our Patients
“The Basics”: Our Patients 94% 5% 1% Referral Source Acute Care Hospitals Physician Offices Skilled Nursing Facilities All patients are referred by a physician : Most Common Cases 1. Stroke 17.7% 2. Neurological 13.3% 3. Fracture of the lower extremity 11.7% 4. Debility 11.4% 5. Other orthopedic con
Slide 8: "The Basics": Our Competitors
Hospital-Based Units 983 (82%) HealthSouth 94 (8%) “The Basics”: Our Competitors Competitors • Other freestanding IRFs • Inpatient rehab units • Skilled nursing facilities • Long-term acute care hospitals • Home Health agencies Total Inpatient Rehabilitation Facilities (IRF): 1,202 Other 125 (10%) F
Slide 9: 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 ** Benchmark = Expected, Risk Adjus
Slide 10: 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 11: Operational Excellence: 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 12: Strong Free Cash Flow
Strong Free Cash Flow (1) Includes capital expenditures for the hospital refresh program. (2) Benefited by approximately $19 million for the seasonal effect on working capital related to the interest payment accrual.
Slide 13: Successful Deleveraging
Year-End 2011 Goal: 3.5x to 4.0x No Near-Term Financing Requirements (1) October 2009, amendment to the credit agreement increases debt repayment flexibility of non-term loan balances. (2) Based on four quarter trailing Adjusted Consolidated EBITDA of $376.6 million; see related debt schedule on sli
Slide 14: 2009 Guidance
2009 Guidance (1) Reconciliation to GAAP provided on slides 30 through 33. (2) Adjusted income from continuing operations per diluted share. (3) Lower floating rate interest expense resulted in higher cash payment for the swap. Key Drivers : ü Sustainable discharge growth ü Market basket update ü Hi
Slide 15: Business Outlook: Deleveraging + Growth
Business Outlook: Deleveraging + Growth 3.5x to 4.0x Debt to EBITDA (No later than YE 2011) Organic growth through bed additions and de novos “Tuck-in” IRF acquisitions DELEVERAGING GROWTH 2010 2011 2012 2013+ Acquisitions of other, complementary post-acute services HEALTHCARE REFORM 1. Market Baske
Slide 16: Summary
Summary ü Industry Leader : Attractive industry with good demographics. 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 + expense management. ü Opportuni
Slide 17: Appendix and Reconciliations
Appendix and Reconciliations
Slide 18: 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 19: 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 aging of pending Medicare appeals
Slide 20: 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 (5.3%) $ 1,431.5 $ 1,376.3 4.0% 84,542 80,126 5.5% $ 15,417 $ 15,489 (0.5%)
Slide 21: 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% 140bps EPOB (employees per occupied bed) 3.52 3.62 2.8% Hospital related expenses $ 346.9 $ 339.4 (2.2%) (other operating,
Slide 22: 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 23: Payment Sources
Payment Sources (1) Managed Medicare revenues represent ~ 8% of total revenues and are included in “Managed care and other discount plans.”
Slide 24: Interest Rate Swaps
Interest Rate Swaps (Millions) (1) In October 2009, the credit agreement was amended. The maturity for $300 million of the term-loan was extended to 2014, and is extendable to September 2015, contingent on the floating rate note being refinanced prior to March 2014. The extended portion of the term
Slide 25: Debt Schedule
Debt Schedule (Millions) (1) October 2009, amendment to the credit agreement increases debt repayment flexibility of non-term loan balances. (2) The Company had $117.3 million in cash and cash equivalents as of September 30, 2009.
Slide 26: 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 27: Disciplined Growth - Update
Disciplined Growth - Update (1) Pending state license survey. (2) CON is being appealed; operational date may change. Bed expansions : • Approximately 100 beds being added in 2009 and a similar amount in 2010. • Average investment per bed: – Internal renovation = $15 - 45K – New construction = $100
Slide 28: De Novo: 40-Bed Proforma Example
De novo’s attractive for future growth. We evaluate based on commitment (cash or leased). De novo: 40-Bed Proforma Example (1) Does not include estimated corporate overhead of ~4.75% of net operating revenues. (2) Assumes state income taxes only for first five years, then federal and state income ta
Slide 29: Outstanding Share Summary
Outstanding Share Summary (Millions) Notes: (1) Completed an equity offering for 8.8 million shares on June 27, 2008. (2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants
Slide 30: Three & Nine Months Reconciliation of Net Income to Adjusted Income
Three & Nine Months Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) (1) (2) (3) (4) - Notes on page 33.
Slide 31: 2007 and 2008 Year-End Reconciliation of Net Income to Adjusted Income
2007 and 2008 Year-End Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1) (3) {In Miions, Except Per Share Data) 2008 Per Share” 2007 Per Share” Net income Ss mie S$ 3 “$ eT $§ af8 Income fram discontinued operations, net of tax, attributa
Slide 32: YTD Reconciliation of Adjusted Consolidated EBITDA to Operating Cash
YTD Reconciliation of Adjusted Consolidated EBITDA (1) to Net Cash Provided by Operating Activities (1) - Notes on page 33.
Slide 33: 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. Manag