Encompass Health Corporation · NYSE:EHC
Encompass Health — 30th Annual J.P. Morgan Healthcare Conference (January 2012)
25 slides from Encompass Health's conference presentation, Jan 9, 2012
Slide 1: 30th Annual J.P. Morgan Healthcare Conference
30th Annual J.P. Morgan Healthcare Conference San Francisco | January 9, 2012 Jay Grinney, President and Chief Executive Officer 1
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 outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capit
Slide 3: Our Company Portfolio
Our Company Portfolio – As of Jan. 6, 2011 Inpatient Rehabilitation Hospitals (―IRF‖) 99 • 29 operate as JV’s with Acute Care Hospitals Outpatient Rehabilitation Satellite 26 Clinics 25 Hospital-Based Home Health Agencies 27 + Puerto Rico Number of States Key Statistics ( TTM as of Sept. 30, 2011) ~
Slide 4: 2011 Milestones
2011 Milestones Completed the sale of five long-term acute care hospitals (LTCH)s for approx. $117.5 million (cash and retained working capital) Strengthened our balance sheet ― Retired the 10.75% senior notes due 2016 ― Reduced total debt by approx. $257 million Implemented TeamWorks Care Man
Slide 5: Results through September 30, 2011
Results through September 30, 2011 Discharge Volume (million) Revenue 120,000 $1,800 +8.8% +6.3% $1,500 90,000 $1,200 60,000 $900 +8.0% +5.1% $600 30,000 $300 0 $0 2011 2010 2011 2010 2011 2010 2011 2010 Q3 9 Months Q3 9 Months (million) Adjusted EBITDA (1) Earnings Per Share (2) $1.20 $400 +15.4% $
Slide 6: Q4 2011 Preliminary Observations
Q4 2011 Preliminary Observations The Company has not yet closed its books for the fourth quarter and year-end 2011. Revenue growth of 5.3% vs. Q4 2010 – Inpatient revenue growth of 6.1% vs. Q4 2010 Discharge growth of 2.0% vs. Q4 2010 (5.2% FY 2011 vs. FY 2010) • Same-store discharge growth of 1
Slide 7: 2011 Guidance: Adjusted EBITDA
2011 Guidance: Adjusted EBITDA(1)(2)(3) (as of January 6, 2012) Raised Guidance Oct. 27, 2011 Jan. 6, 2012 $450 million to $455 million $455 million to $458 million Reflects 11.1% to 11.8% growth over 2010 (1) Reconciliation to GAAP provided on slides 21, 22, 23, and 25. (2) The Company has not yet
Slide 8: 2011 Guidance: EPS
2011 Guidance: EPS (1) (as of January 6, 2012) Raised Guidance Basic Earnings per Share Basic Earnings per Share from Continuing from Continuing Operations Attributable to Operations Attributable to HealthSouth (2) (3) HealthSouth (1) (2) (3) $1.18 to $1.23 $1.22 to $1.25 Considerations: Includes
Slide 9: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Strategy 2011 2012 2013 2014 Achieved < 3.0x Delevering (2) debt to EBITDA < 3.0x debt to EBITDA (subject to operating environment) Same-store growth (Includes bed expansions and
Slide 10: Full-Year 2011 Adjusted Free Cash Flow Expected to be Approx. $225 Million
Full-Year 2011 Adjusted Free Cash Flow Expected to be Approx. $225 Million (1) Adjusted Free Cash Flow (1) (millions) ~ $225 $181 $155 $9 The increase in 2012 2008 2009 2010 2011 maintenance CAPEX is Certain Uses of Cash Flows (1) 2010 2011 2012 driven by the clinical (millions) Actual Estimates Ass
Slide 11: Priorities for Reinvesting Free Cash Flows
Priorities for Reinvesting HealthSouth’s Free Cash Flows • Growth in core business Bed expansions Priorities De novo hospitals Growth Acquisitions − Free standing IRFs − Hospital unit IRFs Debt • Debt prepayment Opportunities Alternate Reduction • Purchase leased properties (limited opportunit
Slide 12: Priorities for Reinvesting Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) •Growth in core business 2012 Assumptions (millions) Bed expansions $20 to $25 (80-100 beds) De novo hospitals $50 to $70 Priorities (complete Ocala; start 4 others) Growth Acquisitions TBD − Free standing IRFs − Hospital unit $7
Slide 13: Priorities for Reinvesting Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) Capital Allocation Considerations: Relative risk/return characteristics (e.g. cash payback period, IRR, etc.) Financial leverage (subject to operating environment) Depth of liquidity in the market External factors (regulatory,
Slide 14: HealthSouth: Strong and Sustainable Business Fundamentals
HealthSouth: Strong and Sustainable Business Fundamentals • Favorable demographic trends Attractive Healthcare Sector • Non-discretionary nature of many conditions treated in IRFs • Highly fragmented industry • #1 market share: above industry same-store growth and margins Industry Leading Position •
Slide 15: Appendix
Appendix HEALTHSOUTH,
Slide 16: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume Pricing • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Medicare Pricing 72% FY 2012 (1) FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Market basket update (2) 2
Slide 17: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses 2012 2013 2014 • Other operating and supplies Merit increases (2) 2.25-2.5% 2.25-2.5% 2.25-2.5% tracking with inflation • Occupancy costs relatively Benefit costs increases 5-8% 5-8% 5-8% constant as percent of r
Slide 18: Medicare Spending on Post-Acute Services
Medicare Spending on Post-Acute Services 3.0% 2.1% 2.2% 2.1% 1.8% 1.9% Inpatient rehabilitation 1.5% 1.4% 1.3% 1.2% 1.2% spending (% of total 0.0% Medicare spending) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 Total Medicare Spending on Post-Acute Services $58.5 billion in 2010 Medicare P
Slide 19: MedPAC IRF Assessment Summary
MedPAC IRF Assessment Summary • Capacity ― IRF capacity and supply were relatively stable in 2010 • Volume ― Volume remained relatively stable in 2010 • Mix ― Patent mix has changed since 2004: Increase in share of IRF cases that meet the compliance threshold (stroke, brain injury, neurological diso
Slide 20: Debt Schedule
Debt Schedule Credit Rating Change S&P Moody Sept. 30, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $500 million revolving credit facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 $ 178.0 $ 78.0 $ 100.0 Term loan facility, May 2016 - 3 Month LIBOR +225bps BB Ba1 9
Slide 21: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2011 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 91.5 $ 32.3 $ 68.3 $ 192.1 Income from disc ops, net of tax, attributable to HealthSouth (17.6) (2.5) (34.8)
Slide 22: Reconciliation of Net Income to Adjusted EBITDA
(1)(3) Reconciliation of Net Income to Adjusted EBITDA 2010 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 50.5 $ 57.5 $ 41.9 $ 789.9 $ 939.8 Income from disc ops, net of tax, attributable to Hea
Slide 23: Reconciliation Notes for Slides 21-22
Reconciliation Notes for Slides 21-22 1. Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non- GAAP financial measure. Management and some members of the investment community util
Slide 24: Adjusted Free Cash Flow
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow Q3 9 Months Full Year (Millions) 2011 2010 2011 2010 2010 2009 2008 2007 Net cash provided by operating activities $ 53.9 $ 90.8 $ 210.8 $ 263.9 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Impact of di
Slide 25: Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA Q3 9 Months Full Year (Millions) 2011 2010 2011 2010 2010 2009 2008 2007 Net cash provided by operating activities $ 53.9 $ 90.8 $ 210.8 $ 263.9 $ 331.0 $ 406.1 $227.2 $ 230.6 Pro
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