Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Raymond James 36th Annual Institutional Investors Conference 2015
33 slides from Encompass Health's conference presentation, Mar 2, 2015
Slide 1: Raymond James 36th Annual Institutional Investor Conference
Raymond James 36th Annual Institutional Investor Conference Orlando, FL March 2, 2015 Doug Coltharp, Chief Financial Officer
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: Company Overview
Company Overview(1) Inpatient Rehabilitation Hospitals Encompass Home Health Encompass Home Health & Hospice Encompass Pediatrics New Inpatient Rehabilitation Hospitals under development Inpatient Rehabilitation Encompass Portfolio - As of December 31, 2014 Home Health and Hospice(1) Inpatient Rehab
Slide 4: Encompass Transaction
Encompass Transaction Acquired Encompass Home Health and Hospice (closed December 31, 2014) — $750 million purchase price; $695.5 million in cash and $64.5 million in Encompass management equity roll — Transaction funded via credit facility • In January 2015, the Company issued $400 million of add
Slide 5: HealthSouth and Encompass Market Overlap
HealthSouth and Encompass Market Overlap Approx. 54% or approx. 72,300(5) of HealthSouth's discharges went to home health in 2014. Approx. 5,900 discharges, or 8%, went to HealthSouth home health. Approx. 850 discharges, or 1%, went to Encompass home health. ~72,300 Discharges 55% of Encompass' loca
Slide 6: Our Track Record
Our Track Record Revenue Discharge Volume ($ millions) $2,406 6.4% 4.6 % 134,515 G R= R= CA $2,273 CAG 129,988 -’ 14 -’14 ’10 $2,162 ’10 123,854 $2,027 118,354 $1,878 112,514 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Adjusted EBITDA* Income from Continuing Operations Attributable to HealthSo
Slide 7: Our Track Record (con't)
Our Track Record (con’t) Total Debt Adjusted Free Cash Flow* (billions) (millions) $331 Leverage Ratio(8) 3.7x Cash Interest Expense(9) $311 3.7x $119 $268 $243 $97 $2.13 $181 $1.51 $1.52 $1.25 $1.25 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 *Reconciliation to GAAP provided on slide 25. Refe
Slide 8: 2015 Guidance - Adjusted EBITDA
2015 Guidance - Adjusted EBITDA* Adjusted EBITDA $670 million to $680 million Inpatient rehabilitation segment considerations for 2015: ― Revenue growth between 5.9% and 7.3% ― Discharge growth between 3.5% and 4.5% ― Revenue per discharge growth between 2.3% and 2.6% ― Bad debt expense of approx.
Slide 9: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow* and Tax Assumptions Certain Cash Flow Items(12) 2015 2014 2013 (millions) Assumptions Actual Actual • Cash interest expense(9) $110 to $115 $96.5 $95.4 • Cash payments for taxes, net of $15 to $20 $16.4 $7.7 refunds • Working Capital and Other(10) $40 to $50 $55.0 $19.6 • Ma
Slide 10: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow « 2015 2014 2013 Assumptions Actuals Actuals Highest Priority IRF bed expansions $30 to $40 $23.6 $24.9 Growth Remains New IRF's in Core - De novos 40 to 60 53.7 26.6 Business - Acquisitions TBD 20.2 28.9 New home health and hospice acquisitions 30 to 40 674
Slide 11: New Inpatient Rehabilitation De novo/Acquisitions
New Inpatient Rehabilitation De novo/Acquisitions ü Entered into an agreement to acquire Cardinal Hill Rehabilitation Hospital in Lexington, KY (158 licensed inpatient rehabilitation beds and 74 licensed skilled nursing beds); expect to close in the first half of 2015 ü Continued progress on a new j
Slide 12: New IRFs: De Novo Assumptions and Timing
New IRFs: De Novo (40-50 beds) Assumptions and Timing All projects have minimum IRR target of 15% (pre-tax). Investment Considerations • Prototype includes all private rooms • Cash Payback(17) = 5 to 7 years • A minimum of 30 patients treated for zero revenue • Inclusive of CON costs (where applicab
Slide 13: New IRFs: Acquisition Assumptions, Timing and Performance
New IRFs: Acquisition Assumptions, Timing and Performance All projects have minimum IRR target of 15% (pre-tax). Investment Considerations Value Added • Price varies depending on size, market, and • TeamWorks approach to sales/marketing physical asset • Labor management tools and best practices • Ca
Slide 14: New Home Health and Hospice Acquisitions
New Home Health and Hospice Acquisitions Investment Considerations Value Added by Encompass • Highly fragmented home health market • Strengthen existing referral relationships; establish new - Over 12,600 home health agencies relationships - Approx. 95% of these have annual revenue of • Install/enha
Slide 15: Future Growth: Coordinated Care Delivery Models
Future Growth: Coordinated Care Delivery Models Positioned to succeed in coordinated care delivery models by offering both "facility-based" and "home-based" post-acute services High-quality, cost-effective IRF provider: High-quality, cost-effective home care provider: • FIM® gains consistently excee
Slide 16: Our Strong and Sustainable Business Fundamentals
Our Strong and Sustainable Business Fundamentals • Favorable demographic trends Attractive Healthcare Sectors • Nondiscretionary nature of many conditions treated • Highly fragmented industry • #1 market share in inpatient rehabilitation segment Industry Leading Position • Consistent delivery of hig
Slide 17: Appendix
17 Appendix HEALTHSOUTH.
Slide 18: Encompass Operational Metrics
Encompass Operational Metrics Revenue Payor Mix(25) Medicaid: 7% ($million) $369 Medicare Advantage, $302 commercial, and other: 10% Medicare: 83% 2013 2014 Home Health Home Health Hospice Admissions Total Episodes Daily Census 49,032 98,461 387 39,350 80,594 268 Visits per Episode 20.5 19.9 2013 20
Slide 19: Business Outlook: 2015 to 2017
Business Outlook: 2015 to 2017(26) Business Model : • Adjusted EBITDA* CAGR: 5% - 9% (2014 base-year Adjusted EBITDA includes an estimate for Encompass)(27) • Continued strong free cash flow generation 2015 2016 2017 • Quarterly cash dividends Shareholder • Opportunistic repurchases Distributions ($
Slide 20: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Inpatient Rehabilitation Home Health & Hospice • 2.5% to 3.5% annual discharge • • 10% 10%to15% to 15%annual episode annual episode Volume growth growth (excludes acquisitions) growth • • Includes Includes$35-$40 $30-$40million millionper per • Includes bed expa
Slide 21: Business Outlook: Labor and Other Expense Assumptions
Business Outlook: Labor and Other Expense Assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2015 2016 2017 Merit increases 2.25-2.75% 2.5-3.0% 2.5-3.0% Benefit costs 5-8% 5-8% 5-8% Salaries Percent of Salaries & Benefits Salaries ~ 88% Salaries & & Benefits Benefits
Slide 22: Our New-Store/Same-Store IRF Growth
Our New-Store/Same-Store IRF Growth HealthSouth's IRF volume growth is driven by bed expansions and new IRFs. Altamonte Springs, FL (50 beds) 10.0 Johnson City, TN (26 beds) Cypress, TX (40 beds) Ocala, FL Augusta, GA (58 beds) Newnan, GA (50 beds) Cincinnati, OH (40 beds) (40 beds) Littleton, CO (4
Slide 23: Debt Schedule
Debt Schedule Pro Forma Credit Rating Pro Forma Post Change in S&P Moody Issuance and Dec. 31, Dec. 31, Debt vs. (3) (3) (Millions) Corporate BB- Ba3 Term Loan Paydown 2014 2013 YE 2013 Advances under $600 million revolving credit facility, September 2019 - LIBOR +175bps(3) BB+ Baa3 $ 175.0 $ 325.0
Slide 24: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value HealthSouth is positioned with a cost-efficient, flexible capital structure. Proforma Dec. 31, 2014 for Issuance and Credit Facility Repayments(3)(33) In January 2015, the Company ($ in millions) issued $400 million of additional Callable beginning 5.75% senior not
Slide 25: Adjusted Free Cash Flow History
Adjusted Free Cash Flow History(12) Q4 Full-Year (Millions) 2014 2013 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 70.2 $ 100.9 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued operations 0.2 0.5 1.2 1.9 (2.0) (9.1) (13.2) Net cash provided by operating activiti
Slide 26: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 2014 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable to
Slide 27: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 2013 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net income $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable to
Slide 28: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable to
Slide 29: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 2010 2011 (in millions, except per share data) Total Per Share Total Per Share Net income $ 939.8 $ 254.6 Income from disc ops, net of tax, attributable to HealthSouth (9.2) (49.9) Net income attributable to noncontrolling interests (40.8) (45.9) I
Slide 30: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q4 Full-Year (Millions) 2014 2013 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 70.2 $100.9 $444.9 $470.3 $411.5 $342.7 $331.0 Provision for doubtful accounts (6.6) (3.6) (31.6) (26.0) (27.0) (21.0) (16.4)
Slide 31: End Notes
End Notes (1) HealthSouth completed the acquisition of Encompass Home Health and Hospice on December 31, 2014. (2) Beginning in Q1 2015, HealthSouth's legacy 25 home health agencies will be included in the home health and hospice segment. The 2014 results for these agencies will be recast and report
Slide 32: End Notes, con't.
End Notes, con't. (19) The difference between the basic and diluted shares outstanding is primarily related to the convertible senior subordinated notes and our convertible perpetual preferred stock (convertible into 8.2 million and 3.2 million common shares, respectively, as of December 31, 2014).
Slide 33: End Notes, con't.
End Notes, con't. (32) The leverage ratio is based on Adjusted EBITDA for 2014 and 2013 of $577.6 million and $551.6 million, respectively. Pro forma leverage with Encompass Adjusted EBITDA included would be approx. 3.3x. (33) Pro forma debt amounts do not include approx. $93 million of convertible
HealthSouth — Raymond James 36th Annual Institutional Investors Conference 2015 on 6ix