Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 29th Annual JP Morgan Healthcare Conference (January 2011)
35 slides from Encompass Health's conference presentation, Jan 7, 2011
Slide 1: 29th Annual JP Morgan Healthcare Conference
1 Exhibit 99.1 29 th Annual JP Morgan Healthcare Conference San Francisco | January 10, 2011 Jay Grinney, President and Chief Executive Officer
Slide 2: Forward-Looking Statements
Exhibit 99.1 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 forward-looking information are bas
Slide 3: Our Company
Inpatient Rehabilitation Hospitals (“IRF”) Outpatient Rehabilitation Satellite Clinics Long-Term Acute Care Hospitals (“LTCH”) Hospital-Based Home Health Agencies Employees Revenue in 2009 Inpatient Discharges in 2009 Outpatient Visits in 2009 Number of States Exchange (Symbol) Largest Provider of I
Slide 4: Our Hospitals
Exhibit 99.1 Our Hospitals Major Services • Rehabilitation Physicians: manage and treat medical needs of patients • Rehabilitation Nurses: oversee treatment programs of patients • Physical Therapists: address physical function, mobility, safety • Occupational Therapists: promote independence and re-
Slide 5: Our Patients
Exhibit 99.1 Our Patients Most Common Conditions (Q3 2010) 1. Stroke 17.6% 2. Neurological 15.3% 3. Fracture of the lower extremity 11.1% 4. Debility 11.0% 5. Knee/Hip replacement 9.4% 6. Other orthopedic conditions 9.3% 7. Brain injury 7.4% 8. Cardiac conditions 4.3% 9. Spinal cord injury 3.6% 10.
Slide 6: Our Quality
Exhibit 99.1 Our Quality FIM Gain Change in Functional Independence Measurement (based on an 18 point assessment) from admission to discharge LOS Efficiency Functional gain divided by length of stay (1) Average = Expected, Risk-adjusted
Slide 7: Our Cost-Effectiveness
Exhibit 99.1 (1) The 1,171 total and the 91 for HLS do not include HealthSouth Rehabilitation Hospital of Northern Virginia; Rehabilitation Hospital of Southwest Virginia; Rehabilitation Hospital of Mesa, AZ; and Rehabilitation Hospital of Fredericksburg, VA. that were opened after the data collecti
Slide 8: Our Payors
Payment Methodology Payor Source 70.1% 21.8% 2.3 % 4.0% Exhibit 99.1 Our Payors Prospective Payment System (“PPS”) • Payments based on Case Mix Groups (“CMGs”) – Diagnosis of patient’s illness • Fixed payment per CMG adjusted for: – Acuity/severity – Regional wage differential • Per diems for “short
Slide 9: Medicare Spending on Post-Acute Services
Exhibit 99.1 Note: These numbers are program spending only and do not include beneficiary copayments. Source : Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2010 Data Book - Page 130), 2009 and 2010 Medical Trustee Report Medicare Spending on Post-Acute Services Skil
Slide 10: Future Regulatory Risk
Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012 No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adju
Slide 11: Our Track Record
Exhibit 99.1 Our Track Record Revenue ($ in millions, except adjusted EPS) Adjusted EBITDA Adjusted Net Income Adjusted EPS (1) Reconciliation to GAAP provided on slides 27, 31-35. (1) (1) (1) (1)
Slide 12: Our Track Record (cont'd)
Exhibit 99.1 Our Track Record (cont’d) Leverage Ratio (1) (billions) (1) Reconciliation to GAAP provided on slides 27-29, 31-35. Interest Expense $229 $126 (1)
Slide 13: Q4 2010 Initial Observations
Exhibit 99.1 • Volume: – 5.3% discharge growth vs. Q4 2009 (2.8% for FY 2010 vs. FY 2009) – 2.9% same store discharge growth vs. Q4 2009 (1.2% for FY 2010 vs. FY 2009) • Pricing : – 2.5%-2.7% increase in net revenue per discharge vs. Q4 2009 • Expense Management: – SWB as a percent of net revenue <
Slide 14: Future Adjusted EPS Guidance Considerations
These factors may warrant a change in our definition of adjusted EPS. Exhibit 99.1 Future Adjusted EPS (1) Guidance Considerations • Refinancing activities significantly impact adjusted EPS. – Loss on early extinguishment of debt (many companies exclude) – Valuation allowance is assessed quarterly.
Slide 15: Updated 2010 Guidance
Adjusted Consolidated EBITDA (1) $418 million to $421 million Adjusted Earnings per Share (1) $1.67 to $1.70 The Company has not yet closed its books for Q4 and YE 2010. Q4 2010 and YE 2010 results and 2011 guidance will be provided after market close on Feb. 17, 2011, and discussed during an invest
Slide 16: Our Business Outlook: 2011 to 2013
Business Model • Adjusted Consolidated EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acqu
Slide 17: Deleveraging: Remains a Top Priority
Exhibit 99.1 Deleveraging: Remains a Top Priority • The 10.75% notes have an initial call date of June 2011 and represent our most attractive debt repayment/refinancing opportunity. • We have at least three potential funding sources for reducing the 10.75% notes: Free Cash Flow ― Benefiting in 2011
Slide 18: Revenue Assumptions
Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Medicare Managed Care Exhibit 99.1 Revenue Assumptions Revenue Other (1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increase of approximatel
Slide 19: Historic Discharge Growth vs. Industry
Exhibit 99.1 (1) Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including HealthSouth sites. (2) Includes consolidated HealthSouth inpatient rehabilitation hospitals and long-term acute care hospitals classified as
Slide 20: Expense Assumptions
Salaries & Benefits (1) Hospital Expenses • Other operating and supplies tracking with inflation Salaries & Benefits Hospital Expenses Exhibit 99.1 Expense Assumptions Expense 4.5% of revenue (excludes stock-based compensation) (1) ~85% Salary; ~15% Benefits
Slide 21: Portfolio Growth
Cash Payback Period Acquisitions De novos (1) Target: 2-3 de novos and acquisitions/yr All projects have minimum IRR of 15%. Longer payback on de novos versus acquisitions is attributable to: 12-15 month construction period Initial ramp-up of operations on de novos Exhibit 99.1 Portfolio Growth Year
Slide 22: Future Growth: Complementary Post-Acute Care Services
Discharge Hospice Inpatient Rehabilitation Facility (1) Skilled Nursing Facility Home Health (1) (Lowest Acuity) Exhibit 99.1 Acute Care Hospital (Highest Acuity) Future Growth: Complementary Post-Acute Care Services Source: MedPac, CMS and Wall Street research (1) For information on HealthSouth’s h
Slide 23: Growth: Summary
Exhibit 99.1 • Growth strategies will complement deleveraging priority. - “Highest and best use” of FCF will determine where to invest. • The company continues to have excellent organic growth opportunities. - Locations in above-average “Rehab CAGR” markets - Non-discretionary nature of many conditi
Slide 24: Free Cash Flow Reinvestment
Adjusted free cash flow CAGR: 12-17% Exhibit 99.1 Free Cash Flow Reinvestment • $500 million of 10.75% notes callable June 2011 • Growth in core business • Bed expansions • Hospital acquisitions • Acute care IRF unit acquisition/consolidation • De novo hospitals • Lower capital cost • Share repurcha
Slide 25: The HealthSouth Value Proposition
Poised for Growth Financial Strength/Strong Cash Flow Generation Industry Leading Position Attractive Healthcare Sector Exhibit 99.1 (1) Reconciliation to GAAP provided on slides 27-29, 31-35. The HealthSouth Value Proposition
Slide 26: Appendix
Exhibit 99.1 Appendix
Slide 27: Net Cash Provided by Operating Activities
Exhibit 99.1 (1) Notes on page 35. Net Cash Provided by Operating Activities
Slide 28: Adjusted Free Cash Flow (2010 vs. 2009)
Exhibit 99.1 Adjusted Free Cash Flow (2010 vs. 2009) (1) Q3 2009 working capital benefited as a result of $19 million for working capital related to the interest payment accrual timing and $28 million in receivables due to suspension of Medicare denials and enhanced collections.
Slide 29: Adjusted Free Cash Flow (2007 - 2009 and 4Q Trailing)
Adjusted Free Cash Flow (2007 - 2009 and 4Q Trailing) Reconciliation of Net Cash Flow Provided by Operating Activities to Adjusted Free Cash Flow Trailing Four Quarters Ended Full Year (millions) Sept. 30, 2010 2009 2008 2007 Net cash provided by operating activities $ 313.5 $ 406.1 $ 227.2 $ 230.6
Slide 30: CMS Fiscal Year 2011 IRF Rate Setting File Analysis
Exhibit 99.1 CMS Fiscal Year 2011 IRF Rate Setting File Analysis Notes: (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2011 IRF rate setting Final Rule file found at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#To
Slide 31: (1) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1) (2) (3) (4) - Notes on page 35.
Slide 32: (1) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1) (2) (3) (4) - Notes on page 35.
Slide 33: (1) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1) (2) (3) (4) - Notes on page 35.
Slide 34: (1) (2) (3) (4) - Notes on page 35.
Exhibit 99.1 (1) (2) (3) (4) - Notes on page 35.
Slide 35: 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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