Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 32nd Annual J.P. Morgan Healthcare Conference (January 2014)
29 slides from Encompass Health's conference presentation, Jan 14, 2014
Slide 1: J.P. Morgan Healthcare Conference
J.P. Morgan Healthcare Conference San Francisco, CA│January 14, 2014 Jay Grinney, President and Chief Executive 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: HealthSouth is the Nation's leading IRF Owner and Operator
HealthSouth is the Nation’s leading IRF Owner and Operator Portfolio – As of December 31, 2013 Inpatient Rehabilitation Hospitals (“IRF”) 103 • 31 operate as JV’s with Acute Care Hospitals 20 Outpatient Rehabilitation Satellite Clinics 25 Hospital-Based Home Health Agencies 28 + Puerto Rico Number o
Slide 4: 2013 Summary
2013 Summary Strong operating performance and operations enhancements Organic growth complemented by capacity expansions and new development Further strengthening of the balance sheet Significant shareholder distributions 4
Slide 5: 2013 Highlights: Strong Operating Performance and Operations Enhancements
2013 Highlights Strong Operating Performance and Operations Enhancements 2013 full-year discharge growth of approx. 5.0%; Same-store discharge growth of approx. 2.5%(1) Integrated three new hospitals (Augusta, GA; Littleton, CO; Stuart, FL) (2) Continued quality improvement as measured by FIM®
Slide 6: 2013 Highlights: Capacity Expansions and New Development
Capacity Expansions and New 2013 Highlights Development Acquired Walton Rehabilitation Hospital (58 beds) in Augusta, GA, in April 2013 Opened two de novos: Total incremental Littleton, CO in May 2013 (40 beds) IRF beds added in 2013 = 200 Stuart, FL in June 2013 (34 beds) Added 68 beds to
Slide 7: 2013 Highlights: Strengthened Balance Sheet
2013 Highlights Strengthened Balance Sheet Amended and extended the revolving credit facility Exchanged 257,110 shares of our convertible perpetual preferred stock for $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 (non- cash transaction) Purchased the real estate previous
Slide 8: 2013 Highlights: Significant Shareholder Distributions
2013 Highlights Significant Shareholder Distributions Completed tender offer of common shares ― Approx. 9.5% (9,119,450) of our common shares were purchased at $25.50 per share. ― Total cost of approx. $234 million (including fees and expenses related to the tender offer) Paid first quarterly ca
Slide 9: Revised 2013 Guidance
Revised 2013 Guidance(1) (as of January 13, 2014) Adjusted EBITDA (2) Original Guidance Revised Guidance Feb. 19, 2013 October 28, 2013 January 13, 2014 $506 million to $516 $533 million to $538 $542 million to $545 million million million Earnings per Share from Continuing Operations AttributableOc
Slide 10: Strong Free Cash Flow and Balance Sheet Flexibility Facilitate Shareholder Value Creating Opportunities
Strong Free Cash Flow and Balance Sheet Flexibility Facilitate Shareholder Value Creating Opportunities (billions) Total Debt (millions) Adjusted Free Cash Flow (1) $2.00 6 $1 5.6x $346 $159 Reflects the exchange transaction (4) 5 $1 Cash Interest Expense $1.81 Leverage Ratio (2) $1 $1.75 4 $268 $1
Slide 11: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow (millions) 2014 2013 2012 Assumptions Estimates (1) Actuals Highest Priority Bed expansions (target ~ 80 beds/yr) Growth Remains and unit consolidations $20 to $30 $25 $16.6 in Core New IRF's (target 4-6/yr) Business 45 to 75 56 41.1 $65 to $105, excluding a
Slide 12: Core Business: Investment Considerations
Core Business: Investment Considerations All projects have minimum IRR target of 15% (pre-tax). Same-Store Investment Growth Considerations Bed Expansions Unit Consolidations • High incremental margins; best use of discretionary • May be structured as a joint venture capex • Improves occupancy in ma
Slide 13: Summary: Multiple Avenues Available for Continued Growth
Summary: Multiple Avenues Available for Continued Growth • The Company continues to have excellent organic growth opportunities, including bed expansions and unit consolidations. The IRF patient population is experiencing favorable long-term – Nondiscretionary nature of many conditions served demogr
Slide 14: Summary: Well Positioned for Shifts to Coordinated Care Delivery Models
Summary: Well Positioned for Shifts to Coordinated Care Delivery Models • Evolutionary rather than revolutionary • Strong balance sheet and free cash flow enhance flexibility 31 joint ventures with acute care hospitals Strong balance sheet and free cash flow: already in place (examples include): • N
Slide 15: Appendix
Appendix HEALTHSOUTH,
Slide 16: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Business Model Potential depletion of the federal NOL • Adjusted EBITDA CAGR: 4-8% (2) during the 2014 to 2016 timeframe will affect Cash Flow CAGR. • Continued strong free cash flow generation Strategy 2013 2014 2015 2016 $233 million common Shareholder • Quarterly
Slide 17: 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 Medicare and unit consolidations 72% Medicare Pricing FY 2014 (3) FY 2015 FY 2016 Q4 13 - Q3 14 Q4 14 - Q3 15 Q4 15 - Q3 16 Market basket update (1) 2
Slide 18: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating expenses 2014 2015 2016 Merit increases 2.0-2.5% 2.0-2.5% 2.0-2.5% and supply costs tracking with inflation Benefit costs increases 5-8% 5-8% 5-8% • Occupancy costs declining as a percent of rev
Slide 19: Revised Adjusted EBITDA Guidance
Revised Adjusted EBITDA (1) Guidance Original Guidance Revised Guidance Feb. 19, 2013 October 28, 2013 January 13, 2014 $506 million to $516 $533 million to $538 $542 million to $545 million million million Reflects 7.1% to 7.7% growth over 2012 including three quarters of sequestration Q4 2013 prel
Slide 20: Revised Earnings Per Share Guidance
Revised Earnings Per Share Guidance (1) EPS Guidance Revised 2013 Guidance (In Millions, Except Per Share Data) Actual 2012 Low 2013 High Earnings per Share from Continuing Adjusted EBITDA Interest expense and amortization $ 505.9 $ 542 $ 545 Operations Attributable to HealthSouth (2) of debt discou
Slide 21: 2014 to 2016 Adjusted Free Cash Flow Considerations
2014 to 2016 Adjusted Free Cash Flow (1) Considerations Reflects: • Continued spending on the CIS and hospital refresh projects • Completion of delevering and refinancing Adjusted Free Cash Flow (1) Certain Cash Flow Items (2) 2012 2013 2014 (millions) Actual Estimate (3) Assumptions (millions) $346
Slide 22: Income Tax Considerations
Income Tax Considerations GAAP Considerations: • As of 9/30/13, the Company’s federal NOL had a gross balance of approx. $1.0 billion. ― Includes the approx. $283 million increase in the federal NOL (on a gross basis) as a result of the April 25, 2013 agreements with the IRS • The Company has a rema
Slide 23: 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) 2013 2012 2013 2012 2012 2011 2010 2009 2008 Net cash provided by operating activities $ 142.6 $ 107.2 $ 369.4 $ 302.2 $ 411.5 $ 342.7 $ 331.0 $ 406.1 $ 227
Slide 24: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 2013 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 $ 65.9 $ 179.0 $ 72.3 $ 317.2 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (0.1) 0.9
Slide 25: Reconciliation of Net Income to Adjusted EBITDA
(1) Reconciliation of Net Income to Adjusted EBITDA 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 26: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 2011 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 $ 91.5 $ 32.3 $ 68.3 $ 62.5 $ 254.6 (Income) loss from disc ops, net of tax, attributable to
Slide 27: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 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 Health
Slide 28: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 2008 2009 (in millions, except per share data) Total Per Share Total Per Share Net income $ 281.8 $ 128.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) Net income attributable to noncontrolling interests (29.4) (34.0)
Slide 29: Reconciliation Notes
Reconciliation Notes 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 utilize Adjusted EBITD
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