Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (March 2008)
23 slides from Encompass Health's investor presentation, Mar 19, 2008
Slide 1: Investor Presentation
1 Investor Presentation March 2008
Slide 2: Forward-Looking Statements
2 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 forward-looking inf
Slide 3: HealthSouth Snapshot
3 HealthSouth Snapshot Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. (1) ~8% of IRHs ~17% of inpatient beds $1.8 billion 100 hospitals ~22,000 employees net operating revenues 26 states + 60 outpatient satellites & 25 hospital- based home health agencies (1) Source: Re
Slide 4: Turnaround Complete
4 Turnaround Complete Milestones Resolved bond holder dispute: received consents on outstanding debt, curing all defaults Settled with DOJ/CMS & SEC: final settlement payments made in Q4 2007 Reconstructed financial statements: using outside assistance, re-built from company inception forward; filed
Slide 5: The “New” HealthSouth
5 The “New” HealthSouth “Old” HealthSouth “New” HealthSouth Complex company with four operating Post-acute provider with emphasis divisions and no synergies -- some on inpatient rehabilitation actual dis-synergies Debt reduced to $2.0 billion as of Heavily levered with $3.5 billion of Q407 debt Paid
Slide 6: Focused Strategy
6 Focused Strategy With our turnaround complete our focus is now on executing our strategic plan and growing EPS Our Goal: To be the preeminent specialty provider of inpatient rehabilitative care in the U.S. through: clinical, service and operational excellence; growing market share in existing mark
Slide 7: Attractive Industry
7 Attractive Industry Aging Demographics = Increased Demand Projected percentage of US population Projected Medicare Compliant Case Growth (2) 65 years or older through 2050 (1) + 22% “Compliant Cases” are expected to grow Demand for post-acute services will increase ~2% per year for the foreseeable
Slide 8: Attractive Industry
8 Attractive Industry Fragmented Provider Base = Opportunities 1 (1) Total Number of IRFs 1,224 2 (2) Free-Standing Hospitals In-Hospital Units 217 (18%) 1,007 (82%) HLS All Others For-Profit NFP & Gov’t 94 123 179 828 Inpatient rehabilitation is HLS’ core business -vs- one of many, secondary servic
Slide 9: Leadership Franchise
9 Leadership Franchise Value Proposition = Quality of Care FIM Gains LOS Efficiency Source: UDSmr Database –On Demand *Benchmark = Risk Adjusted Expectancy Reports - YTD 2007
Slide 10: Leadership Franchise
10 Leadership Franchise Differentiation = Better Outcomes at Comparable Costs IRHs provide a Higher Level of Service… Service Inpatient Rehabilitation Hospital Nursing Home Attending physician visits 4+ times per week Once every 30 days (min.) Multi-disciplinary team approach; Required Not required
Slide 11: Financial Overview & Growth Strategies
11 Financial Overview & Growth Strategies
Slide 12: Volume Turnaround
12 Volume Turnaround Significant turnaround from the '04- '05 and '05-'06 declines ("75% Rule") 2007 Y/Y growth slightly positive Non-HealthSouth Industry declines(2): '04-'05 = (9.4%) '05-'06 = (6.3%) '06-'07 = (4.9%) 2008 Guidance of 2.0% to 4.0% TeamWorks "60% Rule" freeze Excess capacity = highe
Slide 13: Debt Reduction
13 Debt Reduction Significant debt reduction in 2007 Will continue to evaluate high cost debt to be retired Purchased $5M of 10.75% Senior Notes in Jan/Feb 2008 SEC & CMS/DOJ payments completed in 2007 Debt reduction will continue to be a priority Excess cash from operations Sale of corporate campus
Slide 14: 2007 Q4/YTD Financial Recap
14 2007 Q4/YTD Financial Recap (In Millions) Three Months Ended Dec. 31, 2007 2006 Fourth Quarter Highlights Net operating revenues $ 439.0 $ 422.8 Q4 2007 net operating revenues Adjusted Consolidated EBITDA $ 87.1 $ 84.4 from inpatient rehabilitation hospitals increased by 4.6% Operating Earnings $
Slide 15: 2008 Guidance
15 2008 Guidance Inpatient discharges are expected to grow 2% to 4% year over year Consolidated net operating revenues to be in the range of $1.80 billion to $1.85 billion Adjusted consolidated EBITDA is expected to be in the range of $320 million to $335 million Diluted loss per share available to
Slide 16: Strong Cash Flow Characteristics
16 Strong Cash Flow Characteristics Significant turnaround from 2006 excess cash flow = ($208M) Normalized Cash Flow Tax losses available for future (In Millions) 2008 Guidance Range years ~ $2.5 billion 2008 Adj. Consol. EBITDA guidance $ 320.0 $ 335.0 No federal income taxes for foreseeable future
Slide 17: De-novo Development Example
17 De-novo Development Example DeNovo - Pro forma (40 Bed) Real estate lease option available (In Thousands) Revenue EBITDA (1) % (1) at $3 - $5 million cash up-front cost Year 1 $8,500 $1,275 15% Approx. 18-24 mos. to permit / Year 2 $10,500 $2,500 24% build + 6 mos. to "ramp-up" Run Rate $11,500 $
Slide 18: Acquisitions and Consolidations
18 Acquisitions and Consolidations Acquisitions Opportunistic in nature Active in marketplace as we believe we're the natural consolidator in this space We will continue to be very disciplined in our approach -- carefully evaluating these opportunities against our deleveraging priority Consolidation
Slide 19: Investment Considerations
19 Investment Considerations Turnaround Complete: 2008 will represent the first year the current management team can focus 100% on operations Volume Growth: #1 priority going forward; our TeamWorks initiative will help us meet or exceed our targets Expense Control: focused on managing our expenses i
Slide 20: Appendix
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Slide 21: Review of Key Assumptions to EPS Growth
21 Review of Key Assumptions to EPS Growth Key Assumptions: Comments: SS Discharges: 2+%/yr Primary operational focus (TeamWorks) (2% - 4% guidance for 2008) Pricing: 2-3%/yr Beginning in Q409 (P.L. 110-173 “rolls-back” pricing from Q208 thru Q309) SW&B: 3-4%/yr Higher in 2008 due to investment (“ca
Slide 22: Supplemental Non-GAAP Disclosures
22 Supplemental Non-GAAP Disclosures Adjusted Consolidated EBITDA Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 (In Millions) Net (loss) income $ (45.9) $ (71.4) $ 653.4 $ (625.0) Loss (income) from discontinued operations 19.0 22.5 (454.6) 88.0 Provision for income tax
Slide 23: Supplemental Non-GAAP Disclosures (cont'd)
23 Supplemental Non-GAAP Disclosures (cont'd) Adjusted Consolidated EBITDA Our Credit Agreement allows certain items to be added to arrive at Adjusted Consolidated EBITDA that are viewed as not being ongoing costs once the Company has completed its restructuring. After consummation of the divestitur