Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 34th Annual J.P. Morgan Healthcare Conference 2016
45 slides from Encompass Health's conference presentation, Jan 12, 2016
Slide 1: J.P. Morgan Healthcare Conference
HEALTHSOUTH. J.P. Morgan Healthcare Conference San Francisco, CA| January 12, 2016 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: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care IRF Marketshare 10% of IRFs Home Health and 21% of Licensed Beds Hospice Marketshare 28% of Medicare 5th largest provider of Patients Served Medicare-certified skilled home health services Encompass Inpatient Rehabilitation 59% of HealthSouth's IRFs
Slide 4: Track Record
Track Record Revenue $3,170 Adjusted EBITDA* $685 ($ millions) $3,150 ($ millions) .0% $675 .4% 9 =6 R= GR AG A 4C 4C -’1 $578 -’1 ’10 ’10 $2,406 $552 $2,273 $506 $2,162 $466 $2,027 $1,878 $410 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Estimate Guidance Adjusted EPS*(1) $2.26 Adjus
Slide 5: Key Demographic Tailwind: Expanding Medicare Beneficiary Population
Key Demographic Tailwind: Expanding Medicare Beneficiary Population Key Observations: • The growth rate of Medicare beneficiaries increased in 2011 from a 2% CAGR to an approx. 3% CAGR as “baby boomers” started turning 65. • In 15 years (2030), the Medicare population is projected to increase to 80
Slide 6: CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing
CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing >> 30% of Medicare fee-for-service payments via integrated delivery >> 50% of Medicare fee-for-service payment models (e.g., bundled payments via integrated delivery payments accountable care CMS organizations (ACO
Slide 7: 2015: Established Home Health Platform
2015: Established Home Health Platform ü Enhanced HLS’ position in integrated delivery and value-based payment models by adding home-based, post-acute services via partnership with Encompass • 44* home health and 3 hospice locations in 7 states • Best-in-class home health provider; across the southe
Slide 8: 2015: Expanded Inpatient Rehabilitation Portfolio
2015: Expanded Inpatient Rehabilitation Portfolio ü Entered new markets, primarily through joint ventures ü Enhanced geographic coverage in existing markets December 31, 2014 2015 13% increase # of hospitals 107 121 18% increase # of licensed beds 7,095 8,404 ACQUISITIONS JOINT VENTURES • Memorial H
Slide 9: 2015 Shareholder Distributions
2015 Shareholder Distributions Cash Dividends Repurchases of on Common Stock(2) Common Stock __ Repurchased ~$47 Paid ~$77 Million Million of Common Stock l l Paid $0.21 per share cash dividend in Repurchased 1,360,974 shares in Earnings Q1, Q2, per and Share Q3 2015from Continuing open market trans
Slide 10: Guidance
Guidance Projected 2015 Year-Over- Year 2016 Growth Net Operating Revenues Net Operating Revenues 12% to $3,150 million to $3,170 million $3,550 million to $3,650 million 15% Adjusted EBITDA Adjusted EBITDA 13% to $675 million to $685 million $765 million to $785 million 15% Adjusted Earnings per Sh
Slide 11: 2016 Guidance Considerations
2016 Guidance Considerations Inpatient Rehabilitation Home Health and Hospice • Full-year contribution from Reliant • Full-year contribution from CareSouth ü Transitioning to HLS business ü Transitioning to Encompass model business model • Continued evolution of payor mix ü Managed care and Medicaid
Slide 12: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow*(3) and Tax Assumptions Certain Cash Flow Items 2016 2015 2014 (millions) Assumptions Estimates Actual Working capital increase in 2015 driven primarily by growth in accounts • Cash interest expense $165 to $175 ~$130 $96.5 receivable (net of amortization of debt discounts an
Slide 13: Priorities for 2016: Growth
Priorities for 2016 GROWTH • Integrate Reliant and CareSouth ("pause" on additional large acquisitions) • Achieve organic growth at existing hospitals and home health/hospice agencies • Acquire and construct new hospitals and acquire and open new home health/hospice agencies 2016 2015 2014 Assumptio
Slide 14: IRF Growth Pipeline
IRF Growth Pipeline Disciplined Approach to Joint Ventures / De Novos / Acquisitions HLS Value Proposition – Attractive demographics CAPEX to build free-standing IRF, freeing up space for – Strong forecasted growth in the number of patients medical / surgical beds requiring rehab-level of care – Pre
Slide 15: Home Health Growth Pipeline
Home Health Growth Pipeline Disciplined Approach to Acquisitions Encompass Value Proposition – Attractive demographics Re-brand acquired businesses as Encompass (within one year) – Proximity to HLS IRFs – Ability to enhance scale and density – Increases awareness of referral sources – Clean complian
Slide 16: Priorities for 2016: Capital Structure
Priorities for 2016 CAPITAL STRUCTURE • Reduce financial leverage • Continue shareholder distributions 2022 senior notes are fully callable; completed $50 million redemption in November 2015; ~$176 million 2016 2015 2014 remaining as of December 31, 2015 Assumptions Estimates Actuals (In Millions) D
Slide 17: Priorities for 2016
Priorities for 2016 GROWTH • Integrate Reliant and CareSouth ("pause" on additional large acquisitions) • Achieve organic growth at existing hospitals and home health/hospice agencies • Acquire and construct new hospitals and acquire and open new home health/hospice agencies CAPITAL STRUCTURE • Redu
Slide 18: Coordinated Care Protocols
Coordinated Care Protocols Patient SNFs HLS Admitted Home IRF Patient is Encompass participates Home care and Minimize number of assessed for in team meetings; follow-up discharges to SNFs appropriate post- collaborative discharge coordinated with acute care by an plan developed; length IRF independ
Slide 19: Bundling Participation - Inpatient Rehabilitation
Bundling Participation - Inpatient Rehabilitation Model 2 % of HLS Medicare HLS Referral Source Bundle Type % of Total HLS Discharges Discharges ~45% of these discharges are LEJR episodes 122 acute care hospitals Bundles selected for Model 2 participating in Model 2 / Phase 2 participation are chose
Slide 20: Bundling Participation - Home Health and Hospice
Bundling Participation - Home Health and Hospice The CJR Model represents a significant opportunity for Encompass as home health agencies are expected to capture additional share as discharges bypass SNFs altogether or lower the length of stay in a SNF. % of Total 52 Encompass providers have selecte
Slide 21: HLS: Strong and Sustainable Business Fundamentals
HLS: Strong and Sustainable Business Fundamentals • Favorable demographic trends Attractive Healthcare Sectors • Nondiscretionary nature of many conditions treated • Highly fragmented post-acute industries • #1 market share in inpatient rehabilitation segment Industry Leading Position • #5 largest p
Slide 22: Appendix
Appendix 22 HEALTHSOUTH.
Slide 23: Accountable Care Organizations (ACOs)
Accountable Care Organizations (ACOs) As of Pioneer ACOs April 2015, (16 ACOs / ~500,000 Medicare beneficiaries) there were • 32 Pioneer ACOs launched since program’s inception; 16 remain in the program. • Fewer than half that participated in 2012 and 2013 earned shared savings. 423 • Shared savings
Slide 24: Bundled Payments
Bundled Payments The Bundled Payments for Care Improvement How the Retrospective Models Work (BPCI) Program currently tests The BPCI “convener” is responsible for bringing providers together to provide a continuum of services four types of bundles throughout an episode of care. The BPCI "awardee"
Slide 25: CJR Payment Model
CJR Payment Model Comprehensive Care for Joint Replacement Model (April 1, 2016 - December 31, 2020) In the CJR payment model, Medicare will continue to SHARED SAVINGS HIGH QUALITY reimburse providers under its LOW COST traditional payment methodologies. RETROSPECTIVE POST-ACUTE CARE RECONCILIATION
Slide 26: CJR Payment Model – HLS Opportunities
CJR Payment Model – HLS Opportunities Discharge destination for all Medicare lower extremity joint replacements (% of 2011-2013 episodes) 9.6% 37.9% 37.5% 15.0% IRFs SNFs Home Health Other, including home self-care Many LEJR patients admitted to Home health agencies are HLS STRATEGY HealthSouth IRFs
Slide 27: Debt Schedule
Debt Schedule Pro Forma Sept. 30, 2015 Post Acquisitions of Reliant and Pro Forma CareSouth and Change in $50M Redemption September 30, December 31, Debt vs. ($millions) of 2022 Notes 2015 2014 YE 2014 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps(6)(7) $ 120.0 $ 2
Slide 28: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(12) 2015 Q1 Q2 Q3 9 Months Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Net income $ 59.0 $ 60.2 $ 67.8 $ 187.0 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.3 1.6 (0.3) 1
Slide 29: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(12) 2014 2013 2012 2011 2010 Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net income $ 281.7 $ 381.4 $ 235.9 $ 254.6 $ 939.8 (Income) loss from disc ops, net of tax, attributable t
Slide 30: Reconciliation of Net Cash Provided by Operating to Adjusted EBITDA
Reconciliation of Net Cash Provided by Operating to Adjusted EBITDA(12) 9 Months Full-Year (Millions) 2015 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 368.2 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Provision for doubtful accounts (33.2) (31.6) (26.0) (27.0) (21.0) (16.4) Prof
Slide 31: Adjusted EPS - Q1 2015
Adjusted EPS(1) - Q1 2015 For the Three Months Ended March 31, 2015 Adjustments Professional Government, Fees - Class Action, Accounting, Loss on Early As and Related Tax, and Extinguishment As Reported Settlements Legal of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 156
Slide 32: Adjusted EPS - Q2 2015
Adjusted EPS(1) - Q2 2015 For the Three Months Ended June 30, 2015 Adjustments Professional Fees - Reliant / Accounting, CareSouth Loss on Early As Tax, and Transaction Extinguishment As Reported Legal Costs of Debt Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 169.5 $ — $ — $
Slide 33: Adjusted EPS - Q3 2015
Adjusted EPS(1) - Q3 2015 For the Three Months Ended September 30, 2015 Adjustments Professional Government, Fees - Reliant / Class Action, Accounting, CareSouth Loss on Early As and Related Tax, and Transaction Extinguishment As Reported Settlements Legal Costs of Debt Adjusted (In Millions, Except
Slide 34: Adjusted EPS - YTD September 2015
Adjusted EPS(1) - YTD September 2015 For the Nine Months Ended September 30, 2015 Adjustments Professional Government, Fees - Reliant / Class Action, Accounting, CareSouth Loss on Early As and Related Tax, and Transaction Extinguishment As Reported Settlements Legal Costs of Debt Adjusted (In Millio
Slide 35: Adjusted EPS - 2014
Adjusted EPS(1) - 2014 2014 Adjustments Gain on Gov't, Class Consolidation Loss on Action, and Pro. Fees - Encompass of Fairlawn Early Income Tax As Related Acct, Tax, Transaction Rehabilitation Exing. of Valuation As Reported Settlements and Legal Costs Hospital Debt Adjustment Adjusted (In Million
Slide 36: Adjusted EPS - 2013
Adjusted EPS(1) - 2013 2013 Adjustments Gov't, Class Loss on Income Tax Action, and Pro. Fees - Early Valuation Settlement Repurchase As Related Acct., Tax, Exting. of Allowance of Income of Preferred As Reported Settlements and Legal Debt Adjustment Tax Claims Stock Adjusted (In Millions, Except Pe
Slide 37: Adjusted EPS - 2012
Adjusted EPS(1) - 2012 2012 Adjustments Gain on Gov't, Class Consolidation Loss on Income Tax Action, and Pro. Fees - of St. Vincent Early Valuation Settlement As Related Acct, Tax, Rehabilitation Exing. of Allowance of Income As Reported Settlements and Legal Hospital Debt Adjustment Tax Claims Adj
Slide 38: Adjusted EPS - 2011
Adjusted EPS(1) - 2011 2011 Adjustments Gov't, Class Loss on Income Tax Action, and Pro. Fees - Early Valuation Settlement Related Acct., Tax, Exting. of Allowance of Income As Reported Settlements and Legal Debt Adjustment Tax Claims As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBIT
Slide 39: Adjusted EPS - 2010
Adjusted EPS(1) - 2010 2010 Adjustments Gov't, Class Pro. Fees Loss on Loss on Release of Action, and - Acct., Interest Early Income Tax Settlement As Related Tax, and Rate Exting. Valuation of Income As Reported Settlements Legal Swaps of Debt Allowance Tax Claims Adjusted (In Millions, Except Per
Slide 40: Reconciliation of Income from Continuing Operations to Adjusted Income
Reconciliation of Income from Continuing Operations to Adjusted Income from Continuing Operations(1) 2015 Q1 Q2 Q3 9 Months (In Millions) Income from continuing operations attributable to HealthSouth $ 42.8 $ 44.5 $ 50.4 $ 137.7 Government, class action, and related settlements 8.0 — 8.0 Professiona
Slide 41: Reconciliation of Income from Continuing Operations to Adjusted Income
Reconciliation of Income from Continuing Operations to Adjusted Income from Continuing Operations(1) Year Ended December 31, 2014 2013 2012 2011 2010 (In Millions) Income from continuing operations attributable to HealthSouth $ 216.5 $ 324.7 $ 180.5 $ 158.8 $ 889.8 Government, class action, and rela
Slide 42: Adjusted Free Cash Flow
Adjusted Free Cash Flow(3) 9 Months Full-Year (Millions) 2015 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 368.2 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued operations 0.8 1.2 1.9 (2.0) (9.1) (13.2) Net cash provided by operating activities of continuing op
Slide 43: End Notes
End Notes 43 HEALTHSOUTH.
Slide 44: End Notes
End Notes (1) HealthSouth is providing adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides a better measure of its ongoing perfor
Slide 45: End Notes, con't.
End Notes, con't. (12) 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 measure. Management and some members of the investment community utilize Adjusted EBITDA as a fina
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