Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Bank of America Merrill Lynch 2011 Healthcare Conference
37 slides from Encompass Health's conference presentation, May 10, 2011
Slide 1: Bank of America Merrill Lynch 2011 Healthcare Conference
Exhibit 99.1 Bank of America Merrill Lynch 2011 Healthcare Conference Las Vegas, NV| May 10-12, 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, strategy, capital expenditures and financial performance. These estimates, projections and other fo
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 2010 Inpatient Discharges in 2010 Outpatient Visits in 2010 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 (Q1 2011) 1. Stroke 17.3% 2. Neurological 16.4% 3. Debility 11.4% 4. Fracture of the lower extremity 11.2% 5. Knee/Hip replacement 8.3% 6. Other orthopedic conditions 9.4% 7. Brain injury 7.3% 8. Cardiac conditions 4.4% 9. Spinal cord injury 3.3% 10.
Slide 6: Our Payors (Q1 2011)
Payment Methodology Payor Source 71.2% 20.0% 2.3 % 4.8% Exhibit 99.1 Our Payors (Q1 2011) 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
Slide 7: Our Quality
Exhibit 99.1 Our Quality FIM Gain Change in Functional Independence Measurement (based on an 18 point assessment) from admission to discharge (1) Average = Expected, Risk-adjusted • Inpatient rehabilitation hospitals evaluate all patients at admission and upon discharge to determine their functional
Slide 8: Our Cost-Effectiveness
HealthSouth differentiates itself by providing superior quality care at a lower cost. 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 R
Slide 9: Our Track Record
Exhibit 99.1 Our Track Record ($ in millions) (1) Reconciliation to GAAP provided on slides 28-33 and 37. (2) 2010 and Trailing 4Qtrs both include a tax benefit of ~$825 million for the reversal of the valuation allowance.
Slide 10: Our Track Record
Exhibit 99.1 Our Track Record Leverage Ratio (1) (billions) (1) Reconciliation to GAAP provided on slides 28-33, 36, and 37. Interest Expense $229 $131
Slide 11: Q1 2011 Highlights (Q1 2011 vs. Q1 2010)
Exhibit 99.1 Q1 2011 Highlights (Q1 2011 vs. Q1 2010) ü Revenue growth of 9.6% ― Inpatient revenue growth of 9.2% driven by volume and price § Discharge growth 7.1%; same-store discharge growth 4.5% • Against soft volume growth in Q1 2010 • Continued positive contribution from hospitals opened or ac
Slide 12: 2011 Guidance - Adjusted EBITDA
Adjusted EBITDA (1) $440 million to $450 million Based on strong results for Q1 2011, HealthSouth expects its 2011 full-year results to be at the high end of, or greater than, this guidance range. Exhibit 99.1 2011 Guidance - Adjusted EBITDA (1) Reconciliation to GAAP provided on slides 28, 29, 33,
Slide 13: 2011 Guidance - Diluted Earnings per Share
Diluted Earnings per Share from Continuing Operations Attributable to HealthSouth (2) $1.28 to $1.33 (5) Based on strong results for Q1 2011, HealthSouth expects its 2011 full-year results to be at the high end of, or greater than, this guidance range. Exhibit 99.1 Considerations: ü Includes $0.27 p
Slide 14: Business Outlook: 2011 to 2013
Business Model • Adjusted EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Deleveraging (2) Achieved 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~4-6/year) IRF acquisitions (~ 2-3/year) Opportunistic, disc
Slide 15: Business Outlook: 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 Business Outlook: Revenue Assumptions Revenue Other (1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increa
Slide 16: Business Outlook: Expense Assumptions
Salaries & Benefits (1) Hospital Expenses • Other operating and supplies tracking with inflation Salaries & Benefits Hospital Expenses Exhibit 99.1 Business Outlook: Expense Assumptions Expense 4.5% of revenue (excludes stock-based compensation) (1) Salaries, Wages and Benefits: 85% Salaries and Wag
Slide 17: Business Outlook: Adjusted Free Cash Flow
HealthSouth’s GAAP income statement will be affected by a number of items that will not affect cash flow from operating activities or adjusted free cash flow: Normalized GAAP tax rate resulting from the valuation allowance reversal in Q4 2010. Loss on early extinguishment of debt Multi-Year Adjusted
Slide 18: Free Cash Flow Reinvestment
Business Model: 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 • De novo hospitals • Hospital acquisitions • Acute care IRF unit acquisition/consolidation • Purchase properties
Slide 19: Initial Call of the 10.75% Senior Notes
Call schedule: June 15, 2011 (price 105.375); June 15, 2012 (price 103.583); June 15, 2013 (price 101.792); June 15, 2014 and thereafter (price 100.000) Exhibit 99.1 (1) Does not include $387.4 million of convertible perpetual preferred stock and ~$123 million of capital leases and other note payabl
Slide 20: Accelerated IRF De Novo Strategy
Exhibit 99.1 Accelerated IRF De Novo Strategy • Targeting to at least double the number of de novos per year – Highest and best use of cash and available capital – Reflects success of recent de novo activity – High returns and relatively low risk – Incremental capital of approx. $20 million per IRF
Slide 21: 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 28 - 33, 36, and 37. The HealthSouth Value Proposition
Slide 22: Appendix
Exhibit 99.1 Appendix
Slide 23: GAAP Considerations
GAAP Considerations: • As of 3/31/11, the Company had a remaining valuation allowance of approximately $106 million, primarily related to state NOLs. • Q1 2011 tax provision reflects a tax benefit of $0.27 per diluted share related to the Company’s settlement with the IRS for tax years 2007 and 2008
Slide 24: Debt, Liquidity, and Swaps
Swaps (2) The final cash settlement on our net $884 million swaps for $10.9 million was made in Q1 2011. Exhibit 99.1 (1) Based on 2008 and trailing 4 quarter Adjusted EBITDA of $341.2 million and $444.4 million, respectively; reconciliation to GAAP provided on slides 28 - 31, 33, and 37. (2) Cash s
Slide 25: Debt Schedule
Exhibit 99.1 Debt Schedule (1) Based on 4 quarter trailing and 2010 Adjusted EBITDA of $444.4 million and $427.4 million, respectively; reconciliation to GAAP provided on slides 28, 29, 33, and 37.
Slide 26: Volume growth vs. industry
10.7% 9.4% 5.6% 2.6% 4.6% 5.5% 5.8% 5.8% 5.3% 2.5% 2.2% 1.1% 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 rehabilitati
Slide 27: 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 28: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) - Notes on page 33.
Slide 29: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) - Notes on page 33.
Slide 30: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1) (3) (1) (2) (3) - Notes on page 33.
Slide 31: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1) (3) (1) (2) (3) - Notes on page 33.
Slide 32: Reconciliation of Net Income to Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted EBITDA (1) (3) (1 ) (2) (3) - Notes on page 33.
Slide 33: Reconciliation Notes for Slides 28-32
Exhibit 99.1 Reconciliation Notes for Slides 28-32 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 c
Slide 34: Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA
Exhibit 99.1 Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITDA (1) (3) (4) (1) (2) (3) (4) - Notes on page 35.
Slide 35: Reconciliation Notes for Slide 34
Exhibit 99.1 Reconciliation Notes for Slide 34 1. Adjusted income from continuing operations and Adjusted EBITDA are 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. Manage
Slide 36: Adjusted Free Cash Flow
Exhibit 99.1 Adjusted Free Cash Flow (1) Maintenance capital expenditures are expected to be $20 million higher in 2011 than in 2010. (2) Final swap payment of $10.9 million was made in March 2011.
Slide 37: Net Cash Provided by Operating Activities
Exhibit 99.1 Net Cash Provided by Operating Activities
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