Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Robert W. Baird & Co. 2009 Growth Stock Conference
36 slides from Encompass Health's conference presentation, May 13, 2009
Slide 1: HealthSouth – Baird 2009 Growth Stock Conference
Exhibit 99.1 HealthSouth Robert W. Baird & Co. 2009 Growth Stock Conference Chicago, Illinois May 14, 2009 1
Slide 2: Cautionary Statements
Cautionary Statements Note Regarding 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, proje
Slide 3: HealthSouth Today
HealthSouth Today Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Operational Components 93 Rehabilitation Hospitals and Outpatient Departments 6 Long-Term Acute Care Hospitals 48 Outpatient Satellites 25 Hospital-Based Home Health Agencies Major Services IRH LTCH Develo
Slide 4: Positioned for Growth
Positioned for Growth Consolidated Net Operating Revenues + 6.1% Volume growth drove revenue growth. Discharge Volume + 2.3% + 7.0% + 5.7% 4
Slide 5: Positioned for Growth (cont'd)
Positioned for Growth (cont’d) Adjusted Consolidated EBITDA(1) Adjusted Consolidated EBITDA + 6.6% growth coupled with deleveraging drove very strong EPS growth. Adjusted Income (Loss) from + 10.7% Continuing Operations per Diluted Share (1) + 219.0% + 116.7% (1) Reconciliation to GAAP provided on s
Slide 6: Strategy
Strategy: To create shareholder value as the preeminent provider of rehabilitative care in the U.S. by: Driving organic growth through operational excellence; Creating a strong balance sheet through deleveraging; and Pursuing disciplined, opportunistic growth. 5-8+% annual Adjusted Consolidated EBIT
Slide 7: Organic Growth
Organic Growth Discharge Volume by Quarter HealthSouth’s volume growth outpaced competitors’ in 2008. Improvement in operating expenses as % of Net Revenues (Q109 vs. Q108) Salaries and Benefits = 49.4% Improved by 20 bp Hospital-related exp. = 24.1% Improved by 80 bp G&A = 4.6% 27,807 Improved by 7
Slide 8: Deleveraging
Deleveraging No near-term refinancing ($ Billions) Revolver = 2012 Term Loan = 2013 Bonds = 2014 & 2016 Future deleveraging: Excess cash from operations Derivative proceeds UBS Settlement; net recovery of ~ $60 million in cash E&Y and Scrushy litigation (ongoing) Debt to EBITDA 6.3x 6.3x 5.3x 4.9x(2
Slide 9: Disciplined Growth
Disciplined Growth Bed expansions: Approximately 100 beds being added in 2009 and a similar amount in 2010. Average investment per bed: Internal renovation = $15 – 45K New construction = $100 – 250K Cash pay-back: 2 – 3 years New hospitals: Operational Location Announced Type of Investment Installed
Slide 10: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA(1) (Millions) 1st Qtr. 1st Qtr. Change 2009 2008 $ % $ 98.7 $ 89.2 $ 9.5 10.7% Quarter-over-quarter improvement driven by: Increased volumes • Helped to offset 04/01/08 Medicare price roll-back Lower G&A Effective management of hospital related expenses Improved labor pr
Slide 11: Adjusted Income per Share
Adjusted Income per Share 1st Qtr. 1st Qtr. Change (Millions, except per share data) 2009 2008 $ % Income from continuing operations attributable to HealthSouth $ 48.0 $ 4.6 $ 43.4 943.5% Adjusted income from continuing (1) operations $ 39.8 $ 17.0 $ 22.8 134.1% Per Share Adjusted income from contin
Slide 12: Free Cash Flow
Free Cash Flow Three Months Ended March 31, Year Ended (Millions) 2009 2008 2008 Net cash provided by operating activities $ 183.1 $ 41.8 $ 227.2 Incremental income tax expense (0.3) (1.4) (5.0) Capital expenditures for maintenance (1) (7.5) (8.7) (37.3) Net settlements on interest rate swap (8.5) (
Slide 13: Disciplined Use of Cash
Disciplined Use of Cash Adjusted Free Cash Flow(1) Debt Reduction (Major Focus) Bed Non-Operating Cash Expansions ($15-20 million) Acquisitions/ Derivative proceeds Consolidations (Opportunistic) Digital Hospital proceeds De novo’s (3rd-party Tax refunds financed) (1) After maintenance CAPEX of ~ $3
Slide 14: Healthcare is a Regulated Industry
Healthcare is a Regulated Industry And has been since Medicare’s inception (1965). Over the years, successful healthcare providers have been those who have adjusted their business models to adapt to regulatory changes. Recent regulatory changes affecting inpatient rehabilitation: 2002: change in rei
Slide 15: What is "Bundling"?
What is “Bundling”? Combining payments of multiple providers into a single, “bundled” payment. Intended to incentivize providers to cooperate with one another and coordinate care throughout an entire episode. Typically refers to bundling physician + acute care hospital payments. Has been proposed be
Slide 16: Why has "Bundling" been Proposed?
Why has “Bundling” been Proposed? “Nearly 18 percent of hospitalization of Medicare beneficiaries resulted in the readmission of patients who had been discharged in the hospital within the last 30 days. Sometimes the readmission could not have been prevented, but many of these readmissions are avoid
Slide 17: Readmission and Utilization Rates of Post-Acute Care Providers
Readmission and Utilization Rates of Post-Acute Care Providers Percent Discharged Percent Percent Died Post-Acute Care from Hospital to Rehospitalized after in PAC ("PAC") Setting PAC Setting Using PAC Setting Setting Skilled Nursing Facility 17.3% 22.0% 5.4% Home Health 16.0% 18.1% 0.8% Long-Term C
Slide 18: Senate Finance Committee Policy Option
Senate Finance Committee Policy Option Senate Finance Committee Policy Option: Beginning in fiscal year (FY) 2015, acute IPPS hospital services and post-acute care services occurring or initiated within 30 days after discharge from a hospital would be paid through a bundled payment. Bundling would b
Slide 19: Bundling – Can it Work?
Bundling – Can it Work? Six core principals must serve as the foundation for any bundling payment system: 1. Physicians must remain ultimately responsible for deciding patients’ post-acute needs. 2. Patients must maintain their right to choose where they receive care. 3. Payments for post-acute care
Slide 20: Bundling "Take-Aways"
Bundling “Take-Aways” “Bundling” is not a new concept. If structured properly, “bundling” could serve as a catalyst for consolidations in the post-acute sector. Due to high degree of complexities, much study has to be done to devise a workable system. HealthSouth will continue to work with the AHA(1
Slide 21: Q209 Initial Observations
Q209 Initial Observations Volume: Through April, continued positive discharge growth. Pricing: Quarter-over-quarter comparables similar. Reminder: Q208 was first quarter of Medicare pricing roll-back. Expenses: Continued focus on cost-effective patient care. 21
Slide 22: 2009 Guidance
2009 Guidance Adjusted Consolidated EBITDA(1) 2009 Range: $342.0 million to $352.0 million Expect to be at the higher end of the range Adjusted Earnings per Share(1)(2) 2009 Range: $0.85 to $0.90 per share Expect to be at the higher end of the range Key Drivers: Sustainable discharge growth Bed expa
Slide 23: Investment Considerations
Investment Considerations Industry Leader: Attractive industry with good demographics. Strong Cash Flows: Flexibility in the use of FCF. Deleveraging Priority: Reduce leverage to between 3.5x and 4.0x by YE 2012. Solid Organic Growth: TeamWorks initiative + rigorous expense management. Opportunistic
Slide 24: Appendix and Reconciliations
Appendix and Reconciliations 24
Slide 25: Revenues (Q1 2009 vs. Q1 2008)
Revenues (Q1 2009 vs. Q1 2008) Favorable/ (Unfavorable) (Millions) 1st Qtr. 2009 1st Qtr. 2008 Change Inpatient $ 433.1 $ 419.1 3.3% Outpatient and other 42.0 45.1 (6.9%) Consolidated net operating $ 475.1 $ 464.2 2.3% (Actual Amounts) Discharges 27,807 26,309 5.7% Net patient revenue / discharge $
Slide 26: Expenses (Q1 2009 vs. Q1 2008)
Expenses (Q1 2009 vs. Q1 2008) Favorable/ (Unfavorable) (Millions, except percent) 1st Qtr. 2009 1st Qtr. 2008 Change Salaries and benefits $ 234.7 $ 230.4 (1.9%) Percent of net operating revenues 49.4% 49.6% 20 bps EPOB (employee per occupied bed) 3.47 3.53 1.7% Hospital related expenses $ 114.6 $
Slide 27: Payment Sources
Payment Sources Three Months Ended March 31, 2009 2008 Medicare 68.6% 68.2% Medicaid 2.1% 2.3% Workers' compensation 1.7% 2.2% Managed care and other discount plans (1) 22.2% 21.3% Other third-party payors 3.2% 3.5% Patients 0.8% 0.8% Other income 1.4% 1.7% Total 100.0% 100.0% (1) Medicare Advantage
Slide 28: Debt Maturities
Debt Maturities (Millions) Undrawn revolver $400.0 goes away in 2012 Minimal amortization and no near-term financing risk. As of March 31, 2009, we were in compliance with the covenants under our Credit Agreement. 28
Slide 29: Interest Rate Swaps
Interest Rate Swaps (Millions) (1) We have the flexibility to peg 1,2,3 or 6 month Libor, or Prime. (2) Forward-starting interest rate swaps (designated as cash flow hedges). 29
Slide 30: Debt Schedule
Debt Schedule Debt Balances March 31, December 31, Q109 Debt (1)(2) (Millions) 2009 2008 Reduction Advances under $400 million revolving credit facility, March 2012 $ - $ 40.0 $ (40.0) Term loan facility - March 2013 757.1 783.6 (26.5) Bonds Payable: 8.375% Senior Notes due 2011 0.3 0.3 - 7.625% Sen
Slide 31: Non-Operating Cash/Tax Position
Non-Operating Cash/Tax Position Cash Refunds Future Cash Tax Payments Federal tax recoveries virtually complete. Expect to pay about $5-7 million per year of Approx. $42 million received in Q109. income tax. State income tax Alternative Minimum Tax (AMT) State tax refunds in progress. With over $2.5
Slide 32: Outstanding Share Summary
Outstanding Share Summary 1st Qtr.(4) 1st Qtr. Year-End(4) Year-End (Millions) 2009 2008 2008 2007 Average for the Period Basic shares outstanding(2)(3) 87.5 78.9 83.0 78.7 (1)(2)(3) Diluted shares outstanding 100.9 92.3 96.4 92.0 End of Period Basic shares outstanding(2)(3) 88.3 79.1 88.0 78.7 (1)(
Slide 33: First Quarter Reconciliation of Net Income to Adjusted Income and EBITDA
First Quarter Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted Consolidated EBITDA (1)(3) 33
Slide 34: Full Year Reconciliation of Net Income to Adjusted Income and EBITDA
Full Year Reconciliation of Net Income to Adjusted Income (Loss) from Continuing Operations and Adjusted Consolidated EBITDA (1)(3) Year Ended December 31, (2) (2) (In Millions, Except Per Share Data) 2008 Per Share 2007 Per Share Net income $ 281.8 $ 3.40 $ 718.7 $ 9.13 Income from discontinued ope
Slide 35: First Quarter Reconciliation of Adjusted EBITDA to Operating Cash Flow
First Quarter Reconciliation of Adjusted Consolidated EBITDA(1) to Net Cash Provided by Operating Activities 35
Slide 36: Reconciliation Notes
Reconciliation Notes 1. Adjusted income (loss) from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. Management and some members of the investment community utilize adjusted income from continuing operations as a financial measure and Adjusted Consolidated EBIT
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