Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — 31st Annual J.P. Morgan Healthcare Conference (January 2013)
29 slides from Encompass Health's conference presentation, Jan 9, 2013
Slide 1: 31st Annual J.P. Morgan Healthcare Conference
31st Annual J.P. Morgan Healthcare Conference San Francisco|January 9, 2013 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: Inpatient Rehabilitation Facility (IRF) Sector Overview
Inpatient Rehabilitation Facility (IRF) Sector Overview Key Metrics Geographic Distribution of IRFs, 2010 2008 2011 All IRFs 1,202 1,165 • Hospital-based 981 931 • Freestanding 221 234 Medicare Fee-for-Service (FFS) $5.93B $6.46B Spending No. of Medicare FFS Cases 356,000 371,288 IRF Criteria • Pati
Slide 4: HealthSouth is the Nation's Leading IRF Provider
HealthSouth is the Nation’s Leading IRF Provider Portfolio – As of December 31, 2012 Inpatient Rehabilitation Hospitals 100 • 29 operate as JV’s with Acute Care Hospitals Outpatient Rehabilitation Satellite 24 Clinics 25 Hospital-Based Home Health Agencies 27 + Puerto Rico Number of States ~ 22,700
Slide 5: Most IRF patients have medical conditions associated with aging
Most IRF patients have medical conditions associated with aging; the demand/need for inpatient rehabilitative services is expected to grow as the Medicare-eligible population increases. Median Age of a HealthSouth Patient: IRF Services (1) • All patients = 72 Inpatient rehabilitation facilities (IRF
Slide 6: HealthSouth differentiates itself on its superior outcomes
HealthSouth differentiates itself on its superior outcomes… 36 FIM Gain 34 Change in 32 Functional Independence 30 Measurement 28 (based on an 18 26 point assessment) from admission to 24 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 discharge HealthSouth UDS Average (1)
Slide 7: …and its cost effectiveness
…and its cost effectiveness. Total Inpatient Rehabilitation Facilities (IRFs): 1,139 • Medicare pays HealthSouth less per Avg. Est. discharge, on Avg. Est. Total Avg. average, and Total Cost Payment Avg. Medicare per per HealthSouth treats a Beds per Discharges Discharge Discharge higher acuity pati
Slide 8: Track record of strong operational and financial results
HealthSouth has a track record of delivering strong operational and financial results (even during periods of reduced Medicare pricing)… ($ in millions) Discharge Volume Revenue $2,027 118,354 $1,878 112,514 $1,701 $1,785 109,106 103,356 2008 2009 2010 2011 2008 2009 2010 2011 Medicare pricing “roll
Slide 9: …and expects another solid year
…and expects another solid year. Original 2012 Adjusted EBITDA Guidance Raised 2012 Adjusted EBITDA Guidance (1) Feb. 23, 2012 Oct. 25, 2012 January 7, 2013 (2) $475 million to $485 $490 million to $495 $495 million to $498 million million million Reflects 6.2% to 6.8% growth over 2011 even with the
Slide 10: …and expects another solid year (cont.)
…and expects another solid year. (cont.) Revised 2012 Earnings per Share EPS Guidance from Continuing Operations Actual Low High Attributable to HealthSouth (1) (In Millions, Except Per Share Data) Adjusted EBITDA 2011 $ 466.2 $ 495 2012 $ 498 $1.53 to $1.55 Interest expense and amortization of debt
Slide 11: Business Outlook: 2013 to 2015
Business Outlook: 2013 to 2015 (1) Business Model Revised CAGRs reflect: • Adjusted EBITDA CAGR: 4-8% (2)(3) • Completion of delevering and refinancing • Adjusted Free Cash Flow CAGR: 10-14% (2)(3)(4) • Sequestration beginning March 2013 Strategy 2012 2013 2014 2015 Maintained < 3.0x < 3.0x Debt to
Slide 12: Business Model Tenets: Flexibility and Strong Free Cash Flow
Business Model Tenets: Flexibility and Strong Free Cash Flow HealthSouth has followed a prudent strategy of strengthening Liquidity its balance sheet while building a flexible business model Pro forma (2) Sept. 30 Dec. 31, that generates significant free cash flow. Sept. 30, 2012 2012 2011 Cash Avai
Slide 13: Priorities may shift based on prevailing market conditions
HealthSouth has multiple, flexible opportunities for deploying its Free Cash Flows to increase Shareholder value. (millions) 2013 2012 2011 Growth in core business Assumptions Estimates Actuals Priorities may shift based on prevailing market Bed expansions (target approx. 80 beds/yr) $25 to $35 $20
Slide 14: Strong and sustainable business fundamentals
HealthSouth is a company with strong and sustainable business fundamentals. • Favorable demographic trends Attractive Healthcare Sector • Nondiscretionary nature of many conditions treated in IRFs • Highly fragmented industry • #1 market share: above industry same-store growth and margins Industry L
Slide 15: Appendix
Appendix 15
Slide 16: 2012 Milestones
2012 Milestones Volume − 2012 full-year discharge growth of approximately 4.6%; New-store discharge growth of 1.7% (110 bps from the consolidation of St. Vincent in Sherwood, AR) Growth – De novos − Opened HealthSouth Rehabilitation Hospital of Ocala, FL (40 beds) − Started construction on 34-be
Slide 17: 2012 Milestones
2012 Milestones Lease buy-out/termination − Purchased real estate (previously subject to an operating lease) associated with our joint venture hospital in Fayetteville, AR − Broke ground on replacement hospital for our currently leased hospital in Ludlow, MA Operations enhancements − Installed c
Slide 18: 9 Months 2012 Highlights
9 Months 2012 Highlights Discharge Volume (millions) Net Operating Revenues +4.4% $1,800 90,000 +6.6% 92,159 $1,500 $1,609.0 88,288 $1,508.8 60,000 $1,200 $900 30,000 $600 0 $300 9M 2012 9M 2011 9M 2012 9M 2011 (millions) Adjusted EBITDA (1) Earnings Per Share (2) $1.50 $475 +9.9% $1.00 $1.23 $350 $
Slide 19: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations We expect 2012 Adjusted Free Cash Flow to reflect Adjusted 2013 maintenance EBITDA growth offset by the working capital change. CAPEX is driven by the clinical Higher maintenance capital expenditures were offset by information system lower cash interest e
Slide 20: 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 2013 (3) FY 2014 FY 2015 Q4 12 - Q3 13 Q4 13 - Q3 14 Q4 14 - Q3 15 Market basket update (1) 2
Slide 21: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating expenses 2013 2014 2015 Merit increases (2) 0.5-0.6% 2.0-2.5% 2.0-2.5% and supply costs tracking with inflation Benefit costs increases 8-10% (2) 5-8% 5-8% • Occupancy costs declining as a perce
Slide 22: Medicare spending on Inpatient Rehabilitation has remained fairly constant
Medicare spending on Inpatient Rehabilitation has remained fairly constant as a percent of total Medicare spending. 2.1% 2.2% 2.1% Inpatient rehabilitation 1.8% 1.9% 1.5% 1.4% spending (% of total 1.3% 1.2% 1.2% 1.2% Medicare spending) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Projected
Slide 23: MedPAC IRF Assessment Summary (December 2012)
MedPAC IRF Assessment Summary (December 2012) • Capacity ― IRF capacity and supply were relatively stable in 2011 • Volume ― Volume increased in 2011(volume declined in 2010) • Mix ― Increase in share of IRF cases that meet the compliance threshold (stroke, brain injury, neurological disorders) ― In
Slide 24: 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) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 107.2 $ 55.1 $ 302.2 $ 213.2 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.
Slide 25: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 176.6 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.4 (3.5) 0.5 (
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
(1) Reconciliation of Net Income to Adjusted EBITDA Full Year 2008 2009 2010 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net income $ 281.8 $ 128.8 $ 939.8 Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) (9.2) Net income attributab
Slide 28: Reconciliation Notes for Slides 25-27
Reconciliation Notes for Slides 25-27 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 util
Slide 29: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 Months Full Year (Millions) 2012 2011 2012 2011 2011 2010 2009 2008 2007 Net cash provided by operating activities $ 107.2 $ 55.1 $ 302.2 $ 213.2 $ 342.7 $ 331.0 $ 406.1 $ 227.2 $ 230.6 Prov ision for doubtful accounts (7.0
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