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17_Porter_Final
 

17_Porter_Final

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    17_Porter_Final 17_Porter_Final Presentation Transcript

    • Financial Summary Biggs Porter Chief Financial Officer
    • Financial Overview – Progress Towards Sustainable, Profitable Growth • Only question: how steep is the upward slope? • Two quarters of demonstrated improvement (Q4’07 and Q1’08) – Plus two months of 1.4% admissions growth in Q2’08 (April and May) • A visible path to $1B of Adjusted EBITDA in 2009 – Physician base – Prudent investment – Targeted Growth – Cost control – Price enhancement • No firm ceiling on EBITDA margin 2
    • Financial Overview – Increased Emphasis on Balance Sheet Efficiency and Free Cash Flow • $400 to 600 million in cash initiatives • $310 million expected from USC sale • Improved ROIC • Abundant liquidity – potential for over $1 billion in cash at 12/31/08 • Target at or around breakeven free cash flow for 2009 3
    • Cost (PAPD) Growth 8.0% 3.5 % 6.0% Normalized 4.0% 2.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2006 2007 2008 • Q4 2007 was 3.5% excluding year end comp and benefits accruals and increase in implant expense; 2.6% in Q1 08 • $100 million of run rate savings expected in 2008 compared to 2007 based on cost actions already undertaken 4
    • Pricing Growth Net Inpatient Revenue per Admit (1) Net Outpatient Revenue per Visit 15.0% 10.0% 5.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2008 2006 2007 • Price growth driven by Managed Care and ED charge capture • Further Managed Care price increases already negotiated • Additional ED charge capture growth expected, but not in outlook • Government programs expected to have more modest growth in Q4’08 • Outlook range conservative relative to Q1’08 actuals (1) Inpatient pricing excludes prior year cost report and valuation allowance adjustments 5
    • Improving Trend in Non-Paying Patients 12.0% 10.5% 9.0% 7.5% 6.0% Annual Growth 4.5% 3.0% 1.5% 0.0% Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 -1.5% -3.0% Uninsured + Charity Admissions -4.5% -6.0% -7.5% -9.0% 6
    • Bad Debt Mitigation Summary • Over the last two years: – Charity volumes declined by approximately 6% in 2007 over 2006 – Uninsured volumes rose by approximately 9% – Uninsured revenues increased by 21% – But bad debt expense increased only 13% on an annual basis • Bad debt expense was driven by pricing, not uninsured volumes – Bad debt due to pricing has no bottom line effect – Volume effects were mitigated • Improved collection rates • Improved aging • Collection of older managed care accounts • In 2006 and 2007 discretely identified mitigation contributed in excess of $20 million each year, – with $8 million already recorded in 2008 – Plenty of opportunity to sustain mitigation through our revenue cycle initiatives 7
    • Working Capital Value Drivers 60 Accounts Payable Days 55 (ex. CapEx) 50 45 40 35 30 25 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2006 2008 2007 56 Accounts Receivable Days 55 54 53 52 51 50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2008 2006 2007 8
    • Summary View of California Announcement (1) • $41 million in proceeds • Small EBITDA impact on continuing operations – 2007 EBITDA of $5mm expected to grow only slightly in 2008 • Hospitals had $8mm negative free cash flow in 2007 – $21mm seismic estimate no longer incurred • Cash burn is halted at Encino (1) Sale of Encino, San Dimas and Garden Grove hospitals 9
    • 2008 Outlook Summary Current Prior Revised (6/3/08) (2/26/08) (5/6/08) Admissions - growth (1) (%) 1-2 no change no change Outpatient visits – growth (1) 2–3 (%) 1-2 no change 3.5 – 4.25 Net inpatient revenue per admit - growth (1) (%) not provided no change Net outpatient revenue per visit – growth (1) (%) not provided 4.5 - 5.25 no change Pricing – base line growth (%) 3.2 3.4 no change Pricing – managed care increment ($mm) 36 47 no change 9.3 – 9.4 Net revenue ($ bil) no change no change Bad debt ratio (%) 6.5 - 7.0 no change no change Controllable operating expenses PAPD – Growth (1) 3.0 – 3.5 (%) no change no change EBITDA ($mm) 775 - 850 no change no change Adjusted cash flow from operations ($mm) 400 - 500 no change no change Capital expenditures ($mm) 600 - 650 no change no change 200 –300 (2) 850 – 1,150 Cash balance at 12/31/08 ($mm) no change (1) Same-hospital growth from 2007 to 2008 (2) Excludes potential proceeds from initiatives to raise $400-600mm, USC sale, and other non-operating items 10
    • Revised 2009 Outlook 2008 2009 ($ millions) Revenue Cost EBITDA Revenue Cost EBITDA Prior year 8,852 (8,151) 9,400 (8,550) 701 850 Cost Report Adjustments (40) - (40) - - - Georgia/ Florida Medicaid (56) - (56) - - - Volume (1) 167 (106) 61 151 (91) 60 Pricing – Base Line Increase (2) 291 (18) 273 312 (20) 292 Managed Care (3) 47 - 47 34 - 34 Other Initiatives (4) 51 (18) 33 - - - Costs – Base Line Inflation (5) - (271) (271) - (286) (286) Cost Reduction Initiatives (6) - 100 100 - 29 29 Other (7) 88 (86) 2 88 (67) 21 Divestitures (8) (140) 140 - (150) 150 - 9,260 (8,410) 9,835 (8,835) Total (9) 850 1,000 (1) Annual admissions growth of 1.5 percent, outpatient visit growth of 1.5 percent using 2007’s average pricing with 40 percent margin assumption on incremental revenues. (2) Base line pricing increases of 3.4 percent for 2008. These assumptions are before discrete initiatives valued in this analysis, and include certain assumptions on adverse mix change (3) Price increases in existing contracts and anticipated future increases. (4) Full-year impact of 2007’s ED acuity capture effort and incremental adjustments to chargemaster. (5) Inflation rate of 3.5 percent reflects normal merit increases, union contract adjustments and other items before discrete initiatives valued in this analysis. (6) Full year impact of cost initiatives initiated in 2007. (7) Includes impact of Sierra Providence East Medical Center (El Paso), Coastal Carolina Hospital, physician practices and other non-acute operations. (8) San Dimas and Garden Grove hospitals previously reported in continuing operations (9) Various risks including volume growth, volume mix, and bad debt create at least $75 million in uncertainties for 2008 performance, hence the adjusted EBITDA outlook range from $775 mm to $850mm. 2009 uncertainties exceed those identified for 2008. This schedule is not intended to provide a series of spot estimates or line item guidance. Other combinations of line item performance could produce the same or higher, or lower results. 11
    • 2008 Cash Walk Forward ($mm) Low High December 31, 2007 Beginning Cash 572 2008 EBITDA 775 850 Add Back: Stock Compensation Charges 37 37 Changes in Cash from Operating Assets and Liabilities (16) 9 Interest Payments (396) (396) 400 500 Adjusted Net Cash Provided by Operating Activities Income Tax (payments) refunds, net (17) (17) Payments against reserves for restructuring charges, litigation costs and (103) (103) settlements Net cash provided by (used in) operating activities from discontinued (80) (55) operations Capital Expenditures (600) (650) Other Investing Activities 33 58 Net Financing Activities (5) (5) Cash initiatives and divestitures 650 850 Cash Outlook December 31, 2008 850 1,150 12
    • 2008 Cash Walk Forward High Low ($mm) March 31, 2008 Cash Balance 278 EBITDA Outlook, remainder of 2008 541 616 Add back: Stock compensation charges 27 27 Working capital timing and improvements 210 235 Interest Payments (271) (271) 507 607 Adjusted Net Cash Provided by Operating Activities Income Tax (payments) refunds, net (18) (18) Payments against reserves for restructuring charges, litigation costs and (76) (76) settlements Net cash provided by (used in) operating activities from discontinued (80) (55) operations Capital Expenditures (411) (461) Other Investing Activities 5 30 Net Financing Activities (5) (5) Cash initiatives and divestitures 650 850 Cash Outlook December 31, 2008 850 1,150 13
    • Reconciliation of 2008 Outlook Net Loss to Adjusted EBITDA ($mm) Low High Net loss (135) (35) Less: Loss from discontinued ops, net of tax (50) (25) Income (loss) from continuing operations (85) (10) Income tax expense (10) (10) Income (loss) from continuing operations, before income taxes (75) - Interest expense, net (400) (400) Operating income 325 400 Litigation and investigation costs (50) (50) Depreciation and amortization (400) (400) Adjusted EBITDA 775 850 14
    • Categorizing 2008 Capital Expenditures 650 600 - 650 76 - 82 Hospital construction 524 - 568 Other construction and expansion 92 - 100 432 - 468 83 - 90 Clinical information systems and technology 349 - 378 CapEx Major equipment – 6 cath labs, 7 CTs, 2 cyber knives, etc 53 - 57 296 - 321 ($mm) Renovation, facility maintenance and routine equipment, includes 249 - 270 $31M in seismic and ADA requirements. 47 - 51 Replacement of basic clinical equipment 0 Maintenance Investing for CapEx Growth Note: Current dollar seismic estimates for 2008 and beyond have been reduced by as much as 50%. 15
    • Special Items have been Primarily Favorable $ in millions – unfavorable special items in brackets 2006 2007 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Total Cost Report Adjustments 27 4 (10) 16 12 13 22 _ 2 86 DSH Payments – 29 55 41 35 40 44 48 38 41 371 Medicaid Adjustments To: Bad Debt reserves 5 8 19 32 Compensation & Benefits 14 (12) 2 Disputes with MC Payers 10 4 8 22 Gains on Sale 7 7 Distributions from HMO 6 6 Contractuals (3) (3) Other Misc. (18) (1) (1) (20) Total 5 11 6 11 13 46 Except for cost reports for last two quarters, disclosed items have largely recurred at least on an annual basis. 16
    • Free Cash Flow Objective (2009) ($mm) EBITDA 1,000 Stock compensation expense 40 Interest expense (net) (360) (0 – 50) Working capital (550 – 600) CapEx Free Cash Flow 30 - 130 Global settlement (90) Net Free Cash Flow (60) - 40 Beyond 2009 Free Cash Flow is expected to improve from:  Global settlement obligation is retired in 2010  40% estimated margin rate on volume growth 17
    • Risks and Opportunities to $850M-$1B EBITDA • Key strengths demonstrated in Q1 Annual Growth – Volume growth Paying Admits Total Admits – Commercial pricing O/P Visits – Cost control • Key risks – Cost impact of uneven volume growth – Accelerated growth in uninsured and patient payment behavior – Volume growth less than 1.5% • Key opportunities – Patient mix – Payer mix – Volume growth greater than 1.5% – Improved collections 40% estimated margin on volume growth 18
    • Summary • Progress towards sustainable profitable growth • Two quarters, plus two months of Q2’08 demonstrate improvement • A visible path to $1B of Adjusted EBITDA in 2009 • No implied ceiling to longer-term EBITDA margin • Abundant liquidity – Potentially $1B in cash at 12/08 • Targeting approx breakeven Free Cash Flow in 2009 – Expect EBITDA and Free Cash Flow expansion in 2010 and beyond 19