Investor Presentation Quarter ended December 31, 2016 1 Forward - - PowerPoint PPT Presentation

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Investor Presentation

Quarter ended December 31, 2016

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Forward Looking Statements

Important Legal Information. Certain statements contained in this presentation, including LifePoint's guidance for the year ended December 31, 2017, are based on current management expectations and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to qualify for the safe harbor protections from liability provided by the Private Securities Litigation Reform Act of 1995. Numerous factors exist which may cause results to differ from these expectations. Many of the factors that will determine our future results are beyond our ability to control or predict with

• accuracy. Such forward-looking statements reflect the current expectations and beliefs of the management of LifePoint, are not guarantees of performance and are subject to a number of

risks, uncertainties, assumptions and other factors that could cause actual results to differ from those described in the forward-looking statements. These forward-looking statements may also be subject to other risk factors and uncertainties, including without limitation: (i) the effects related to the enactment and implementation of healthcare reform, the possible repeal and replacement of the Affordable Care Act, the possible enactment of additional federal or state healthcare reforms and possible changes in healthcare reform laws and other federal, state or local laws or regulations affecting the healthcare industry including the timing of the implementation of reform; (ii) the extent to which states support increases, decreases or changes in Medicaid programs, or alter the provision of healthcare to state residents through regulation or otherwise; (iii) delays in receiving payments for services provided, reductions in Medicare or Medicaid payments (including increased recoveries made by Recovery Audit Contractors (RACs) and similar governmental agents), compared to the timing of expanded coverage; (iv) reductions in reimbursements from commercial payors and risks associated with consolidation among commercial insurance companies and shifts to insurance plans with narrow networks, high deductibles or high co-payments; (v) the continued viability of our operations through joint venture entities, the largest of which is Duke LifePoint Healthcare, our partnership with a wholly controlled affiliate of Duke University Health Systems, Inc.; (vi) our ability to successfully integrate acquired facilities into our ongoing operations and to achieve the anticipated financial results and synergies from such acquisitions, individually or in the aggregate; (vii) the deterioration in the collectability of “bad debt” and “patient due” accounts, and the number

• f individuals without insurance coverage (or who are underinsured) who seek care at our facilities; (viii) industry emphasis on value-based purchasing and bundled payment arrangements;

(ix) whether our efforts to reduce the cost of providing healthcare while increasing the quality of care are successful; (x) the ability to attract, recruit or employ and retain qualified physicians, nurses, medical technicians and other healthcare professionals and the increasing costs associated with doing so, including the direct and indirect costs associated with employing physicians and other healthcare professionals; (xi) the loss of certain physicians in markets where such a loss can have a disproportionate impact on our facilities in such market; (xii) the application and enforcement of increasingly stringent and complex laws and regulations governing our operations and healthcare generally (and changing interpretations of applicable laws and regulations), related enforcement activity and the potentially adverse impact of known and unknown government investigations, litigation and other claims that may be made against us; (xiii) risks due to cybersecurity attack or security breach and our access to personal information of patients and employees; (xiv) our ability to successfully implement enterprise-wide information technology systems; (xv) payor controls designed to reduce inpatient services; (xvi) our ability to generate sufficient cash flow to fund all of our capital expenditure programs and commitments; (xvii) adverse events in states where a large portion of our revenues are concentrated; (xviii) liabilities resulting from potential malpractice and related legal claims brought against our facilities or the healthcare providers associated with, or employed by, such facilities or affiliated entities; (xix) our increased dependence on third parties to provide purchasing, revenue cycle and payroll services and information technology and their ability to do so effectively; (xx) our ability to acquire healthcare facilities on favorable terms and the business risks, unknown or contingent liabilities and other costs associated therewith; and (xxi) those other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission. Therefore, our future results may differ materially from those described in this presentation. LifePoint undertakes no obligation to update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

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Company Overview

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Company Overview

72 Markets in 22 States

LifePoint Health Support Center Brentwood, Tennessee

• LifePoint Health was established in 1999
• Owns and operates hospitals and healthcare services in 72 non-urban communities in 22 states
• LifePoint’s facilities are the sole, or are a significant, provider of healthcare services in the non-

urban communities in which it operates

Company Overview Diversified Geographic Presence Diversified Geographic Presence Company Overview

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Key Performance Highlights and Business Strategies

• Achieving growth by executing on a focused plan
• Improving quality of care and customer service
• Continued success in physician recruiting
• Strong balance sheet with ample liquidity
• Successfully integrating recent acquisitions
• Duke LifePoint Healthcare
• Active acquisition pipeline

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Strengths of a Non-Urban Facility Footprint

Strong Competitive Position

 Minimal local competition

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Opportunity to gain market share

 Recruit more physicians  Add profitable service lines  Provide services closer to home  In market acquisitions

Important relationship for commercial payors

2 Sole provider in the majority of

• ur markets

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Stable Payor Base

2014 2015 2016 Revenues: Medicare 36.3 % 36.3 % 37.3 % 37.8 % Medicaid 13.8 16.4 14.5 13.9 HMOs, PPOs & Other 49.3 45.9 47.3 47.9 Self-Pay 16.6 14.4 13.1 12.8 Other 2.2 2.3 2.1 1.9 Provision for Doubtful Accounts (18.2) (15.3) (14.3) (14.3) Revenues 100.0 % 100.0 % 100.0 % 100.0 % Note: Managed Medicare and managed Medicaid are included in the respective Medicare and Medicaid categories. 4Q16 Years Ended December 31,

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Affordable Care Act: Mix Shift

Same-Market Volumes 4Q16 4Q15 Variance Self-pay Admissions 2,564 2,546 +0.7%

% of total

4.4% 4.3% 10 bps Self-pay ED Visits* 46,467 54,900

• 15.4%

% of total

12.8% 14.8%

• 200 bps

*Approximately 20% of the decline in self-pay ED visits is related to Louisiana Medicaid expansion.

9 Total Licensed Beds 9,424 Expansion states 3,764 Non-expansion states 5,660

Affordable Care Act: Medicaid Expansion

Licensed LPNT Beds by State

________________________________________ Sources: LPNT SEC Filings, The Commonwealth Fund

634 440 1,096 263 534 999 941 199 88 1,522 261 428 434 274 99 159 50 246 255 75 95 332

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Meeting Industry Challenges Head On

• Healthcare Reform / “Repeal

& Replace”

• Critical Shortage of

Physicians and Healthcare Professionals

• Inpatient to Outpatient /

Changing Market Forces

• Increasing Costs / Labor &

Professional Fees

• “Consumerism” / Quality

Trends

• Uninsured & Underinsured /

Uncompensated Care

Industry Challenges Managing Proactively

• Actively Engaged with Policy

Makers as a Voice for Community Hospitals

• Intensifying and Streamlining Our

Recruiting Infrastructure

• Significant Investment in

Outpatient Service Lines

• Proactively Managing Costs
• Investing in Quality Resources to

Improve Scores and Results

• Shared Services: Revenue Cycle,

Supply Procurement, and Accounts Payable

11 P O S I T I O N I N G L I F E P O I N T F O R F U T U R E S U C C E S S

Four Clear Strategic Priorities

Quality & Service Growth – Organic & Acquisition Operations Excellence High- Performing Talent

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Quality and Service

Intense focus on quality and service

– National Quality Program is foundation for quality and patient safety

• Enterprise-wide partnership with Duke to ensure consistent delivery of high-quality care
• All LifePoint hospitals engaged in individualized quality and patient safety improvement plans
• Three hospitals to date designated as Duke LifePoint Quality Affiliate

– Expect approximately five additional hospitals to be designated in 2017

– Top-performing Hospital Engagement Network – Dept. of HHS Initiative

• Partnered with Duke University to reduce patient harm and provide training opportunities for

hospital personnel in quality performance improvement

• Only investor-owned company selected to participate
• Achieved noteworthy reduction in hospital-acquired conditions and readmissions ahead of

ambitious CMS goals

– Enterprise-wide partnerships to improve quality

• Approximately 60 facilities accredited as Chest Pain Centers
• 30 hospitals recognized by March of Dimes for excellence in reducing Early Elective Deliveries

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Quality and Service

Engaging physicians in quality improvement and leadership

– National Physician Advisory Board established in 2013 – Service-specific physician leadership councils drive quality improvement

• ED Physician Guidance Council, Cardiovascular Physician Guidance Council

– Piloting physician-led Clinically Integrated Networks in target markets

• Foundation of company’s Population Health Strategy

Engaging patients and families in meaningful ways

– HCAHPS ranking increased >150% in the last three years – National Patient and Family Advisory Board established in 2014 – Approximately 15 markets have created local Patient and Family Advisory Councils

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Organic Growth

Physician Strategy

• Physician Engagement

− Dedicated PRI resources at each hospital − Key strategic initiatives to increase volume − Consistently achieve recruiting goals

• Practice Management

− Physician alignment − Expanded practice management resources to support employed physicians − On-boarding process for all new physicians

Service Line

• Emergency Department

Initiatives

− Improving patient satisfaction − Technology deployment − Lean management – improving patient wait times

• Service Line Expansion

− Cardiology − Oncology − Surgery − Imaging − Enterprise Data Management

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External Growth: Strategic Acquisitions

Development Overview

Selective criteria – aggressive yet disciplined approach Strong balance sheet / financial resources to fund growth Building networks and targeting faster growing markets Active pipeline for future acquisitions

Proven Partnership Strategies

Duke University Health System Duke LifePoint Norton Healthcare Regional Healthcare Network (“RHN”) of Kentucky & Southern Indiana

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External Growth: Acquired Revenue

53 56 60 67 70 72 $117 $386 $285 $924 $960 $245 2011 2012 2013 2014 2015 2016

Hospitals Annualized Acquired Revenue(b)

(a)

________________________________________ (a) Hospitals are presented net of 1 divestiture in 2014 and 4 divestitures in 2015. (b) Acquired revenue represents normalized LTM hospital revenue prior to deal closing. Dollar amounts in millions.

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2014-2016 acquisitions provide significant EBITDA growth

• pportunities

− Still in a transitional phase of outsized margin improvement in 2017, moving toward low double-digit margins

• Contribution to 2017 Net Revenue guidance > $2 billion
• Approximately $55 million of incremental Adjusted EBITDA in 2017 before meaningful

use income

• Expected EBITDA margin benefit of 70 - 80 basis points before meaningful use

income(a)

– Consistent with 2017, we expect these acquisitions to provide similar levels

• f EBITDA growth in 2018.

External Growth: Acquisition Margins

________________________________________ (a) Margin expectations solely represent expected margin contribution improvement from these acquisitions and do not reflect the impact of other factors that could affect margins.

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External Growth: Duke LifePoint

Duke LifePoint Formed DLP-Cardiac Partners Person Memorial Hospital Maria Parham Medical Center Twin County Regional Hospital UP Health System - Marquette Wilson Medical Center Rutherford Regional Health System Haywood Regional Medical Center Harris Regional & Swain Community Hospitals Conemaugh Health System Frye Regional Medical Center Central Carolina Hospital

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 $25 $279 $512 $940 $1,525 $1,874 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2011A 2012A 2013A 2014A 2015A 2016A Revenue ($ in Millions)

5-Year CAGR: 137.6%

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Operations Excellence

Shared Services Initiative

– Parallon provides shared service support for supply procurement, accounts payable, and revenue cycle services – Measurable achievements in payment recoveries, including underpayments and denials

Meaningful Use Initiative

– LifePoint has qualified for 100% of eligible hospital incentives – Approximately $30m of MU income achieved in 2016

• Declines to ~$10m in 2017, with no material MU income expected thereafter

Continuous Process and Productivity Improvements

– Benchmarking and expanding best practices – Operational Assessment Teams

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Develop High-Performing Talent

Company-Wide Talent Development Initiatives

– Recruiting to fit the culture – Accountability at every level – Development programs – LifePoint Learning Academy – Recognizing and rewarding success – Succession planning – “Developing a bench”

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Financial Performance

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$4,483 $5,214 $6,364 $6,500 - $6,600 $1,371 $1,605 2014 2015 2016 2017 Guidance 4Q15 4Q16

Financial Performance: Net Revenue

________________________________________ (a) Guidance as issued on 2/17/2017. Dollar amounts in millions.

YOY Growth: 17.1% Guided 3-Year CAGR: 13.2% - 13.8%

(a)

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$184 $197 $634 $706 $747 $785 - $815 13.4% 12.3% 14.1% 13.5% 11.7% ~12.2% 2014 2015 2016 2017 Guidance 4Q15 4Q16

Financial Performance: Adjusted Normalized EBITDA*

YOY Growth: 6.8% Guided 3-Year CAGR: 7.4% - 8.7%

(b)

________________________________________ (a) Margin expectations include an expected 70-80 bps of improvement from hospitals acquired since 2014, approximately 30 basis points of deterioration from reduced meaningful use income, and approximately 10 bps of improvement from all other business. (b) Guidance as issued on 2/17/2017. *Further information on Adjusted EBITDA and Adjusted Normalized EBITDA is available in the “Supplemental Information” section at the end of this slide

• presentation. Dollar amounts in millions.

(a)

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$3.45 $4.09 $3.61 $4.05 - $4.34 $1.11 $1.09 2014 2015 2016 2017 Guidance 4Q15 4Q16

Financial Performance: Adjusted Diluted Earnings Per Share

YOY Growth:

• 1.8%

Guided 3-Year CAGR: 5.5% - 8.0%

________________________________________

(a) Adjusted Diluted Earnings Per Share excludes accelerated depreciation expense at Marquette, impairment charges, non-operating gains and losses, and other adjusting items. (b) Guidance as issued on 2/17/2017.

(a) (a) (a) (b) (a) (a)

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Disciplined Allocation of Capital

Free Cash Flow Deployment

Additional CapEx to Fund Organic Growth

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Return of Capital to Shareholders

3

Strategic Acquisitions

2

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$205 $352 $36 ($36) ($71) $207 $275 $399 $121 $173 2014 2015 2016 4Q15 4Q16

Cash Flow from Operations Free Cash Flow* Capital Expenditures

Liquidity: Operating Cash Flows

$85 $102 $435 $627 $412

________________________________________ *Further information on Free Cash Flow is available in the “Supplemental Information” section at the end of this slide presentation. Dollar amounts in millions.

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Liquidity: Capital Reinvestment

________________________________________

(a) IS Projects includes approximately 30 bps in 2015 and approximately 40 bps in 2016 related to installation of Epic systems at Conemaugh Health System. (b) “2017E Projected” spend levels assume the midpoint of guidance ranges as issued on 2/17/2017.

(a) (b)

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Ample Liquidity to Execute Our Plan

Strong Balance Sheet

– Net leverage at 12/31/16 of 3.9x

• 3.8x on the basis of Adjusted Normalized EBITDA
• Low leverage relative to peers

Significant borrowing capacity without impacting ratings or access to dry-powder

– Revolving credit line capacity of $600 million

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Experienced Hospital Operators Executing Focused Plan Market Share Growth Potential Strong Balance Sheet Strategic Acquisitions

Why Invest in LifePoint?

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Supplemental Information: Adjusted Normalized EBITDA Reconciliation

2014 2015 2016 4Q15 4Q16 Net income 135 $ 193 $ 132 $ 55 $ 47 $ Less: Net income attrib. to noncontrolling interests and redeemable noncontrolling interests (9) (11) (10) (2) (3) Net income attributable to LifePoint Health 126 182 122 53 44 Add: Depreciation and amortization 250 279 345 72 88 Interest expense, net 123 114 149 30 36 Debt transaction costs

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• Impairment charges

58 14 1

• Other non-operating gain
• (4)
• (4)
• Provision for income taxes

68 110 73 31 26 Net income attrib. to noncontrolling interests and redeemable noncontrolling interests 9 11 10 2 3 Adjusted EBITDA 634 706 722 184 197 Add: Cardiology-related lawsuits

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• Adjusted Normalized EBITDA

634 $ 706 $ 747 $ 184 $ 197 $

________________________________________ Dollar amounts in millions.

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Supplemental Information: Explanation of Non-GAAP Measures

Adjusted EBITDA is defined by the Company as earnings before depreciation and amortization; interest expense, net; debt transaction costs; impairment charges; other non-operating gain; provision for income taxes; and net income attributable to noncontrolling interests and redeemable noncontrolling interests. Additionally, Adjusted Normalized EBITDA has been adjusted to exclude the impact of $24.7 million in charges related to cardiology-related lawsuits recognized during the first quarter of 2016. LifePoint’s management and Board of Directors use Adjusted EBITDA and Adjusted Normalized EBITDA to evaluate the Company’s operating performance and as a measure of performance for incentive compensation

• purposes. LifePoint’s credit facilities use Adjusted EBITDA, subject to further permitted adjustments, for certain financial covenants. The Company

believes Adjusted EBITDA and Adjusted Normalized EBITDA are measures of performance used by some investors, equity analysts, rating agencies and lenders to make informed decisions as to, among other things, the Company’s ability to incur and service debt and make capital expenditures. In addition, multiples of current or projected Adjusted EBITDA and Adjusted Normalized EBITDA are used by some investors and equity analysts to estimate current or prospective enterprise value. Adjusted EBITDA and Adjusted Normalized EBITDA should not be considered as measures of financial performance under U.S. generally accepted accounting principles (“GAAP”), and the items excluded from Adjusted EBITDA and Adjusted Normalized EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA and Adjusted Normalized EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or

• ther financial statement data presented in the condensed consolidated financial statements as an indicator of financial performance. Because Adjusted

EBITDA and Adjusted Normalized EBITDA are not measurements determined in accordance with GAAP and are susceptible to varying calculations, Adjusted EBITDA and Adjusted Normalized EBITDA as presented may not be comparable to other similarly titled measures of other companies. The non-GAAP metric of free operating cash flow is an important liquidity measure for us. Our computation of free operating cash flow consists of net cash flows provided by continuing operations less cash flows used for purchases of property and equipment. We believe that free operating cash flow is useful to investors and management as a measure of the ability of our business to generate cash and to repay and incur additional debt, and make strategic investments. However, free operating cash flow does not fully reflect our ability to deploy generated cash for discretionary spending, as it does not reflect required debt payments or other fixed obligations. Computations of free cash flow may differ from company to company. Therefore, free cash flow should be used as a complement to, and in conjunction with, our condensed consolidated statements of cash flows presented in our unaudited condensed consolidated financial statements included in our quarterly and annual SEC filings.