Investor Presentation Quarter ended March 31, 2017 1 Forward - - PowerPoint PPT Presentation

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Investor Presentation

Quarter ended March 31, 2017

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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 release. 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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Making Communities Healthier

Our Mission

We want to create places where:

physicians want to practice people choose to come for healthcare employees want to work

Company Mission & Vision

Our Vision Our Mission

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Company Overview

72 Markets in 22 States

LifePoint Health Support Center Brentwood, Tennessee Medicaid Expansion States (10) Non-Medicaid Expansion States (12)

• LifePoint Health was established in 1999 and was recently named to Fortune’s 2017 list of the

World’s Most Admired Companies

• 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

Diversified Geographic Presence Geographic Presence

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Key Performance Highlights

• Improving quality of care and customer service
• Achieving growth by executing on a focused plan, including

the integration of our recent acquisitions

• Developing successful partnerships across the continuum
• f care (e.g. Duke LifePoint and LHC)
• Creating reliable cost-efficient processes that are scalable
• Developing a prepared bench of talent
• Maintaining a strong balance sheet with ample liquidity

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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

• f our markets

3

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Meeting Industry Challenges Head On

• Healthcare Reform /

“Repeal & Replace”

• Quality Trends
• Consumerism
• Critical Shortage of

Physicians and Healthcare Professionals

• Increasing Costs / Labor &

Professional Fees

• Inpatient to Outpatient /

Changing Market Forces

Industry Challenges Managing Proactively

• Actively Engaged with Policy Makers as a

Voice for Community Hospitals

• Investing in Quality Resources to Improve

Scores and Results

• Developing consumer access points and

engagement strategies through technology

• Using scale to streamline recruiting

infrastructure alongside in-market retention strategies

• Proactively Managing Costs / Shared

Services: Revenue Cycle, Supply Procurement, and Accounts Payable

• Significant Investment in Outpatient

Service Lines

8 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

National Quality Program is foundation for quality and patient safety

– Intense focus on quality and service – Enterprise-wide partnership with Duke to facilitate consistent delivery of high-quality care – All hospitals engaged in individualized quality and patient safety improvement plans to achieve Duke LifePoint quality affiliate designation – Approximately 60 facilities accredited as Chest Pain Centers – Large number of LifePoint leaders recognized by the National Patient Safety Foundation as Certified Professionals in Patient Safety

National Physician Advisory Board/National Patient and Family Advisory Board

– Engaging physicians in quality improvement and leadership – Engaging patients and families in meaningful ways – HCAHPS ranking increased >150% in the last three years

Data driven approach to improve quality and reduce costs

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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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Growth from Recent Acquisitions

Significant growth opportunities in 2017 from our acquisitions completed in 2014-2016 including:

– Contributing > $2 billion to Net Revenue – Adding approximately $55 million of incremental Adjusted EBITDA(a), excluding meaningful use income – Improving margins to low double digits over three-year period

• Expected Adjusted EBITDA margin benefit of approximately 70 basis

points, excluding meaningful use income(b)

– Focused approach including

• Service line expansions based on stable physician recruitment
• Cost savings opportunities including productivity enhancements and supply

pricing and utilization improvements

________________________________________ (a) Definitions and an explanation of the uses of Adjusted EBITDA and Adjusted Normalized EBITDA and reconciliations to Net Income, the most comparable GAAP measure, are available in the “Supplemental Information” section at the end of this slide presentation. (b) 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: Strategic Acquisitions

Development Overview

Selective criteria – 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 LHC Group Home Health and Hospice

Norton Healthcare Regional Healthcare Network (“RHN”) of Kentucky & Southern Indiana

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External Growth: Acquired Revenue

(b) (a)

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

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External Growth: Duke LifePoint

• Formed in January 2011
• Includes 14 hospital campuses throughout Michigan, North Carolina,

Pennsylvania and Virginia

• Annualized Revenue of approximately $1.9 billion

5-Year CAGR: 137.6%

$25 $279 $512 $940 $1,525 $1,874 2011A 2012A 2013A 2014A 2015A 2016A

Revenue ($ in Millions)

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Operations Excellence

Standardization

• Reducing unwanted

clinical variation through

• ur National Quality

Program

• Mitigating risk and

enhancing compliance

• Creating consistency

across significant service lines with the use of technology, data and analysis Centralization

• Utilizing a shared support

model for the majority of

• ur revenue, accounts

payable and payroll functions

• Leveraging size and scale

across other functions Continuous Process Improvement

• Continually developing

best practices and effectively spreading them across our national footprint

• Methodically evaluating

the operating performance

• f our hospitals through
• ur Operational

Assessment Teams

• Seeking learning and

improvement

• pportunities from the

expertise of our partners such as Duke and LHC

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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 deep bench”

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Financial Performance: Net Revenue

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

YOY Growth: 3.1% Guided 3-Year CAGR: 13.2% - 13.8%

(a)

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Payor Base

2014 2015 2016 Revenues: Medicare 36.3 % 36.3 % 37.3 % 39.0 % Medicaid 13.8 16.4 14.5 15.3 HMOs, PPOs & Other 49.3 45.9 47.3 45.7 Self-Pay 16.6 14.4 13.1 12.2 Other 2.2 2.3 2.1 2.1 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.

1Q17 Years Ended December 31,

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Financial Performance: Adjusted Normalized EBITDA(a)

YOY Growth: 5.0% and Margin improvement

• f 20bps

Guided 3-Year CAGR: 7.4% - 8.7%

(c)

________________________________________ (a) Definitions and an explanation of the uses of Adjusted EBITDA and Adjusted Normalized EBITDA and reconciliations to Net Income, the most comparable GAAP measure, are available in the “Supplemental Information” section at the end of this slide presentation. (b) 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. (c) Guidance as issued on 2/17/2017. Dollar amounts in millions.

(b)

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Financial Performance: Adjusted Diluted Earnings Per Share(a)

YOY Growth: 25.9% Guided 3-Year CAGR: 5.5% - 8.0%

________________________________________

(a) Definitions and an explanation of the uses of Adjusted Diluted Earnings Per Share and reconciliations to Diluted Earnings Per Share, the most comparable GAAP measure, are available in the “Supplemental Information” section at the end of this slide presentation.

(b) Guidance as issued on 2/17/2017.

(b)

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Disciplined Allocation of Capital

Free Cash Flow Deployment

CapEx to Fund Organic Growth

1

Return of Capital to Shareholders

3

Strategic Acquisitions

2

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Disciplined Allocation of Capital

$207 $275 $400 2014 2015 2016 2017E $266 $619 $121 2014 2015 2016 $222 $135 $233 2014 2015 2016

CapEx to Fund Organic Growth

1

Return of Capital to Shareholders

3

Strategic Acquisitions

2

$475 - $500

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Ample Liquidity to Execute Our Plan

Strong Balance Sheet

– Net leverage at 3/31/17 of 3.7x – Low leverage relative to peers

Significant borrowing capacity without impacting ratings

– Revolving credit line capacity of $600 million

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Operating Cash Flows

$89 $92 $435 $627 $412

________________________________________ (a) Guidance as issued on 2/17/2017. (b) Definitions and an explanation of the uses of Free Operating Cash Flow and reconciliations to Net cash provided by operating activities, the most comparable GAAP measure, are available in the “Supplemental Information” section at the end of this slide presentation. Dollar amounts in millions.

2017 Capital Expenditure Guidance $475m - $500m(a)

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Capital Expenditures to Fund Organic Growth

________________________________________

(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) (a)

• Additional Growth & Replacement

Hospital capital spending is expected in 2017 due to the replacement hospital in Marquette, MI (~$300m total project cost).

• IS and Routine capital spending is

expected to decline as a percent of revenue in 2017

(b)

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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

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

2014 2015 2016 Low High 2016 2017 Net income $ 135 $ 193 $ 132 $ 182 $ 194 $ 24 $ 64 Less: Net income attributable to non-controlling interests and redeemable non-controlling interests (9) (11) (10) (14) (14) (2) (4) Net income attributable to LifePoint Health, Inc. 126 182 122 168 180 22 60 Add: Depreciation and amortization 250 279 345 350 360 86 88 Interest expense, net 123 114 149 150 150 37 38 Other non-operating losses (gains) 58 10 23

• 1

(26) Provision for income taxes 68 110 73 103 111 13 32 Net income attributable to non-controlling interests and redeemable non-controlling interests 9 11 10 14 14 2 4 Adjusted EBITDA 634 706 722 785 815 161 196 Add: Cardiology-related lawsuits

• –

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• –

25 – Adjusted Normalized EBITDA $ 634 $ 706 $ 747 $ 785 $ 815 $ 186 $ 196 Three Months Ended March 31, 2017 Guidance(a) Year Ended December 31,

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Supplemental Information:

Adjusted Diluted Earnings Per Share Reconciliation

________________________________________ (a) Guidance as issued on 2/17/2017.

2014 2015 2016 Low High 2016 2017 Diluted earnings per share attributable to LifePoint Health,

• Inc. stockholders

$ 2.69 $ 3.95 $ 2.82 $ 4.05 $ 4.34 $ 0.48 $ 1.46 Adjust: Gain on settlement of contingent liability

• (0.27)

Gain on home health partnership transaction

• (0.12)

Bargain purchase gain

• (0.05)
• Debt transaction costs
• 0.32
• Cardiology-related lawsuits
• 0.36
• 0.35
• Impairment loss

0.76 0.19 0.02

• 0.02
• Adjusted diluted earnings per share attributable to LifePoint

Health, Inc. stockholders $ 3.45 $ 4.09 $ 3.52 $ 4.05 $ 4.34 $ 0.85 $ 1.07 Three Months Ended Year Ended December 31, March 31, 2017 Guidance(a)

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Supplemental Information: Free Operating Cash Flow Reconciliation

2014 2015 2016 2016 2017 Cash Flow from Operations $ 412 $ 627 $ 435 $ 89 $ 92 Capital Expenditures (207) (275) (399) (53) (69) Free Operating Cash Flow $ 205 $ 352 $ 36 $ 36 $ 23 March 31, Year Ended December 31, Three Months Ended

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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; other non-operating losses (gains); provision for income taxes; and net income attributable to non-controlling interests and redeemable non-controlling interests. Additionally, Adjusted Normalized EBITDA has been adjusted to exclude the impact of $25 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 other 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.

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Supplemental Information: Explanation of Non-GAAP Measures – cont.

From time to time, the Company incurs certain non-recurring gains or losses that are normally nonoperational in nature and that it does not consider relevant in assessing its ongoing operating performance. When significant, LifePoint’s management and Board of Directors typically exclude these gains or losses when evaluating the Company’s operating performance and in certain instances when evaluating performance for incentive compensation purposes. Additionally, the Company believes that some investors and equity analysts exclude these or similar items when evaluating the Company’s current or future operating performance and in making informed investment decisions regarding the

• Company. Accordingly, the Company provides adjusted diluted earnings per share attributable to LifePoint Health, Inc. stockholders as a

supplement to its comparable GAAP measure of diluted earnings per share attributable to LifePoint Health, Inc. Adjusted diluted earnings per share attributable to LifePoint Health, Inc. stockholders should not be considered as a measure of financial performance under GAAP, and the items excluded from adjusted diluted earnings per share attributable to LifePoint Health, Inc. stockholders are significant components in understanding and assessing financial performance. Adjusted diluted earnings per share attributable to LifePoint Health, Inc. stockholders should not be considered in isolation or as an alternative to diluted earnings per share attributable to LifePoint Health, Inc. stockholders as presented in the condensed consolidated financial statements. 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.