UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 11, 2004
REHABCARE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19294 51-0265872
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
7733 Forsyth Boulevard
23rd Floor
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 863-7422
Item 7. Financial Statements and Exhibits.
(c) Exhibits. See Exhibit Index.
Item 9. Regulation FD Disclosure.
Beginning on August 11, 2004, RehabCare executives will make presentations
at investor conferences to analysts and in other forums using the slides as
included in this Form 8-K as Exhibit 99. Presentations will be made using these
slides, or modifications thereof, in connection with other presentations in the
foreseeable future. The full slide presentation is available in the For Our
Investors section on our website at www. rehabcare.com.
Information contained in this presentation is an overview and intended to
be considered in the context of RehabCare's SEC filings and all other publicly
disclosed information. We undertake no duty or obligation to update or revise
this information. However, we may update the presentation periodically in a Form
8-K filing.
The presentation included in this report does not include images included
in the actual slides. In order that all investors be provided with substantially
the same information, RehabCare is making these slides available on its website.
The presentation in its entirety will be made available in the For Our Investors
section of the RehabCare website, www.rehabcare.com, although this availability
may be discontinued at any time.
Forward-looking statements have been provided pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause RehabCare's actual results in future periods to differ materially
from forecasted results. These risks and uncertainties may include, but are not
limited to, the ability of RehabCare to integrate acquisitions and to implement
client partnering relationships within the expected timeframes and to achieve
the revenue and earnings levels from such acquisitions and relationships at or
above the levels projected; the timing and financial effect of the Company's
continuing restructuring efforts with respect to the Company's continuing
businesses; changes in and compliance with governmental reimbursement rates and
other regulations or policies affecting RehabCare's continuing businesses;
RehabCare's ability to attract new client relationships or to retain and grow
existing client relationships through expansion of RehabCare's hospital
rehabilitation and contract therapy service offerings and the development of
alternative product offerings; the future operating performance of InteliStaf
Holdings, Inc., and the rate of return that RehabCare will be able to achieve
from its equity interest in InteliStaf; the adequacy and effectiveness of
RehabCare's operating and administrative systems; RehabCare's ability and the
additional costs of attracting administrative, operational and professional
employees; significant increases in health, workers' compensation and
professional and general liability costs; litigation risks of RehabCare's past
and future business, including RehabCare's ability to predict the ultimate costs
and liabilities or the disruption of its operations; competitive and regulatory
effects on pricing and margins; and general economic conditions, including
efforts by governmental reimbursement programs, insurers, healthcare providers
and others to contain healthcare costs.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 11, 2004
REHABCARE GROUP, INC.
By: /s/ Vincent L. Germanese
-----------------------------------------
Vincent L. Germanese
Senior Vice President, Chief Financial
Officer and Secretary
EXHIBIT INDEX
Exhibit No. Description
99 Text of Investor Relations Presentation in Use
Beginning August 11, 2004
Exhibit 99
Safe Harbor
Forward-looking statements have been provided pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause RehabCare's actual results in future periods to differ materially
from forecasted results. These risks and uncertainties may include, but are not
limited to, the ability of RehabCare to integrate acquisitions and to implement
client partnering relationships within the expected timeframes and to achieve
the revenue and earnings levels from such acquisitions and relationships at or
above the levels projected; the timing and financial effect of the Company's
continuing restructuring efforts with respect to the Company's continuing
businesses; changes in and compliance with governmental reimbursement rates and
other regulations or policies affecting RehabCare's continuing businesses;
RehabCare's ability to attract new client relationships or to retain and grow
existing client relationships through expansion of RehabCare's hospital
rehabilitation and contract therapy service offerings and the development of
alternative product offerings; the future operating performance of InteliStaf
Holdings, Inc., and the rate of return that RehabCare will be able to achieve
from its equity interest in InteliStaf; the adequacy and effectiveness of
RehabCare's operating and administrative systems; RehabCare's ability and the
additional costs of attracting administrative, operational and professional
employees; significant increases in health, workers' compensation and
professional and general liability costs; litigation risks of RehabCare's past
and future business, including RehabCare's ability to predict the ultimate costs
and liabilities or the disruption of its operations; competitive and regulatory
effects on pricing and margins; and general economic conditions, including
efforts by governmental reimbursement programs, insurers, healthcare providers
and others to contain healthcare costs.
-1-
RHB YTD Highlights
o Completed sale of StarMed; eliminating $7.6 million of corporate support costs
o Acquired CPR Therapies, LLC
o Acquired VitalCare America, Inc.
o Named John Short, Ph.D., President and CEO
o Acquired Phase 2 Consulting, Inc.
o Named Joseph Swedish, President and CEO, Centura Health, to Board of Directors
o Contract Therapy - 83 openings; 92 signings
o HRS - 30 openings; 9 signings
o Opened RehabCare's first ARU in Puerto Rico
-2-
RHB Financial Performance
(Graphic omitted)
Q1/04* Q2/04
Revenue $104.5 million $90.9 million
Operating Earnings $9.5 million** $10.2 million
Net Earnings $5.1 million** $5.7 million
EPS $0.31** $0.34
* Includes one month of StarMed Operations (operating revenues of $16.7 million;
other statistics not meaningful)
**Includes a $1.7 million pretax restructuring charge, or $1.0 million after
tax, or $0.06 per diluted share and a $0.5 million pretax gain on sale of
business, or $0.3 million after tax, or $0.02 per diluted share.
-3-
RHB Financial Position
Strong Balance Sheet
o Cash and cash equivalents, restricted cash and short-term investments -
$39 million
o Operating cash generated in Q2 - $17.2 million
o Minimal long-term debt
o Unused $110 million/5 year revolver - 1 year remaining
o Current ratio - 2.5:1
o DSO - 66 days
-4-
RHB Financial Performance - Trend in EPS
(Graphic Omitted)
GAAP Pro Forma
Fiscal Year Ended February 28 Fiscal Year Ended February 28
1992 - $0.20 1992 - $0.20
1993 - $0.24 1993 - $0.24
1994 - $0.29 1994 - $0.29
1995 - $0.35 1995 - $0.35
1996 - $0.42 1996 - $0.42
Fiscal Year Ended December 31 Fiscal Year Ended December 31
1996 - $0.47 1996 - $0.47
1997 - $0.73 1997 - $0.68
1998 - $0.86 1998 - $0.85
1999 - $1.03 1999 - $1.08
2000 - $1.45 2000 - $1.45
2001 - $1.16 2001 - $1.48
2002 - $1.38 2002 - $1.38
2003 - ($0.86) 2003 - $1.07
2004 - $1.34-$1.44 Guidance
2004 Analyst mean $1.43
See Footnote Explanations for Chart in Appendix
-5-
RHB Revenues Q2/04
Total Revenue $90.9 million
(Graphic Omitted)
Hospital Rehabilitation Services $48.5 million 53%
Contract Therapy $41.0 million 45%
Other $1.4 million 2%
-6-
RHB Business Profile
Hospital Rehabilitation Services
(Graphic Omitted)
Management of inpatient and outpatient rehabilitation programs, skilled nursing
units and the delivery of therapy to medical/surgical patients
Q2/04
Inpatient $37.1 million
Outpatient $11.4 million
o 176 Hospital Clients (June 30, 2004)
up from 175 Hospital Clients (March 31, 2004)
- 2 ARU, SNU & OP
- 8 ARU & SNU
- 18 ARU & OP
- 86 ARU only
- 24 Sub-acute only
- 21 OP only
o Acute Rehabilitation Units/Skilled Nursing Units
Elderly - stroke, orthopedic, circulatory
o Outpatient
Middle-aged - mostly musculoskeletal
o Competitors - self operation
- 3 small competitors (combined market share less than RHB)
-7-
RHB Business Profile
Hospital Rehabilitation Services
(Graphic Omitted)
Annual Revenue (in millions)
ARU OP SNU
1992 $ 44.5
1993 48.4
1994 61.7
1995 75.5 $ 7.2 $ 0.5
1996 76.7 10.5 4.4
1997 86.6 9.4 10.8
1998 96.5 16.5 15.2
1999 106.2 30.7 10.3
2000 109.3 42.3 10.7
2001 112.5 50.0 10.8
2002 120.7 49.0 10.0
2003 129.7 49.0 7.2
Admissions and Visits
ARU OP Visits SNU
Admissions Admissions
1992 11,696
1993 13,147
1994 17,027
1995 21,329 135,064 628
1996 23,135 223,904 3,732
1997 27,019 231,256 8,381
1998 32,537 378,108 12,856
1999 37,320 785,943 11,375
2000 39,313 1,173,324 11,345
2001 42,278 1,439,169 11,804
2002 44,986 1,366,439 10,302
2003 49,107 1,247,534 7,047
"RehabCare manages the complete continuum of rehabilitation care, from acute
therapy through outpatient services. It's a large commitment."
Eileen Malo
Executive VP, Continuing Care Services
Bon Secours Hampton Roads Health System
Norfolk, VA
-8-
RHB Business Profile
Hospital Rehabilitation Services Locations
(Graphic Omitted)
Map omitted showing HRS Acute Rehab Unit locations, HRS Outpatient locations,
HRS Subacute locations, HRS Skilled Nursing Unit locations, Corporate
Headquarters location and three examples where RehabCare has all three HRS
product lines (Southeast Pennsylvania and New Jersey, Norfolk and Southern
California)
-9-
RHB Business Profile
Contract Therapy
(Graphic Omitted)
Management of post-acute rehabilitation services for patients in skilled nursing
and continuing care facilities
o 225+ Clients (June 30, 2004) up from 220+ Clients (March 31, 2004)
o 570 Locations
o Elderly; stroke, orthopedic, neurological, complex medical
o Competitors: RehabWorks, Aegis (Beverly), Sundance Rehabilitation,
Kindred, Rehab Advantage
Contract therapy revenues Q2/04 $41.0M
"We were looking for a partner that could not only provide high-quality
services, but also help us grow our business."
Mr. Dean Eliason
Vice President
Fountains Retirement Communities, Inc.
Tucson, AZ
-10-
RHB Business Profile
Contract Therapy
(Graphic Omitted)
Annual Revenue (in millions) Average Revenue Per Location
1997 $ 8.4 $234,921
1998 13.9 281,547
1999 14.1 154,899
2000 30.0 192,130
2001 64.7 258,902
2002 105.3 278,427
2003 130.9 284,544
-11-
RHB Business Profile
Contract Therapy Locations
(Graphic Omitted)
Map omitted showing Contract Therapy locations and Corporate Office location
and two examples where RehabCare has a large number of locations (Missouri and
Illinois, and Minnesota)
-12-
RHB Business Description
Market Drivers
(Graphic Omitted)
o Shortages of healthcare professionals
o Aging of baby boomers
o Cost effective solutions for patients
o Quest for better clinical outcomes
-13-
RHB Regulatory Drivers
o 75 Percent Rule (ARU)
- Rule was final, effective date July 1, 2004
- 3 year transition (50%, 60%, 65%, 75%)
- Limits access to ARU for certain diagnoses
- Patients denied access to ARU will seek rehab in other venues
(i.e. SNF)
- Estimated impact included in 2004 guidance
- 13% (15) programs will require mitigation strategies in first year
o Inpatient Rehab Rate Increase 3.1% effective October 1, 2004 (ARU)
o Part B Therapy Caps (Contract Therapy)
- Medicare Prescription Drug Bill contains moratorium through 12/31/05
o Part B Fee Schedule 1.5% increase in 2005 (Contract Therapy & OP)
o Part A increase of 2.8% to SNF's (Contract Therapy)
o LTACH Hospital Within Hospital and LTACH Satellites
- Effective October 1, 2004
- Admissions of more than 25% from host hospital subject to payment
restrictions
- Separate control of co-located hospitals
o MEDPAC study due January 2005 allowing fee-for-service patients access to
outpatient therapy and rehab facility services without physician's order (OP)
-14-
RHB Strategic Initiatives
Core Strategic Principles
(Graphic omitted)
Initiatives for RehabCare follow 4 core strategic principles
- - Organizational Re-design
- - Service Offerings
- - Stronger Relationships
- - Acquisitions
-15-
RHB Strategic Initiatives
Division Operations Re-design
(Graphic omitted)
Strategy Status
- -------- ------
Hospital Rehabilitation Services
- - Stabilize erosion of programs - 1 net gain in Q2, versus 2 net
loss in previous quarter
- - Invest additional $600,000 to improve sales - Sales executive hired, 9 IP
process Signings YTD (80% increase
compared to first half of '03)
- - Provide capital opportunities to existing - 4 signed LOI's
relationships
- - Improve VitalCare and Outpatient operations - Developing plans to be
implemented by Q4
Contract Therapy
- - Concentrate resources in selected markets - 9.2% earnings increase,
versus Q2/03; 20 of 30 new
openings in Q2/04 located in
primary target markets; 10 in
secondary target markets
- - Implement more disciplined pricing policies - 9.2% earnings increase,
versus Q2/03
- - Increase targeted marketing and advertising - First ad generated 70+ leads
campaign
- - CPR Integration - Anticipate full integration in
Q4/04
-16-
RHB Strategic Initiatives
Support Services Re-design
(Graphic omitted)
StarMed transaction leaves RHB with $11.6 million of stranded corporate costs
o $4.0 M to support growth or cost will be eliminated in early 2005
o $6.0 M transitional service costs have been eliminated
o $1.6 M cost reductions identified and being implemented
-17-
RHB Strategic Initiatives
Service Offering
Post-Acute Continuum
Graphic omitted showing the post-acute care continuum.
-18-
RHB Strategic Initiatives
Service Offering
RehabCare has identified several target markets to develop market-based
continuums of care
St. Louis Market
- ----------------
o Existing 49 Bed ARU
o Converting 10 bed SNU to 15 bed ARU
o 30 CT programs
o Signature Outpatient & Home Health
o Additional programs in letter-of-intent phase
St. Louis Metropolitan Area (graphic omitted)
- 49 bed acute rehab unit
- 30 rehabilitation programs in SNFs
- Signature Outpatient and Home Health
-19-
RHB Strategic Initiatives
Building Stronger Relationships
Build partnerships instead of transactional relationships with clients
- - Develop joint venture and capital infusion models
- - Create flexible service offerings
- - Develop partnership models for long-term care chains
- - Target markets and clients
- - Senior officer focused on add-on sales with existing clients
Build stronger relationships with therapists/employees
- - Recruiting and retention programs
o Improve 401(k) plan
o Fund innovative professional development program
- - Employer of choice goal
3 year IT plan to enhance partnerships
- - Enables continuum strategy
- - Simplifies integration of acquisitions
- - Use web-based technologies for information delivery and process improvement
for recruiting, training and employee portal
- - Develop web-based external tools to enhance relationships with clients,
referral sources, patients, etc.
-20-
RHB Strategic Initiatives
Building Stronger Industry Relationships
- - Renewed preferred vendor relationship for 3 years
- - Developed program that shares resources/develops cooperation between NAF
branches and RHB programs nationwide
- - Stroke recovery program developed in conjunction with NSA, provided to stroke
patients at RHB client hospitals, new program is available for SNF
clients
- - Corporate sponsor program positions Phase 2/RHB favorably with hospital
executives group
-21-
RHB Strategic Initiatives
Acquisitions
(Graphic omitted)
Hospital Rehabilitation Services
--------------------------------
Advanced Rehabilitation Resources, Inc. - IP
Physical Therapy Resources, Inc. - OP
Rehabilitative Care Systems of America - OP
Salt Lake Physical Therapy - OP
DiversiCare Rehab Services, Inc. - OP
American VitalCare, Inc. - IP
Contract Therapy
----------------
TeamRehab
Moore Rehabilitation Services, Inc.
Rehab Unlimited, Inc.
Therapeutic Systems, Ltd
CPR Therapies, LLC
o Pipeline
o Capital - negotiating new credit facility to fund acquisitions and strategic
partnership transactions
o Key executive focus
o Acquisition experience
-22-
RHB Strategic Initiatives
Acquisition of CPR Therapies
(Graphic omitted)
o Leading provider of contract rehabilitation services to SNFs and ALFs in
Colorado and California
o Entry into Colorado
o Critical mass added in California
o Foundation to build continuum in Colorado
o 60 contracts
-23-
RHB Strategic Initiatives
Acquisition of VitalCare
(Graphic omitted)
o Dominant provider of hospital-based specialty care units in California
o Cross-selling opportunity to new clients
o Strengthen position in target market
o Expansion of post-acute continuum in Southern California
o 23 contracts
-24-
RHB Key Investment Points
(Graphic omitted)
Long Record of
Successful Growth and Profitability
Disciplined Strategy Long Standing Diversified
for Growth and Relationships Revenue Mix
Profitability with Clients
Favorable Strong Financial Position Experienced
Demographic Factors Minimal Debt Management Team
$39 Million Cash
and Cash Equivalents,
Restricted Cash and Short-Term Investments,
Solid Cash Flow
-25-
RHB Financial Performance - Trend in EPS
Appendix
Footnote Explanations for Chart on Page 5
Year Explanation
- ---- -----------
1996 Annualized
1997 Pro forma results do not reflect a $0.06 per share gain on sale of
securities.
1998 Pro forma results do not include a $0.06 per share gain on sale of
securities or a $0.05 per share charge for the cumulative effect of
change in accounting for start-up costs.
1999 Pro forma results do not reflect a non-operating loss associated with
write-down of investment of $0.05.
2001 Pro forma results do not include a one-time charge related to a DOL
settlement of $0.30. Pro forma results do not reflect a non-operating
loss associated with a write-down of investment of $0.02 per share.
2003 GAAP results include a loss on net assets held for sale of $30.6
million, or $1.90 per diluted share, after tax and a restructuring
charge of $0.8 million, or $0.05 per diluted share after tax.
2004 GAAP estimates include a $1.0 million after tax restructuring charge
($0.06 per diluted share) and an approximate $0.3 million after tax gain
on sale of business ($0.02 diluted share) in Q1/04. Pro forma estimates
do not include the charge.
-A-1-