37th Annual J.P. Morgan Healthcare Conference

Transcription

1 37th Annual J.P. Morgan Healthcare Conference San Francisco, California January 7, 2019 Nick Turkal M.D., Chief Executive Officer Dominic J. Nakis, Chief Financial Officer and Treasurer

2 The following material and presentation contains information which is forward-looking within the meaning of federal securities law. These forward looking statements are based on the current plans and expectations of Advocate Aurora Health Inc. ( AAH ) that, although believed to be reasonable, are subject to a number of known and unknown uncertainties and risks inherent in the operation of health care facilities, many of which are beyond AAH s control, that could significantly affect current plans and expectations and AAH s future financial position and results of operations. All opinions, estimates, projections, forecasts and valuations are preliminary, indicative and are subject to change without notice. These forward-looking statements speak only as of the date made. Investors are cautioned not to unduly rely on such forward-looking statements. This presentation should be reviewed in conjunction with AAH s September 30, 2018 continuing disclosure report which can be found at emma.msrb.org. THE PRINTING, DUPLICATING, DOWNLOADING, SCREEN CAPTURING, ELECTRONIC STORING, RECORDING, PUBLISHING OR DISTRIBUTING OF THIS PRESENTATION IN ANY MANNER IS STRICTLY PROHIBITED. By viewing this presentation you acknowledge that you understand and agree to the provisions of this page.

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4 Our Purpose and Values OUR PURPOSE We help people live well. OUR VALUES EXCELLENCE We are a top performer in all that we do. COMPASSION We unselfishly care for others. RESPECT We value the unique needs and preferences of all people.

5 We Believe Scale Will: Improve health outcomes/safety Support clinical programs/accelerate innovation Attract & retain talent/magnet for future growth Create opportunities for new & creative partnerships Enhance advocacy stature Enhance access to capital Diversify revenue/assume risk Accelerate synergies/reduce costs

6 Indirect Financial Impact Direct Financial Impact Integration Activities Foundational Finance Investment Program Capital Structure & Cash Flow Growth & Planning Racine County, WI Strategic Planning Clinical Integration Organization Design Culture & D&I

7 Integration Accomplishments Unified governance and executive leadership team Consumer first operating model Innovative partnerships (FoxConn, Wisconn Valley Venture Fund, Oak Street) EPIC Strong team member engagement Launch/relaunch safety journey Strategic plan Financial integration Debt portfolio consolidated under single indenture, 2018 Healthcare Deal of the Year $310M in cash flow savings first 5 years Investment portfolios combined Synergy teams & opportunities identified, execution underway Capital & operating budget processes harmonized

8 Cultural Challenges

9 Our View of the World CONSUMER SUMMARY Consumers demand world-class experiences on par with other service industries IMPLICATIONS Build capabilities to deliver a superior endto-end experience, or consumers will defect SCIENCE & TECHNOLOGY Technologies (e.g., analytics, AI, digital) enable new care models, settings, and breakthroughs in productivity Reimagine work to drive automation, standardization, access and convenience CARE MODELS Increasing awareness and availability of care models that address broader determinants of health Reinvent care models from providing sick care to enabling whole person health COMPETITION Well-capitalized, nimble competitors capture business in profitable segments via innovative and disruptive offerings Build scale, capabilities, and new offerings through M&A and partnerships ECONOMICS Economics of the hospital-based fee-forservice business continue to worsen Diversify revenue sources to include new products, new customers and full risk offerings

10 Our Priorities Safety Health Outcomes Innovative Partnerships Lower Cost Managed Care Diversity & Inclusion

11 Nearly 3 Million Unique Lives FFS 1,400,000 52% Shared Savings 1,000,000 37% Capitation 300,000 11%

12 Managed Care $50-75 million annual surplus/share savings 1.3 million value-based lives Strong financial performance ACA exchange, Commercial and Medicare risk Top Decile/Quartile Quality and Safety 3,300 employed physicians 3,500 aligned physicians

13 Managed Care Solid collaborative relationships with majority of payers Staggered payer agreement dates Majority of fee for service commercial agreements have commodity pricing for selected elective health services Accelerating value based contracting strategy

14 Diversity & Inclusion WORKFORCE WORKPLACE PATIENT SUPPLIER COMMUNITY An increasingly diverse workforce that thrives at all levels, functions and geographies A workplace environment that maximizes the assets of all team members Consistent patient experience, safety and health outcomes and is the provider of choice across all communities Resources invested in our local communities through the utilization of minority and women owned businesses Partnerships with the community to better understand the needs of our patients, consumers and communities

15 Well Positioned Strong governance and leadership Consumer first operating model Safety & quality focus Strong integration framework Engaged team members Financial strength Aa3/AA/AA (M/SP/F), with stable outlooks

16 Financial Profile Dominic J. Nakis, Chief Financial Officer and Treasurer

17 Revenue Growth Dollars in Millions 14,000 12,000 $10,902 $11,750 $11,958 10,000 8,000 6,000 4,000 $10,414 $10,432 $10,614 2,000 - $488 $1,318 $1, Projected Risk Based Revenue Net Patient Service & Other Revenue

18 Dollars in Millions Operating Income & Margin in Line w/peers $700 10% $600 $ % 5.3% $400 $ % 4.3% 5% $200 $100 $- $642 $624 $391 $383 // Q3 YTD 2018 Q3 YTD 0% Operating Income Operating Margin

19 Solid Operating Cash Flow Dollars in Millions $1,400 $1,200 $1, % 10.7% 9.9% 9.7% 15% 10% $800 $600 $400 5% $200 $- $1,231 $1,255 $861 $869 // Q3 YTD 2018 Q3 YTD 0% Operating Cash Flow Operating Cash Flow Margin 25

20 Dollars in Millions Strong Investment Assets & Yields $900 $750 $600 $450 $300 $150 $- 10.5% 7.3% 7.9% 2.3% $484 $858 $624 $231 // Q3 YTD 2018 Q3 YTD Investment Income Investment Yield 15% 13% 10% 8% 5% 3% 0% -3% -5% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 30% 30% 13% 27% Actual September Hedge Funds Fixed Income Private Equity Public Equity

21 Healthy Capital Investments Dollars in Millions $900 $ % 250% 200% $ % $ % 150% $ % 100% $150 50% $0 $749 $621 $460 $850 // Q3 YTD 2018 Q3 YTD 35 0% Cash Spending Capital Spend Ratio

22 Debt Profile Well Diversified Underlying Debt Mix $70, 3% $100, 4% $311, 11% $1,718, 63% $199, 7% $321, 12% Fixed Rate Weekly VRDOs Indexed Floating Rate Tender Bonds Direct Purchase Windows VRDBs [VALUE], 6% Net Interest Rate Mix $511, 19% $326, 12% $1,718, 63% Fixed Rate Synthetic Fixed Rate Intermediate $300 Renewal Risk $250 $69.7 $200 $150 $128.0 $100.0 $144.2 $100 $49.2 $50.0 $49.1 $50.4 $50 $77.5 $42.8 $50.0 $46.7 $46.3 $48.6 $49.4 $ Tender Indexed FRN SBPA Direct Placement Taxable Loan

23 Percntages Robust Cash to Debt Ratio % 252% 239% 263% // Q Q3

24 Sizable Liquidity Position Dollars in Millions Days on Hand $8,000 $7, $7,600 $7, $7, $7, $6, $6,600 $6,400 $6,927 $7,881 $7,511 $7,885 // Q3 YTD 2018 Q3 YTD Dollars Days Cash and Investments on Hand

25 Well Funded Pension Plans $1,398 $1,460 Funded status: 103% Advocate Plan * 96% Aurora DB Plan ** 96% Condell DB Plan ** $984 $952 $65 million combined funding deficit ~2.2 days of cash $60 $63 Advocate Aurora Condell Assets Liabilities

26 Well Positioned Strong governance and leadership Consumer first operating model Safety & quality focus Strong integration framework Engaged team members Financial strength Aa3/AA/AA (M/SP/F), with stable outlooks

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