Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2023 Earnings Presentation
36 slides from Encompass Health's earnings presentation, Oct 27, 2023
Slide 1: Q3 2023 Earnings Call Supplemental Information
2022 2023 First ThirdQuarter Quarter Earnings Call Earnings Call April 28, 2022 October 27, information Supplemental 2023 Supplemental information
Slide 2: Forward-looking statements
Forward-looking statements The information contained in this presentation includes certain estimates, projections and other forward-looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including the business outlook and guidance, labor a
Slide 3: Table of contents
Table of contents Q3 2023 Financial summary ............................................................................................................................................................... 4 Key takeaways ................................................................................
Slide 4: Q3 2023 Financial summary
Q3 2023 Financial summary Q3 9 Months ($ in millions, except per share data) 2023 2022 %△ 2023 2022 %△ Encompass Health Net operating revenue $1,206.9 $1,089.5 10.8 % $3,554.4 $3,211.3 10.7 % Adjusted EBITDA $ 237.5 $ 195.3 21.6 % $ 716.1 $ 586.6 22.1 % Adjusted EPS $ 0.86 $ 0.67 28.4 % $ 2.69 $ 1.9
Slide 5: Q3 2023 Key takeaways
Q3 2023 Key takeaways u Revenue Net operating revenue growth of 10.8% ü Discharge growth of 7.3% (4.3% same store) u Adjusted EBITDA Adjusted EBITDA growth of 21.6% ü Contract labor plus sign-on and shift bonuses of $33.3 million vs. $49.0 million in Q3 2022 ü De novo hospitals contributed $0.9
Slide 6: Revenue
Revenue Q3 Q3 Favorable/ ($ in millions) 2023 2022 (Unfavorable) Net operating revenue: Inpatient $ 1,180.5 $ 1,064.6 10.9% Outpatient and other 26.4 24.9 6.0% Total revenue $ 1,206.9 $ 1,089.5 10.8% (Actual Amounts) Discharges 57,665 53,743 7.3% New-store discharge growth 3.0% Same-store discharge
Slide 7: Adjusted EBITDA
Adjusted EBITDA(1) Q3 % of Q3 % of ($ in millions) 2023 Revenue 2022 Revenue Net operating revenue $1,206.9 $ 1,089.5 Operating expenses: Salaries and benefits (658.6) 54.6 % (605.6) 55.6 % Other operating expenses(a) (181.5) 15.0 % (173.1) 15.9 % Supplies (53.9) 4.5 % (51.1) 4.7 % Occupancy costs (
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q3 9 Months ($ in millions, except per share data) 2023 2022 2023 2022 Adjusted EBITDA $ 237.5 $ 195.3 $ 716.1 $ 586.6 Depreciation and amortization(2) (67.3) (62.1) (203.8) (180.3) Interest expense and amortization of debt discounts and fees(3) (35.9) (38.2) (108.6)
Slide 9: Adjusted earnings per share
Adjusted earnings per share(6) Q3 9 Months 2023 2022 2023 2022 Diluted earnings per share, as reported $ 0.85 $ 0.63 $ 2.65 $ 1.66 Adjustments, net of tax: Bondholder consent fees associated with Enhabit distribution — — — 0.15 Income tax adjustments — 0.01 — 0.08 State regulatory change impact(2) —
Slide 10: 2023 YTD Adjusted free cash flow
2023 YTD Adjusted free cash flow(7) ($ in millions) $27.2 $8.8 $129.5 $(25.2) $(2.2) $432.2 $294.1 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted Free Cash Flow 9 Mos. 2022 EBITDA and other payments net of refunds expenditures Flow 9 Mos. 20
Slide 11: 2023 Updated guidance
2023 Updated guidance Prior Updated 2023 Guidance 2023 Guidance issued 8/1/23 issued 10/26/23 ($ in millions, except per share data) Net Operating Revenue $4,750 to $4,810 $4,770 to $4,800 Adjusted EBITDA(1) $920 to $950 $940 to $955 Adjusted earnings per share from continuing operations attributabl
Slide 12: Guidance considerations
Guidance considerations* u Pricing Medicare pricing increase of 3.3% for Q4 Managed Care pricing increase of 2% to 3% for Q4 u Labor SWB per FTE (including contract labor, sign-on and shift bonuses) increase of approximately 2.5% for 2023 ü Increase of approximately 6% for salaries and wages (
Slide 13: Adjusted free cash flow assumptions
Adjusted free cash flow(7) assumptions 9 Months Certain cash flow items 2023 ($ in millions) 2023 2022 Assumptions Actuals Cash interest payments expected Cash interest payments to decrease due to full-year (net of amortization of debt $101.5 $145.5 ~ $135 impact of debt repayment with July 1, 2022
Slide 14: Uses of free cash flow
Uses of free cash flow 9 Months 2023 2023 ($ in millions) Actuals 2022 Assumptions IRF bed expansions $26.1 $52.7 $40 to $50 New IRFs - De novos 212.7 276.6 315 to 325 Growth in core business - Acquisitions — — — - Replacement IRFs and other(9) 24.2 16.5 ~ 25 $263.0 $345.8 $380 to $400 Debt Debt red
Slide 15: Appendix
Appendix
Slide 16: Encompass Health
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 9/30/23 159 Rehabilitation hospitals “IRFs” 63 are joint ventures 20 37 IRFs under States and development* Puerto Rico 25% of Licensed beds † 33% of Medicare Rehabilitation hospitals “IRFs” patients served
Slide 17: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 18: De novo activity
De novo activity Inpatient Rehabilitation Hospitals Opened or Under Development Joint venture 2023 # of new beds 2024 2025 2026 20 De novo projects* Eau Claire, WI ü 36 — — — Knoxville, TN** 73 — — — IRF development projects ü Owasso, OK ü 40 — — — announced and underway Clermont, FL 50 — — — Bowie,
Slide 19: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends 2021 2022 2023 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $15.0 $21.3 $ 59.8 $21.1 $21.8 $24.2 $15.7 $ 82.8 $16.3 $14.0 $14.4 Contract labor 18.3 30.0 74.4 41.9 35.1
Slide 20: Pre-payment and post-payment claims denials
Pre-payment and post-payment claims denials Pre-payment Claims Reviews Collections of Revenue Update of u Encompass Health establishes a reserve upon Period New Denials Previously Reserve for Reserve for notice that a claim is under review. Denied Claims New Denials Prior Denials u Acting through va
Slide 21: Debt maturity profile - face value
Debt maturity profile - face value As of September 30, 2023* ($ in millions) Callable beginning February 2025 Callable $966 Available Callable beginning April 2026 $— Drawn + $34 reserved Revolver $800 $800 Callable for LCs capacity Senior Senior Notes Notes 4.5% 4.75% $350 $400 Senior Senior Notes
Slide 22: Debt schedule
Debt schedule Change in September 30, December 31, Debt vs. ($ in millions) 2023 2022 YE 2022 Advances under $1 billion revolving credit facility $ — $ 55.0 $ (55.0) Bonds Payable: 5.75% Senior Notes due 2025 348.3 347.7 0.6 4.50% Senior Notes due 2028 784.2 781.8 2.4 4.75% Senior Notes due 2030 780
Slide 23: New-store/same-store growth
New-store/same-store growth Shreveport, LA (40 beds) Waco, TX (40 beds) Greenville, SC (40 beds) Pensacola, FL (40 beds) Knoxville, TN (73 beds) North Tampa, FL (50 beds) Eau Claire, WI (36 beds) Cumming, GA (50 beds) Shiloh, IL (40 beds) Owasso, OK (40 beds) St. Augustine, FL (40 beds) 20.0% Libert
Slide 24: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q3 9 Months Full Year 2023 2022 2023 2022 2022 Medicare 65.2 % 65.3 % 64.8 % 65.0 % 65.3 % Medicare Advantage 15.9 % 15.0 % 16.2 % 15.0 % 15.1 % Managed care 11.2 % 11.6 % 11.2 % 11.9 % 11.6 % Medicaid 4.1 % 4.4 % 4.1 % 4.3 % 4.2 % Other third-party payors 0.9 %
Slide 25: Operational metrics
Operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2023 2023 2023 2022 2022 2022 2022 2022 ($ in millions) Net patient revenue-inpatient $ 1,180.5 $ 1,162.3 $ 1,134.2 $ 1,113.0 $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 4,251.6 Net patient revenue-outpatient and other revenues 26.4 24.8 26.2 24.3 24.9 24.7 23.
Slide 26: Share information
Share information Weighted Average for the Period Q3 9 Months Full Year (in millions) 2023 2022 2023 2022 2022 2021 2020 Basic shares outstanding 99.5 99.2 99.5 99.2 99.2 99.0 98.6 Restricted stock awards, dilutive stock options, and restricted stock units 1.9 1.3 1.6 1.1 1.2 1.2 1.2 Diluted shares
Slide 27: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(1) Q3 9 Months Full Year ($ in millions) 2023 2022 2023 2022 2022 Net cash provided by operating activities $ 215.2 $ 70.1 $ 649.8 $ 533.6 $ 705.8 Interest expense and amortization of debt discounts and fees(3) 35.9 38.2 108.6 1
Slide 28: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Q3 9 Months Full Year ($ in millions) 2023 2022 2023 2022 2022 Net income $ 113.4 $ 67.0 $ 343.9 $ 248.4 $ 365.9 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 1.3 18.5 3.5 (16.7) (15.2) Net income attributa
Slide 29: Reconciliation of net cash provided by operating activities to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(7) Q3 9 Months Full Year ($ in millions) 2023 2022 2023 2022 2022 Net cash provided by operating activities $ 215.2 $ 70.1 $ 649.8 $ 533.6 $ 705.8 Impact of discontinued operations 1.7 19.9 4.6 (56.0) (52.3) Net c
Slide 30: Adjusted EPS - Q3 2023
Adjusted EPS(6) - Q3 2023 For the Three Months Ended September 30, 2023 Adjustments Change in Fair Market Value of As Income Tax Equity As Reported Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 237.5 $ — $ — $ 237.5 Depreciation and amortization (67.3) —
Slide 31: Adjusted EPS - Q3 2022
Adjusted EPS(6) - Q3 2022 For the Three Months Ended September 30, 2022 Adjustments Change in Fair As Income Tax Market Value of As Reported Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 195.3 $ — $ — $ 195.3 Depreciation and amortization (62.1) —
Slide 32: Adjusted EPS - YTD Q3 2023
Adjusted EPS(6) - YTD Q3 2023 For the Nine Months Ended September 30, 2023 Adjustments Change in Fair Market State Value of As Regulatory Income Tax Equity As Reported Change Impact Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 716.1 $ — $ — $ — $ 716.1
Slide 33: Adjusted EPS - YTD Q3 2022
Adjusted EPS(6) - YTD Q3 2022 For the Nine Months Ended September 30, 2022 Adjustments Bondholder Consent Loss on Fees Change in Fair Early Associated Market Value As Exting. Income Tax with Enhabit of Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per
Slide 34: Adjusted EPS - 2022
Adjusted EPS(6) - 2022 For the Year Ended December 31, 2022 Adjustments Bondholder Consent Change in Fees Fair Loss on Associated Market Early with Value of As Exting. Income Tax Enhabit Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per share amounts)
Slide 35: End notes
End notes (1) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a financial mea
Slide 36: End notes (continued)
End notes (continued) (8) In December 2017, the Company received notice of a Uniform Program Integrity Contractor (“UPIC”) audit at one of our hospitals. The UPIC sampled 100 claims and challenged the propriety of a subset of the sample representing $1.3 million in previously paid claims. The UPIC e