Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2021 Earnings Presentation
49 slides from Encompass Health's earnings presentation, Oct 28, 2021
Slide 1: Third Quarter Earnings Call
Third Quarter Earnings Call October 28, 2021 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 ongoing strategic review and its impac
Slide 3: Table of contents
Table of contents Key takeaways ........................................................................................................................................................ 4 Q3 2021 summary .................................................................................................
Slide 4: Key takeaways
Key takeaways u Consolidated revenue grew 9.4% and Adjusted EBITDA grew 6.7% Strong revenue and Adjusted EBITDA growth in inpatient rehabilitation business over Q3 2020 and Q3 2019 ü Discharge growth of 8.7% ü Pricing continues to reflect elevated acuity Home health and hospice volumes and labor
Slide 5: Q3 2021 summary
Q3 2021 summary Q3 9 Months ($millions) 2021 2020 % 2021 2020 % Encompass Health Consolidated Net operating revenues $ 1,284.8 $ 1,173.9 9.4 % $ 3,802.9 $ 3,430.0 10.9 % Adjusted EBITDA $ 245.6 $ 230.2 6.7 % $ 775.3 $ 620.4 25.0 % Adjusted EPS $ 1.03 $ 0.78 32.1 % $ 3.26 $ 1.96 66.3 % Adjusted fre
Slide 6: Q3 2021 summary (continued)
Q3 2021 summary (continued) u IRF expansion activity - Opened 4 inpatient rehabilitation hospitals in Q3, 8 opened YTD (see page 24) Q3 inpatient rehabilitation hospital openings ü Shreveport, LA - 40 beds ü Waco, TX - 40 beds ü Greenville, SC - 40 beds ü Pensacola, FL - 40 beds Announced plans
Slide 7: Inpatient rehabilitation segment
Inpatient rehabilitation segment Revenue growth of 12.4% u Inpatient revenue growth resulted from increased volumes and pricing Total discharge growth of 8.7%, inclusive of same-store growth of 6.7% Growth in net patient revenue per discharge of 2.4% primarily resulted from an increase in reimbu
Slide 8: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q3 Q3 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Inpatient $ 983.7 $ 883.2 11.4% Outpatient and other 27.2 16.2 67.9% Total segment revenue $ 1,010.9 $ 899.4 12.4% (Actual Amounts) Discharges 49,983 45,962 8.7% Same-store dischar
Slide 9: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q3 Q3 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 1,010.9 $ 899.4 Operating expenses: Salaries and benefits (537.1) 53.1 % (475.0) 52.8 % Other operating expenses(a) (156.2) 15.5 % (135.5) 15.1 % Supplies (46.8) 4.6 % (4
Slide 10: Home health and hospice segment
Home health and hospice segment Revenue decreased 0.2% u Revenue decrease resulted from a reduction in episodic admissions largely offset by the continued growth in non-episodic admissions, primarily due to our new contract with United Healthcare. u Staffing constraints, continued lower occupancy le
Slide 11: Home health and hospice segment (continued)
Home health and hospice segment (continued) Adjusted EBITDA decreased 10.4% u Adjusted EBITDA decreased primarily due to the higher costs of services related to industry-wide staffing challenges Cost per visit increased due to lower clinician productivity associated with recent hires, market rate
Slide 12: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q3 Q3 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Home health revenue $ 221.1 $ 223.3 (1.0) % Hospice revenue 52.8 51.2 3.1 % Total segment revenue $ 273.9 $ 274.5 (0.2)% Home Health Starts of care: Episodic admissions 37,577 40,76
Slide 13: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q3 Q3 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 273.9 $ 274.5 Cost of services (124.0) 45.3 % (121.8) 44.4 % Support and overhead costs (103.2) 37.7 % (100.7) 36.7 % (a) Operating expenses (227.2) 82.9 % (222.5) 81.1 %
Slide 14: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $245.6 million u General and administrative expenses decreased as a percent of consolidated revenue due to the increased revenue base year-over-year. % of Consolidated % of Consolidated ($millions) Q3 2021 Revenue Q3 2020 R
Slide 15: Earnings per share - as reported
Earnings per share - as reported Q3 9 Months (In Millions, Except Per Share Data) 2021 2020 2021 2020 Adjusted EBITDA $ 245.6 $ 230.2 $ 775.3 $ 620.4 Depreciation and amortization (64.9) (61.2) (190.8) (180.7) Interest expense and amortization of debt discounts and fees (39.9) (49.0) (124.5) (138.0)
Slide 16: Adjusted earnings per share
Adjusted earnings per share(5) Q3 9 Months 2021 2020 2021 2020 Earnings per share, as reported $ 1.00 $ 0.78 $ 3.20 $ 1.99 Adjustments, net of tax: Government, class action, and related settlements(3) — — — 0.02 Costs associated with the strategic alternatives review 0.03 — 0.07 — Costs associated w
Slide 17: 2021 Adjusted free cash flow
2021 Adjusted free cash flow(6) ($ in millions) $154.9 $14.3 $21.6 ($51.5) ($69.1) $437.1 $366.9 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted Free Cash Flow 9 Mos. 2020 EBITDA and other payments payments, capital expenditures Flow 9 Mos. 2021 net of refunds
Slide 18: 2021 Full-Year Guidance - Updated as of October 27, 2021
2021 Full-Year Guidance - Updated as of October 27, 2021 Initial Updated Updated Revised Guidance Guidance Guidance Guidance ($ in millions, except per share data) January 26, 2021 April 27, 2021 July 27, 2021 Net Operating $5,000 $5,060 $5,100 $5,080 to to to to Revenue $5,170 $5,230 $5,250 $5,130
Slide 19: Q4 2021 guidance considerations
Q4 2021 guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated Medicare pricing increase of 1.9% u Estimated 1.9% increase in Medicare pricing for home health; estimated 2.0% pricing u Revenue reserve related to bad debt of 1.8% increase for hospice to 2.0% of net opera
Slide 20: Adjusted free cash flow assumptions
Adjusted free cash flow(6) assumptions u Lower average interest rate expected in 2021 due to the redemption of the 9 Months 5.75% Senior Notes due Certain cash flow items 2021 2020 2021 2024 in Q4 2020 and the (millions) Assumptions Actuals Actuals redemption of $200 million of 5.125% Senior Notes d
Slide 21: Uses of free cash flow
Uses of free cash flow 9 Months 2021 2021 2020 ($millions) Actuals Assumptions Actuals IRF bed expansions $33.2 $50 to $60 $44.8 New IRFs Growth in - De novos 198.4 300 to 320 173.0 core - Acquisitions 1.1 opportunistic — business - Replacement IRFs and other 35.1 40 to 50 35.5 Home health and hospi
Slide 22: Appendix
Appendix
Slide 23: Encompass Health
a leading provider of inpatient rehabilitation Encompass Health and home-based care 93 of EHC’s IRFs have an EHC home health location within the service area.* Largest 4th Largest provider owner and of Medicare-certified operator of skilled home health IRFs services Inpatient rehabilitation - 9/30/2
Slide 24: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Under Development 23 IRF development projects announced and underway Expected Joint # of New Beds Operations date venture? 2021 2022 2023 2021 YTD expansion activity highlights De novo IRFs: u Opened 8 inpatient rehabilitation hospitals 1 Libert
Slide 25: Clinical collaboration through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* Clinical Collaboration Rate u The clinical collaboration 35.6% rate has decreased 34.0% 33.2% primarily due
Slide 26: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a • For several years prior to 2018, under programs designated as reduction of net operating revenues upon notice from a MAC a “widespread probes,” certain Medicare Adminis
Slide 27: Debt maturity profile - face value
Debt maturity profile - face value As of September 30, 2021*) Callable beginning ($ in millions) Callable beginning February 2025 $872 February 2023 Available Callable beginning $90 Drawn + April 2026 $38 reserved for LCs Revolver capacity Callable Callable $800 $800 Senior Senior Notes Notes 4.5% 4
Slide 28: Debt schedule
Debt schedule Change in September 30, December 31, Debt vs. ($millions) 2021 2020 YE 2020 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 90.0 $ — $ 90.0 Term loan facility, November 2024 - LIBOR +150bps 241.8 251.6 (9.8) Bonds Payable: 5.125% Senior Notes due 20
Slide 29: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shreveport, LA Yuma, AZ (51 beds)(9) North Tampa, FL (50 beds) (40 beds) Boise, ID (40 beds) Sioux Falls, SD (40 beds) Cumming, GA (50 beds) Waco, TX Katy, TX (40 beds) Coralville, IA (40 beds) (40 beds) 20.0 Greenville, SC (40 beds) Winston-Salem
Slide 30: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice 30.0 (23 home health locations in Alabama) Acquired Frontier Home Health & Hospice in July 2019 (9 home health locations in 5 states) in June 2021 20.0 10.0 0.0 -10.0 -20.0 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
Slide 31: New-store/same-store growth Hospice
New-store/same-store growth Hospice Acquired Alacare Home Health & Hospice 70.0 (23 hospice locations in Alabama) in July 2019 60.0 Acquired Frontier Home Health & Hospice 50.0 (11 hospice locations in 5 states) in June 2021 40.0 30.0 20.0 10.0 0.0 -10.0 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 20
Slide 32: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q3 Q3 Q3 9 Months Full Year 2021 2020 2021 2020 2021 2020 2021 2020 2020 Medicare 64.2 % 65.8 % 81.9 % 83.3 % 68.0 % 69.9 % 68.3 % 69.8 % 70.5 % Medicare Advantage 15.1 % 15.7 % 10.4 %
Slide 33: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2021 2020 2020 2020 2020 2020 (In Millions) Net patient revenue-inpatient $ 983.7 $ 976.9 $ 942.3 $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 3,496.1 Net patient revenue-outpatient and other revenues 27.2 24.7 17.6 18.2 16.2
Slide 34: Home health and hospice operational metrics
Home health and hospice operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2021 2020 2020 2020 2020 2020 (In Millions) Net home health revenue $ 221.1 $ 232.3 $ 219.9 $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 877.6 Net hospice revenue 52.8 53.8 50.6 53.6 51.2 47.8 48.0 200.6 Net operating revenues
Slide 35: Share information
Share information Weighted Average for the Period Q3 9 Months Full Year (In Millions) 2021 2020 2021 2020 2020 2019 2018 Basic shares outstanding 99.0 98.7 99.0 98.5 98.6 98.0 97.9 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.2 1.2 1.1 1.2 1.2
Slide 36: Segment operating results
Segment operating results Q3 2021 Q3 2020 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,010.9 $ 273.9 $ — $ 1,284.8 $ 899.4 $ 274.5 $ — $ 1,173.9 Operating Expenses: Inpatient Rehabilitation: Salaries an
Slide 37: Segment operating results
Segment operating results Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 2,972.4 $ 830.5 $ — $ 3,802.9 $ 2,633.1 $ 796.9 $ — $ 3,430
Slide 38: Segment operating results
Segment operating results Year Ended December 31, 2020 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,566.2 $ 1,078.2 $ — $ 4,644.4 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,903.8) — (776.7) (2,680.5) Other operating expenses(
Slide 39: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 2021 Q1 Q2 Q3 9 Months Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Net Income $ 132.8 $ 142.0 $ 126.7 $ 401.5 Loss from disc ops, net of tax, attributable to Encompass Health — 0.3 0.1 0.4 Net
Slide 40: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 2020 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 108.7 $ 48.3 $ 100.1 $ 111.7 $ 368.8 Loss (income) from disc ops, net of tax, attributable t
Slide 41: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(7) Q3 9 Months Full Year (In Millions) 2021 2020 2021 2020 2020 Net cash provided by operating activities $ 177.6 $ 173.4 $ 592.0 $ 425.0 $ 704.7 Interest expense and amortization of debt discounts and fees 39.9 49.0 124.5 138.0
Slide 42: Reconciliation of segment Adjusted EBITDA to income before income tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2021 2020 2021 2020 2020 (In Millions) Total segment Adjusted EBITDA $ 278.0 $ 261.0 $ 879.4 $ 712.8 $ 986
Slide 43: Reconciliation of operating cash flow to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(6) Q3 9 Months Full Year (In Millions) 2021 2020 2021 2020 2020 Net cash provided by operating activities $ 177.6 $ 173.4 $ 592.0 $ 425.0 $ 704.7 Impact of discontinued operations — 0.1 0.6 0.2 0.2 Net cash provid
Slide 44: Adjusted EPS - Q3 2021
Adjusted EPS(5) - Q3 2021 For the Three Months Ended September 30, 2021 Adjustments Costs Change in Associated with Fair Market the Strategic Value of As Income Tax Alternatives Equity As Reported Adjustments Review Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 245.6
Slide 45: Adjusted EPS - Q3 2020
Adjusted EPS(5) - Q3 2020 For the Three Months Ended September 30, 2020 Adjustments Change in Fair Market Value of Income Tax Equity As Reported Adjustments Securities As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 230.2 $ — $ — $ 230.2 Depreciation and amortization (61.2) — —
Slide 46: Adjusted EPS - YTD 2021
Adjusted EPS(5) - YTD 2021 For the Nine Months Ended September 30, 2021 Adjustments Costs Costs Loss on Associated with Associated Change in Fair Early the Strategic with the Market Value As Exting. Income Tax Alternatives Frontier of Equity As Reported of Debt Adjustments Review Acquisition Securit
Slide 47: Adjusted EPS - YTD 2020
Adjusted EPS(5) - YTD 2020 For the Nine Months Ended September 30, 2020 Adjustments Gain on Change in Consolidation Gov't, Class Fair Market of Former Payroll Action, & Value of Equity Taxes on As Related Income Tax Equity Method SARs As Reported Settlements Adjustments Securities Location Exercise
Slide 48: End notes
End notes (1) In the second quarter of 2021, the Company redeemed a total of $200 million of 5.125% Senior Notes due 2023 ($100 million in April and $100 million in June). The redemptions were completed at 100% of par using cash on hand and drawings under the Company’s revolving credit facility. As
Slide 49: End notes, continued
End notes, continued (9) As a result of negotiations with our partner to amend the joint venture agreement related to Yuma Rehabilitation Hospital, the accounting for this hospital changed from the equity method of accounting to a consolidated entity effective July 1, 2019. We accounted for this cha