Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2022 Earnings Presentation
37 slides from Encompass Health's earnings presentation, Oct 27, 2022
Slide 1: Third Quarter 2022 Earnings Call Supplemental Information
2022 2022 First ThirdQuarter Quarter Earnings Call Earnings Call April 28, 2022 October 27, information Supplemental 2022 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 c
Slide 3: Table of contents
Table of contents Q3 2022 Summary ................................................................................................................................................................................. 4 Key takeaways ........................................................................
Slide 4: Q3 2022 Financial summary
Q3 2022 Financial summary Q3 9 Months ($ in millions) 2022 2021 %△ 2022 2021 %△ Encompass Health Net operating revenue $1,089.5 $1,010.8 7.8 % $3,211.3 $2,972.4 8.0 % Adjusted EBITDA $ 195.3 $ 199.3 (2.0)% $ 586.6 $ 616.5 (4.8)% Adjusted EPS $ 0.67 $ 0.76 (11.8)% $ 1.97 $ 2.28 (13.6)% Adjusted free
Slide 5: Q3 2022 Key takeaways
Q3 2022 Key takeaways u Revenue growth and operating expenses Net operating revenue growth of 7.8% ü Strong discharge growth of 7.5% (4.1% same store) ü Net revenue per discharge increased 0.7% (full resumption of sequestration effective July 1, 2022). Staffing costs improving, but continue to b
Slide 6: Q3 2022 Key takeaways
Q3 2022 Key takeaways u Hiring trends 183 net same-store RN hires in Q3 2022 ü 459 net same-store RN hires year-to-date through Q3 2022 vs. 283 in same period in 2021 u Capacity additions Opened 3 de novos in Q3 2022 (130 beds) and added 20 beds to existing hospitals ü YTD opened 9 de novos (410
Slide 7: Revenue
Revenue Q3 Q3 Favorable/ ($ in millions) 2022 2021 (Unfavorable) Net operating revenue: Inpatient $ 1,064.6 $ 983.7 8.2% Outpatient and other 24.9 27.1 (8.1%) Total revenue $ 1,089.5 $ 1,010.8 7.8% (Actual Amounts) Discharges 53,743 49,983 7.5% Same-store discharge growth 4.1% Net patient revenue pe
Slide 8: Adjusted EBITDA
Adjusted EBITDA(1) Q3 Q3 % of % of ($ in millions) 2022 Revenue 2021 Revenue Net operating revenue $ 1,089.5 $ 1,010.8 Operating expenses: Salaries and benefits (605.6) 55.6 % (537.0) 53.1 % Other operating expenses(a) (173.1) 15.9 % (156.4) 15.5 % Supplies (51.1) 4.7 % (46.7) 4.6 % Occupancy costs
Slide 9: Earnings per share - as reported
Earnings per share - as reported Q3 9 Months ($ in millions, except per share data) 2022 2021 2022 2021 Adjusted EBITDA $ 195.3 $ 199.3 $ 586.6 $ 616.5 Depreciation and amortization (62.1) (55.5) (180.3) (162.9) Interest expense and amortization of debt discounts and fees (38.2) (39.9) (138.2) (124.
Slide 10: Adjusted earnings per share
Adjusted earnings per share(5) Q3 9 Months 2022 2021 2022 2021 Earnings per share, as reported $ 0.63 $ 0.76 $ 1.66 $ 2.31 Adjustments, net of tax: Bondholder consent fees associated with Enhabit distribution — — 0.15 — Income tax adjustments 0.01 — 0.08 (0.03) Loss on early extinguishment of debt(2
Slide 11: 2022 YTD Adjusted free cash flow
2022 YTD Adjusted free cash flow(6) ($ in millions) $50.9 $9.5 $8.2 $(46.6) $(29.9) $302.0 $294.1 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted Free Cash Flow 9 Mos. 2021 EBITDA and other payments net of refunds expenditures Flow 9 Mos. 202
Slide 12: 2022 Guidance
2022 Guidance Prior Updated 2022 Guidance 2022 Guidance (issued 8/1/22) (issued 10/26/22) ($ in millions, except per share data) Net Operating Revenue $4,250 to $4,300 $4,320 to $4,350 Adjusted EBITDA(1) $820 to $840 $800 to $820 Adjusted earnings per share from continuing operations attributable to
Slide 13: 2022 Guidance considerations
2022 Guidance considerations u Guidance considerations updated as of October 26, 2022 A net increase of approximately 4.0% in Medicare pricing for Q4, prior to the resumption of sequestration Revenue reserves related to bad debt of approximately 2.0% to 2.2% ü Reflects payor mix shift to Medicar
Slide 14: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $ 5.1 $ 4.5 $ 6.9 $ 9.1 $ 10.8 $ 12.7 $ 15.0 $ 21.3 $ 21.1 $ 21.8 $ 24.2 Contract labor $ 6.1 $ 4.5 $ 6.5 $
Slide 15: Adjusted free cash flow assumptions
Adjusted free cash flow(6) assumptions Certain cash flow items 2022 ($ in millions) 2021 Assumptions Cash interest payments expected Cash interest payments (net of to decrease due to debt amortization of debt discounts $156.6 $140 to $150 repayment with distribution and fees) proceeds from Enhabit D
Slide 16: Uses of free cash flow
Uses of free cash flow 2022 ($ in millions) 2021 Assumptions IRF bed expansions $48.6 $40 to $45 New IRFs - De novos 314.9 290 to 300 Growth in core business - Acquisitions 1.1 ~2 - Replacement IRFs and other 48.9 10 to 20 $413.5 $342 to $367 Debt Debt redemptions (borrowings), net $1.0 TBD reductio
Slide 17: Appendix
Appendix
Slide 18: Encompass Health fundamentals and value drivers
Encompass Health fundamentals and value drivers u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of presumptively eligible inpatient rehabilitation patients Favorable demographics driving increased demand for rehabil
Slide 19: 2022-2026 Growth targets
2022-2026 Growth targets 6 to 10 100 to 150 6% to 8% de novos bed additions discharge CAGR per year per year Strong and sustainable business fundamentals Strong demographic tailwinds Multi-faceted growth strategy Highly fragmented sector presents unit acquisition and joint venture opportunitie
Slide 20: Encompass Health
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 09/30/22 153 Rehabilitation hospitals “IRFs” 57 are joint ventures 22 36 IRFs under States and development* Puerto Rico 24% of Licensed beds † 31% Rehabilitation hospitals “IRFs” of Medicare patients served
Slide 21: Expansion activity
Expansion activity IRF development projects Inpatient Rehabilitation Facilities Opened or Under Development Expected 22 announced and underway Joint # of New Beds operations date venture 2022 2023 2024 2025 De novo IRFs: Shiloh, IL Q1 2022 ü 40 — — — 1 New State: St. Augustine, FL Q1 2022 40 — — — N
Slide 22: Pre-payment claims denials
Pre-payment claims denials Impact to Income Statement u Encompass Health reserves pre-payment claim Update of denials as a reduction of net operating revenue upon Collections of Revenue notice that a claim is under review. New Reserve for Period Previously Reserve for Denials Prior Denied Claims New
Slide 23: Debt maturity profile - face value
Debt maturity profile - face value As of September 30, 2022* (pro forma for credit agreement amendment) ($ in millions) Callable beginning Callable beginning February 2025 February 2023 $927 Callable beginning Available April 2026 Revolver capacity $40 Drawn + $33 reserved for LCs $800 $800 Callable
Slide 24: Debt schedule
Debt schedule Change in September 30, December 31, Debt vs. ($ in millions) 2022 2021 YE 2021 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps(3) $ 40.0 $ 200.0 $ (160.0) Term loan facility, November 2024 - LIBOR +150bps(3) — 238.5 (238.5) Bonds Payable: 5.125% Seni
Slide 25: New-store/same-store growth
New-store/same-store growth Shreveport, LA (40 beds) Waco, TX (40 beds) Greenville, SC (40 beds) Shiloh, IL (40 beds) Moline, IL (40 beds) Pensacola, FL (40 beds) St. Augustine, FL (40 beds) Naples, FL (50 beds) Libertyville, IL (60 beds) Grand Forks, ND (40 beds) North Tampa, FL (50 beds) Cumming,
Slide 26: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q3 9 Months Full Year 2022 2021 2022 2021 2021 Medicare 65.3 % 64.2 % 65.0 % 64.4 % 64.4 % Medicare Advantage 15.0 % 15.1 % 15.0 % 15.6 % 15.2 % Managed care 11.6 % 12.2 % 11.9 % 11.8 % 12.1 % Medicaid 4.4 % 4.1 % 4.3 % 4.1 % 4.1 % Other third-party payors 0.9 %
Slide 27: Operational metrics
Operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2022 2022 2022 2021 2021 2021 2021 2021 ($ in millions) Net patient revenue-inpatient $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 1,015.1 $ 983.7 $ 976.9 $ 942.3 $ 3,918.0 Net patient revenue-outpatient and other revenues 24.9 24.7 23.1 27.4 27.1 24.8 17.6 96.9
Slide 28: Share information
Share information Weighted Average for the Period Q3 9 Months Full Year (in millions) 2022 2021 2022 2021 2021 2020 2019 Basic shares outstanding 99.2 99.0 99.2 99.0 99.0 98.6 98.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.3 1.2 1.1 1.1 1.2
Slide 29: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Three Months Ended Nine Months Ended September 30, September 30, Full Year 2022 2021 2022 2021 2021 ($ in millions) Net income $ 67.0 $ 126.7 $ 248.4 $ 401.5 $ 517.2 Loss (income) from discontinued operations, net of tax, attributable to Encompass H
Slide 30: 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) 2022 2021 2022 2021 2021 Net cash provided by operating activities $ 70.1 $ 177.6 $ 533.6 $ 592.0 $ 715.8 Interest expense and amortization of debt discounts and fees 38.2 39.9 138.2 124.
Slide 31: 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(6) Q3 9 Months Full Year ($ in millions) 2022 2021 2022 2021 2021 Net cash provided by operating activities $ 70.1 $ 177.6 $ 533.6 $ 592.0 $ 715.8 Impact of discontinued operations 19.9 (35.7) (56.0) (133.5) (151.
Slide 32: Adjusted EPS - Q3 2022
Adjusted EPS(5) - 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 33: Adjusted EPS - Q3 2021
Adjusted EPS(5) - Q3 2021 For the Three Months Ended September 30, 2021 Adjustments Change in Fair Market Value As Income Tax of Equity As Reported Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 199.3 $ — $ — $ 199.3 Depreciation and amortization (55.5) —
Slide 34: Adjusted EPS - YTD Q3 2022
Adjusted EPS(5) - YTD Q3 2022 For the Nine Months Ended September 30, 2022 Adjustments Change in Bondholder Fair Loss on Consent Fees Market Early Associated Value of As Exting. Income Tax with Enhabit Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per
Slide 35: Adjusted EPS - YTD Q3 2021
Adjusted EPS(5) - YTD Q3 2021 For the Nine Months Ended September 30, 2021 Adjustments Change in Fair Loss on Early Market Value As Extinguishment Income Tax of Equity As Reported of Debt Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 616.5 $ — $ — $ — $
Slide 36: Adjusted EPS - FY 2021
Adjusted EPS(5) - FY 2021 For the Year Ended December 31, 2021 Adjustments Loss on Early Change in Fair As Extinguishment Income Tax Market Value of As Reported of Debt Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 816.4 $ — $ — $ — $ 816.4 Deprec
Slide 37: 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