Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2021 Earnings Presentation
47 slides from Encompass Health's earnings presentation, Apr 28, 2021
Slide 1: First Quarter Earnings Call
First Quarter Earnings Call April 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 Q1 2021 summary.................................................................................................... 5-6 Inpatient rehabilitation segment...........
Slide 4: Key takeaways
Key takeaways u Encouraging start to 2021 First quarter performance characterized by promising volume trends that are contributing to solid revenue and Adjusted EBITDA growth Continued growth in Medicare Advantage discharges for our IRFs ü Same-store Medicare Advantage discharges increased 34% y
Slide 5: Q1 2021 summary
Q1 2021 summary Q1 ($millions) 2021 2020 Growth Encompass Health Consolidated Net operating revenues $ 1,230.4 $ 1,182.0 4.1 % Adjusted EBITDA $ 250.8 $ 228.0 10.0 % Adjusted EPS $ 1.05 $ 0.87 20.7 % Adjusted free cash flow $ 107.4 $ 74.6 44.0 % Inpatient Rehabilitation Segment Net operating revenue
Slide 6: Q1 2021 summary (continued)
Q1 2021 summary (continued) u Expansion activity (see page 24) Opened a new 40-bed inpatient rehabilitation hospital in San Angelo, TX in joint venture with Shannon Health Announced plans to build six inpatient rehabilitation hospitals in: ü Moline, IL - 40 beds (in joint venture with Unity Poin
Slide 7: Inpatient rehabilitation segment
Inpatient rehabilitation segment Revenue growth of 5.6% u Inpatient revenue growth resulted from favorable pricing partially offset by lower volumes. New-store discharge growth of 1.0% resulted from a joint venture in Coralville, IA (June 2020) and wholly owned hospitals in Murrieta, CA (February
Slide 8: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q1 Q1 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Inpatient $ 942.3 $ 890.0 5.9% Outpatient and other 17.6 19.2 (8.3%) Total segment revenue $ 959.9 $ 909.2 5.6% (Actual Amounts) Discharges 47,187 47,750 (1.2%) Same-store discharg
Slide 9: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q1 Q1 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 959.9 $ 909.2 Operating expenses: Salaries and benefits (501.9) 52.3 % (482.3) 53.0 % Other operating expenses(a) (140.0) 14.6 % (134.7) 14.8 % Supplies (45.2) 4.7 % (39.
Slide 10: Home health and hospice segment
Home health and hospice segment Revenue decreased 0.8%. u Total starts of care were up 0.6% due to increases in recertifications and non-episodic admissions. Non-episodic admissions increased 3% year over year primarily due to the new national contract with United Healthcare. u Total home health a
Slide 11: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q1 Q1 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Home health revenue $ 219.9 $ 224.8 (2.2) % Hospice revenue 50.6 48.0 5.4 % Total segment revenue $ 270.5 $ 272.8 (0.8)% Home Health Starts of care: Episodic admissions 40,215 42,47
Slide 12: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q1 Q1 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 270.5 $ 272.8 Cost of services (118.1) 43.7 % (130.9) 48.0 % Support and overhead costs (101.4) 37.5 % (100.2) 36.7 % (a)(b) Operating expenses (219.5) 81.1 % (231.1) 84.7
Slide 13: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $250.8 million u General and administrative expenses increased as a percent of consolidated revenue due to the $3.5 million year-over-year change in the mark-to-market adjustment on the Company’s non-qualified 401(k) liabil
Slide 14: Earnings per share - as reported
Earnings per share - as reported Q1 (In Millions, Except Per Share Data) 2021 2020 Adjusted EBITDA 250.8 228.0 Depreciation and amortization (62.5) (58.8) Interest expense and amortization of debt discounts and fees (42.8) (43.2) Stock-based compensation expense (2.8) (7.1) Gain (loss) on disposal o
Slide 15: Adjusted earnings per share
Adjusted earnings per share(5) Q1 2021 2020 Earnings per share, as reported $ 1.07 $ 0.87 Adjustments, net of tax: Government, class action, and related settlements(3) — 0.02 Costs associated with the strategic alternatives review 0.01 — Income tax adjustments (0.03) (0.04) Change in fair market val
Slide 16: 2021 Adjusted free cash flow
2021 Adjusted free cash flow(6) ($ in millions) $14.5 $22.8 $1.0 $1.6 ($7.1) $107.4 $74.6 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted Free Cash Flow 3 Mos. 2020 EBITDA and other payments payments, capital expenditures Flow 3 Mos. 2021 net of refunds u Adju
Slide 17: 2021 Guidance - Updated as of April 27, 2021
2021 Guidance - Updated as of April 27, 2021 Previous 2021 Full-Year Updated 2021 Full-Year Guidance Guidance Net operating revenues Net operating revenues $5,000 million to $5,170 million $5,060 million to $5,230 million Adjusted EBITDA(7) Adjusted EBITDA(7) $925 million to $955 million $1,000 mill
Slide 18: 2021 Guidance considerations
2021 Guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 2.3% increase in Medicare pricing u Estimated 1.9% increase in Medicare pricing for home health; estimated 2.4% pricing u Revenue reserve related to bad debt of 1.5% increase for hospice to 1.7% of net operatin
Slide 19: 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 3 Months 5.75% Senior Notes due Certain cash flow items 2021 2020 2024 in October 2020 and 2021 (millions) Assumptions Actuals the redemption of $100 Actuals million of 5.125% Senior No
Slide 20: Uses of free cash flow
Uses of free cash flow 3 Months 2021 2021 2020 ($millions) Actuals Assumptions Actuals IRF bed expansions $10.8 $50 to $70 $44.8 New IRFs Growth in - De novos 56.5 325 to 350 173.0 core - Acquisitions — opportunistic — business - Replacement IRFs and other 10.0 40 to 50 35.5 Home health and hospice
Slide 21: Appendix
Appendix
Slide 22: Encompass Health: leading provider of inpatient rehabilitation and home-based care
Encompass Health aand leading provider of inpatient rehabilitation home-based care Largest owner and operator of IRFs 4th Largest provider of Medicare-certified skilled home health services Portfolio as of March 31, 2021 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locat
Slide 23: 2020-2025 Growth Targets
2020-2025 Growth Targets INPATIENT 6 to 10 100 to 150 6% to 8% REHABILITATION De Novos bed additions Discharge CAGR per year per year 10%+ 10% to 15% $50 million Home Health Hospice to $100 million HOME HEALTH admissions admissions Acquisitions AND HOSPICE CAGR CAGR per year Not inclusive of larger
Slide 24: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Opened or Under Development* Operations Joint # of New Beds date venture? 2021 2022 2023 21 IRF development projects De novo IRFs: San Angelo, TX Q1 2021 Yes 40 — — announced and underway North Tampa, FL Q2 2021 50 — — 1 Cumming, GA Q2 2021 50 —
Slide 25: Clinical collaboration and integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. u The lower clinical Inpatient rehabilitation–home health clinical collaboration collaboration rate for Q1 (all payors) overlap markets* 2021 primarily was driven by a higher mix of Medicare Advant
Slide 26: Personal Protective Equipment - Utilization, Cost and Inventory
Personal Protective Equipment (PPE) – Utilization, Cost and Inventory Increased PPE Utilization u due to COVID-19 INPATIENT REHABILITATION ñ Utilization of PPE has increased as Avg. Monthly Utilization Avg. Monthly Spend a result of new infection control Months of Current policies in response to the
Slide 27: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Encompass Health reserves pre-payment claim denials as a Background reduction of net operating revenues upon notice from a MAC a • For several years prior to 2018, under programs designated as claim is under review. “widespread probes,” c
Slide 28: Debt maturity profile - face value
Debt maturity profile - face value Pro forma as of March 31, 2021*(1)) Callable beginning Callable beginning ($ in millions) February 2023 February 2025 $962 Available Callable beginning $0 Drawn + April 2026 $38 reserved for LCs Revolver capacity Callable $800 $800 Senior Senior Callable(1) Notes N
Slide 29: Debt schedule
Debt schedule Pro forma Change in March 31, March 31, December 31, Debt vs. (1) ($millions) 2021 2021 2020 YE 2020 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ — $ — $ — Term loan facility, November 2024 - LIBOR +150bps 248.3 248.3 251.6 (3.3) Bonds Payabl
Slide 30: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shelby County, AL (34 beds) Yuma, AZ (51 beds)(9) Bluffton, SC (38 beds) Boise, ID (40 beds) Katy, TX (40 beds) Murrells Inlet, SC 15.0 (29 beds) Lubbock, TX Sioux Falls, SD (40 beds) (40 beds) Coralville, IA (40 beds) San Angelo, TX (40 beds) 10.
Slide 31: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice (23 home health locations in Alabama) 30.0 in July 2019 Acquired Camellia Healthcare (14 home health locations in 3 states) 20.0 in May 2018 10.0 0.0 -10.0 -20.0 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1
Slide 32: New-store/same-store growth Hospice
New-store/same-store growth Hospice Acquired Camellia Healthcare (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice 70.0 in May 2018 (23 hospice locations in Alabama) in July 2019 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q
Slide 33: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2021 2020 2021 2020 2021 2020 2020 Medicare 63.9 % 70.5 % 82.7 % 83.0 % 68.1 % 73.4 % 70.5 % Medicare Advantage 16.5 % 12.3 % 10.4 % 10.8 % 15.1 % 11.9 % 14.2 % Mana
Slide 34: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2021 2020 2020 2020 2020 2020 (In Millions) Net patient revenue-inpatient $ 942.3 $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 3,496.1 Net patient revenue-outpatient and other revenues 17.6 18.2 16.2 16.5 19.2 70.1 Net operating revenues $ 9
Slide 35: Home health and hospice operational metrics
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2021 2020 2020 2020 2020 2020 (In Millions) Net home health revenue $ 219.9 $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 877.6 Net hospice revenue 50.6 53.6 51.2 47.8 48.0 200.6 Net operating revenues $ 270.5 $ 281.3 $ 274.5 $ 249.6 $ 272.8 $
Slide 36: Share information
Share information Weighted Average for the Period Q1 Full Year (In Millions) 2021 2020 2020 2019 2018 Basic shares outstanding 99.0 98.2 98.6 98.0 97.9 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.2 1.4 1.2 1.4 1.9 Diluted shares outstanding 10
Slide 37: Segment operating results
Segment operating results Q1 2021 Q1 2020 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 959.9 $ 270.5 $ — $ 1,230.4 $ 909.2 $ 272.8 $ — $ 1,182.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
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 Per (in millions, except per share data) Total Share Net Income $ 132.8 Net income attributable to noncontrolling interests (25.5) Income from continuing operations attributable to Encompass Health* 107.3 $ 1.07 Provision for income tax expe
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) Q1 Full Year (In Millions) 2021 2020 2020 Net cash provided by operating activities $ 158.5 $ 29.3 $ 704.7 Interest expense and amortization of debt discounts and fees 42.8 43.2 184.2 Equity in net income of nonconsolidated a
Slide 42: Reconciliation of segment Adjusted EBITDA to income from continuing operations before tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Year Ended March 31, December 31, 2021 2020 2020 (In Millions) Total segment Adjusted EBITDA $ 285.7 $ 256.5 $ 986.3 General and administrative expenses (38.6) (35.6) (155.5) D
Slide 43: 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) Q1 Full Year (In Millions) 2021 2020 2020 Net cash provided by operating activities $ 158.5 $ 29.3 $ 704.7 Impact of discontinued operations — 0.1 0.2 Net cash provided by operating activities of continuing ope
Slide 44: Adjusted EPS - Q1 2021
Adjusted EPS(5) - Q1 2021 For the Three Months Ended March 31, 2021 Adjustments Costs Associated Change in Fair with the Strategic Market Value As Income Tax Alternatives of Equity As Reported Adjustments Review Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 250.8 $ —
Slide 45: Adjusted EPS - Q1 2020
Adjusted EPS(5) - Q1 2020 For the Three Months Ended March 31, 2020 Adjustments Gain on Change in Consolidation Gov't, Class Fair Market of Former Payroll Action, & Income Value of Equity Taxes on As Related Tax Equity Method SARs As Reported Settlements Adj. Securities Location Exercise Adjusted (I
Slide 46: End notes
End notes (1) In March 2021, the Company issued notice for the redemption of $100 million of its 5.125% Senior Notes due 2023. The redemption was completed in April 2021 at 100% of par using cash on hand and drawings under the Company’s revolving credit facility. As a result of the transaction, the
Slide 47: 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