Encompass Health Corporation · NYSE:EHC
Encompass Health — Q4 2021 Earnings Presentation
54 slides from Encompass Health's earnings presentation, Feb 2, 2022
Slide 1: 2021 Fourth Quarter Earnings Call
2021 Fourth Quarter Earnings Call February 2, 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 timing and effects, such as the tax-fr
Slide 3: Table of contents
Table of contents 2021 Year in review ............................................................................................................................................................................. 4 Spin-off of Enhabit Home Health & Hospice.............................................
Slide 4: 2021 Year in review
2021 Year in review u Strong financial performance for 2021 in spite of challenges related to Alpha, Delta, and Omicron variants Consolidated revenue growth of 10.3% ü Inpatient rehabilitation revenue increased 12.6%. ü Home health and hospice revenue increased 2.6%. Consolidated Adjusted EBITDA
Slide 5: Spin-off of Enhabit Home Health & Hospice
Spin-off of Enhabit Home Health & Hospice u Encompass Health plans to spin off its home health and hospice business into an independent publicly traded company The spin-off is expected to be tax free to EHC shareholders. (A Private Letter Ruling request has been filed with the IRS.) The spin-off
Slide 6: The future of home-based healthcare is here
Home health & hospice rebranding The future of home-based healthcare is here Committed to delivering a better way to care for our patients and their loved ones One of Modern Healthcare’s Best Places to Work Industry leader in advanced technologies and predictive analytics Learn more about Enhabit at
Slide 7: Enhabit Home Health & Hospice
Enhabit Home Health & Hospice 4th Largest Provider of Medicare-Certified Skilled Home Health Services Home Health & Hospice Overview ~10,900 Employees ~$1.1 Billion in revenue 347 locations Portfolio as of 12/31/21 Home Health Locations Hospice Locations Home Health Overview ~200,600 2021 Home Healt
Slide 8: Q4 2021 Key takeaways
Q4 2021 Key takeaways u Solid consolidated financial performance in Q4 in spite of Delta and Omicron surges Consolidated revenue growth of 8.6% Consolidated Adjusted EBITDA growth of 5.3% u Strong revenue and Adjusted EBITDA growth in IRF segment Revenue growth of 11.7% driven by 9.6% discharg
Slide 9: Q4 2021 Summary
Q4 2021 Summary Q4 Full Year ($ in millions) 2021 2020 % 2021 2020 % Encompass Health Consolidated Net operating revenues $ 1,318.7 $ 1,214.4 8.6 % $ 5,121.6 $ 4,644.4 10.3 % Adjusted EBITDA $ 252.7 $ 239.9 5.3 % $ 1,028.0 $ 860.3 19.5 % Adjusted EPS $ 0.97 $ 0.93 4.3 % $ 4.23 $ 2.89 46.4 % Adjust
Slide 10: Inpatient rehabilitation segment
Inpatient rehabilitation segment Q4 Revenue growth of 11.7% u Inpatient revenue growth resulted from increased volumes and pricing. Total discharge growth of 9.6%, inclusive of same-store growth of 6.0% Growth in net patient revenue per discharge of 1.2% primarily resulted from an increase in re
Slide 11: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q4 Q4 Favorable/ ($ in millions) 2021 2020 (Unfavorable) Net operating revenues: Inpatient $ 1,015.2 $ 914.9 11.0% Outpatient and other 27.4 18.2 50.5% Total segment revenue $ 1,042.6 $ 933.1 11.7% (Actual Amounts) Discharges 50,977 46,503 9.6% Same-store d
Slide 12: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q4 Q4 % of % of ($ in millions) 2021 Revenue 2020 Revenue Net operating revenues $ 1,042.6 $ 933.1 Operating expenses: Salaries and benefits (572.4) 54.9 % (495.1) 53.1 % Other operating expenses(a) (151.1) 14.5 % (140.2) 15.0 % Supplies (48.1) 4.6
Slide 13: Home health and hospice segment
Home health and hospice segment Home health total admissions increased 4.7%; same store growth of 2.4% u Home health total admissions increased 4.7% in Q4; increased 3.3% in 2021. Non-episodic admissions increased 67.6% in Q4; increased 28.1% in 2021. Episodic admissions declined 7.2% in Q4. ü A
Slide 14: Home health and hospice segment (continued)
Home health and hospice segment (continued) Adjusted EBITDA decreased 5.2% u Adjusted EBITDA decreased primarily due to the higher costs of services related to industry- wide staffing challenges. u Home health cost per visit increased ~9% primarily due to lower clinical productivity, market rate inc
Slide 15: Home health and hospice segment (continued)
Home health and hospice segment (continued) Recruiting, retention, and labor trends u While we have continued to see staffing limitations across homecare, we are making great progress hiring nurses. Increased nursing staff by 133 full-time employees in Q4 2021, 70 more than in Q4 2020 Increased
Slide 16: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q4 Q4 Favorable/ ($ in millions) 2021 2020 (Unfavorable) Net operating revenues: Home health revenue $ 224.0 $ 227.7 (1.6) % Hospice revenue 52.1 53.6 (2.8) % Total segment revenue $ 276.1 $ 281.3 (1.8)% Home Health Starts of care: Total admissions 50,817 48
Slide 17: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q4 Q4 % of % of ($ in millions) 2021 Revenue 2020 Revenue Net operating revenues $ 276.1 $ 281.3 Cost of services (124.6) 45.1 % (121.9) 43.3 % Support and overhead costs (98.5) 35.7 % (103.6) 36.8 % (a) Operating expenses (223.1) 80.8 % (225.5) 80.2
Slide 18: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $252.7 million u General and administrative expenses decreased as a percent of consolidated revenue due to the increased revenue base year-over-year. % of Consolidated % of Consolidated ($ in millions) Q4 2021 Revenue Q4 20
Slide 19: Earnings per share - as reported
Earnings per share - as reported Q4 Year Ended ($ in millions, except per share data) 2021 2020 2021 2020 Adjusted EBITDA $ 252.7 $ 239.9 $ 1,028.0 $ 860.3 Depreciation and amortization (65.8) (62.3) (256.6) (243.0) Interest expense and amortization of debt discounts and fees (40.1) (46.2) (164.6) (
Slide 20: Adjusted earnings per share
Adjusted earnings per share(6) Q4 Year Ended 2021 2020 2021 2020 Earnings per share, as reported $ 0.91 $ 0.86 $ 4.11 $ 2.85 Adjustments, net of tax: Government, class action, and related settlements(4) — — — 0.02 Costs associated with the strategic alternatives review 0.10 — 0.17 — Costs associated
Slide 21: 2021 Adjusted free cash flow
2021 Adjusted free cash flow(7) ($ in millions) 167.7 20.2 16.1 (188.4) (96.7) 579.9 498.8 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted Free Cash Flow FY 2020 EBITDA and other payments payments, capital expenditures Flow FY 2021 net of refunds u Adjusted fr
Slide 22: 2021 Full-year guidance trend and actual results
2021 Full-year guidance trend and actual results Initial Updated Updated Updated 2021 Actuals Guidance Guidance* Guidance** Guidance*** ($ in millions, except per share data) January 26, 2021 April 27, 2021 July 27, 2021 October 27, 2021 Net Operating $5,000 $5,060 $5,100 $5,080 Revenue to to to to
Slide 23: 2022 Guidance
2022 Guidance 2021 Actuals 2022 Guidance* ($ in millions, except per share data) Net Operating Revenue $5,122 $5,380 to $5,500 Adjusted EBITDA (8) $1,028 $1,015 to $1,065 Adjusted earnings per share from continuing operations attributable to $4.23 $3.83 to $4.19 Encompass Health (6) The Company's 20
Slide 24: 2022 Guidance considerations
2022 Guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated increase of 1.9% in Medicare u Estimated increase of 3.4% in Medicare pricing prior to resumption of pricing for home health prior to sequestration resumption of sequestration u Revenue reserves related to bad
Slide 25: 2022-2026 Growth targets
2022-2026 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 Home Health Hospice to $100 million AND HOSPICE admissions admissions Acquisitions CAGR CAGR per year Strong and sustainable b
Slide 26: Adjusted free cash flow assumptions
Adjusted free cash flow(7) assumptions Certain cash flow items 2021 2022 ($ in millions) Actuals Assumptions u Cash interest payments expected to be flat due to lower average interest rate in 2021 Cash interest payments (net of with the redemption of $200 million of amortization of debt discounts $1
Slide 27: Uses of free cash flow
Uses of free cash flow 2021 2022 ($ in millions) Actuals Assumptions IRF bed expansions $48.6 $40 to $50 New IRFs Growth in - De novos 314.9 320 to 340 core - Acquisitions 1.1 opportunistic business - Replacement IRFs and other 48.9 10 to 20 Home health and hospice acquisitions* 117.5 50 to 100 $531
Slide 28: Appendix
Appendix
Slide 29: Encompass Health
a leading provider of inpatient rehabilitation Encompass Health and home-based care one of the 2021 FORTUNE® “World’s Most Admired Companies” Portfolio as of 12/31/21 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 25 Future IRFs** 42 States and Puerto Rico ~43,40
Slide 30: Expansion activity
Expansion activity IRF development projects Inpatient Rehabilitation Facilities Under Development Expected Joint # of New Beds 25 announced and underway operations date venture? 2022 2023 2024 De novo IRFs: 2021 expansion activity highlights 1 Shiloh, IL Q1 2022 Yes 40 — — u Opened 8 inpatient rehab
Slide 31: Improving patient experience through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* Clinical Collaboration Rate u The clinical collaboration rate has decreased 35.6% primarily due to Medicare
Slide 32: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a • For several years prior to 2018, under programs designated as reduction of net operating revenues upon notice from a MAC a “widespread probes,” certain Medicare Adminis
Slide 33: Debt maturity profile - face value
Debt maturity profile - face value As of December 31, 2021*) Callable beginning ($ in millions) Callable beginning February 2025 $762 February 2023 Available $200 Drawn + $38 Callable beginning reserved for April 2026 LCs Revolver capacity Callable Callable $800 $800 Senior Senior Notes Notes 4.5% 4
Slide 34: Debt schedule
Debt schedule Change in December 31, December 31, Debt vs. ($ in millions) 2021 2020 YE 2020 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 200.0 $ — $ 200.0 Term loan facility, November 2024 - LIBOR +150bps 238.5 251.6 (13.1) Bonds Payable: 5.125% Senior Notes
Slide 35: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shreveport, LA (40 beds) Waco, TX (40 beds) North Tampa, FL (50 beds) Greenville, SC (40 beds) Cumming, GA (50 beds) Pensacola, FL (40 beds) Yuma, AZ (51 beds)(10) Sioux Falls, SD (40 beds) 20.0 Boise, ID (40 beds) Coralville, IA (40 beds) Katy, T
Slide 36: 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 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 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Slide 37: 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 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 20
Slide 38: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q4 Q4 Q4 Full Year 2021 2020 2021 2020 2021 2020 2021 2020 Medicare 64.7 % 68.3 % 81.0 % 84.3 % 68.1 % 72.0 % 68.2 % 70.5 % Medicare Advantage 14.0 % 13.6 % 11.2 % 9.9 % 13.4 % 12.7 %
Slide 39: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2021 2021 2020 2020 2020 2020 2021 2020 ($ in millions) Net patient revenue- inpatient $ 1,015.2 $ 983.7 $ 976.9 $ 942.3 $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 3,918.1 $ 3,496.1 Net patient revenue- outpatient and ot
Slide 40: Home health and hospice operational metrics
Home health and hospice operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2021 2021 2020 2020 2020 2020 2021 2020 ($ in millions) Net home health revenue $ 224.0 $ 221.1 $ 232.3 $ 219.9 $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 897.3 $ 877.6 Net hospice revenue 52.1 52.8 53.8 50.6 53.6 51.2 47
Slide 41: Share information
Share information Weighted Average for the Period Q4 Full Year (in millions) 2021 2020 2021 2020 2019 Basic shares outstanding 99.0 98.7 99.0 98.6 98.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.2 1.4 1.2 1.2 1.4 Diluted shares outstanding 10
Slide 42: Segment operating results
Segment operating results Q4 2021 Q4 2020 Home Home Health and Health and ($ in millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,042.6 $ 276.1 $ — $ 1,318.7 $ 933.1 $ 281.3 $ — $ 1,214.4 Operating Expenses: Inpatient Rehabilitation: Salaries
Slide 43: Segment operating results
Segment operating results Year Ended December 31, 2021 Year Ended December 31, 2020 Home Home Health and Health and ($ in millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 4,015.0 $ 1,106.6 $ — $ 5,121.6 $ 3,566.2 $ 1,078.2 $ — $ 4,644.4 Operati
Slide 44: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(8) 2021 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 $ 132.8 $ 142.0 $ 126.7 $ 115.7 $ 517.2 Loss from disc ops, net of tax, attributable to Enco
Slide 45: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(8) 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
Slide 46: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(8) Q4 Full Year ($ in millions) 2021 2020 2021 2020 Net cash provided by operating activities $ 123.8 $ 279.7 $ 715.8 $ 704.7 Interest expense and amortization of debt discounts and fees 40.1 46.2 164.6 184.2 Equity in net incom
Slide 47: Reconciliation of segment Adjusted EBITDA to income before tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Year Ended December 31, December 31, 2021 2020 2021 2020 ($ in millions) Total segment Adjusted EBITDA $ 288.9 $ 273.5 $ 1,168.3 $ 986.3 General and administrative expenses (60
Slide 48: Reconciliation of operating cash flow to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(7) Q4 Full Year ($ in millions) 2021 2020 2021 2020 Net cash provided by operating activities $ 123.8 $ 279.7 $ 715.8 $ 704.7 Impact of discontinued operations (0.1) — 0.5 0.2 Net cash provided by operating activi
Slide 49: Adjusted EPS - Q4 2021
Adjusted EPS(6) - Q4 2021 For the Three Months Ended December 31, 2021 Adjustments Costs Gain on Associated Change in Consolidation with the Fair Market of Former Strategic Value of Equity As Income Tax Alternatives Equity Method As Reported Adjustments Review Securities Location Adjusted ($ in mill
Slide 50: Adjusted EPS - Q4 2020
Adjusted EPS(6) - Q4 2020 For the Three Months Ended December 31, 2020 Adjustments Change in Fair Market Loss on Early Value of Exting. of Income Tax Equity As Reported Debt Adjustments Securities As Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 239.9 $ — $ — $ — $ 239.9 Depre
Slide 51: Adjusted EPS - 2021
Adjusted EPS(6) - 2021 For the Year Ended December 31, 2021 Adjustments Loss Costs Change in Gain on on Associated Costs Fair Consolidation Early with the Associated Market of Former Exting. Strategic with the Value of Equity As of Income Tax Alternatives Frontier Equity Method As Reported Debt Adju
Slide 52: Adjusted EPS - 2020
Adjusted EPS(6) - 2020 For the Year Ended December 31, 2020 Adjustments Change in Gain on Fair Consolidation Gov't, Class Loss on Market of Former Payroll Action, & Early Value of Equity Taxes As Related Exting. Income Tax Equity Method on SARs As Reported Settlements of Debt Adjustments Securities
Slide 53: End notes
End notes (1) As a result of an amendment to the joint venture agreement related to our home health location in Boynton Beach, Florida, the accounting for this agency changed from the equity method of accounting to a consolidated entity effective December 1, 2021. We accounted for this change in con
Slide 54: End notes, continued
End notes, continued (9) On Oct. 28, 2013, the Company announced its board of directors authorized the repurchase of up to $200 million of its common stock. On Feb. 14, 2014, the Company's board approved an increase in this common stock repurchase authorization from $200 million to $250 million. As