Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2021 Earnings Presentation
49 slides from Encompass Health's earnings presentation, Jul 28, 2021
Slide 1: Second Quarter Earnings Call
Second Quarter Earnings Call July 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 Q2 2021 summary...................................................................................................
Slide 4: Key takeaways
Key takeaways u Business momentum accelerated in Q2 Strong revenue and Adjusted EBITDA growth in both segments over Q2 2020 and Q2 2019 Inpatient rehabilitation business ü Discharge growth of 18.7% ü Pricing continues to benefit from higher acuity Home health and hospice business ü Admissions
Slide 5: Q2 2021 summary
Q2 2021 summary Q2 6 Months ($millions) 2021 2020 Growth 2021 2020 Growth Encompass Health Consolidated Net operating revenues $1,287.7 $1,074.1 19.9 % $2,518.1 $2,256.1 11.6 % Adjusted EBITDA $ 278.9 $ 162.2 71.9 % $ 529.7 $ 390.2 35.8 % Adjusted EPS $ 1.17 $ 0.31 277.4 % $ 2.22 $ 1.18 88.1 % Adjus
Slide 6: Q2 2021 summary (continued)
Q2 2021 summary (continued) u IRF expansion activity (see page 24) Opened a new 50-bed inpatient rehabilitation hospital in North Tampa, FL Opened a new 50-bed inpatient rehabilitation hospital in Cumming, GA Announced plans to build four inpatient rehabilitation hospitals in: ü Grand Forks, N
Slide 7: Inpatient rehabilitation segment
Inpatient rehabilitation segment Revenue growth of 21.5% u Inpatient revenue growth resulted from increased volumes and favorable pricing. New-store discharge growth of 1.8% (see pages 24 and 29) Same-store discharge growth of 16.9% ü Same-store discharge growth in Q2 2021 compared to Q2 2019 wa
Slide 8: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q2 Q2 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Inpatient $ 976.9 $ 808.0 20.9% Outpatient and other 24.7 16.5 49.7% Total segment revenue $ 1,001.6 $ 824.5 21.5% (Actual Amounts) Discharges 49,492 41,682 18.7% Same-store discha
Slide 9: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q2 Q2 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 1,001.6 $ 824.5 Operating expenses: Salaries and benefits (515.9) 51.5 % (451.4) 54.7 % Other operating expenses(a) (147.5) 14.7 % (124.3) 15.1 % Supplies (44.1) 4.4 % (4
Slide 10: Home health and hospice segment
Home health and hospice segment Revenue increased 14.6%. u Home health volume recovery continues Total starts of care were up 10.9%. Volume growth achieved in spite of continued lower occupancy at skilled nursing and senior living facilities, as well as staffing challenges in certain markets. ü
Slide 11: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q2 Q2 Favorable/ ($millions) 2021 2020 (Unfavorable) Net operating revenues: Home health revenue $ 232.3 $ 201.8 15.1 % Hospice revenue 53.8 47.8 12.6 % Total segment revenue $ 286.1 $ 249.6 14.6 % Home Health Starts of care: Episodic admissions 39,657 34,84
Slide 12: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q2 Q2 % of % of ($millions) 2021 Revenue 2020 Revenue Net operating revenues $ 286.1 $ 249.6 Cost of services sold (122.6) 42.9 % (136.7) 54.8 % Support and overhead costs (103.1) 36.0 % (98.3) 39.4 % (a) Operating expenses (225.7) 78.9 % (235.0) 94.
Slide 13: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $278.9 u General and administrative expenses decreased as a percent of consolidated revenue due to the increased revenue base year over year. % of Consolidated % of Consolidated ($millions) Q2 2021 Revenue Q2 2020 Revenue I
Slide 14: Earnings per share - as reported
Earnings per share - as reported Q2 6 Months (In Millions, Except Per Share Data) 2021 2020 2021 2020 Adjusted EBITDA $ 278.9 $ 162.2 $ 529.7 $ 390.2 Depreciation and amortization (63.4) (60.7) (125.9) (119.5) Interest expense and amortization of debt discounts and fees (41.8) (45.8) (84.6) (89.0) S
Slide 15: Adjusted earnings per share
Adjusted earnings per share(5) Q2 6 Months 2021 2020 2021 2020 Earnings per share, as reported $ 1.13 $ 0.34 $ 2.20 $ 1.21 Adjustments, net of tax: Government, class action, and related settlements(3) — — — 0.02 Costs associated with the strategic alternatives review 0.03 — 0.04 — Costs associated w
Slide 16: 2021 Adjusted free cash flow
2021 Adjusted free cash flow(6) ($ in millions) $139.5 $5.3 $19.7 $(53.1) $(41.2) $313.0 $242.8 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted Free Cash Flow 6 Mos. 2020 EBITDA and other payments payments, capital expenditures Flow 6 Mos. 2021 net of refunds
Slide 17: 2021 Guidance - Updated as of July 27, 2021
2021 Guidance - Updated as of July 27, 2021 Previous 2021 Full-Year Updated 2021 Full-Year Guidance Guidance Net operating revenues Net operating revenues $5,060 million to $5,230 million $5,100 million to $5,250 million Adjusted EBITDA(7) Adjusted EBITDA(7) $1,000 million to $1,030 million $1,050 m
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 Q1 through Q3; 2.1% for Q4 for home health; estimated 2.4% pricing increase for hospice u Revenue reserve related to bad debt
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 6 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 $200 million of 5.125% Senior Notes d
Slide 20: Uses of free cash flow
Uses of free cash flow 6 Months 2021 2021 2020 ($millions) Actuals Assumptions Actuals IRF bed expansions $22.3 $50 to $70 $44.8 New IRFs Growth in - De novos 126.2 325 to 350 173.0 core - Acquisitions — opportunistic — business - Replacement IRFs and other 20.9 40 to 50 35.5 Home health and hospice
Slide 21: Appendix
Appendix
Slide 22: Encompass Health: leading provider of inpatient rehabilitation and home-based care
Encompass Health aand leading provider of inpatient rehabilitation home-based care Largest owner and operator of IRFs 4th Largest provider of Medicare-certified skilled home health services Portfolio as of June 30, 2021 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locati
Slide 23: 2021 to 2019 comparison
2021 to 2019 comparison Q2 6 Months ($millions) 2021 2019 Growth 2021 2019 Growth Encompass Health Consolidated Net operating revenues $1,287.7 $1,135.0 13.5 % $ 2,518.1 $ 2,259.0 11.5 % Adjusted EBITDA $ 278.9 $ 252.2 10.6 % $ 529.7 $ 495.1 7.0 % Inpatient Rehabilitation Segment Net operating reven
Slide 24: Expansion activity
Expansion activity 27 IRF development projects Inpatient Rehabilitation Facilities announced and underway* Opened or Under Development* Q2 2021 expansion activity highlights Operations Joint # of New Beds u Opened two inpatient rehabilitation hospitals date venture? 2021 2022 2023 De novo IRFs: 50
Slide 25: Integrated care delivery and clinical collaboration
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* u Admissions from EHC’s IRFs to EHC’s HH locations have Clinical Collaboration Rate increased sequentially
Slide 26: 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 27: Debt maturity profile - face value
Debt maturity profile - face value As of June 30, 2021*) Callable beginning Callable beginning ($ in millions) February 2023 February 2025 $917 Available Callable beginning $45 Drawn + April 2026 $38 reserved for LCs Revolver capacity Callable Callable $800 $800 Senior Senior Notes Notes 4.5% 4.75%
Slide 28: Debt schedule
Debt schedule Change in June 30, December 31, Debt vs. ($millions) 2021 2020 YE 2020 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 45.0 $ — $ 45.0 Term loan facility, November 2024 - LIBOR +150bps 245.1 251.6 (6.5) Bonds Payable: 5.125% Senior Notes due 2023(1)
Slide 29: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation North Tampa, FL (50 beds) Yuma, AZ (51 beds)(9) Cumming, GA (50 beds) Boise, ID (40 beds) Murrells Inlet, SC Katy, TX (40 beds) (29 beds) 20.0 Lubbock, TX Sioux Falls, SD (40 beds) (40 beds) San Angelo, TX Coralville, IA (40 beds) (40 beds) Winsto
Slide 30: 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) Acquired Frontier Home Health & Hospice 30.0 in July 2019 (9 home health locations in 5 states) in June 2021 20.0 10.0 0.0 -10.0 -20.0 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019
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 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 20
Slide 32: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q2 Q2 Q2 6 Months Full Year 2021 2020 2021 2020 2021 2020 2021 2020 2020 Medicare 65.0 % 61.1 % 82.0 % 81.8 % 68.6 % 65.8 % 68.6 % 69.8 % 70.5 % Medicare Advantage 15.3 % 20.1 % 10.5 %
Slide 33: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2020 2020 2020 2020 2020 (In Millions) Net patient revenue-inpatient $ 976.9 $ 942.3 $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 3,496.1 Net patient revenue-outpatient and other revenues 24.7 17.6 18.2 16.2 16.5 19.2 70.1 Net o
Slide 34: Home health and hospice operational metrics
Home health and hospice operational metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2021 2021 2020 2020 2020 2020 2020 (In Millions) Net home health revenue $ 232.3 $ 219.9 $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 877.6 Net hospice revenue 53.8 50.6 53.6 51.2 47.8 48.0 200.6 Net operating revenues $ 286.1 $ 270.5 $ 28
Slide 35: Share information
Share information Weighted Average for the Period Q2 6 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 1.2 1.1 1.2
Slide 36: Segment operating results
Segment operating results Q2 2021 Q2 2020 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,001.6 $ 286.1 $ — $ 1,287.7 $ 824.5 $ 249.6 $ — $ 1,074.1 Operating Expenses: Inpatient Rehabilitation: Salaries an
Slide 37: Segment operating results
Segment operating results Six Months Ended June 30, 2021 Six Months Ended June 30, 2020 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,961.5 $ 556.6 $ — $ 2,518.1 $ 1,733.7 $ 522.4 $ — $ 2,256.1 Operating
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 6 Months Per Per Per (in millions, except per share data) Total Share Total Share Total Share Net Income $ 132.8 $ 142.0 $ 274.8 Loss from disc ops, net of tax, attributable to Encompass Health — 0.3 0.3 Net income attributable to noncont
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) Q2 6 Months Full Year (In Millions) 2021 2020 2021 2020 2020 Net cash provided by operating activities $ 255.9 $ 222.3 $ 414.4 $ 251.6 $ 704.7 Interest expense and amortization of debt discounts and fees 41.8 45.8 84.6 89.0 1
Slide 42: Reconciliation of segment Adjusted EBITDA to income before income tax expense
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Six Months Ended Year Ended June 30, June 30, December 31, 2021 2020 2021 2020 2020 (In Millions) Total segment Adjusted EBITDA $ 315.7 $ 195.3 $ 601.4 $ 451.8 $ 986.3 General
Slide 43: Reconciliation of net cash from operating activities to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(6) Q2 6 Months Full Year (In Millions) 2021 2020 2021 2020 2020 Net cash provided by operating activities $ 255.9 $ 222.3 $ 414.4 $ 251.6 $ 704.7 Impact of discontinued operations 0.6 — 0.6 0.1 0.2 Net cash provid
Slide 44: Adjusted EPS - Q2 2021
Adjusted EPS(5) - Q2 2021 For the Three Months Ended June 30, 2021 Adjustments Costs Costs Change in Loss on Associated with Associated Fair Market Early the Strategic with the Value of As Exting. of Income Tax Alternatives Frontier Equity As Reported Debt Adjustments Review Acquisition Securities A
Slide 45: Adjusted EPS - Q2 2020
Adjusted EPS(5) - Q2 2020 For the Three Months Ended June 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 $ 162.2 $ — $ — $ 162.2 Depreciation and amortization (60.7) — — (60.
Slide 46: Adjusted EPS - YTD 2021
Adjusted EPS(5) - YTD 2021 For the Six Months Ended June 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 Securities Ad
Slide 47: Adjusted EPS - YTD 2020
Adjusted EPS(5) - YTD 2020 For the Six Months Ended June 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 Adjust
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