Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2020 Earnings Presentation
50 slides from Encompass Health's earnings presentation, Oct 29, 2020
Slide 1: Third Quarter Earnings Call
Third Quarter Earnings Call October 29, 2020 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 COVID-19 pandemic and its effects, leg
Slide 3: Table of contents
Table of contents Q3 2020 summary.................................................................................................... 4-5 Year-over-year volume trends..................................................................................... 6-8 Inpatient rehabilitation segment............
Slide 4: Q3 2020 summary
Q3 2020 summary Q3 9 Months ($millions) 2020 2019 Growth 2020 2019 Growth Encompass Health Consolidated Net operating revenues $ 1,173.9 $ 1,161.6 1.1 % $ 3,430.0 $ 3,420.6 0.3 % Adjusted EBITDA $ 230.2 $ 231.6 (0.6)% $ 620.4 $ 726.7 (14.6)% Inpatient Rehabilitation Segment Net operating revenues $
Slide 5: Q3 2020 summary (continued)
Q3 2020 summary (continued) u Expansion activity (see page 23) Announced plans to build inpatient rehabilitation hospitals in the following locations: ü Knoxville, Tennessee (total of 73 beds at two locations; in joint venture with Covenant Health) ü St. Augustine, Florida (40 beds) ü Lakeland, Fl
Slide 6: Inpatient Rehabilitation – Patient Census Information
Inpatient Rehabilitation – Patient Census Information Beginning in mid-March 2020, patient census was impacted by the COVID-19 pandemic. . 8,000 7,000 6,910 6,752 6,537 6,560 6,572 6,000 6,311 6,294 6,452 6,390 6,263 6,344 6,465 6,331 6,377 6,409 6,526 6,413 5,465 5,000 4,000 3,000 2,000 1,000 0 Jan
Slide 7: Home Health - Starts of Episodes
Home Health - Starts of Episodes (Includes Starts of Care and Recertifications) Beginning in mid-March 2020, starts of episodes were impacted by the COVID-19 pandemic. . . . The acquisition of Alacare anniversaried on July 1, 2020. Home health starts of episodes decreased sequentially in August 2020
Slide 8: Hospice - Admissions
Hospice - Admissions Hospice admissions experienced an initial drop in March 2020 but rebounded quickly. . . The acquisition of Alacare anniversaried on July 1, 2020. 1,200 1,147 1,145 1,116 1,092 1,093 1,000 1,035 1,008 1,001 979 977 915 906 800 810 803 806 789 765 729 600 400 200 0 Jan Feb Ma Ap M
Slide 9: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q3 Q3 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Inpatient $ 883.2 $ 850.6 3.8% Outpatient and other 16.2 21.7 (25.3%) Total segment revenue $ 899.4 $ 872.3 3.1% (Actual Amounts) Discharges 45,962 46,669 (1.5%) Same-store dischar
Slide 10: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q3 Q3 % of % of ($millions) 2020 Revenue 2019 Revenue Net operating revenues $ 899.4 $ 872.3 Operating expenses: Salaries and benefits (475.0) 52.8 % (459.1) 52.6 % u Expenses as a percent of revenue Other operating expenses (a) (135.5) 15.1 % (131.
Slide 11: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q3 Q3 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Home health revenue $ 223.3 $ 238.9 (6.5)% Hospice revenue 51.2 50.4 1.6 % Total segment revenue $ 274.5 $ 289.3 (5.1)% Home Health Metrics (Actual Amounts) Admissions 40,765 42,174
Slide 12: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q3 Q3 u All expense ratios in Q3 2020 % of % of ($millions) 2020 Revenue 2019 Revenue were impacted by a decrease Net operating revenues $ 274.5 $ 289.3 in revenues primarily related to the implementation of PDGM and the COVID-19 Cost of services sol
Slide 13: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $230.2 million u General and administrative expenses were flat as a percent of consolidated revenue. % of Consolidated % of Consolidated ($millions) Q3 2020 Revenue Q3 2019 Revenue Inpatient rehabilitation segment Adjusted
Slide 14: Earnings per share - as reported
Earnings per share - as reported Q3 9 Months u The decrease in EPS primarily resulted (In Millions, Except Per Share Data) 2020 2019 2020 2019 from decreased Adjusted EBITDA, Adjusted EBITDA $ 230.2 $ 231.6 $ 620.4 $ 726.7 higher depreciation and amortization, Depreciation and amortization (61.2) (5
Slide 15: Adjusted earnings per share
Adjusted earnings per share(5) Q3 9 Months 2020 2019 2020 2019 Earnings per share, as reported $ 0.78 $ 0.98 $ 1.99 $ 2.94 Adjustments, net of tax: Government, class action, and related settlements(4) — — 0.02 — Mark-to-market adjustment for stock compensation expense (see page 27) — 0.08 — 0.36 Tra
Slide 16: 2020 Adjusted free cash flow
2020 Adjusted free cash flow(6) $38.0 $78.8 $(2.4) $(20.8) ($106.3) $379.6 $366.9 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow 9 Mos. 2019 EBITDA and other payments payments, capital expenditures flow 9 Mos. 2020 net of refunds u Adjusted fre
Slide 17: Guidance for Q4 2020
Guidance for Q4 2020 Q4 2019 Q4 2020 Actuals Guidance Net operating revenues Net operating revenues $1,184.4 million $1,150 million to $1,220 million Adjusted EBITDA(7) Adjusted EBITDA(7) $238.2 million $225 million to $240 million Adjusted earnings per share Adjusted earnings per share from continu
Slide 18: Q4 2020 Guidance considerations
Q4 2020 Guidance considerations Adjusted EBITDA of $238.2 million in Q4 2019 was impacted by: (in millions) Self-insurance programs reserve adjustments $7.0 Business interruption insurance recovery 2.5 Net impact to Q4 2019 Adjusted EBITDA $9.5 Inpatient Rehabilitation u Estimated increase in Medica
Slide 19: Adjusted free cash flow assumptions
Adjusted free cash flow(6) assumptions Certain cash flow items 9 Months 2020 2019 (millions) 2020 Actuals Assumptions Actuals u Increased cash interest payments expected in 2020 due to new borrowings in 2019 to fund Cash interest payments (net of the acquisition of Alacare amortization of debt disco
Slide 20: Uses of free cash flow
Uses of free cash flow 9 Months 2020 2020 2019 ($millions) Actuals Assumptions Actuals IRF bed expansions $33.2 $40 to $50 $39.8 New IRFs - De novos 97.2 180 to 190 114.2 Growth in core - Acquisitions — opportunistic — business - Replacement IRFs and other 27.4 35 to 45 83.1 Home health and hospice
Slide 21: Appendix
Appendix
Slide 22: Encompass Health portfolio map of locations
Encompass Health aand leading provider of inpatient rehabilitation home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of September 30, 2020** Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 17 Fu
Slide 23: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Certain development projects may be delayed due to Opened or Under Development the COVID-19 pandemic. # of New Beds 2020 2021 2022 Q3 2020 expansion activity highlights: De novo: u Announced plans to build inpatient rehabilitation Murrieta, CA 5
Slide 24: Integrated care delivery clinical collaboration
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u The lower clinical collaboration rate for YTD (all payors) overlap markets* 2020 was driven by a higher mix of Medicare Advantage patie
Slide 25: Personal Protective Equipment (PPE) – 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 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: Overview of rollover shares and SARs
Overview of rollover shares and SARs previously held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the
Slide 28: Debt maturity profile - face value
Debt maturity profile - face value Pro forma as of September 30, 2020*(9) ($ in millions) Callable beginning $964 Callable beginning February 2023(10) Available February 2025(10) $0 Drawn + $36 reserved Callable beginning for LCs Revolver April 2026(9) capacity Callable beginning September 2020 $800
Slide 29: Debt schedule
Debt schedule Pro forma Change in September 30, September 30, December 31, Debt vs. (9) ($millions) 2020 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ — $ 45.0 $ (45.0) Term loan facility, November 2024 - LIBOR +150bps 254.8 254.8 265.2 (1
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)(1) Bluffton, SC (38 beds) Boise, ID (40 beds) Katy, TX (40 beds) Murrells Inlet, SC 15.0 Pearland, TX Lubbock, TX Sioux Falls, SD (40 beds) (29 beds) (40 beds) (40 beds) Coralville, IA (40 beds) 10.0
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 Acquired Camellia Healthcare in July 2019 (14 home health locations in 3 states) in May 2018 20.0 10.0 0.0 -10.0 -20.0 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3
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 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q
Slide 33: 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 2020 2019 2020 2019 2020 2019 2020 2019 2019 Medicare 65.8 % 71.5 % 83.3 % 85.8 % 69.9 % 75.3 % 69.8 % 75.3 % 75.1 % Medicare Advantage 15.7 % 10.9 % 10.8 %
Slide 34: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 883.2 $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 16.2 16.5 19.2
Slide 35: Home health and hospice operational metrics
Home health and hospice operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 223.3 $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 51.2 47.8 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues
Slide 36: Share information
Share information Weighted Average for the Period Q3 9 Months Full Year (In Millions) 2020 2019 2020 2019 2019 2018 2017 Basic shares outstanding(17) 98.7 97.8 98.5 98.1 98.0 97.9 93.7 Convertible senior subordinated notes(17) — — — — — — 4.0 Restricted stock awards, dilutive stock options, restrict
Slide 37: Segment operating results
Segment operating results Q3 2020 Q3 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 899.4 $ 274.5 $ — $ 1,173.9 $ 872.3 $ 289.3 $ — $ 1,161.6 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 38: Segment operating results
Segment operating results Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 2,633.1 $ 796.9 $ — $ 3,430.0 $ 2,616.3 $ 804.3 $ — $ 3,420
Slide 39: Segment operating results
Segment operating results Year Ended December 31, 2019 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) Other operating expenses(
Slide 40: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 2020 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 $ 108.7 $ 48.3 $ 100.1 $ 257.1 Loss (income) from disc ops, net of tax, attributable to Encompass Health 0.1 (0.1)
Slide 41: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 2019 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 $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encompa
Slide 42: 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) 2020 2019 2020 2019 2019 Net cash provided by operating activities $ 173.4 $ 114.4 $ 425.0 $ 419.7 $ 635.3 Interest expense and amortization of debt discounts and fees 49.0 40.3 138.0 115.2
Slide 43: 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 Nine Months Ended Year Ended September 30, September 30, December 31, 2020 2019 2020 2019 2019 (In Millions) Total segment Adjusted EBITDA $ 261.0 $ 261.4 $ 712.8 $ 820.7 $ 1,0
Slide 44: Reconciliation of net cash from operations 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) 2020 2019 2020 2019 2019 Net cash provided by operating activities $ 173.4 $ 114.4 $ 425.0 $ 419.7 $ 635.3 Impact of discontinued operations 0.1 0.1 0.2 4.6 4.4 Net cash prov
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 As Income Tax of Equity As Reported Adjustments Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 230.2 $ — $ — $ 230.2 Depreciation and amortization (61.2) — —
Slide 46: Adjusted EPS - Q3 2019
Adjusted EPS(5) - Q3 2019 For the Three Months Ended September 30, 2019 Adjustments Mark-to- Market Adjustment Payroll for Stock Gain on Taxes on As Comp. Income Tax Transaction Consolidation SARs As Reported Expense Adjustments Costs of Yuma Exercise Adjusted (In Millions, Except Per Share Amounts)
Slide 47: Adjusted EPS - YTD 2020
Adjusted EPS(5) - YTD 2020 For the Nine Months Ended September 30, 2020 Adjustments Change in Payroll Gov’t, Class Fair Market Gain on Taxes Action, & Value of Consolidation on As Related Income Tax Equity of Treasure SARs As Reported Settlements Adjustments Securities Coast Exercise Adjusted (In Mi
Slide 48: Adjusted EPS - YTD 2019
Adjusted EPS(5) - YTD 2019 For the Nine Months Ended September 30, 2019 Adjustments Mark-to- Loss Change in Market on Fair Adjustment Early Market Payroll for Stock Exting. Value of Gain on Taxes As Comp. of Income Tax Transaction Equity Consolidation on SARs As Reported Expense Debt Adjustments Cos
Slide 49: End notes
End notes (1) 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 change in cont
Slide 50: End notes, continued
End notes, continued (9) In October 2020, the Company issued $400 million of 4.625% Senior Notes due 2031. The proceeds plus approximately $300 million of cash on hand were used to fully redeem $700 million of 5.75% Senior Notes due 2024 at par on November 1, 2020. (10) In September 2019, the Compan