Encompass Health Corporation · NYSE:EHC
Encompass Health — Q4 2023 Earnings Presentation
35 slides from Encompass Health's earnings presentation, Feb 8, 2024
Slide 1: Fourth Quarter 2023 Earnings Call
2022 2023 First FourthQuarter Quarter Earnings Call Earnings Call April 28, 2022 February 8, 2024 Supplemental information 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, guidance and growth
Slide 3: Table of contents
Table of contents Q4 2023 Financial summary ............................................................................................................................................. 4 Key takeaways ..................................................................................................
Slide 4: Q4 2023 Financial summary
Q4 2023 Financial summary Q4 Full Year ($ in millions, except per share data) 2023 2022 %△ 2023 2022 %△ Encompass Health Net operating revenue $1,246.8 $1,137.3 9.6 % $4,801.2 $4,348.6 10.4 % Adjusted EBITDA $ 255.0 $ 232.7 9.6 % $ 971.1 $ 819.3 18.5 % Adjusted EPS $ 0.95 $ 0.88 8.0 % $ 3.64 $ 2.85
Slide 5: Q4 2023 Key takeaways
Q4 2023 Key takeaways u Revenue Net operating revenue growth of 9.6% ü Discharge growth of 8.3% (5.3% same store) u Adjusted EBITDA Adjusted EBITDA growth of 9.6% ü Contract labor plus sign-on and shift bonuses of $30.6 million vs. $35.4 million in Q4 2022 ü De novo hospitals contributed $1.0 mi
Slide 6: Revenue
Revenue Q4 Q4 % Change* ($ in millions) 2023 2022 Net operating revenue: Inpatient $ 1,216.8 $ 1,113.0 9.3% Outpatient and other 30.0 24.3 23.5% Total revenue $ 1,246.8 $ 1,137.3 9.6% (Actual Amounts) Discharges 59,247 54,700 8.3% New-store discharge growth 3.0% Same-store discharge growth 5.3% Net
Slide 7: Adjusted EBITDA
Adjusted EBITDA(2) Q4 % of Q4 % of ($ in millions) 2023 Revenue 2022 Revenue Net operating revenue $1,246.8 $ 1,137.3 Operating expenses: Salaries and benefits (676.3) 54.2 % (614.4) 54.0 % Other operating expenses(a) (178.7) 14.3 % (167.7) 14.7 % Supplies (58.6) 4.7 % (53.9) 4.7 % Occupancy costs (
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q4 Year Ended ($ in millions, except per share data) 2023 2022 2023 2022 Adjusted EBITDA $ 255.0 $ 232.7 $ 971.1 $ 819.3 Depreciation and amortization(3) (70.1) (63.3) (273.9) (243.6) Interest expense and amortization of debt discounts and fees(4) (34.9) (37.5) (143.
Slide 9: Adjusted earnings per share
Adjusted earnings per share(7) Q4 Year Ended 2023 2022 2023 2022 Diluted earnings per share, as reported $ 0.94 $ 0.90 $ 3.59 $ 2.56 Adjustments, net of tax: Bondholder consent fees associated with Enhabit distribution(4) — — — 0.15 Income tax adjustments 0.03 (0.01) 0.03 0.07 State regulatory chang
Slide 10: 2023 Year in review
2023 Year in review u Financial performance Net operating revenue growth of 10.4% ü Discharge growth of 8.7% (4.8% same store) ü Net revenue per discharge increase of 1.6% Adjusted EBITDA increase of 18.5% ü Contract labor plus sign-on and shift bonuses decreased by $67.3 million (-32.9%). Adj
Slide 11: 2023 Adjusted free cash flow
2023 Adjusted free cash flow(8) ($ in millions) $11.5 $57.2 $21.5 $151.8 $(56.4) $525.7 $340.1 Adjusted free cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted free cash flow FY 2022 EBITDA and other payments net of refunds expenditures flow FY 2023 u 2023 Ad
Slide 12: 2024 Guidance
2024 Guidance 2023 Actuals 2024 Guidance ($ in millions, except per share data) Net Operating Revenue $4,801.2 $5,200 to $5,300 Adjusted EBITDA(2) $971.1 $1,015 to $1,055 Adjusted earnings per share from continuing operations attributable $3.64 $3.77 to $4.06 to Encompass Health(7) Encompass Health
Slide 13: 2024 Guidance considerations
2024 Guidance considerations u Pricing Medicare pricing increase of 3.3% for Q1 through Q3 and an estimated 2.5% to 3.0% for Q4 Managed Care pricing increase of 2% to 3% Bad debt reserves of 2.0% to 2.4% of net operating revenue u Labor SWB per FTE (including contract labor, sign-on and shif
Slide 14: Adjusted free cash flow assumptions
Adjusted free cash flow(8) assumptions Certain cash flow items 2023 2024 ($ in millions) Actuals Assumptions Cash interest payments (net of amortization of debt $134.0 $130 to $140 discounts and fees) Increased cash taxes due to higher net Cash payments for income income and phase-out of bonus $106.
Slide 15: Uses of free cash flow
Uses of free cash flow 2024 ($ in millions) 2023 Actuals Assumptions IRF bed expansions $41.8 $105 to $115 New IRFs Growth in - De novos 321.6 290 to 300 core business - Replacement IRFs and other(9) 24.2 — $387.6 $395 to $415 Debt Debt redemptions (borrowings), net $54.4 TBD reduction Cash dividend
Slide 16: Appendix
Appendix
Slide 17: Encompass Health company profile
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 12/31/23 161 Rehabilitation hospitals “IRFs” 63 are joint ventures 17 37 IRFs under States and development* Puerto Rico 25% of Licensed beds † 33% of Medicare Rehabilitation hospitals “IRFs” patients served
Slide 18: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 19: De novo activity
De novo activity Inpatient Rehabilitation Hospitals opened or under development 17 Joint # of new beds venture 2024 2025 2026 IRF development projects De novo projects* announced and underway 1 Kissimmee, FL 50 — — 2 Atlanta, GA ü 40 — — 2023 De novo activity highlights 3 Johnston, RI 50 — — 4 Fort
Slide 20: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends 2021 2022 2023 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $ 21.3 $ 59.8 $ 21.1 $ 21.8 $ 24.2 $ 15.7 $ 82.8 $ 16.3 $ 14.0 $ 14.4 $ 12.9 $ 57.6 Contract labor 30.0 7
Slide 21: Debt maturity profile - face value
Debt maturity profile - face value As of December 31, 2023* ($ in millions) Callable beginning Callable February 2025 at 101.125 $968 Available Callable beginning April 2026 $— Drawn + Callable $32 reserved Revolver $800 $800 at par for LCs Senior capacity Senior Notes Notes 4.5% 4.75% $350 $400 Sen
Slide 22: Debt schedule
Debt schedule Change in December 31, December 31, Debt vs. ($ in millions) 2023 2022 YE 2022 Advances under $1 billion revolving credit facility $ — $ 55.0 $ (55.0) Bonds Payable: 5.75% Senior Notes due 2025 348.5 347.7 0.8 4.50% Senior Notes due 2028 785.0 781.8 3.2 4.75% Senior Notes due 2030 781.
Slide 23: New-store/same-store growth
New-store/same-store growth Shreveport, LA (40 beds) Waco, TX (40 beds) Greenville, SC (40 beds) Pensacola, FL (40 beds) Knoxville, TN (73 beds) Prosper, TX (40 beds) North Tampa, FL (50 beds) Eau Claire, WI (36 beds) Fitchburg, WI (56 beds) Cumming, GA (50 beds) Shiloh, IL (40 beds) Owasso, OK (40
Slide 24: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q4 Full Year 2023 2022 2023 2022 Medicare 65.7 % 66.2 % 65.0 % 65.3 % Medicare Advantage 16.0 % 15.3 % 16.2 % 15.1 % Managed care 10.8 % 10.9 % 11.1 % 11.6 % Medicaid 3.6 % 4.1 % 4.0 % 4.2 % Other third-party payors 0.8 % 0.9 % 0.9 % 0.9 % Workers’ compensation
Slide 25: Operational metrics
Operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2023 2023 2023 2023 2022 2022 2022 2022 2023 2022 ($ in millions) Net patient revenue- inpatient $ 1,216.8 $ 1,180.5 $ 1,162.3 $ 1,134.2 $ 1,113.0 $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 4,693.8 $ 4,251.6 Net patient revenue- outpatient and other revenue
Slide 26: Share information
Share information Weighted Average for the Period Q4 Full Year (in millions) 2023 2022 2023 2022 2021 Basic shares outstanding 99.5 99.3 99.5 99.2 99.0 Restricted stock awards, dilutive stock options, and restricted stock units 2.0 1.5 1.8 1.2 1.2 Diluted shares outstanding 101.5 100.8 101.3 100.4 1
Slide 27: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(2) Q4 Full Year ($ in millions) 2023 2022 2023 2022 Net cash provided by operating activities $ 201.0 $ 172.2 $ 850.8 $ 705.8 Interest expense and amortization of debt discounts and fees(4) 34.9 37.5 143.5 175.7 Gain (loss) on s
Slide 28: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(2) Q4 Full Year ($ in millions) 2023 2022 2023 2022 Net income $ 119.1 $ 117.5 $ 463.0 $ 365.9 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 8.5 1.5 12.0 (15.2) Net income attributable to noncontrolling intere
Slide 29: 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(8) Q4 Full Year ($ in millions) 2023 2022 2023 2022 Net cash provided by operating activities $ 201.0 $ 172.2 $ 850.8 $ 705.8 Impact of discontinued operations 11.4 3.7 16.0 (52.3) Net cash provided by operating a
Slide 30: Adjusted EPS - Q4 2023
Adjusted EPS(7) - Q4 2023 For the Three Months Ended December 31, 2023 Adjustments Change in Fair As Income Tax Market Value of As Reported Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 255.0 $ — $ — $ 255.0 Depreciation and amortization (70.1) —
Slide 31: Adjusted EPS - Q4 2022
Adjusted EPS(7) - Q4 2022 For the Three Months Ended December 31, 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 $ 232.7 $ — $ — $ 232.7 Depreciation and amortization (63.3) —
Slide 32: Adjusted EPS - 2023
Adjusted EPS(7) - 2023 For the Year Ended December 31, 2023 Adjustments Change in Fair Market State Value of As Regulatory Income Tax Equity As Reported Change Impact Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 971.1 $ — $ — $ — $ 971.1 (3) Depreciatio
Slide 33: Adjusted EPS - 2022
Adjusted EPS(7) - 2022 For the Year Ended December 31, 2022 Adjustments Bondholder Consent Loss on Fees Change in Fair Early Associated Market Value As Exting. Income Tax with Enhabit of Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per share amounts)
Slide 34: End notes
End notes (1) During Q4 2023, we recorded an additional reserve totaling approximately $22 million related to appeals pending before the Departmental Appeals Board (DAB) and several federal district courts. The increase in reserve was driven primarily by an increase in unfavorable adjudication outco
Slide 35: End notes (continued)
End notes (continued) (8) The definition of adjusted free cash flow, which is a non-GAAP measure, is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, distributions to noncontrolling interests, and certain items deemed to be non-indicative