Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2023 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Apr 28, 2023
Slide 1: First Quarter 2023 Earnings Call
2022 2023 First FirstQuarter Quarter Earnings Call Earnings Call April 28, 2022 April 28, 2023 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 and guidance, labor a
Slide 3: Table of contents
Table of contents Q1 2023 Financial summary ............................................................................................................................................................... 4 Key takeaways ................................................................................
Slide 4: Q1 2023 Financial summary
Q1 2023 Financial summary Q1 ($ in millions) 2023 2022 %△ Encompass Health Net operating revenue $1,160.4 $1,059.3 9.5 % Adjusted EBITDA $ 229.0 $ 194.9 17.5 % Adjusted EPS $ 0.88 $ 0.67 31.3 % Adjusted free cash flow* $ 158.7 $ 123.2 28.8 % Encompass Health’s historical results reflect Enhabit Home
Slide 5: Q1 2023 Key takeaways
Q1 2023 Key takeaways u Revenue Net operating revenue growth of 9.5% ü Discharge growth of 9.4% (5.9% same store) u Adjusted EBITDA Adjusted EBITDA growth of 17.5% ü Q1 2023 contract labor plus sign-on and shift bonuses of $37.0 million vs. $63.0 million in Q1 2022 ü De novo hospital net pre-ope
Slide 6: Revenue
Revenue Q1 Q1 Favorable/ ($ in millions) 2023 2022 (Unfavorable) Net operating revenue: Inpatient $ 1,134.2 $ 1,036.2 9.5% Outpatient and other 26.2 23.1 13.4% Total revenue $ 1,160.4 $ 1,059.3 9.5% (Actual Amounts) Discharges 55,557 50,771 9.4% New-store discharge growth 3.5% Same-store discharge g
Slide 7: Adjusted EBITDA
Adjusted EBITDA(1) Q1 Q1 % of % of ($ in millions) 2023 Revenue 2022 Revenue Net operating revenue $1,160.4 $ 1,059.3 Operating expenses: Salaries and benefits (629.0) 54.2 % (587.4) 55.5 % Other operating expenses(a) (177.2) 15.3 % (158.3) 14.9 % Supplies (53.8) 4.6 % (49.8) 4.7 % Occupancy costs (
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q1 ($ in millions, except per share data) 2023 2022 Adjusted EBITDA $ 229.0 $ 194.9 Depreciation and amortization (63.9) (57.7) Interest expense and amortization of debt discounts and fees (36.4) (39.6) Stock-based compensation (7.9) (6.1) Loss on disposal or impairm
Slide 9: Adjusted earnings per share
Adjusted earnings per share(3) Q1 2023 2022 Diluted earnings per share, as reported $ 0.88 $ 0.64 Adjustments, net of tax: Change in fair market value of equity securities — 0.02 Adjusted earnings per share* $ 0.88 $ 0.67 u Adjusted earnings per share removes from the GAAP earnings per share calcula
Slide 10: Q1 2023 Adjusted free cash flow
Q1 2023 Adjusted free cash flow(4) ($ in millions) $34.1 $3.6 $3.2 $0.2 $(5.6) $158.7 $123.2 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted Free Cash Flow 3 Mos. 2022 EBITDA and other payments net of refunds expenditures Flow 3 Mos. 2023 u A
Slide 11: 2023 Guidance - Updated as of April 27, 2023
2023 Guidance - Updated as of April 27, 2023 Previous Updated 2023 Guidance 2023 Guidance ($ in millions, except per share data) Net Operating Revenue $4,680 to $4,760 $4,700 to $4,770 Adjusted EBITDA (1) $860 to $900 $870 to $910 Adjusted earnings per share from continuing operations attributable $
Slide 12: 2023 Guidance considerations
2023 Guidance considerations u Pricing Medicare pricing increase of 4% for the second and third quarter of 2023 (prior to the impact of sequestration which began reimplementation in Q2 2022) and an estimated 2.9% for the fourth quarter of 2023 Managed Care pricing increase of 2% to 3% u Labor
Slide 13: Adjusted free cash flow assumptions
Adjusted free cash flow(4) assumptions 3 Months Certain cash flow items 2023 ($ in millions) 2023 2022 Assumptions Actuals Cash interest payments expected Cash interest payments to decrease modestly due to full- (net of amortization of debt $34.1 $145.5 $135 to $145 year impact of debt repayment dis
Slide 14: Uses of free cash flow
Uses of free cash flow 3 Months 2023 2023 ($ in millions) Actuals 2022 Assumptions IRF bed expansions $9.5 $52.7 $60 to $70 New IRFs - De novos 52.5 276.6 275 to 295 Growth in core business - Acquisitions — — TBD - Replacement IRFs and other 0.1 16.5 — $62.1 $345.8 $335 to $365 Debt Debt redemptions
Slide 15: Appendix
Appendix
Slide 16: Encompass Health: Largest owner and operator of rehabilitation hospitals
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 3/31/23 156 Rehabilitation hospitals “IRFs” 61 are joint ventures 21 37 IRFs under States and development* Puerto Rico 25% of Licensed beds † 33% Rehabilitation hospitals “IRFs” of Medicare patients served
Slide 17: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 18: De novo activity
De novo activity Inpatient Rehabilitation Hospitals Opened or Under Development Joint venture 2023 # of new beds 2024 2025 2026 21 De novo projects* Eau Claire, WI 36 — — — IRF development projects ü Knoxville, TN** ü 73 — — — announced and underway Owasso, OK ü 40 — — — Clermont, FL 50 — — — Q1 202
Slide 19: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends 2021 2022 2023 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $ 10.8 $ 12.7 $ 15.0 $ 21.3 $ 59.8 $ 21.1 $ 21.8 $ 24.2 $ 15.7 $ 82.8 $ 16.3 Contract labor 10.1 16.0 18.3 3
Slide 20: Pre-payment and post-payment claims denials
Pre-payment and post-payment claims denials Pre-payment Claims Reviews u Encompass Health establishes a reserve upon Collections of Revenue Update of notice that a claim is under review. New Reserve for Period Previously Reserve for Denials Prior u Acting through various contractors and programs, De
Slide 21: Debt maturity profile - face value
Debt maturity profile - face value As of March 31, 2023* ($ in millions) Callable beginning February 2025 Callable $926 Callable beginning Available April 2026 Revolver capacity $40 Drawn + $34 reserved $800 $800 for LCs Senior Senior Callable Notes Notes 4.5% 4.75% $400 $350 Senior Senior Notes Not
Slide 22: Debt schedule
Debt schedule Change in March 31, December 31, Debt vs. ($ in millions) 2023 2022 YE 2022 Advances under $1 billion revolving credit facility $ 40.0 $ 55.0 $ (15.0) Bonds Payable: 5.75% Senior Notes due 2025 347.9 347.7 0.2 4.50% Senior Notes due 2028 782.6 781.8 0.8 4.75% Senior Notes due 2030 779.
Slide 23: New-store/same-store growth
New-store/same-store growth Shreveport, LA (40 beds) Waco, TX (40 beds) Knoxville, TN (73 beds) Greenville, SC (40 beds) Eau Claire, WI (36 beds) Pensacola, FL (40 beds) Owasso, OK (40 beds) North Tampa, FL (50 beds) Shiloh, IL (40 beds) Cumming, GA (50 beds) St. Augustine, FL (40 beds) Moline, IL (
Slide 24: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q1 Full Year 2023 2022 2022 Medicare 65.3 % 65.1 % 65.3 % Medicare Advantage 16.0 % 14.7 % 15.1 % Managed care 11.0 % 12.4 % 11.6 % Medicaid 4.1 % 3.9 % 4.2 % Other third-party payors 0.9 % 1.0 % 0.9 % Workers’ compensation 0.5 % 0.6 % 0.6 % Patients 0.2 % 0.5 %
Slide 25: Operational metrics
Operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2023 20222022 2022 2022 2022 ($ in millions) Net patient revenue-inpatient $ 1,134.2 $ 1,113.0 $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 4,251.6 Net patient revenue-outpatient and other revenues 26.2 24.3 24.9 24.7 23.1 97.0 Net operating revenues $ 1,160.4 $ 1,137
Slide 26: Share information
Share information Weighted Average for the Period Q1 Full Year (in millions) 2023 2022 2022 2021 2020 Basic shares outstanding 99.4 99.2 99.2 99.0 98.6 Restricted stock awards, dilutive stock options, and restricted stock units 1.5 1.0 1.2 1.2 1.2 Diluted shares outstanding 100.9 100.2 100.4 100.2 9
Slide 27: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(1) Q1 Full Year ($ in millions) 2023 2022 2022 Net cash provided by operating activities $ 227.9 $ 218.9 $ 705.8 Interest expense and amortization of debt discounts and fees 36.4 39.6 175.7 Gain (loss) on sale of investments, ex
Slide 28: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Q1 Full Year ($ in millions) 2023 2022 2022 Net income $ 113.3 $ 110.1 $ 365.9 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 1.0 (23.7) (15.2) Net income attributable to noncontrolling interests included in
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(4) Full Q1 Year ($ in millions) 2023 2022 2022 Net cash provided by operating activities $ 227.9 $ 218.9 $ 705.8 Impact of discontinued operations 1.3 (36.4) (52.3) Net cash provided by operating activities of con
Slide 30: Adjusted EPS - Q1 2023
Adjusted EPS(3) - Q1 2023 For the Three Months Ended March 31, 2023 Adjustments Change in Fair Market Value As Income Tax of Equity As Reported Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 229.0 $ — $ — $ 229.0 Depreciation and amortization (63.9) — — (
Slide 31: Adjusted EPS - Q1 2022
Adjusted EPS(3) - Q1 2022 For the Three Months Ended March 31, 2022 Adjustments Loss on Change in Fair Early Market Value As Exting. Income Tax of Equity As Reported of Debt Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 194.9 $ — $ — $ — $ 194.9 Deprecia
Slide 32: Adjusted EPS - 2022
Adjusted EPS(3) - 2022 For the Year Ended December 31, 2022 Adjustments Bondholder Consent Change in Fees Fair Loss on Associated Market Early with Value of As Exting. Income Tax Enhabit Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per share amounts)
Slide 33: End notes
End notes (1) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a financial mea
Slide 34: End notes (continued)
End notes (continued) (7) Represents discharges from 156 consolidated hospitals in Q1 2023; 153 consolidated hospitals in Q4 2022 and Q3 2022; 150 consolidated hospitals in Q2 2022; and 147 consolidated hospitals in Q1 2022. (8) Full-time equivalents included in the table represent Encompass Health