Encompass Health Corporation · NYSE:EHC
Encompass Health — Q4 2022 Earnings Presentation
36 slides from Encompass Health's earnings presentation, Feb 8, 2023
Slide 1: Fourth Quarter 2022 Earnings Call - Supplemental information
2022 2022 First FourthQuarter Quarter Earnings Call Earnings Call April 28, 2022 February 8, 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 c
Slide 3: Table of contents
Table of contents Q4 2022 Financial Summary............................................................................................................................................................... 4 Q4 2022 Key takeaways .........................................................................
Slide 4: Q4 2022 Financial summary
Q4 2022 Financial summary Q4 Full Year ($ in millions) 2022 2021 %△ 2022 2021 %△ Encompass Health Net operating revenue $1,137.3 $1,042.5 9.1 % $4,348.6 $4,014.9 8.3 % Adjusted EBITDA $ 232.7 $ 199.9 16.4 % $ 819.3 $ 816.4 0.4 % Adjusted EPS $ 0.88 $ 0.67 31.3 % $ 2.85 $ 2.95 (3.4)% Adjusted free ca
Slide 5: Q4 2022 Key takeaways
Q4 2022 Key takeaways u Revenue growth Net operating revenue growth of 9.1% ü Discharge growth of 7.3% (4.2% same store) ü Net revenue per discharge increase of 2.2% u Adjusted EBITDA Adjusted EBITDA growth of 16.4% ü Q4 2022 contract labor plus sign-on and shift bonuses of $35.4 million vs. $49
Slide 6: Revenue
Revenue Q4 Q4 Favorable/ ($ in millions) 2022 2021 (Unfavorable) Net operating revenue: Inpatient $ 1,113.0 $ 1,015.1 9.6% Outpatient and other 24.3 27.4 (11.3%) Total revenue $ 1,137.3 $ 1,042.5 9.1% (Actual Amounts) Discharges 54,700 50,977 7.3% Same-store discharge growth 4.2% Net patient revenue
Slide 7: Adjusted EBITDA
Adjusted EBITDA(1) Q4 % of Q4 % of ($ in millions) 2022 Revenue 2021 Revenue Net operating revenue $ 1,137.3 $ 1,042.5 Operating expenses: Salaries and benefits (614.4) 54.0 % (572.5) 54.9 % Other operating expenses(a) (167.7) 14.7 % (150.8) 14.5 % Supplies (53.9) 4.7 % (48.2) 4.6 % Occupancy costs
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q4 Year Ended ($ in millions, except per share data) 2022 2021 2022 2021 Adjusted EBITDA $ 232.7 $ 199.9 $ 819.3 $ 816.4 Depreciation and amortization (63.3) (56.7) (243.6) (219.6) Interest expense and amortization of debt discounts and fees (37.5) (40.0) (175.7) (16
Slide 9: Adjusted earnings per share
Adjusted earnings per share(6) Q4 Year Ended 2022 2021 2022 2021 Earnings per share, as reported $ 0.90 $ 0.68 $ 2.56 $ 2.99 Adjustments, net of tax: Bondholder consent fees associated with Enhabit distribution — — 0.15 — Income tax adjustments (0.01) (0.01) 0.07 (0.05) Loss on early extinguishment
Slide 10: 2022 Year in review
2022 Year in review u Financial performance Net operating revenue growth of 8.3% (inclusive of the resumption of sequestration) ü Discharge growth of 6.8% (3.1% same store) ü Net revenue per discharge increase of 1.6% Adjusted EBITDA increase of 0.4%, after absorbing: ü Elevated labor costs, inc
Slide 11: 2022 Adjusted free cash flow
2022 Adjusted free cash flow(7) ($ in millions) $79.4 $21.6 $11.0 $2.9 $(105.0) $330.2 $340.1 Adjusted free cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted free cash flow FY 2021 EBITDA and other payments* net of refunds expenditures flow FY 2022 u Adjuste
Slide 12: 2023 Guidance
2023 Guidance 2022 Actuals* 2023 Guidance ($ in millions, except per share data) Net Operating Revenue $4,349 $4,680 to $4,760 Adjusted EBITDA (1) $819 $860 to $900 Adjusted earnings per share from continuing operations attributable to $2.85 $2.87 to $3.16 Encompass Health (6) *Not inclusive of the
Slide 13: 2023 Guidance considerations
2023 Guidance considerations u Pricing Medicare pricing increase of 4% for the first three quarters of 2023 (prior to the impact of sequestration which began reimplementation in Q2 2022) and an estimated 2.5% to 3.0% for the fourth quarter of 2023 Managed Care pricing increase of 2% to 3% u Labo
Slide 14: Adjusted free cash flow assumptions
Adjusted free cash flow(7) assumptions Certain cash flow items 2023 ($ in millions) 2022 Assumptions Cash interest payments expected Cash interest payments (net of to decrease modestly due to full- amortization of debt discounts $145.5 $135 to $145 year impact of debt repayment and fees) with distri
Slide 15: Uses of free cash flow
Uses of free cash flow 2023 ($ in millions) 2022 Assumptions IRF bed expansions $52.7 $60 to $70 New IRFs - De novos 276.6 275 to 295 Growth in core business - Acquisitions — TBD - Replacement IRFs and other 16.5 — $345.8 $335 to $365 Debt Debt redemptions (borrowings), net $511.3 TBD reduction Cash
Slide 16: Appendix
Appendix
Slide 17: Encompass Health: Largest owner and operator of rehabilitation hospitals
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 12/31/22 153 Rehabilitation hospitals “IRFs” 58 are joint ventures 24 36 IRFs under States and development* Puerto Rico 24% of Licensed beds † 31% Rehabilitation hospitals “IRFs” of Medicare patients served
Slide 18: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 19: Expansion activity
Expansion activity Inpatient Rehabilitation Hospitals IRF development projects 24 Opened or Under Development Joint # of new beds announced and underway venture 2023 2024 2025 De novo projects* 1 Eau Claire, WI ü 36 — — 2 Knoxville, TN ü 73 — — 3 Owasso, OK ü 60 — — 4 Clermont, FL 50 — — 5 Bowie, MD
Slide 20: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends 2021 2022 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $ 10.8 $ 12.7 $ 15.0 $ 21.3 $ 59.8 $ 21.1 $ 21.8 $ 24.2 $ 15.7 $ 82.8 Contract labor $ 10.1 $ 16.0 $ 18.3 $ 30.0 $ 7
Slide 21: 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 Update of Collections of Revenue 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 22: Debt maturity profile - face value
Debt maturity profile - face value As of December 31, 2022* ($ in millions) Callable beginning February 2025 Callable $912 Callable beginning Available April 2026 Revolver capacity $55 Drawn + $33 reserved for LCs $800 $800 Callable Senior Senior Notes Notes 4.5% 4.75% $400 $350 Senior Senior Notes
Slide 23: Debt schedule
Debt schedule Change in December 31, December 31, Debt vs. ($ in millions) 2022 2021 YE 2021 Advances under $1 billion revolving credit facility $ 55.0 $ 200.0 $ (145.0) Term loan — 238.5 (238.5) Bonds Payable: 5.125% Senior Notes due 2023(3)(5) — 99.6 (99.6) 5.75% Senior Notes due 2025 347.7 347.0
Slide 24: New-store/same-store growth
New-store/same-store growth 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) Sioux Falls, SD (40 beds) Shiloh, IL (40 beds) Moline, IL (40 beds) Coralville, IA (40 beds) St. Augustine, FL (40 beds) Naples, FL
Slide 25: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q4 Full Year 2022 2021 2022 2021 Medicare 66.2 % 64.7 % 65.3 % 64.4 % Medicare Advantage 15.3 % 14.0 % 15.1 % 15.2 % Managed care 10.9 % 12.9 % 11.6 % 12.1 % Medicaid 4.1 % 3.9 % 4.2 % 4.1 % Other third-party payors 0.9 % 1.2 % 0.9 % 1.1 % Workers’ compensation
Slide 26: Operational metrics
Operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2022 2022 2022 2022 2021 2021 2021 2021 2022 2021 ($ in millions) Net patient revenue- inpatient $ 1,113.0 $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 1,015.1 $ 983.7 $ 976.9 $ 942.3 $ 4,251.6 $ 3,918.0 Net patient revenue- outpatient and other revenues 24.3
Slide 27: Share information
Share information Weighted Average for the Period Q4 Full Year (in millions) 2022 2021 2022 2021 2020 Basic shares outstanding 99.3 99.0 99.2 99.0 98.6 Restricted stock awards, dilutive stock options, and restricted stock units 1.5 1.2 1.2 1.2 1.2 Diluted shares outstanding 100.8 100.2 100.4 100.2 9
Slide 28: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Q4 Full Year ($ in millions) 2022 2021 2022 2021 Net income $ 117.5 $ 115.7 $ 365.9 $ 517.2 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 1.5 (23.5) (15.2) (114.1) Net income attributable to noncontrolling
Slide 29: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(1) Q4 Full Year ($ in millions) 2022 2021 2022 2021 Net cash provided by operating activities $ 172.2 $ 123.8 $ 705.8 $ 715.8 Interest expense and amortization of debt discounts and fees 37.5 40.0 175.7 164.3 Gain (loss) on sale
Slide 30: 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) 2022 2021 2022 2021 Net cash provided by operating activities $ 172.2 $ 123.8 $ 705.8 $ 715.8 Impact of discontinued operations 3.7 (17.6) (52.3) (151.1) Net cash provided by operat
Slide 31: Adjusted EPS - Q4 2022
Adjusted EPS(6) - 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 - Q4 2021
Adjusted EPS(6) - Q4 2021 For the Three Months Ended December 31, 2021 Adjustments Change in Fair As Income Tax Market Value of As Reported Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 199.9 $ — $ — $ 199.9 Depreciation and amortization (56.7) —
Slide 33: Adjusted EPS - 2022
Adjusted EPS(6) - 2022 For the Year Ended December 31, 2022 Adjustments Bondholder Change in Loss on Consent Fees Fair Market Early Associated Value of As Exting. Income Tax with Enhabit Equity As Reported of Debt Adjustments Distribution Securities Adjusted ($ in millions, except per share amounts)
Slide 34: Adjusted EPS - 2021
Adjusted EPS(6) - 2021 For the Year Ended December 31, 2021 Adjustments Change in Fair Loss on Early Market Value As Extinguishment Income Tax of Equity As Reported of Debt Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 816.4 $ — $ — $ — $ 816.4 Depreciat
Slide 35: 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 36: End notes (continued)
End notes (continued) (8) 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