Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2022 Earnings Presentation
44 slides from Encompass Health's earnings presentation, Apr 28, 2022
Slide 1: 2022 First Quarter Earnings Call
2022 First Quarter Earnings Call April 28, 2022 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 timing and effects, such as the tax-fr
Slide 3: Table of contents
Table of contents Q1 2022 Key takeaways ...................................................................................................................................................................... 4 Spin off of Enhabit .......................................................................
Slide 4: Q1 2022 Key takeaways
Q1 2022 Key takeaways u Revenue growth offset by elevated staffing costs Consolidated revenues increased 8.4% Strong inpatient rehabilitation discharge growth: 7.6% total; 3.8% same store Solid home health admissions growth: 4.9% total; 0.9% same store Staffing costs continue to be elevated.
Slide 5: Spin off of Enhabit
Spin off of Enhabit u Spin off of Enhabit expected on July 1, 2022 The spin off is expected to be tax free to EHC shareholders. (A Private Letter Ruling request has been filed with the IRS.) Confidential Form 10 filed in April; public filing expected mid to late May We intend to provide 2022 g
Slide 6: Q1 2022 Summary
Q1 2022 Summary Q1 ($ in millions) 2022 2021 %△ Encompass Health Consolidated Net operating revenues $ 1,333.6 $ 1,230.4 8.4 % Adjusted EBITDA $ 245.0 $ 250.8 (2.3)% Adjusted EPS $ 0.97 $ 1.05 (7.6)% Adjusted free cash flow* $ 165.9 $ 107.4 54.5 % Inpatient Rehabilitation Segment Net operating reven
Slide 7: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q1 Q1 Favorable/ ($ in millions) 2022 2021 (Unfavorable) Net operating revenues: Inpatient $ 1,036.2 $ 942.3 10.0% Outpatient and other 23.1 17.6 31.3% Total segment revenue $ 1,059.3 $ 959.9 10.4% (Actual Amounts) Discharges 50,771 47,187 7.6% Same-store d
Slide 8: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q1 Q1 % of % of ($ in millions) 2022 Revenue 2021 Revenue Net operating revenues $ 1,059.3 $ 959.9 Operating expenses: Salaries and benefits (587.4) 55.5 % (501.9) 52.3 % Other operating expenses(a) (158.3) 14.9 % (140.0) 14.6 % Supplies (49.8) 4.7
Slide 9: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q1 Q1 Favorable/ ($ in millions) 2022 2021 (Unfavorable) Net operating revenues: Home health revenue $ 224.9 $ 219.9 2.3 % Hospice revenue 49.4 50.6 (2.4) % Total segment revenue $ 274.3 $ 270.5 1.4 % Home Health Starts of care: Total admissions 53,309 50,79
Slide 10: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q1 Q1 % of % of ($ in millions) 2022 Revenue 2021 Revenue Net operating revenues $ 274.3 $ 270.5 Cost of services (124.4) 45.4 % (118.1) 43.7 % Support and overhead costs (99.2) 36.2 % (101.4) 37.5 % (a) Operating expenses (223.6) 81.5 % (219.5) 81.1
Slide 11: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $245.0 million u General and administrative expenses decreased as a percent of consolidated revenue due to improved operating leverage and a decline in fair value adjustments on the Company’s nonqualified 401(k) plan (offse
Slide 12: Earnings per share - as reported
Earnings per share - as reported Q1 ($ in millions, except per share data) 2022 2021 Adjusted EBITDA $ 245.0 $ 250.8 Depreciation and amortization (66.2) (62.5) Interest expense and amortization of debt discounts and fees (39.6) (42.8) Stock-based compensation (7.5) (2.8) (Loss) gain on disposal or
Slide 13: Adjusted earnings per share
Adjusted earnings per share(2) Q1 2022 2021 Earnings per share, as reported $ 0.87 $ 1.07 Adjustments, net of tax: Costs associated with the strategic alternatives review 0.07 0.01 Income tax adjustments — (0.03) Change in fair market value of equity securities 0.02 — Adjusted earnings per share* $
Slide 14: 2022 YTD Adjusted free cash flow
2022 YTD Adjusted free cash flow(3) ($ in millions) 72.7 3.5 (0.7) (11.2) (5.8) 165.9 107.4 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted Free Cash Flow 3 Mos. 2021 EBITDA and other payments payments, capital expenditures Flow 3 Mos. 2022 net of refunds u Ad
Slide 15: 2022 Guidance - Reaffirmed
2022 Guidance - Reaffirmed 2021 Actuals 2022 Guidance* ($ in millions, except per share data) Net Operating Revenue $5,122 $5,380 to $5,500 Adjusted EBITDA (4) $1,028 $1,015 to $1,065 Adjusted earnings per share from continuing operations attributable to $4.23 $3.83 to $4.19 Encompass Health (2) The
Slide 16: 2022 Guidance considerations
2022 Guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated increase of 1.9% in Medicare u Estimated increase of 3.4% in Medicare pricing prior to resumption of sequestration pricing for home health prior to resumption of sequestration u Revenue reserves related to bad
Slide 17: Adjusted free cash flow assumptions
Adjusted free cash flow(3) assumptions 3 Months Certain cash flow items 2021 2022 2022 ($ in millions) Actuals Assumptions Actuals u Cash interest payments expected to be flat due to redemption of Cash interest payments (net of 5.125% Senior Notes due 2023 amortization of debt discounts $37.3 $156.8
Slide 18: Uses of free cash flow
Uses of free cash flow 3 Months 2022 2022 2021 ($ in millions) Actuals Assumptions Actuals IRF bed expansions $9.1 $40 to $50 $48.6 New IRFs Growth in - De novos 71.0 320 to 340 314.9 core - Acquisitions — opportunistic 1.1 business - Replacement IRFs and other 5.5 10 to 20 48.9 Home health and hosp
Slide 19: 2022-2026 Growth targets
2022-2026 Growth targets INPATIENT 6 to 10 100 to 150 6% to 8% REHABILITATION De novos bed additions Discharge CAGR per year per year 10% 10% to 15% $50 million HOME HEALTH Home Health Hospice to $100 million AND HOSPICE admissions admissions Acquisitions CAGR CAGR per year Strong and sustainable bu
Slide 20: Appendix
Appendix
Slide 21: Encompass Health portfolio overview
a leading provider of inpatient rehabilitation Encompass Health and home-based care one of the 2022 FORTUNE® “World’s Most Admired Companies” Portfolio as of 03/31/22 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 23 Future IRFs** 42 States and Puerto Rico ~43,50
Slide 22: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Opened or Under Development Expected Joint # of New Beds IRF development projects 23 operations date venture 2022 2023 2024 De novo IRFs: announced and underway Shiloh, IL Q1 2022 ü 40 — — St. Augustine, FL Q1 2022 40 — — Libertyville, IL Q1 202
Slide 23: Integrated care delivery and clinical collaboration
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* u The clinical collaboration rate has Clinical Collaboration decreased primarily Rate due to Medicare Advan
Slide 24: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Impact to Income Statement Collections Update of Revenue u Encompass Health reserves pre-payment claim New of Previously Reserve Reserve Period for for denials as a reduction of net operating revenues Denials Denied Prior New Denials upon
Slide 25: Debt maturity profile - face value
Debt maturity profile - face value As of March 31, 2022*) Callable beginning ($ in millions) Callable beginning February 2025 $658 February 2023 Available $305 Drawn + $37 Callable beginning reserved for April 2026 LCs Revolver capacity Callable $800 $800 Senior Senior Notes Notes 4.5% 4.75% $350 $4
Slide 26: Debt schedule
Debt schedule Change in March 31, December 31, Debt vs. ($ in millions) 2022 2021 YE 2021 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 305.0 $ 200.0 $ 105.0 Term loan facility, November 2024 - LIBOR +150bps 235.3 238.5 (3.2) Bonds Payable: 5.125% Senior Notes
Slide 27: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shreveport, LA (40 beds) Yuma, AZ (51 beds) (7) Waco, TX (40 beds) Boise, ID (40 beds) Greenville, SC (40 beds) Katy, TX (40 beds) Pensacola, FL (40 beds) Shiloh, IL (40 beds) North Tampa, FL (50 beds) St. Augustine, FL (40 beds) Cumming, GA (50 b
Slide 28: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice 30.0 (23 home health locations in Alabama) in July 2019 Acquired Frontier Home Health & Hospice (9 home health locations in 5 states) in June 2021 20.0 10.0 0.0 -10.0 -20.0 Total admissions Q2 2019 Q3 2019 Q4 2019 Q1 2020
Slide 29: 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 Acquired Frontier Home Health & Hospice 60.0 (11 hospice locations in 5 states) in June 2021 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Slide 30: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2022 2021 2022 2021 2022 2021 2021 Medicare 65.1 % 63.9 % 79.2 % 82.7 % 67.9 % 68.1 % 68.2 % Medicare Advantage 14.7 % 16.5 % 12.6 % 10.4 % 14.3 % 15.1 % 14.2 % Mana
Slide 31: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2022 2021 2021 2021 2021 2021 ($ in millions) Net patient revenue-inpatient $ 1,036.2 $ 1,015.2 $ 983.7 $ 976.9 $ 942.3 $ 3,918.1 Net patient revenue-outpatient and other revenues 23.1 27.4 27.2 24.7 17.6 96.9 Net operating revenu
Slide 32: Home health and hospice operational metrics
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2022 2021 2021 2021 2021 2021 ($ in millions) Net home health revenue $ 224.9 $ 224.0 $ 221.1 $ 232.3 $ 219.9 $ 897.3 Net hospice revenue 49.4 52.1 52.8 53.8 50.6 209.3 Net operating revenues $ 274.3 $ 276.1 $ 273.9 $ 286.1 $ 270.5
Slide 33: Share information
Share information Weighted Average for the Period Q1 Full Year (in millions) 2022 2021 2021 2020 2019 Basic shares outstanding 99.2 99.0 99.0 98.6 98.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.0 1.2 1.2 1.2 1.4 Diluted shares outstanding 10
Slide 34: Segment operating results
Segment operating results Q1 2022 Q1 2021 Home Home Health and Health and ($ in millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,059.3 $ 274.3 $ — $ 1,333.6 $ 959.9 $ 270.5 $ — $ 1,230.4 Operating Expenses: Inpatient Rehabilitation: Salaries
Slide 35: Segment operating results
Segment operating results Year Ended December 31, 2021 Home Health and ($ in millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 4,015.0 $ 1,106.6 $ — $ 5,121.6 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (2,127.3) — (759.2) (2,886.5) Other operating expense
Slide 36: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(4) 2022 Q1 Per ($ in millions, except per share data) Total Share Net Income $ 110.1 Net income attributable to noncontrolling interests (22.6) Income from continuing operations attributable to Encompass Health* 87.5 $ 0.87 Provision for income tax exp
Slide 37: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(4) 2021 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 $ 132.8 $ 142.0 $ 126.7 $ 115.7 $ 517.2 Loss from disc ops, net of tax, attributable to Enco
Slide 38: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(4) Q1 Full Year ($ in millions) 2022 2021 2021 Net cash provided by operating activities $ 218.9 $ 158.5 $ 715.8 Interest expense and amortization of debt discounts and fees 39.6 42.8 164.6 Equity in net income of nonconsolidate
Slide 39: Reconciliation of segment Adjusted EBITDA to income before income tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Year Ended March 31, December 31, 2022 2021 2021 ($ in millions) Total segment Adjusted EBITDA $ 276.3 $ 285.7 $ 1,168.3 General and administrative expenses (48.4) (38.6) (197.
Slide 40: Reconciliation of operating cash flow to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(3) Q1 Full Year ($ in millions) 2022 2021 2021 Net cash provided by operating activities $ 218.9 $ 158.5 $ 715.8 Impact of discontinued operations 0.1 — 0.5 Net cash provided by operating activities of continuing
Slide 41: Adjusted EPS - Q1 2022
Adjusted EPS(2) - Q1 2022 For the Three Months Ended March 31, 2022 Adjustments Costs Associated Change in Loss on with the Fair Market Early Strategic Value of As Exting. of Income Tax Alternatives Equity As Reported Debt Adjustments Review Securities Adjusted ($ in millions, except per share amoun
Slide 42: Adjusted EPS - Q1 2021
Adjusted EPS(2) - Q1 2021 For the Three Months Ended March 31, 2021 Adjustments Costs Associated Change in with the Fair Market Strategic Value of Income Tax Alternatives Equity As Reported Adjustments Review Securities As Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 250.8 $
Slide 43: End notes
End notes (1) In the first quarter of 2022, the Company redeemed the remaining $100 million of its 5.125% Senior Notes due 2023. The redemption was completed at 100% of par using drawings under the Company’s revolving credit facility. As a result of the redemption, the Company recorded a $0.3 millio
Slide 44: End notes, continued
End notes, continued (10) As a result of an amendment to the joint venture agreement related to our home health location in Boynton Beach, Florida, the accounting for this agency changed from the equity method of accounting to a consolidated entity effective December 1, 2021. We accounted for this c