Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2024 Earnings Presentation
32 slides from Encompass Health's earnings presentation, Apr 25, 2024
Slide 1: 2024 First Quarter Earnings Call
2024 First Quarter Earnings Call April 25, 2024 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 Q1 2024 Financial summary ............................................................................................................................................. 4 Key takeaways ..................................................................................................
Slide 4: Q1 2024 Financial summary
Q1 2024 Financial summary Q1 ($ in millions, except per share data) 2024 2023 %△ Encompass Health Net operating revenue $1,316.0 $1,160.4 13.4 % Adjusted EBITDA $ 273.0 $ 229.0 19.2 % Adjusted EPS $ 1.12 $ 0.88 27.3 % Adjusted free cash flow $ 167.6 $ 158.7 5.6 % Encompass Health Reconciliations to
Slide 5: Q1 2024 Key takeaways
Q1 2024 Key takeaways u Revenue Net operating revenue growth of 13.4% ü Discharge growth of 10.0% (6.7% same store) u Adjusted EBITDA Adjusted EBITDA growth of 19.2% u Balance sheet Net leverage of 2.5x u Capacity additions Added 51 beds to existing hospitals u Shareholder distributions Pa
Slide 6: Revenue
Revenue Q1 Q1 % Change* ($ in millions) 2024 2023 Net operating revenue: Inpatient $ 1,282.7 $ 1,134.2 13.1% Outpatient and other 33.3 26.2 27.1% Total revenue $ 1,316.0 $ 1,160.4 13.4% (Actual Amounts) Discharges 61,111 55,557 10.0% New-store discharge growth 3.3% Same-store discharge growth 6.7% N
Slide 7: Adjusted EBITDA
Adjusted EBITDA(1) Q1 % of Q1 % of ($ in millions) 2024 Revenue 2023 Revenue Net operating revenue $1,316.0 $ 1,160.4 Operating expenses: Salaries and benefits (711.6) 54.1 % (629.0) 54.2 % Other operating expenses(a) (190.2) 14.5 % (177.2) 15.3 % Supplies (58.5) 4.4 % (53.8) 4.6 % Occupancy costs (
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q1 ($ in millions, except per share data) 2024 2023 Adjusted EBITDA $ 273.0 $ 229.0 Depreciation and amortization (70.3) (63.9) Interest expense and amortization of debt discounts and fees (35.2) (36.4) Stock-based compensation (9.3) (7.9) Loss on disposal or impairm
Slide 9: Adjusted earnings per share
Adjusted earnings per share(4) Q1 2024 2023 Diluted earnings per share, as reported $ 1.11 $ 0.88 Adjustments, net of tax: Asset impairment impact(2) 0.02 — Income tax adjustments (0.01) — Adjusted earnings per share* $ 1.12 $ 0.88 u Adjusted earnings per share removes from GAAP earnings per share t
Slide 10: Q1 2024 Adjusted free cash flow
Q1 2024 Adjusted free cash flow(5) ($ in millions) $44.0 $1.3 $(28.7) $(6.8) $(0.9) $158.7 $167.6 Adjusted free cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted free cash flow 3 mos. 2023 EBITDA and other payments net of refunds expenditures flow 3 mos. 202
Slide 11: 2024 Guidance - Updated as of April 24, 2024
2024 Guidance - Updated as of April 24, 2024 Previous 2024 Updated 2024 Guidance Guidance ($ in millions, except per share data) Net Operating Revenue $5,200 to $5,300 $5,250 to $5,325 Adjusted EBITDA(1) $1,015 to $1,055 $1,030 to $1,065 Adjusted earnings per share from continuing operations attribu
Slide 12: 2024 Guidance considerations
2024 Guidance considerations u Pricing Medicare pricing increase of 3.3% for Q1 through Q3 and an estimated 3.0% for Q4 Managed Care pricing increase of 2% to 3% Bad debt reserves of 2.0% to 2.4% of net operating revenue u Labor SWB per FTE (including contract labor, sign-on and shift bonuse
Slide 13: Adjusted free cash flow assumptions
Adjusted free cash flow(5) assumptions 3 Months 2023 2024 Certain cash flow items 2024 ($ in millions) Actuals Actuals Assumptions Cash interest payments (net of amortization of debt $32.8 $134.0 $130 to $140 discounts and fees) Increased cash taxes due to higher net income and phase-out of bonus Ca
Slide 14: Uses of free cash flow
Uses of free cash flow 3 Months 2024 2023 2024 ($ in millions) Actuals Actuals Assumptions IRF bed expansions $19.9 $41.8 $105 to $115 New IRFs Growth in - De novos 80.8 321.6 290 to 300 core business - Replacement IRFs and other(6) — 24.2 — $100.7 $387.6 $395 to $415 Debt Debt redemptions (borrowin
Slide 15: Appendix
Appendix
Slide 16: Encompass Health: Largest owner and operator of rehabilitation hospitals
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 03/31/24 160 Rehabilitation hospitals “IRFs” 62 are joint ventures 20 37 IRFs under States and development* Puerto Rico 25% of Licensed beds † 34% of Medicare Rehabilitation hospitals “IRFs” patients served
Slide 17: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 18: De novo activity
De novo activity Inpatient Rehabilitation Hospitals opened or under development Joint venture 2024 # of new beds 2025 2026 20 De novo projects* 1 Kissimmee, FL 50 — — IRF development projects 2 Atlanta, GA ü 40 — — announced and underway 3 Johnston, RI 50 — — 4 Fort Mill, SC 39 — — 5 Louisville, KY
Slide 19: Debt maturity profile - face value
Debt maturity profile - face value As of March 31, 2024* ($ in millions) Callable beginning Callable February 2025 at 101.125 $964 Available Callable beginning April 2026 $— Drawn + Callable $36 reserved Revolver $800 $800 at par for LCs Senior capacity Senior Notes Notes 4.5% 4.75% $350 $400 Senior
Slide 20: Debt schedule
Debt schedule Change in March 31, December 31, Debt vs. ($ in millions) 2024 2023 YE 2023 Advances under $1 billion revolving credit facility $ — $ — $ — Bonds Payable: 5.75% Senior Notes due 2025 348.7 348.5 0.2 4.50% Senior Notes due 2028 785.9 785.0 0.9 4.75% Senior Notes due 2030 782.2 781.5 0.7
Slide 21: New-store/same-store growth
New-store/same-store growth Shreveport, LA (40 beds) North Tampa, FL (50 beds) Waco, TX (40 beds) Cumming, GA (50 beds) Greenville, SC (40 beds) Pensacola, FL (40 beds) Prosper, TX (40 beds) Knoxville, TN (73 beds) Fitchburg, WI (56 beds) Shiloh, IL (40 beds) Eau Claire, WI (36 beds) 20.0% Owasso, O
Slide 22: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q1 Full Year 2024 2023 2023 Medicare 64.9 % 65.3 % 65.0 % Medicare Advantage 17.0 % 16.0 % 16.2 % Managed care 10.9 % 11.0 % 11.1 % Medicaid 3.4 % 4.1 % 4.0 % Other third-party payors 0.7 % 0.9 % 0.9 % Workers’ compensation 0.5 % 0.5 % 0.5 % Patients 0.3 % 0.2 %
Slide 23: Operational metrics
Operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2024 2023 2023 2023 2023 2023 Net patient revenue-inpatient $ 1,282.7 $ 1,216.8 $ 1,180.5 $ 1,162.3 $ 1,134.2 $ 4,693.8 Net patient revenue-outpatient and other revenues 33.3 30.0 26.4 24.8 26.2 107.4 Net operating revenues $ 1,316.0 $ 1,246.8 $ 1,206.9 $
Slide 24: Share information
Share information Weighted Average for the Period Q1 Full Year (in millions) 2024 2023 2023 2022 2021 Basic shares outstanding 99.8 99.4 99.5 99.2 99.0 Restricted stock awards, dilutive stock options, and restricted stock units 2.4 1.5 1.8 1.2 1.2 Diluted shares outstanding 102.2 100.9 101.3 100.4 1
Slide 25: 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) 2024 2023 2023 Net cash provided by operating activities $ 238.8 $ 227.9 $ 850.8 Interest expense and amortization of debt discounts and fees 35.2 36.4 143.5 Gain on sale of investments, excluding
Slide 26: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Q1Full Year ($ in millions) 2024 2023 2023 Net income $ 138.8 $ 113.3 $ 463.0 Loss from discontinued operations, net of tax, attributable to Encompass Health 1.3 1.0 12.0 Net income attributable to noncontrolling interests included in continuing ope
Slide 27: 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(5) Q1Full Year ($ in millions) 2024 2023 2023 Net cash provided by operating activities $ 238.8 $ 227.9 $ 850.8 Impact of discontinued operations 0.7 1.3 16.0 Net cash provided by operating activities of continuin
Slide 28: Adjusted EPS - Q1 2024
Adjusted EPS(4) - Q1 2024 For the Three Months Ended March 31, 2024 Adjustments Asset Change in Fair As Impairment Income Tax Market Value of As Reported Impact Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 273.0 $ — $ — $ — $ 273.0 Depreciation a
Slide 29: Adjusted EPS - Q1 2023
Adjusted EPS(4) - Q1 2023 For the Three Months Ended March 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 $ 229.0 $ — $ — $ 229.0 Depreciation and amortization (63.9) — — (
Slide 30: Adjusted EPS - 2023
Adjusted EPS(4) - 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 31: 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 32: End notes (continued)
End notes (continued) (5) 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