Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2020 Earnings Presentation
44 slides from Encompass Health's earnings presentation, Jul 28, 2020
Slide 1: Second Quarter Earnings Call
Second Quarter Earnings Call July 28, 2020 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 COVID-19 pandemic and its effects, leg
Slide 3: Table of contents
Table of contents Volume trends........................................................................................................ 4 Q2 2020 summary.................................................................................................... 5-6 Inpatient rehabilitation segment .........
Slide 4: Volume trends
Volume trends u Inpatient rehabilitation patient census and home health starts of care reached a low point the week ended April 12, 2020 (Easter weekend). By the end of June 2020, ü inpatient rehabilitation census rebounded to 95% of pre-pandemic levels. ü home health starts of care rebounded to p
Slide 5: Q2 2020 summary
Q2 2020 summary Q2 6 Months ($millions) 2020 2019 Growth 2020 2019 Growth Encompass Health Consolidated Net operating revenues $ 1,074.1 $ 1,135.0 (5.4)% $ 2,256.1 $ 2,259.0 (0.1)% Adjusted EBITDA $ 162.2 $ 252.2 (35.7)% $ 390.2 $ 495.1 (21.2)% Inpatient Rehabilitation Segment Net operating revenues
Slide 6: Q2 2020 summary (cont.)
Q2 2020 summary (cont.) u Expansion activity (see page 18) Opened a new 40-bed inpatient rehabilitation hospital in Sioux Falls, South Dakota in June 2020 Opened a new 40-bed inpatient rehabilitation hospital in Coralville, Iowa in June 2020 in joint venture with the University of Iowa Health Ca
Slide 7: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q2 Q2 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Inpatient $ 808.0 $ 851.8 (5.1%) Outpatient and other 16.5 22.1 (25.3%) Total segment revenue $ 824.5 $ 873.9 (5.7%) (Actual Amounts) Discharges 41,682 46,679 (10.7%) Same-store di
Slide 8: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q2 Q2 % of % of ($millions) 2020 Revenue 2019 Revenue Net operating revenues $ 824.5 $ 873.9 Operating expenses: Salaries and benefits (451.4) 54.7% (443.6) 50.8% u Operating expenses as a Other operating expenses (a) (124.3) 15.1% (127.2) 14.6% per
Slide 9: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q2 Q2 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Home health revenue $ 201.8 $ 222.7 (9.4)% Hospice revenue 47.8 38.4 24.5 % Total segment revenue $ 249.6 $ 261.1 (4.4)% Home Health Metrics (Actual Amounts) Admissions 34,841 37,82
Slide 10: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA u Segment Adjusted EBITDA for 2019 included the acquisition of Alacare which closed on Q2 Q2 July 1, 2019. % of % of ($millions) 2020 Revenue 2019 Revenue u All expense ratios in Q2 2020 were impacted by a decrease Net operating revenues $ 249.6 $ 26
Slide 11: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $162.2 million u General and administrative expenses increased as a percent of consolidated revenue primarily due to the decrease in the revenue base resulting from the COVID-19 pandemic. % of Consolidated % of Consolidated
Slide 12: Earnings per share - as reported
Earnings per share - as reported Q2 6 Months (In Millions, Except Per Share Data) 2020 2019 2020 2019 u The decrease in EPS primarily resulted Adjusted EBITDA $ 162.2 $ 252.2 $ 390.2 $ 495.1 from decreased Adjusted EBITDA, Depreciation and amortization (60.7) (52.7) (119.5) (105.2) higher depreciati
Slide 13: Adjusted earnings per share
Adjusted earnings per share(6) Q2 6 Months 2020 2019 2020 2019 Earnings per share, as reported $ 0.34 $ 0.92 $ 1.21 $ 1.95 Adjustments, net of tax: Government, class action, and related settlements(5) — — 0.02 — Mark-to-market adjustment for stock compensation expense (see page 21) — 0.21 — 0.28 Tra
Slide 14: 2020 Adjusted free cash flow
2020 Adjusted free cash flow(7) $75.3 $24.8 ($9.4) ($13.0) $270.0 ($104.9) $242.8 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow 6 Mos. 2019 EBITDA and other payments payments, capital expenditures flow 6 Mos. 2020 net of refunds u Adjusted fre
Slide 15: Uses of free cash flow
Uses of free cash flow 6 Months 2020 2019 ($millions) Actuals Actuals IRF bed expansions $18.7 $39.8 New IRFs - De novos 58.3 114.2 Growth in core - Acquisitions — — business - Replacement IRFs and other 23.8 83.1 Home health and hospice acquisitions (includes Alacare in 2019) 1.1 231.5 $101.9 $468.
Slide 16: Appendix
Appendix
Slide 17: Encompass Health map of locations
Encompass Health aand leading provider of inpatient rehabilitation home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of June 30, 2020** Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 14 Future
Slide 18: Expansion activity
Expansion activity Certain development projects may be delayed due Inpatient Rehabilitation Facilities to the COVID-19 pandemic. Opened or Under Development # of New Beds 14 Previously announced IRF 2020 2021 2022 development projects underway De novo: Murrieta, CA 50 — — 2 New states Sioux Falls, S
Slide 19: Integrated care clinical collaboration
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* u The lower clinical collaboration rate for YTD 2020 was driven by a higher Clinical Collaboration Rate mix
Slide 20: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” c
Slide 21: Overview of rollover shares and SARs
Overview of rollover shares and SARs previously held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the
Slide 22: Debt maturity profile - face value
Debt maturity profile - face value As of June 30, 2020* ($ in millions) Callable beginning Callable beginning $964 February 2023(9) February 2025(9) Available Callable beginning November 2017(3) $0 Drawn + $36 reserved for LCs Revolver capacity Callable beginning $700 September 2020 Callable beginni
Slide 23: Debt schedule
Debt schedule Change in June 30, December 31, Debt vs. ($millions) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ 45.0 $ (45.0) Term loan facility, November 2024 - LIBOR +150bps 258.0 265.2 (7.2) Bonds Payable: 5.125% Senior Notes due 2023
Slide 24: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shelby County, AL (34 beds) Yuma, AZ (51 beds)(2) Bluffton, SC (38 beds) Boise, ID (40 beds) Katy, TX (40 beds) Murrells Inlet, SC Sioux Falls, SD (40 beds) 15.0 Pearland, TX (29 beds) Lubbock, TX (40 beds) (40 beds) Coralville, IA (40 beds) Jacks
Slide 25: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice (23 home health locations in Alabama) 30.0 in July 2019 Acquired Camellia Healthcare (14 home health locations in 3 states) in May 2018 20.0 10.0 0.0 -10.0 -20.0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2
Slide 26: New-store/same-store growth Hospice
New-store/same-store growth Hospice Acquired Camellia Healthcare (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice 70.0 in May 2018 (23 hospice locations in Alabama) in July 2019 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q
Slide 27: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q2 Q2 Q2 6 Months Full Year 2020 2019 2020 2019 2020 2019 2020 2019 2019 Medicare 61.1% 72.1% 81.8% 84.7% 65.8% 74.9% 69.8% 75.4% 75.1% Medicare Advantage 20.1% 11.1% 11.7% 10.2% 18.2%
Slide 28: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 16.5 19.2 23.2 21.7 22.1 22.5
Slide 29: Home health and hospice operational metrics
Home health and hospice operational metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 47.8 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues $ 249.6 $ 272.8 $ 28
Slide 30: Share information
Share information Weighted Average for the Period Q2 6 Months Full Year (In Millions) 2020 2019 2020 2019 2019 2018 2017 Basic shares outstanding(16) 98.7 98.0 98.5 98.2 98.0 97.9 93.7 Convertible senior subordinated notes(16) — — — — — — 4.0 Restricted stock awards, dilutive stock options, restrict
Slide 31: Segment operating results
Segment operating results Q2 2020 Q2 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 824.5 $ 249.6 $ — $ 1,074.1 $ 873.9 $ 261.1 $ — $ 1,135.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 32: Segment operating results
Segment operating results Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,733.7 $ 522.4 $ — $ 2,256.1 $ 1,744.0 $ 515.0 $ — $ 2,259.0 Operating
Slide 33: Segment operating results
Segment operating results Year Ended December 31, 2019 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) Other operating expenses(
Slide 34: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(17) 2020 Q1 Q2 6 Months Per Per Per (in millions, except per share data) Total Share Total Share Total Share Net Income $ 108.7 $ 48.3 $ 157.0 Loss (income) from disc ops, net of tax, attributable to Encompass Health 0.1 (0.1) — Net income attributable
Slide 35: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(17) 2019 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 $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encomp
Slide 36: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(17) Q2 6 Months Full Year (In Millions) 2020 2019 2020 2019 2019 Net cash provided by operating activities $ 222.3 $ 145.4 $ 251.6 $ 305.3 $ 635.3 Interest expense and amortization of debt discounts and fees 45.8 37.7 89.0 74.9
Slide 37: 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 Six Months Ended Year Ended June 30, June 30, December 31, 2020 2019 2020 2019 2019 (In Millions) Total segment Adjusted EBITDA $ 195.3 $ 283.0 $ 451.8 $ 559.3 $ 1,095.4 Genera
Slide 38: Reconciliation of operating cash flow to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(7) Q2 6 Months Full Year (In Millions) 2020 2019 2020 2019 2019 Net cash provided by operating activities $ 222.3 $ 145.4 $ 251.6 $ 305.3 $ 635.3 Impact of discontinued operations — 1.5 0.1 4.5 4.4 Net cash provid
Slide 39: Adjusted EPS - Q2 2020
Adjusted EPS(6) - Q2 2020 For the Three Months Ended June 30, 2020 Adjustments Change in Fair Market Value As Income Tax of Equity As Reported Adjustments Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 162.2 $ — $ — $ 162.2 Depreciation and amortization (60.7) — — (60.
Slide 40: Adjusted EPS - Q2 2019
Adjusted EPS(6) - Q2 2019 For the Three Months Ended June 30, 2019 Adjustments Mark-to- Market Change in Adjustment Loss on Fair Market for Stock Early Value of As Comp. Exting. Income Tax Transaction Equity As Reported Expense of Debt Adjustments Costs Securities Adjusted (In Millions, Except Per S
Slide 41: Adjusted EPS - YTD 2020
Adjusted EPS(6) - YTD 2020 For the Six Months Ended June 30, 2020 Adjustments Change in Payroll Gov’t, Class Fair Market Gain on Taxes Action, & Value of Consolidation on As Related Income Tax Equity of Treasure SARs As Reported Settlements Adjustments Securities Coast Exercise Adjusted (In Millions
Slide 42: Adjusted EPS - YTD 2019
Adjusted EPS(6) - YTD 2019 For the Six Months Ended June 30, 2019 Adjustments Mark-to- Market Change in Adjustment Loss on Fair Market Payroll for Stock Early Value of Taxes on As Comp. Exting. of Income Tax Transaction Equity SARs As Reported Expense Debt Adjustments Costs Securities Exercise Adjus
Slide 43: End notes
End notes (1) In April 2020, the Company initiated a program for eligible frontline employees to earn additional paid time off in recognition of their outstanding efforts responding to the COVID-19 pandemic. The Company accrued approximately $43 million in salary and benefits expense in Q2 2020 in c
Slide 44: End notes, con't.
End notes, con’t. (9) In September 2019, the Company issued $500 million of 4.5% Senior Notes due 2028 and $500 million of 4.75% Senior Notes due 2030. The proceeds were used to fund the purchase of the home health rollover shares and exercise of SARs in Q3 2019, fund a call of $400 million of 5.75%