Encompass Health Corporation · NYSE:EHC
Encompass Health — Q3 2024 Earnings Presentation
34 slides from Encompass Health's earnings presentation, Oct 29, 2024
Slide 1: 2024 Third Quarter Earnings Call
2024 Third Quarter Earnings Call October 29, 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 Q3 2024 Financial summary ............................................................................................................................................. 4 Key takeaways ..................................................................................................
Slide 4: Q3 2024 Financial summary
Q3 2024 Financial summary Q3 9 Months ($ in millions, except per share data) 2024 2023 %△ 2024 2023 %△ Encompass Health Net operating revenue $ 1,351.0 $ 1,206.9 11.9 % $ 3,968.2 $ 3,554.4 11.6 % Adjusted EBITDA $ 269.3 $ 237.5 13.4 % $ 814.1 $ 716.1 13.7 % Adjusted EPS $ 1.03 $ 0.86 19.8 % $ 3.26 $
Slide 5: Q3 2024 Key takeaways
Q3 2024 Key takeaways u Revenue Net operating revenue growth of 11.9% ü Discharge growth of 8.8% (6.8% same store) u Adjusted EBITDA Adjusted EBITDA growth of 13.4% u Balance sheet Net leverage of 2.3x Redeemed $150 million of 5.75% Senior Notes due 2025 in August 2024 u Capacity additions
Slide 6: Revenue
Revenue Q3 Q3 % Change* ($ in millions) 2024 2023 Net operating revenue: Inpatient $ 1,316.2 $ 1,180.5 11.5% Outpatient and other 34.8 26.4 31.8% Total revenue $ 1,351.0 $ 1,206.9 11.9% (Actual Amounts) Discharges 62,715 57,665 8.8% New-store discharge growth 2.0% Same-store discharge growth 6.8% Ne
Slide 7: Adjusted EBITDA
Adjusted EBITDA(1) Q3 % of Q3 % of ($ in millions) 2024 Revenue 2023 Revenue Net operating revenue $ 1,351.0 $ 1,206.9 Operating expenses: Salaries and benefits (732.1) 54.2 % (658.6) 54.6 % Other operating expenses(a) (201.8) 14.9 % (181.5) 15.0 % Supplies (60.6) 4.5 % (53.9) 4.5 % Occupancy costs
Slide 8: Earnings per share - as reported
Earnings per share - as reported Q3 9 Months ($ in millions, except per share data) 2024 2023 2024 2023 Adjusted EBITDA $ 269.3 $ 237.5 $ 814.1 $ 716.1 Depreciation and amortization(2) (78.4) (67.3) (221.6) (203.8) Interest expense and amortization of debt discounts and fees (34.9) (35.9) (104.4) (1
Slide 9: Adjusted earnings per share
Adjusted earnings per share(5) Q3 9 Months 2024 2023 2024 2023 Diluted earnings per share, as reported $ 1.07 $ 0.85 $ 3.31 $ 2.65 Adjustments, net of tax: Asset impairment impact(3) — — 0.02 — Income tax adjustments (0.02) — (0.05) — State regulatory change impact(2) — — — 0.03 Change in fair marke
Slide 10: 2024 YTD Adjusted free cash flow
2024 YTD Adjusted free cash flow(6) ($ in millions) $20.2 $4.4 $98.0 $(51.0) $(4.0) $499.8 $432.2 Adjusted free cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted free cash flow 9 mos. 2023 EBITDA and other payments net of refunds expenditures flow 9 mos. 202
Slide 11: 2024 Guidance - Updated as of October 28, 2024
2024 Guidance - Updated as of October 28, 2024 Previous Updated Guidance Guidance ($ in millions, except per share data) Net Operating Revenue $5,275 to $5,350 $5,325 to $5,375 Adjusted EBITDA(1) $1,040 to $1,075 $1,070 to $1,090 Adjusted earnings per share from continuing operations attributable $3
Slide 12: 2024 Guidance considerations
2024 Guidance considerations u Pricing Medicare pricing increase of 3.3% for Q4 Managed Care pricing increase of 2% to 3% for Q4 Bad debt reserves of 2.0% to 2.5% of revenue for Q4 u Labor SWB per FTE (including contract labor, sign-on and shift bonuses) increase of 4.0% to 4.5% u Capacity a
Slide 13: Adjusted free cash flow assumptions
Adjusted free cash flow(6) assumptions 9 Months Certain cash flow items 2024 2023 2024 ($ in millions) Actuals Actuals Assumptions Cash interest payments (net of amortization of debt $97.1 $134.0 ~ $130 discounts and fees) Increased cash taxes due to higher net Cash payments for income income and ph
Slide 14: Uses of free cash flow
Uses of free cash flow 9 Months 2024 2023 2024 ($ in millions) Actuals Actuals Assumptions IRF bed expansions $60.7 $41.8 $95 to $105 New IRFs Growth in - De novos 246.2 321.6 315 to 325 core business - Replacement IRFs and other(7) 3.0 24.2 TBD $309.9 $387.6 $410 to $430 Debt Debt redemptions (borr
Slide 15: Appendix
Appendix
Slide 16: Encompass Health: Largest owner and operator of rehabilitation hospitals
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 09/30/24 165 Rehabilitation hospitals “IRFs” 65 are joint ventures 16 38 IRFs under States and development** Puerto Rico 25% of Licensed beds † 34% Rehabilitation hospitals “IRFs” of Medicare patients serve
Slide 17: Growth targets, fundamentals and value drivers
Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of p
Slide 18: Development activity
Development activity Inpatient Rehabilitation Hospitals opened or under development Joint Expected # of new beds 16 venture open date 2024 2025 2026 De novos* IRF development projects Kissimmee, FL 50 — — Atlanta, GA 40 — — announced and underway** ü Louisville, KY ü 40 — — Johnston, RI 50 — — Fort
Slide 19: Debt maturity profile - face value
Debt maturity profile - face value As of September 30, 2024* ($ in millions) Callable beginning Callable February 2025 at 101.125 $964 Available Callable beginning April 2026 $— Drawn + $36 reserved Revolver $800 $800 for LCs capacity Senior Senior Callable Notes Notes at par 4.75% 4.5% $400 Senior
Slide 20: Debt schedule
Debt schedule Change in September 30, December 31, Debt vs. ($ in millions) 2024 2023 YE 2023 Advances under $1 billion revolving credit facility $ — $ — $ — Bonds Payable: 5.75% Senior Notes due 2025 199.5 348.5 (149.0) 4.50% Senior Notes due 2028 787.5 785.0 2.5 4.75% Senior Notes due 2030 783.5 7
Slide 21: New-store/same-store growth
New-store/same-store growth Moline, IL (40 beds) Naples, FL (50 beds) Grand Forks, ND (40 beds) Clermont, FL (50 beds) Bowie, MD (60 beds) Shiloh, IL (40 beds) Johnston, RI (50 beds) 20.0% Fort Mill, SC (39 beds) St. Augustine, FL (40 beds) Libertyville, IL (60 beds) Prosper, TX (40 beds) Fitchburg,
Slide 22: Payment sources (percent of revenues)
Payment sources (percent of revenues) Q3 9 Months Full Year 2024 2023 2024 2023 2023 Medicare 65.4 % 65.2 % 64.8 % 64.8 % 65.0 % Medicare Advantage 16.4 % 15.9 % 16.9 % 16.2 % 16.2 % Managed care 11.0 % 11.2 % 10.9 % 11.2 % 11.1 % Medicaid 3.4 % 4.1 % 3.4 % 4.1 % 4.0 % Other third-party payors 0.7 %
Slide 23: Operational metrics
Operational metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2024 2024 2024 2023 2023 2023 2023 2023 ($ in millions) Net patient revenue-inpatient $ 1,316.2 $ 1,265.5 $ 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 34.8 35.7 33.3 30.0 26.4 24.8 26.
Slide 24: Share information
Share information Weighted Average for the Period Q3 9 Months Full Year (in millions) 2024 2023 2024 2023 2023 2022 2021 Basic shares outstanding 99.9 99.5 99.9 99.5 99.5 99.2 99.0 Restricted stock awards, dilutive stock options, and restricted stock units 2.2 1.9 2.3 1.6 1.8 1.2 1.2 Diluted shares
Slide 25: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(1) Q3 9 Months Full Year ($ in millions) 2024 2023 2024 2023 2023 Net cash provided by operating activities $ 267.8 $ 215.2 $ 724.0 $ 649.8 $ 850.8 Interest expense and amortization of debt discounts and fees 34.9 35.9 104.4 108
Slide 26: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(1) Q3 9 Months Full Year ($ in millions) 2024 2023 2024 2023 2023 Net income $ 147.1 $ 113.4 $ 432.4 $ 343.9 $ 463.0 Loss from discontinued operations, net of tax, attributable to Encompass Health 0.7 1.3 3.2 3.5 12.0 Net income attributable to noncont
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(6) Q3 9 Months Full Year ($ in millions) 2024 2023 2024 2023 2023 Net cash provided by operating activities $ 267.8 $ 215.2 $ 724.0 $ 649.8 $ 850.8 Impact of discontinued operations 1.0 1.7 3.7 4.6 16.0 Net cash p
Slide 28: Adjusted EPS - Q3 2024
Adjusted EPS(5) - Q3 2024 For the Three Months Ended September 30, 2024 Adjustments Loss on Early Change in Fair As Exting. Income Tax Market Value of As Reported of Debt Adjustments Equity Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 269.3 $ — $ — $ — $ 269.3 Depr
Slide 29: Adjusted EPS - Q3 2023
Adjusted EPS(5) - Q3 2023 For the Three Months Ended September 30, 2023 Adjustments Change in Fair Market Value of As Income Tax Equity As Reported Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 237.5 $ — $ — $ 237.5 Depreciation and amortization (67.3) —
Slide 30: Adjusted EPS - YTD Q3 2024
Adjusted EPS(5) - YTD Q3 2024 For the Nine Months Ended September 30, 2024 Adjustments Change in Fair Loss on Market Asset Early Value of As Impairment Exting. Income Tax Equity As Reported Impact of Debt Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 814
Slide 31: Adjusted EPS - YTD Q3 2023
Adjusted EPS(5) - YTD Q3 2023 For the Nine Months Ended September 30, 2023 Adjustments Change in Fair State Market Regulatory Value of As Change Income Tax Equity As Reported Impact Adjustments Securities Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 716.1 $ — $ — $ — $ 716.1
Slide 32: Adjusted EPS - 2023
Adjusted EPS(5) - 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 (2) Depreciatio
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) (6) 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