Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2019 Earnings Presentation
46 slides from Encompass Health's earnings presentation, Apr 26, 2019
Slide 1: First Quarter 2019 Earnings Call
First Quarter 2019 Earnings Call April 26, 2019 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 legislative and regulatory developments, s
Slide 3: Table of contents
Table of contents Q1 2019 Summary ................................................................................................... 4-5 Clinical collaboration rate ......................................................................................... 6 Inpatient rehabilitation segment .........
Slide 4: Q1 2019 summary
Q1 2019 summary Q1 Growth ($millions) Q1 2019 Q1 2018 Dollars Percent Encompass Health Consolidated Net operating revenues $ 1,124.0 $ 1,046.0 $ 78.0 7.5% Adjusted EBITDA $ 242.9 $ 223.3 $ 19.6 8.8% Inpatient Rehabilitation Segment Net operating revenues $ 870.1 $ 840.3 $ 29.8 3.5% Adjusted EBITDA $
Slide 5: Q1 2019 summary (cont.)
Q1 2019 summary (cont.) u Expansion activity (see page 23) Signed definitive agreement to acquire Alacare Home Health and Hospice ü 23 home health locations and 23 hospice locations in Alabama ü $217.5 million cash purchase price expected to be funded with cash on hand and borrowings under revolvi
Slide 6: Improving patient experience and outcomes through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration (all payors) overlap markets* 33.5% 36.0% Collaboration rate Collaboration rate u As of March 31, 2019, Encompass Health had 81 overlap m
Slide 7: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q1 Q1 Favorable/ ($millions) 2019 2018 (Unfavorable) Net operating revenues: Inpatient $ 847.6 $ 817.1 3.7% Outpatient and other 22.5 23.2 (3.0%) Total segment revenue $ 870.1 $ 840.3 3.5% (Actual Amounts) Discharges 45,609 45,108 1.1% Same-store discharge
Slide 8: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q1 Q1 % of % of ($millions) 2019 Revenue 2018 Revenue Net operating revenues $ 870.1 $ 840.3 u Segment Adjusted EBITDA for Operating expenses: the quarter of $230.0 Salaries and benefits (445.0) 51.1% (424.2) 50.5% million. • The increase in salarie
Slide 9: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q1 Q1 Favorable/ ($millions) 2019 2018 (Unfavorable) Net operating revenues: Home health revenue $ 219.5 $ 185.3 18.5% Hospice revenue 34.4 20.4 68.6% Total segment revenue $ 253.9 $ 205.7 23.4% Home Health Metrics (Actual Amounts) Admissions 37,944 33,855 1
Slide 10: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q1 Q1 % of % of ($millions) 2019 Revenue 2018 Revenue u Segment Adjusted EBITDA Net operating revenues $ 253.9 $ 205.7 for the quarter increased 38.2% to $46.3 million. Included the acquisition of Cost of services (116.5) 45.9% (98.6) 47.9% Camelli
Slide 11: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $242.9 million u General and administrative expenses decreased as a percent of consolidated revenue primarily due to expenses associated with the Company’s rebranding and name change in 2018 and operating leverage resulting
Slide 12: Earnings per share - as reported
Earnings per share - as reported Q1 (In Millions, Except Per Share Data) 2019 2018 Consolidated Adjusted EBITDA $ 242.9 $ 223.3 Depreciation and amortization (52.5) (45.9) u The increase in EPS for Q1 2019 resulted primarily from increased Adjusted EBITDA Interest expense and amortization of debt di
Slide 13: Adjusted earnings per share
Adjusted earnings per share(2) Q1 2019 2018 Earnings per share, as reported $ 1.04 $ 0.85 Adjustments, net of tax: Mark-to-market adjustment for stock appreciation rights (see page 19) 0.06 0.08 Transaction costs — 0.01 Income tax adjustments (0.05) — Change in fair market value of equity securities
Slide 14: 2019 Adjusted free cash flow
2019 Adjusted free cash flow(3) $19.6 $6.5 ($65.5) ($1.6) ($1.4) $170.2 $127.8 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow 3 Mos. 2018 EBITDA and other payments payments, capital expenditures flow 3 Mos. 2019 net of refunds u Adjusted free c
Slide 15: Guidance - reiterated as of April 26, 2019
Guidance - reiterated as of April 26, 2019 2018 2019 Actuals Guidance Net operating revenues Net operating revenues $4,277.3 million $4,500 million to $4,600 million Adjusted EBITDA(4) Adjusted EBITDA(4) $901 million $925 million to $945 million Adjusted earnings per share Adjusted earnings per shar
Slide 16: 2019 Guidance considerations
2019 Guidance considerations Inpatient rehabilitation Home health and hospice u Estimated 1.2% increase in Medicare pricing u Estimated 1.5% net Medicare pricing for Q1 through Q3; estimated 0% to (0.25)% increase for CY 2019 (see page 26) reimbursement rate change for Q4 (see page 26) u Salary incr
Slide 17: Adjusted free cash flow assumptions
Adjusted free cash flow(3) assumptions 3 Months 3 Months Certain cash flow items 2019 2018 2019 2018 (millions) Assumptions Actual Actual Actual Cash interest payments (net of amortization of debt discounts $36.2 $34.6 $145 to $155 $143.3 and fees) Cash payments for income taxes, $2.9 $1.5 $110 to $
Slide 18: Uses of free cash flow
Uses of free cash flow 3 Months 2019 2019 2018 Actuals Assumptions Actuals IRF bed expansions $8.2 $40 to $50 $22.3 New IRFs - De novos 23.7 85 to 115 76.4 - Acquisitions — opportunistic — - Replacement IRFs and other 13.4 90 to 110 24.5 Growth in core Home health and hospice acquisitions business -
Slide 19: Overview of rollover shares and SARs held by home health and hospice management
Overview of rollover shares and SARs 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 post-acquis
Slide 20: Appendix
Appendix
Slide 21: Map of locations and portfolio overview
Encompass Health aand leading provider of inpatient rehabilitation home-based care Market overlap 81 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of March 31, 2019 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 6 Future IR
Slide 22: Rebranding and name change
Rebranding and name change The Company’s rebranding and name change reinforce its existing strategy and position as an integrated provider of inpatient and home-based care. JULY 2017 APRIL 2018 OCT. 2018 Announced Phase 1 field asset Phase 3 field asset planned conversions conversions name change JA
Slide 23: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Previously announced # of New Beds 6 IRF development 2019 2020 2021 projects underway De novo: 3 New states 1 Murrieta, CA 50 — — 2 Katy, TX 40 3 Sioux Falls, SD — 40 — 4 Coralville, IA — 40 — Q1 2019 expansion activity highlights: Joint venture
Slide 24: 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 25: Business outlook: 2019 to 2021
Business outlook: 2019 to 2021 2019 2020 2021 • Enhance clinical collaboration between the Company’s IRFs and home health locations Key • Build stroke market share (https://ehc.news/LifeAfterStroke) operational • Develop and implement post-acute solutions initiatives • Implement changes to reimburse
Slide 26: Business outlook 2019 to 2021: revenue assumptions
Business outlook 2019 to 2021: revenue assumptions Volume Inpatient Rehabilitation* Home Health* (includes new stores) 3+% annual discharge growth 10+% annual admission growth Approx. 74% of segment revenue Approx. 85% of segment revenue Medicare Pricing FY 2019 FY 2020 FY 2021 CY 2019 CY 2021 CY 20
Slide 27: Business outlook 2019 to 2021: labor and other expense assumptions
Business outlook 2019 to 2021: labor and other expense assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2019 2020 2021 Salary increases 2.75-3.25% 2.75-3.25% 2.85-3.35% Benefit costs increases 6-8% 5-10% 5-10% % of Salaries and Benefits Salaries Salaries Salaries ~9
Slide 28: Debt schedule
Debt schedule Change in March 31, December 31, Debt vs. ($millions) 2019 2018 YE 2018 Advances under $700 million revolving credit facility, September 2022 - LIBOR +150bps $ 25.0 $ 30.0 $ (5.0) Term loan facility, September 2022 - LIBOR +150bps 276.4 280.1 (3.7) Bonds Payable: 5.125% Senior Notes du
Slide 29: Debt maturity profile - face value
Debt maturity profile - face value As of March 31, 2019* Callable beginning September 2020 ($ in millions) Callable beginning November 2017 $636 Available $1,200 Callable beginning Senior March 2018 Notes 5.75% $25 Drawn + Revolver $39 reserved capacity for LC’s $300 Senior $350 Senior $276 Term Loa
Slide 30: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation 25.0 Hot Springs, AR (27 beds) Shelby County, AL (34 beds) Bluffton, SC (38 beds) 20.0 Bryan, TX (49 beds) Broken Arrow, OK (22 beds) Pearland, TX (40 beds) 15.0 Gulfport, MS (33 beds) Murrells Inlet, Westerville, OH (60 beds) SC (29 beds) 10.0 Ja
Slide 31: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired CareSouth 60.0 (44 home health locations in 7 states) in November 2015 50.0 40.0 30.0 Acquired Camellia Healthcare (14 home health locations in 3 states) in May 2018 20.0 10.0 0.0 Admissions Q22016 Q2 2016 Q32016 Q3 2016 Q4 2016 Q4 2016 Q1 2017 Q1 201
Slide 32: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2019 2018 2019 2018 2019 2018 2018 Medicare 73.5% 74.4% 84.6% 86.1% 76.0% 76.6% 75.9% Medicare Advantage 9.8% 8.6% 10.0% 9.7% 9.8% 8.8% 9.2% Managed care 9.6% 10.1%
Slide 33: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q1 Q4 Q3 Q2 Q1 Full Year 2019 2018 2018 2018 2018 2018 (In Millions) Net patient revenue-inpatient $ 847.6 $ 822.8 $ 798.4 $ 809.6 $ 817.1 $ 3,247.9 Net patient revenue-outpatient and other revenues 22.5 22.9 27.2 25.0 23.2 98.3 Net operating re
Slide 34: Home health and hospice operational metrics
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2019 2018 2018 2018 2018 2018 (In Millions) Net home health revenue $ 219.5 $ 215.3 $ 209.2 $ 204.8 $ 185.3 $ 814.6 Net hospice revenue 34.4 35.0 32.8 28.3 20.4 116.5 Net operating revenues $ 253.9 $ 250.3 $ 242.0 $ 233.1 $ 205.7 $
Slide 35: Share information
Share information Weighted Average for the Period Q1 Full Year 2019 2018 2018 2017 2016 Basic shares outstanding(15) 98.4 97.8 97.9 93.7 89.1 Convertible senior subordinated notes(15) — — — 4.0 8.5 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.3
Slide 36: Segment operating results
Segment operating results Q1 2019 Q1 2018 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 870.1 $ 253.9 $ — $ 1,124.0 $ 840.3 $ 205.7 $ — $ 1,046.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 37: Segment operating results
Segment operating results Year Ended December 31, 2018 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,346.2 $ 931.1 $ — $ 4,277.3 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,701.5) — (652.5) (2,354.0) Other operating expenses(a)
Slide 38: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(4) 2019 Q1 Per (in millions, except per share data) Total Share Net Income $ 125.2 Loss from disc ops, net of tax, attributable to Encompass Health 0.5 Net income attributable to noncontrolling interests (22.9) Income from continuing operations attribu
Slide 39: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(4) 2018 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 $ 105.2 $ 113.2 $ 109.3 $ 47.7 $ 375.4 Loss (income) from disc ops, net of tax, attributable t
Slide 40: 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) 2019 2018 2018 Net cash provided by operating activities $ 159.9 $ 216.3 $ 762.4 Interest expense and amortization of debt discounts and fees 37.2 35.6 147.3 Equity in net income of nonconsolidated
Slide 41: 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, 2019 2018 2018 (In Millions) Total segment Adjusted EBITDA $ 276.3 $ 257.3 $ 1,034.3 General and administrative expenses (53.4) (61.1) (220.2)
Slide 42: 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) 2019 2018 2018 Net cash provided by operating activities $ 159.9 $ 216.3 $ 762.4 Impact of discontinued operations 3.0 0.7 (0.8) Net cash provided by operating activities of continuin
Slide 43: Adjusted EPS - Q1 2019
Adjusted EPS(2) - Q1 2019 For the Three Months Ended March 31, 2019 Adjustments Mark-to- Market Change in Payroll Adjustment Fair Market Taxes for Stock Value of on As Compensatio Income Tax Transaction Equity SARs As Reported n Expense Adjustments Costs Securities Exercise Adjusted (In Millions, Ex
Slide 44: Adjusted EPS - Q1 2018
Adjusted EPS(2) - Q1 2018 For the Three Months Ended March 31, 2018 Adjustments Mark-to- Market Change in Adjustment Fair Market on Stock Value of As Compensation Income Tax Transaction Equity As Reported Expense Adjustments costs Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted
Slide 45: End notes
End notes (1) 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 of June 30,
Slide 46: End notes, con't.
End notes, con’t. (7) The Bipartisan Budget Act (“BBA”) of 2018, signed into law on February 9, 2018, provides for a home health market basket update of 1.5% for CY 2020 and the elimination of any productivity adjustment to the market basket for that year. It also provides for the extension of the r