Encompass Health Corporation · NYSE:EHC
Encompass Health — Q4 2020 Earnings Presentation
47 slides from Encompass Health's earnings presentation, Jan 27, 2021
Slide 1: Fourth Quarter Earnings Call
Fourth Quarter Earnings Call January 27, 2021 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 ongoing strategic review and its impac
Slide 3: Table of contents
Table of contents Q4 2020 summary.................................................................................................... 4-5 Inpatient rehabilitation segment.................................................................................. 6-7 Home health & hospice segment..............
Slide 4: Q4 2020 summary
Q4 2020 summary Q4 Full Year ($millions) 2020 2019 Growth 2020 2019 Growth Encompass Health Consolidated Net operating revenues $ 1,214.4 $ 1,184.4 2.5 % $ 4,644.4 $ 4,605.0 0.9 % Adjusted EBITDA $ 239.9 $ 238.2 0.7 % $ 860.3 $ 964.9 (10.8)% Adjusted EPS $ 0.93 $ 0.85 9.4 % $ 2.89 $ 3.91 (26.1)% Adj
Slide 5: Q4 2020 summary (continued)
Q4 2020 summary (continued) u Expansion activity (see page 21) Opened a new 40-bed inpatient rehabilitation hospital in Toledo, Ohio Announced plans to build a new 40-bed inpatient rehabilitation hospital in Shiloh, Illinois Added 28 beds to existing hospitals (117 beds added year to date) u B
Slide 6: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q4 Q4 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Inpatient $ 914.9 $ 873.5 4.7% Outpatient and other 18.2 23.2 (21.6%) Total segment revenue $ 933.1 $ 896.7 4.1% (Actual Amounts) Discharges 46,503 47,885 (2.9%) Same-store dischar
Slide 7: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q4 Q4 % of % of ($millions) 2020 Revenue 2019 Revenue Net operating revenues $ 933.1 $ 896.7 u Adjusted EBITDA of Operating expenses: $218.0 million was impacted by Salaries and benefits (495.1) 53.1 % (465.4) 51.9 % increases in: Other operating ex
Slide 8: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q4 Q4 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Home health revenue $ 227.7 $ 236.9 (3.9)% Hospice revenue 53.6 50.8 5.5 % Total segment revenue $ 281.3 $ 287.7 (2.2)% Home Health Metrics (Actual Amounts) Episodic admissions 40,8
Slide 9: Home health and hospice segment - Adjusted EBITDA
Home health and hospice segment - Adjusted EBITDA Q4 Q4 % of % of ($millions) 2020 Revenue 2019 Revenue Adjusted EBITDA increased Net operating revenues $ 281.3 $ 287.7 11.9%. u All expense ratios in Q4 Cost of services sold (121.9) 43.3 % (133.4) 46.4 % 2020 were impacted by a Support and overhead
Slide 10: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $239.9 million u General and administrative expenses decreased as a percent of consolidated revenue due to lower costs associated with incentive compensation. % of Consolidated % of Consolidated ($millions) Q4 2020 Revenue
Slide 11: Earnings per share - as reported
Earnings per share - as reported Q4 Year Ended (In Millions, Except Per Share Data) 2020 2019 2020 2019 Adjusted EBITDA $ 239.9 $ 238.2 $ 860.3 $ 964.9 Depreciation and amortization (62.3) (58.4) (243.0) (218.7) Interest expense and amortization of debt discounts and fees (46.2) (44.5) (184.2) (159.
Slide 12: Adjusted earnings per share
Adjusted earnings per share(5) Q4 Year Ended 2020 2019 2020 2019 Earnings per share, as reported $ 0.86 $ 0.68 $ 2.85 $ 3.62 Adjustments, net of tax: Government, class action, and related settlements(4) — — 0.02 — Mark-to-market adjustment for stock compensation expense (see page 25) — 0.11 — 0.47 T
Slide 13: 2020 Adjusted free cash flow
2020 Adjusted free cash flow(6) $71.2 $12.2 $106.4 $(21.8) $(104.6) $516.5 $579.9 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow FY 2019 EBITDA and other payments payments, capital expenditures flow FY 2020 net of refunds u Adjusted free cash f
Slide 14: 2021 Guidance
2021 Guidance 2020 2021 Actuals Guidance Net operating revenues Net operating revenues $4,644.4 million $5,000 million to $5,170 million Adjusted EBITDA(7) Adjusted EBITDA(7) $860.3 million $925 million to $955 million Adjusted earnings per share Adjusted earnings per share from continuing operation
Slide 15: 2021 Guidance considerations
2021 Guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 2.3% increase in Medicare pricing u Estimated 1.9% increase in Medicare pricing for home health; estimated 2.4% pricing u Revenue reserve related to bad debt of 1.4% increase for hospice to 1.6% of net operatin
Slide 16: 2020-2025 Growth Targets
2020-2025 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 Hospice to $100 million HOME HEALTH admissions admissions Acquisitions AND HOSPICE CAGR CAGR per year Not inclusive of larger
Slide 17: Adjusted free cash flow assumptions
Adjusted free cash flow(6) assumptions u Lower average interest rate expected in 2021 due to the redemption of the Certain cash flow items 2019 2020 2021 5.75% Senior Notes due (millions) Actuals Actuals Assumptions 2024 in the fourth quarter of 2020 Cash interest payments (net of u Higher cash paym
Slide 18: Uses of free cash flow
Uses of free cash flow 2020 2021 ($millions) Actuals Assumptions IRF bed expansions $44.8 $50 to $70 New IRFs Growth in - De novos 173.0 325 to 350 core - Acquisitions — opportunistic business - Replacement IRFs and other 35.5 40 to 50 Home health and hospice acquisitions 1.1 50 to 100 $254.4 $465 t
Slide 19: Appendix
Appendix
Slide 20: Map of locations
Encompass Health aand leading provider of inpatient rehabilitation home-based care Largest owner and operator of IRFs 4th Largest provider of Medicare-certified skilled home health services Portfolio as of December 31, 2020 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice lo
Slide 21: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities Opened or Under Development* Previously announced IRF 2020 # of New Beds 2021 2022 18 development De novo: projects underway Murrieta, CA 50 — — Sioux Falls, SD Toledo, OH 40 40 — — — — 2 New states 1 Cumming, GA — 50 — 2 North Tampa, FL — 50 —
Slide 22: Inpatient rehabilitation–home health clinical collaboration
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u The lower clinical collaboration rate for FY (all payors) overlap markets* 2020 was driven by a higher mix of Medicare Advantage patien
Slide 23: Personal Protective Equipment – Utilization, Cost and Inventory
Personal Protective Equipment (PPE) – Utilization, Cost and Inventory Increased PPE Utilization u due to COVID-19 INPATIENT REHABILITATION ñ Utilization of PPE has increased as Avg. Monthly Utilization Avg. Monthly Spend a result of new infection control Months of Current policies in response to the
Slide 24: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Encompass Health reserves pre-payment claim denials as a Background reduction of net operating revenues upon notice from a MAC a • For several years prior to 2018, under programs designated as claim is under review. “widespread probes,” c
Slide 25: 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 26: Debt maturity profile - face value
Debt maturity profile - face value As of December 31, 2020* ($ in millions) Callable beginning $963 Callable beginning February 2023(9) Available February 2025(9) $0 Drawn + $37 reserved Callable beginning for LCs Revolver April 2026(10) capacity Callable beginning September 2020 $800 $800 Callable
Slide 27: Debt schedule
Debt schedule Change in December 31, December 31, Debt vs. ($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 251.6 265.2 (13.6) Bonds Payable: 5.125% Senior Notes due
Slide 28: 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 15.0 Lubbock, TX Sioux Falls, SD (40 beds) (29 beds) (40 beds) Coralville, IA (40 beds) 10.0 Winston-Salem, NC Murri
Slide 29: 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 Acquired Camellia Healthcare in July 2019 (14 home health locations in 3 states) in May 2018 20.0 10.0 0.0 -10.0 -20.0 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4
Slide 30: 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 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q
Slide 31: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q4 Q4 Q4 Full Year 2020 2019 2020 2019 2020 2019 2020 2019 Medicare 68.3 % 71.9 % 84.3 % 83.8 % 72.0 % 74.8 % 70.5 % 75.1 % Medicare Advantage 13.6 % 11.1 % 9.9 % 10.1 % 12.7 % 10.8 %
Slide 32: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2020 2019 2019 2019 2019 2020 2019 (In Millions) Net patient revenue- inpatient $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,496.1 $3,423.5 Net patient revenue- outpatient a
Slide 33: Home health and hospice operational metrics
Home health and hospice operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2020 2019 2019 2019 2019 2020 2019 (In Millions) Net home health revenue $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 877.6 $ 918.0 Net hospice revenue 53.6 51.2 47.8 48.0 50.8 50.4 38.4
Slide 34: Share information
Share information Weighted Average for the Period Q4 Full Year (In Millions) 2020 2019 2020 2019 2018 Basic shares outstanding 98.7 97.8 98.6 98.0 97.9 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.4 1.7 1.2 1.4 1.9 Diluted shares outstanding 10
Slide 35: Segment operating results
Segment operating results Q4 2020 Q4 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 933.1 $ 281.3 $ — $ 1,214.4 $ 896.7 $ 287.7 $ — $ 1,184.4 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 36: Segment operating results
Segment operating results Year Ended December 31, 2020 Year Ended December 31, 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 3,566.2 $ 1,078.2 $ — $ 4,644.4 $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating
Slide 37: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 2020 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 $ 108.7 $ 48.3 $ 100.1 $ 111.7 $ 368.8 Loss (income) from disc ops, net of tax, attributable t
Slide 38: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(7) 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 Encompa
Slide 39: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(7) Q4 Full Year (In Millions) 2020 2019 2020 2019 Net cash provided by operating activities $ 279.7 $ 215.6 $ 704.7 $ 635.3 Interest expense and amortization of debt discounts and fees 46.2 44.5 184.2 159.7 Equity in net income
Slide 40: 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 December 31, December 31, 2020 2019 2020 2019 (In Millions) Total segment Adjusted EBITDA $ 273.5 $ 274.7 $ 986.3 $ 1,095.4 General and administrative expenses (37.8
Slide 41: Reconciliation of operating cash flow to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(6) Q4 Full Year (In Millions) 2020 2019 2020 2019 Net cash provided by operating activities $ 279.7 $ 215.6 $ 704.7 $ 635.3 Impact of discontinued operations — (0.2) 0.2 4.4 Net cash provided by operating activiti
Slide 42: Adjusted EPS - Q4 2020
Adjusted EPS(5) - Q4 2020 For the Three Months Ended December 31, 2020 Adjustments Change in Fair Loss on Early Market Value As Extinguishment Income Tax of Equity As Reported of Debt Adjustments Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 239.9 $ — $ — $ — $ 239.9
Slide 43: Adjusted EPS - Q4 2019
Adjusted EPS(5) - Q4 2019 For the Three Months Ended December 31, 2019 Adjustments Mark-to- Change in Market Fair Adjustment Loss on Market for Stock Early Income Value of As Comp. Exting. Tax Transaction Equity As Reported Expense of Debt Adj. Costs Securities Adjusted (In Millions, Except Per Shar
Slide 44: Adjusted EPS - YTD 2020
Adjusted EPS(5) - YTD 2020 For the Year Ended December 31, 2020 Adjustments Change in Gov’t, Class Loss on Fair Market Gain on Payroll Action, & Early Income Value of Consolidation Taxes on As Related Exting. of Tax Equity of Treasure SARs Reported Settlements Debt Adj. Securities Coast Exercise As
Slide 45: Adjusted EPS - YTD 2019
Adjusted EPS(5) - YTD 2019 For the Year Ended December 31, 2019 Adjustments Mark-to- Loss Change in Market on Fair Adj. for Early Market Payroll Stock Exting. Income Value of Gain on Taxes As Comp. of Tax Transaction Equity Consolidation on SARs As Reported Expense Debt Adj. Costs Securities of Yuma
Slide 46: End notes
End notes (1) In June 2019, the Company redeemed $100 million of its 5.75% Senior Notes due 2024 at a price of 101.917%, which resulted in a total cash outlay of approximately $102 million. The redemption was funded using cash on hand and funding under the Company’s revolving credit facility. As a r
Slide 47: End notes, continued
End notes, continued (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.