Encompass Health Corporation · NYSE:EHC
Encompass Health — Q1 2020 Earnings Presentation
41 slides from Encompass Health's earnings presentation, Apr 29, 2020
Slide 1: Earnings Call
Earnings Call April 29, 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 Q1 2020 summary.................................................................................................... 4-5 COVID-19 pandemic ................................................................................................. 6 Inpatient rehabilitation segment ...........
Slide 4: Q1 2020 summary
Q1 2020 summary Q1 ($millions) 2020 2019 Growth Encompass Health Consolidated Net operating revenues $ 1,182.0 $ 1,124.0 5.2 % Adjusted EBITDA $ 228.0 $ 242.9 (6.1)% Inpatient Rehabilitation Segment Net operating revenues $ 909.2 $ 870.1 4.5 % Adjusted EBITDA $ 215.5 $ 230.0 (6.3)% Home Health and H
Slide 5: Q1 2020 summary (cont.)
Q1 2020 summary (cont.) u Expansion activity (see page 18) Opened a new 50-bed inpatient rehabilitation hospital in Murrieta, California in February 2020 Announced plans to build 40-bed inpatient rehabilitation hospitals in the following locations: ü San Angelo, Texas (in joint venture with Shan
Slide 6: We are responding to the rapidly changing environment due to the COVID-19 pandemic
We are responding to the rapidly changing environment due to the COVID-19 pandemic. u The safety and well-being of our patients and employees remain a critical focus for us. Staying current with the CDC’s guidance on the use of personal protective equipment (“PPE”), which is frequently updated L
Slide 7: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q1 Q1 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Inpatient $ 890.0 $ 847.6 5.0% Outpatient and other 19.2 22.5 (14.7%) Total segment revenue $ 909.2 $ 870.1 4.5% (Actual Amounts) Discharges 47,750 45,609 4.7% Same-store discharge
Slide 8: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA u All expense ratios in Q1 2020 benefited from a decrease in revenue reserves related to bad debt (see page 7). Q1 Q1 u Salaries and benefits increased as a % of % of ($millions) 2020 Revenue 2019 Revenue percent of revenue primarily due to a 3.9% i
Slide 9: Home health and hospice segment - revenue
Home health and hospice segment - revenue Q1 Q1 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Home health revenue $ 224.8 $ 219.5 2.4 % Hospice revenue 48.0 34.4 39.5 % Total segment revenue $ 272.8 $ 253.9 7.4 % Home Health Metrics (Actual Amounts) Admissions 42,476 37,944
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 July 1, 2019. Q1 Q1 u All expense ratios in Q1 % of % of 2020 were impacted by a ($millions) 2020 Revenue 2019 Revenue decrease in Medicare Net operating revenues
Slide 11: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $228.0 million u General and administrative expenses decreased as a percent of consolidated revenue primarily due to the $4.4 million year-over-year change in the mark-to-market adjustment on the Company’s non-qualified 401
Slide 12: Earnings per share - as reported
Earnings per share - as reported Q1 u The decrease in EPS resulted primarily (In Millions, Except Per Share Data) 2020 2019 from decreased Adjusted EBITDA, higher Adjusted EBITDA $ 228.0 $ 242.9 depreciation and amortization, and higher Depreciation and amortization (58.8) (52.5) interest expense of
Slide 13: Adjusted earnings per share
Adjusted earnings per share(5) Q1 2020 2019 Earnings per share, as reported $ 0.87 $ 1.04 Adjustments, net of tax: Government, class action, and related settlements(4) 0.02 — Mark-to-market adjustment for stock compensation expense (see page 21) — 0.06 Income tax adjustments (0.04) (0.05) Change in
Slide 14: 2020 Adjusted free cash flow
2020 Adjusted free cash flow(6) ($14.9) $2.0 ($26.5) ($5.6) $127.8 ($8.2) $74.6 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow 3 Mos. 2019 EBITDA and other payments payments, capital expenditures flow 3 Mos. 2020 net of refunds u Adjusted free
Slide 15: Uses of free cash flow
Uses of free cash flow ($millions) 3 Months 2020 2019 Actuals Actuals IRF bed expansions $8.5 $39.8 New IRFs - De novos 29.1 114.2 Growth in core - Acquisitions — — business - Replacement IRFs and other 9.5 83.1 Home health and hospice acquisitions (includes Alacare in 2019) 1.1 231.5 $48.2 $468.6 D
Slide 16: Appendix
Appendix
Slide 17: Encompass Health: leading provider of inpatient rehabilitation and home-based care
Encompass Health aand leading provider of inpatient rehabilitation home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of March 31, 2020 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 11 Future I
Slide 18: Expansion activity
Expansion activity Certain development projects may be delayed due to the COVID-19 pandemic. Inpatient Rehabilitation Facilities - As of March 31, 2020 # of New Beds 11 Previously announced IRF 2020 2021 2022 development projects underway De novo: Murrieta, CA 50 — — 2 New states 1 Sioux Falls, SD 4
Slide 19: Clinical collaboration through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u Clinical collaboration (all payors) overlap markets* objectives: Improve patient experience and outcomes i on Rate 35.9% Reduce tot
Slide 20: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” c
Slide 21: Overview of rollover shares and SARs
Overview of rollover shares and SARs held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the post-acquis
Slide 22: Debt maturity profile - face value
Debt maturity profile - face value As of March 31, 2020* ($ in millions) $613 Available Callable beginning $350 Drawn November 2017 + $37 reserved for Callable beginning Revolver LCs February 2023 Callable beginning capacity February 2025 $700 Callable beginning Callable beginning Senior September 2
Slide 23: Debt schedule
Debt schedule Change in March 31, December 31, Debt vs. ($millions) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 350.0 $ 45.0 $ 305.0 Term loan facility, November 2024 - LIBOR +150bps 261.9 265.2 (3.3) Bonds Payable: 5.125% Senior Notes due 2
Slide 24: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation 25.0 Shelby County, AL (34 beds) Yuma, AZ (51 beds)(2) Bluffton, SC (38 beds) 20.0 Boise, ID (40 beds) Katy, TX (40 beds) Gulfport, MS (33 beds) Murrells Inlet, 15.0 SC (29 beds) Lubbock, TX Westerville, OH (60 beds) (40 beds) Murrieta, CA (50 bed
Slide 25: New-store/same-store growth Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice 30.0 (23 home health locations in Alabama) in July 2019 25.0 Acquired Camellia Healthcare (14 home health locations in 3 states) 20.0 in May 2018 15.0 10.0 5.0 0.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q
Slide 26: New-store/same-store growth Hospice
New-store/same-store growth Hospice Acquired Camellia Healthcare 70.0 (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice in May 2018 (23 hospice locations in Alabama) 60.0 in July 2019 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q
Slide 27: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2020 2019 2020 2019 2020 2019 2019 Medicare 70.5% 73.5% 83.0% 84.6% 73.4% 76.0% 75.1% Medicare Advantage 12.3% 9.8% 10.8% 10.0% 11.9% 9.8% 10.6% Managed care 9.9% 9.
Slide 28: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 19.2 23.2 21.7 22.1 22.5 89.5 Net operating re
Slide 29: Home health and hospice operational metrics
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues $ 272.8 $ 287.7 $ 289.3 $ 261.1 $ 253.9 $
Slide 30: Share information
Share information Weighted Average for the Period Q1 Full Year (Millions) 2020 2019 2019 2018 2017 Basic shares outstanding(17) 98.2 98.4 98.0 97.9 93.7 Convertible senior subordinated notes(17) — — — — 4.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock war
Slide 31: Segment operating results
Segment operating results Q1 2020 Q1 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 909.2 $ 272.8 $ — $ 1,182.0 $ 870.1 $ 253.9 $ — $ 1,124.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 32: 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 33: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(18) 2020 Q1 (in millions, except per share data) Total Per Share Net Income $ 108.7 Loss from disc ops, net of tax, attributable to Encompass Health 0.1 Net income attributable to noncontrolling interests (21.7) Income from continuing operations attrib
Slide 34: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(18) 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 35: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(18) Q1 Full Year (In Millions) 2020 2019 2019 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 Interest expense and amortization of debt discounts and fees 43.2 37.2 159.7 Equity in net income of nonconsolidated
Slide 36: Reconciliation of segment Adjusted EBITDA to income from continuing operations 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, 2020 2019 2019 (In Millions) Total segment Adjusted EBITDA $ 256.5 $ 276.3 $ 1,095.4 General and administrative expenses (35.6) (53.4) (247.0)
Slide 37: 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) Q1 Full Year (In Millions) 2020 2019 2019 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 Impact of discontinued operations 0.1 3.0 4.4 Net cash provided by operating activities of continuing o
Slide 38: Adjusted EPS - Q1 2020
Adjusted EPS(5) - Q1 2020 For the Three Months Ended March 31, 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 Millio
Slide 39: Adjusted EPS - Q1 2019
Adjusted EPS(5) - Q1 2019 For the Three Months Ended March 31, 2019 Adjustments Mark-to- Market Change in Adjustment Fair Market Payroll for Stock Value of Taxes on As Compensation Income Tax Transaction Equity SARs As Reported Expense Adjustments Costs Securities Exercise Adjusted (In Millions, Exc
Slide 40: 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 41: End notes, con't.
End notes, con’t. (8) On July 20, 2017, the board of directors approved a $0.01 per share, or 4.2%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.25 per common share. On July 24, 2018, the board of directors approved a $0.02 per sha