Encompass Health Corporation · NYSE:EHC
Encompass Health — Q2 2022 Earnings Presentation
44 slides from Encompass Health's earnings presentation, Aug 2, 2022
Slide 1: Second Quarter 2022 Earnings Call
2022 2022 First SecondQuarter Quarter Earnings Call Earnings Call April 28, 2022 August 2, 2022 Supplemental information 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 effects of the spin off of the home he
Slide 3: Table of contents
Table of contents Q2 2022 Summary ................................................................................................................................................................................. 4 Spin off of Enhabit ..................................................................
Slide 4: Q2 2022 Summary
Q2 2022 Summary Q2 6 Months ($ in millions) 2022 2021 %△ 2022 2021 %△ Encompass Health Consolidated Net operating revenues $1,330.5 $1,287.7 3.3 % $2,664.1 $2,518.1 5.8 % Adjusted EBITDA $ 240.2 $ 278.9 (13.9)% $ 485.2 $ 529.7 (8.4)% Adjusted EPS $ 0.89 $ 1.17 (23.9)% $ 1.86 $ 2.22 (16.2)% Adjusted
Slide 5: Spin off of Enhabit
Spin off of Enhabit u Spin off of 100% of Enhabit completed on July 1, 2022 Enhabit Home Health & Hospice (“Enhabit” or “EHAB”) (NYSE: EHAB) began “regular-way” trading on July 1, 2022. Encompass Health stockholders received one share of EHAB for every two shares of EHC stock held as of the clos
Slide 6: Encompass Health
Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 07/01/22 150 Rehabilitation hospitals “IRFs” 55 are joint ventures 21 35 IRFs under States and development* Puerto Rico 24% of Licensed beds † 31% Rehabilitation hospitals “IRFs” of Medicare patients served
Slide 7: Encompass Health fundamentals and value drivers
Encompass Health fundamentals and value drivers u Large, under penetrated, and growing inpatient rehabilitation market Large addressable market indicated by low conversion rate of presumptively eligible inpatient rehabilitation patients Favorable demographics driving increased demand for rehabil
Slide 8: Q2 2022 Summary adjusted - inpatient rehabilitation
Q2 2022 Summary adjusted - inpatient rehabilitation* Adjusted Q2* Adjusted 6 months* ($ in millions) 2022 2021 %△ 2022 2021 %△ Encompass Health adjusted* Net operating revenues $ 1,062.5 $ 1,001.6 6.1 % $ 2,121.8 $ 1,961.5 8.2 % Adjusted EBITDA $ 196.4 $ 217.2 (9.6)% $ 391.4 $ 417.2 (6.2)% Adjusted
Slide 9: Q2 2022 Key takeaways - inpatient rehabilitation
Q2 2022 Key takeaways - inpatient rehabilitation* u Revenue growth offset by elevated staffing costs Net operating revenue growth of 6.1% Strong inpatient rehabilitation discharge growth ü Q2 2022 total discharge growth of 4.9% (1.6% same store) on top of 18.7% (16.9% same store) growth in Q2 20
Slide 10: Q2 2022 Key takeaways - inpatient rehabilitation, cont.
Q2 2022 Key takeaways - inpatient rehabilitation*, cont. u Continued inpatient rehabilitation capacity additions Opened 3 de novos in Q2 2022 (140 beds) and added 38 beds to existing hospitals ü YTD added 6 de novos (280 beds) and added 67 beds to existing hospitals Plan to open an additional 3
Slide 11: Inpatient rehabilitation segment - revenue
Inpatient rehabilitation segment - revenue Q2 Q2 Favorable/ ($ in millions) 2022 2021 (Unfavorable) Net operating revenues: Inpatient $ 1,037.8 $ 976.9 6.2% Outpatient and other 24.7 24.7 —% Total segment revenue $ 1,062.5 $ 1,001.6 6.1% (Actual Amounts) Discharges 51,902 49,492 4.9% Same-store disc
Slide 12: Inpatient rehabilitation segment - Adjusted EBITDA
Inpatient rehabilitation segment - Adjusted EBITDA Q2 Q2 % of % of ($ in millions) 2022 Revenue 2021 Revenue Net operating revenues $ 1,062.5 $ 1,001.6 Operating expenses: Salaries and benefits (585.9) 55.1 % (515.9) 51.5 % Other operating expenses(a) (166.4) 15.7 % (147.5) 14.7 % Supplies (47.4) 4.
Slide 13: Adjusted EBITDA - inpatient rehabilitation
Adjusted EBITDA - inpatient rehabilitation* % of Consolidated % of Consolidated ($ in millions) Q2 2022 Revenue Q2 2021 Revenue Inpatient rehabilitation segment Adjusted EBITDA $ 225.0 $ 254.0 General and administrative expenses** (28.6) 2.1% (36.8) 2.9% Encompass Health Adjusted EBITDA* $ 196.4 $ 2
Slide 14: Earnings per share - as reported
Earnings per share - as reported Q2 6 Months ($ in millions, except per share data) 2022 2021 2022 2021 Adjusted EBITDA $ 240.2 $ 278.9 $ 485.2 $ 529.7 Depreciation and amortization (68.8) (63.4) (135.0) (125.9) Interest expense and amortization of debt discounts and fees (60.6) (41.8) (100.2) (84.6
Slide 15: Adjusted earnings per share
Adjusted earnings per share(4) Q2 6 Months 2022 2021 2022 2021 Earnings per share, as reported $ 0.49 $ 1.13 $ 1.36 $ 2.20 Adjustments, net of tax: Costs associated with the strategic alternatives review 0.32 0.03 0.39 0.04 Costs associated with the Frontier acquisition — 0.01 — 0.01 Income tax adju
Slide 16: 2022 YTD Adjusted free cash flow - inpatient rehabilitation
2022 YTD Adjusted free cash flow(5)- inpatient rehabilitation* ($ in millions) 47.3 44.1 5.7 (20.8) (25.8) 290.0 239.5 Adjusted Free Cash Adjusted Working capital Cash interest Cash tax payments, Maintenance capital Adjusted Free Cash Flow 6 Mos. 2021 EBITDA and other payments net of refunds expendi
Slide 17: 2022 Guidance for Encompass Health - inpatient rehabilitation
2022 Guidance for Encompass Health - inpatient rehabilitation* Affirmed 2021 Adjusted* 2022 Guidance** ($ in millions, except per share data) Net Operating Revenue $4,015 $4,250 to $4,300 Adjusted EBITDA(6) $817 $820 to $840 Adjusted earnings per share from continuing operations attributable to $2.9
Slide 18: 2022 Guidance considerations for Encompass Health
2022 Guidance considerations for Encompass Health u Encompass Health will operate a single reportable segment: inpatient rehabilitation A net increase of approximately 1.9% in Medicare pricing for Q3 and 4.0% for Q4, prior to the resumption of sequestration* Revenue reserves related to bad debt
Slide 19: Contract labor and sign-on and shift bonus trends
Contract labor and sign-on and shift bonus trends* 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift $ 5.1 $ 4.5 $ 6.9 $ 9.1 $ 10.8 $ 12.7 $ 15.0 $ 21.3 $ 21.1 $ 21.8 bonus Contract labor $ 6.1 $ 4.5 $ 6.5 $ 7.5 $ 10.
Slide 20: 2022-2026 Growth targets for Encompass Health
2022-2026 Growth targets for Encompass Health 6 to 10 100 to 150 6% to 8% de novos bed additions discharge CAGR per year per year Strong and sustainable business fundamentals Strong demographic tailwinds Multi-faceted growth strategy Highly fragmented sector presents unit acquisition and joint
Slide 21: Uses of free cash flow for Encompass Health
Uses of free cash flow for Encompass Health 2021 2022 ($ in millions) Adjusted* Assumptions IRF bed expansions $48.6 $40 to $50 New IRFs Growth in - De novos 314.9 320 to 340 core business - Acquisitions 1.1 opportunistic - Replacement IRFs and other 48.9 10 to 20 $413.5 $370 to $410 Debt Debt redem
Slide 22: Adjusted free cash flow assumptions for Encompass Health
Adjusted free cash flow(5) assumptions for Encompass Health Certain cash flow items 2021 2022 ($ in millions) Adjusted* Assumptions Cash interest payments expected Cash interest payments (net of to decrease due to debt amortization of debt discounts $156.6 $140 to $150 repayment with distribution an
Slide 23: Appendix
Appendix
Slide 24: Expansion activity
Expansion activity Inpatient Rehabilitation Facilities IRF development projects 21 Opened or Under Development Expected operations Joint venture # of New Beds announced and underway date 2022 2023 2024 2025 De novo IRFs: Shiloh, IL Q1 2022 ü 40 — — — Q2 2022 Expansion activity highlights St. Augusti
Slide 25: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Impact to Income Statement Update of u Encompass Health reserves pre-payment claim Collections of Revenue New Reserve for denials as a reduction of net operating revenues Period Previously Reserve for upon notice that a claim is under rev
Slide 26: Debt maturity profile - face value
Debt maturity profile - face value Profile as of July 1, 2022* Callable beginning ($ in millions) Callable beginning February 2025 $967 February 2023 Available $— Drawn + Callable beginning $33 reserved April 2026 for LCs Revolver capacity Callable $800 $800 Senior Senior Notes Notes 4.5% 4.75% $400
Slide 27: Debt schedule
Debt schedule Pro forma Change in June 30, June 30, December 31, Debt vs. ($ in millions) 2022* 2022 2021 YE 2021 EHC Credit Agreement— Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps(1) $ — $ — $ 200.0 $ (200.0) Term loan facility, November 2024 - LIBOR +150bps(1)
Slide 28: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation Shreveport, LA (40 beds) Shiloh, IL (40 beds) Yuma, AZ (51 beds) (8) Waco, TX (40 beds) St. Augustine, FL (40 beds) Boise, ID (40 beds) Greenville, SC (40 beds) Libertyville, IL (60 beds) Katy, TX (40 beds) Pensacola, FL (40 beds) North Tampa, FL
Slide 29: Payment sources (percent of revenues)
Payment sources (percent of revenues)* Inpatient Rehabilitation Full Q2 6 Months Year 2022 2021 2022 2021 2021 Medicare 64.9 % 65.0 % 65.1 % 64.4 % 64.4 % Medicare Advantage 15.1 % 15.3 % 14.9 % 15.9 % 15.2 % Managed care 11.6 % 11.5 % 12.0 % 11.6 % 12.1 % Medicaid 4.5 % 4.2 % 4.2 % 4.1 % 4.1 % Othe
Slide 30: Inpatient rehabilitation operational metrics
Inpatient rehabilitation operational metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2022 2022 2021 2021 2021 2021 2021 Net patient revenue-inpatient $ 1,037.8 $ 1,036.2 $ 1,015.2 $ 983.7 $ 976.9 $ 942.3 $ 3,918.1 Net patient revenue-outpatient and other revenues 24.7 23.1 27.4 27.2 24.7 17.6 96.9 Net operating
Slide 31: Share information
Share information Weighted Average for the Period Q2 6 Months Full Year (in millions) 2022 2021 2022 2021 2021 2020 2019 Basic shares outstanding 99.2 99.0 99.2 99.0 99.0 98.6 98.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.1 1.2 1.0 1.2 1.2
Slide 32: Segment operating results
Segment operating results Q2 2022 Q2 2021 Home Home Health and Health and ($ in millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,062.5 $ 268.0 $ — $ 1,330.5 $ 1,001.6 $ 286.1 $ — $ 1,287.7 Operating Expenses: Inpatient Rehabilitation: Salarie
Slide 33: Segment operating results
Segment operating results Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Home Home Health and Health and ($ in millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 2,121.8 $ 542.3 $ — $ 2,664.1 $ 1,961.5 $ 556.6 $ — $ 2,518.1 Operati
Slide 34: Segment operating results
Segment operating results Year Ended December 31, 2021 Home Health and ($ in millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 4,015.0 $ 1,106.6 $ — $ 5,121.6 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (2,127.3) — (759.2) (2,886.5) Other operating expense
Slide 35: Reconciliation of net income to Adjusted EBITDA
Reconciliation of net income to Adjusted EBITDA(6) Three Months Ended Six Months Ended Year June 30, June 30, Ended 2022 2021 2022 2021 2021 (In Millions) Net income $ 71.3 $ 142.0 $ 181.4 $ 274.8 $ 517.2 Loss from discontinued operations, net of tax, attributable to Encompass Health — 0.3 — 0.3 0.4
Slide 36: Net cash provided by operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA(6) Q2 6 Months Full Year ($ in millions) 2022 2021 2022 2021 2021 Net cash provided by operating activities $ 244.6 $ 255.9 $ 463.5 $ 414.4 $ 715.8 Interest expense and amortization of debt discounts and fees 60.6 41.8 100.2 84.
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, 2022 2021 2022 2021 2021 ($ in millions) Total segment Adjusted EBITDA $ 268.8 $ 315.7 $ 545.1 $ 601.4 $ 1,168.3 Gene
Slide 38: Reconciliation of net cash from operations to adjusted free cash flow
Reconciliation of net cash provided by operating activities to adjusted free cash flow(5) Q2 6 Months Full Year ($ in millions) 2022 2021 2022 2021 2021 Net cash provided by operating activities $ 244.6 $ 255.9 $ 463.5 $ 414.4 $ 715.8 Impact of discontinued operations (0.1) 0.6 — 0.6 0.5 Net cash pr
Slide 39: Adjusted EPS - Q2 2022
Adjusted EPS(4) - Q2 2022 For the Three Months Ended June 30, 2022 Adjustments Remove Costs Change in Home Associated Fair Health Loss on with the Market and Early Strategic Value of Hospice Encompass As Exting. Income Tax Alternatives Equity Consolidated Segment Health As Reported of Debt Adjustmen
Slide 40: Adjusted EPS - Q2 2021
Adjusted EPS(4) - Q2 2021 For the Three Months Ended June 30, 2021 Adjustments Remove Costs Change in Home Associated Costs Fair Health Loss on with the Associated Market and Early Strategic with the Value of Hospice Encompass As Exting. Income Tax Alternatives Frontier Equity Consolidated Segment H
Slide 41: Adjusted EPS - YTD Q2 2022
Adjusted EPS(4) - YTD Q2 2022 For the Six Months Ended June 30, 2022 Adjustments Remove Costs Change in Home Associated Fair Health Loss on with the Market and Early Strategic Value of Hospice Encompass As Exting. Income Tax Alternatives Equity Consolidated Segment Health As Reported of Debt Adjustm
Slide 42: Adjusted EPS - YTD Q2 2021
Adjusted EPS(4) - YTD Q2 2021 For the Six Months Ended June 30, 2021 Adjustments Remove Costs Change in Home Associated Costs Fair Health Loss on with the Associated Market and Early Strategic with the Value of Hospice Encompass As Exting. Income Tax Alternatives Frontier Equity Consolidated Segment
Slide 43: End notes
End notes (1) In the second quarter of 2022, the Company redeemed approximately $236 million of its term loan due 2024 and fully repaid the $250 million outstanding balance on its revolving credit facility. The redemption was completed using proceeds which were dividended from Enhabit. As a result o
Slide 44: End notes, continued
End notes, continued (10) Represents discharges from 150 consolidated hospitals in Q2 2022; 147 consolidated hospitals in Q1 2022; 145 consolidated hospitals in Q4 2021; 144 consolidated hospitals in Q3 2021; 140 consolidated hospitals in Q2 2021; and 138 consolidated hospitals in Q1 2021. (11) Full