false000078516100007851612023-04-272023-04-27
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 27, 2023
Encompass Health Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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| 001-10315 |
63-0860407 |
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(IRS Employer Identification No.) |
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9001 Liberty Parkway, Birmingham, Alabama 35242
(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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| ☐ |
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934. Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
| Common Stock, par value $0.01 per share |
EHC |
New York Stock Exchange |
The information contained herein is being furnished pursuant to Item 2.02 of Form 8‑K, “Results of Operations and Financial Condition,” and Item 7.01 of Form 8-K, “Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 2.02. Results of Operations and Financial Condition.
On April 27, 2023, Encompass Health Corporation (“Encompass Health” or the “Company”) issued a press release reporting the financial results of the Company for the three months ended March 31, 2023. A copy of the press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.
The Company uses “same-store” comparisons to explain the changes in certain performance metrics and line items within its financial statements. Same-store comparisons are calculated based on hospitals open throughout both the full current and prior periods presented. These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on the Company's results of operations.
ITEM 7.01. Regulation FD Disclosure.
See Item 2.02, “Results of Operations and Financial Condition,” above.
In addition, a copy of the supplemental information which will be discussed during the Company’s earnings call at 10:00 a.m. Eastern Time on Friday, April 28, 2023 is attached to this report as Exhibit 99.2 and incorporated herein by reference.
Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the press release and supplemental information include non-GAAP financial measures, including the Company’s adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow.
The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”). The Company believes the presentation of adjusted earnings per share provides useful additional information to investors because it provides better comparability of ongoing operating performance to prior periods given that it excludes the impact of government, class action, and related settlements; professional fees—accounting, tax, and legal; mark-to-market adjustments for stock appreciation rights; gains or losses related to hedging and equity instruments; loss on early extinguishment of debt; adjustments to its income tax provision (such as valuation allowance adjustments and settlements of income tax claims); items related to corporate and facility restructurings; and certain other items the Company believes to be non-indicative of its ongoing operating performance. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company’s ongoing operating performance. Accordingly, they can complicate comparisons of the Company’s results of operations across periods and comparisons of the Company’s results to those of other healthcare companies. Adjusted earnings per share should not be considered as a measure of financial performance under generally accepted accounting principles in the United States (“GAAP”) as the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted earnings per share is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies. The Company reconciles adjusted earnings per share to earnings per share in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.
The leverage ratio referenced therein is defined as the ratio of consolidated total debt to Adjusted EBITDA for the trailing four quarters. The Company believes its leverage ratio and Adjusted EBITDA are measures of its ability to service its debt and its ability to make capital expenditures. Additionally, the leverage ratio is a standard measurement used by investors to gauge the creditworthiness of an institution. The Company’s credit agreement also includes a maximum leverage ratio financial covenant which allows the Company to deduct cash on hand from consolidated total debt. In calculating the leverage ratio under our credit agreement, we are permitted to use pro forma Adjusted EBITDA, the calculation of which includes historical income statement items and pro forma adjustments, subject to certain limitations, resulting from (1) dispositions and repayments or incurrence of debt and (2) investments, acquisitions, mergers, amalgamations, consolidations and other operational changes to the extent such items or effects are not yet reflected in our trailing four-quarter financial statements. The Company reconciles Adjusted EBITDA to net cash provided by operating activities and net income in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.
The Company uses Adjusted EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key component of certain material covenants contained within the Company’s credit agreement, which is discussed in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources,” and Note 10, Long-term Debt, to the consolidated financial statements included in its Annual Report on Form 10‑K for the year ended December 31, 2022 (the “2022 Form 10‑K”). These covenants are material terms of the credit agreement. Noncompliance with these financial covenants under the credit agreement—its interest coverage ratio and its leverage ratio—could result in the Company’s lenders requiring the Company to immediately repay all amounts borrowed. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might be on terms less favorable to those in the Company’s existing credit agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying common stock dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the Company’s assessment of its liquidity.
In general terms, the credit agreement definition of Adjusted EBITDA, therein referred to as “Adjusted Consolidated EBITDA,” allows the Company to add back to consolidated net income interest expense, income taxes, and depreciation and amortization and then add back to consolidated net income (1) all unusual or nonrecurring items reducing consolidated net income (of which only up to $10 million in a year may be cash expenditures), (2) any losses from discontinued operations, (3) non-ordinary course fees, costs and expenses incurred with respect to any litigation or settlement, (4) share-based compensation expense, (5) costs and expenses associated with changes in the fair value of marketable securities, (6) costs and expenses associated with the issuance or prepayment debt and acquisitions, and (7) any restructuring charges and certain pro-forma cost savings and synergies related to transactions and initiatives, which in the aggregate are not in excess of 25% of Adjusted Consolidated EBITDA. The Company also subtracts from consolidated net income all unusual or nonrecurring items to the extent they increase consolidated net income.
The calculation of Adjusted EBITDA under the credit agreement does not require us to deduct net income attributable to noncontrolling interests or gains on fair value adjustments of hedging and equity instruments, disposal of assets, and development activities. It also does not allow us to add back losses on fair value adjustments of hedging instruments or unusual or nonrecurring cash expenditures in excess of $10 million. These items and amounts, in addition to the items falling within the credit agreement’s “unusual or nonrecurring” classification, may occur in future periods, but can vary significantly from period to period and may not directly relate to, or be indicative of, the Company's ongoing liquidity or operating performance. Accordingly, the Adjusted EBITDA calculation presented here includes adjustments for them.
Adjusted EBITDA is not a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted EBITDA should not be considered a substitute for net income or cash flows from operating, investing, or financing activities. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2022 Form 10-K.
The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt, pursue development activities, and return capital to its common stockholders. The calculation of adjusted free cash flow and a reconciliation of net cash provided by operating activities to adjusted free cash flow are included in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. The Company’s definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. See the consolidated statements of cash flows included in the 2022 Form 10-K and the condensed consolidated statements of cash flows included in the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 2023 (the "March 2023 Form 10-Q"), when filed, and in the press release attached as Exhibit 99.1 for the GAAP measures of cash flows from operating, investing, and financing activities.
Forward-Looking Statements
The information contained in the press release and supplemental information includes certain estimates, projections, and other forward-looking statements that involve known and unknown risks and relate to, among other things, future events, the business model, strategy, outlook and guidance, labor cost trends, financial plans, dividend strategies or payments, effective income tax rates, plans to repurchase its debt or equity securities, future financial performance, projected business results, ability to return value to its shareholders, projected capital expenditures and development plans, leverage ratio, acquisition opportunities, and the impact of future legislation or regulation. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “targets,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These estimates, projections, and other forward-looking statements are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.
There can be no assurance that any estimates, projections, or forward-looking statements will be realized.
All such estimates, projections, and forward-looking statements speak only as of the date hereof. The Company undertakes no duty to publicly update or revise that information.
You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking statements in this report, the press release, and supplemental information as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, including those set forth in the attached press release and in the 2022 Form 10‑K, the March 2023 Form 10-Q, when filed, and in other documents the Company previously filed with the SEC, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits.
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| Exhibit Number |
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Description |
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| 104 |
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Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
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| ENCOMPASS HEALTH CORPORATION |
| By: |
/S/ DOUGLAS E. COLTHARP |
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Name: |
Douglas E. Coltharp |
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Title: |
Executive Vice President and Chief Financial Officer |
Dated: April 27, 2023
EX-99.1
2
ehcearningsrelease33123.htm
EX-99.1
Document
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| Media Contact |
April 27, 2023 |
| Casey Winger, 205 447-6410 |
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| casey.winger@encompasshealth.com |
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| Investor Relations Contact |
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| Mark Miller, 205 970-5860 |
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| mark.miller@encompasshealth.com |
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Encompass Health reports results for first quarter 2023
Increases full-year guidance
BIRMINGHAM, Ala. - Encompass Health Corporation (NYSE: EHC), the largest owner and operator of inpatient rehabilitation hospitals in the United States, today reported its results of operations for the first quarter ended March 31, 2023.
“We are very pleased with our first quarter performance,” said President and Chief Executive Officer of Encompass Health Mark Tarr. “Strong discharge growth of 9.4% combined with a substantial year-over-year improvement in labor costs to drive Adjusted EBITDA growth of 17.5%. Our value proposition and operating strategy continue to be validated and we remain highly optimistic about the long-term prospects of our business.”
Summary results
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Growth |
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Q1 2023 |
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Q1 2022 |
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Dollars |
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Percent |
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(In Millions, Except Per Share Data) |
| Net operating revenue |
$ |
1,160.4 |
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$ |
1,059.3 |
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$ |
101.1 |
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9.5 |
% |
Income from continuing operations attributable to Encompass Health per diluted share |
0.88 |
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0.64 |
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0.24 |
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37.5 |
% |
| Adjusted earnings per share |
0.88 |
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0.67 |
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0.21 |
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31.3 |
% |
Cash flows provided by operating activities |
227.9 |
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218.9 |
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9.0 |
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4.1 |
% |
| Adjusted EBITDA |
229.0 |
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194.9 |
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34.1 |
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17.5 |
% |
| Adjusted free cash flow |
158.7 |
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123.2 |
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35.5 |
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28.8 |
% |
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| (Actual Amounts) |
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| Discharges |
55,557 |
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50,771 |
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9.4 |
% |
| Same-store discharge growth |
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5.9 |
% |
| Net patient revenue per discharge |
$ |
20,415 |
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$ |
20,409 |
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— |
% |
See attached supplemental information for calculations of non-GAAP measures and reconciliations to their most comparable GAAP measure.
•Revenue growth of 9.5% resulted primarily from increased volumes. Total discharge growth for the first quarter of 2023 was 9.4% including same-store growth of 5.9%. Revenue reserves related to bad debt as a percent of revenue increased to 2.4%.
•Cash flows provided by operating activities increased 4.1% over the prior year to $227.9 million, due primarily to improved collections of accounts receivable.
•The 17.5% increase in Adjusted EBITDA primarily resulted from increased revenue and a decrease in contract labor expense and sign-on and shift bonuses.
2023 Guidance
The Company increased its full-year guidance as follows:
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Full-Year 2023 Guidance |
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Previous Guidance |
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Updated Guidance |
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(In Millions, Except Per Share Data) |
| Net operating revenue |
$4,680 to $4,760 |
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$4,700 to $4,770 |
| Adjusted EBITDA |
$860 to $900 |
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$870 to $910 |
| Adjusted earnings per share from continuing operations attributable to Encompass Health |
$2.87 to $3.16 |
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$2.94 to $3.23 |
For considerations regarding the Company’s 2023 guidance, see the supplemental information posted on the Company’s website at http://investor.encompasshealth.com. See also the “Other information” section below for an explanation of why the Company does not provide guidance for comparable GAAP measures for Adjusted EBITDA and adjusted earnings per share.
Earnings conference call and webcast
The Company will host an investor conference call at 10:00 a.m. Eastern Time on Friday, April 28, 2023 to discuss its results for the first quarter of 2023. For reference during the call, the Company will post certain supplemental information at http://investor.encompasshealth.com.
The conference call may be accessed by dialing 800 225-9448 and giving the conference ID EHCQ123. International callers should dial 203 518-9708 and give the same conference ID. Please call approximately ten minutes before the start of the call to ensure you are connected. The conference call will also be webcast live and will be available for on-line replay at http://investor.encompasshealth.com by clicking on an available link.
About Encompass Health
Encompass Health (NYSE: EHC) is the largest owner and operator of inpatient rehabilitation hospitals in the United States. With a national footprint that includes 157 hospitals in 37 states and Puerto Rico, the Company provides high-quality, compassionate rehabilitative care for patients recovering from a major injury or illness, using advanced technology and innovative treatments to maximize recovery. Encompass Health is ranked as one of Fortune's 100 Best Companies to Work For. For more information, visit encompasshealth.com, or follow us on our newsroom, Twitter, Instagram and Facebook.
Other information
The information in this press release is summarized and should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “March 2023 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on April 27, 2023 (the “Q1 Earnings Form 8-K”), to which this press release is attached as Exhibit 99.1. In addition, the Company will post supplemental information today on its website at http://investor.encompasshealth.com for reference during its April 28, 2023 earnings call.
The financial data contained in the press release and supplemental information include non-GAAP financial measures, including the Company’s adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow. Reconciliations to their most comparable GAAP measure, except with regard to non-GAAP guidance, are included below or in the Q1 Earnings Form 8-K. Readers are encouraged to review the “Note Regarding Presentation of Non-GAAP Financial Measures” included in the Q1 Earnings Form 8-K which provides further explanation and disclosure regarding the Company’s use of these non-GAAP financial measures.
Excluding net operating revenues, the Company does not provide guidance on a GAAP basis because it is unable to predict, with reasonable certainty, the future impact of items that are deemed to be outside the control of the Company or otherwise not indicative of its ongoing operating performance. Such items include government, class action, and related settlements; professional fees—accounting, tax, and legal; mark-to-market adjustments for stock appreciation rights; gains or losses related to hedging instruments; loss on early extinguishment of debt; adjustments to its income tax provision (such as valuation allowance adjustments and settlements of income tax claims); items related to corporate and facility restructurings; and certain other items the Company believes to be not indicative of its ongoing operations. These items cannot be reasonably predicted and will depend on several factors, including industry and market conditions, and could be material to the Company’s results computed in accordance with GAAP.
However, the following reasonably estimable GAAP measures for 2023 would be included in a reconciliation for Adjusted EBITDA if the other reconciling GAAP measures could be reasonably predicted:
•Interest expense and amortization of debt discounts and fees - estimate of $145 million to $155 million
•Amortization of debt-related items - approximately $10 million
The Q1 Earnings Form 8-K and, when filed, the March 2023 Form 10-Q can be found on the Company’s website at http://investor.encompasshealth.com and the SEC's website at www.sec.gov.
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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(In Millions, Except Per Share Data) |
| Net operating revenues |
$ |
1,160.4 |
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$ |
1,059.3 |
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| Operating expenses: |
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| Salaries and benefits |
629.0 |
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587.4 |
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| Other operating expenses |
177.9 |
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159.0 |
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| Occupancy costs |
13.8 |
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15.4 |
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| Supplies |
53.8 |
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49.8 |
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| General and administrative expenses |
43.4 |
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37.4 |
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| Depreciation and amortization |
63.9 |
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57.7 |
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| Total operating expenses |
981.8 |
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906.7 |
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| Loss on early extinguishment of debt |
— |
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0.3 |
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| Interest expense and amortization of debt discounts and fees |
36.4 |
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39.6 |
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| Other (income) expense |
(3.6) |
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3.6 |
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| Equity in net income of nonconsolidated affiliates |
(0.4) |
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(0.9) |
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| Income from continuing operations before income tax expense |
146.2 |
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110.0 |
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| Provision for income tax expense |
31.9 |
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23.6 |
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| Income from continuing operations |
114.3 |
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86.4 |
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| (Loss) income from discontinued operations, net of tax |
(1.0) |
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23.7 |
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| Net and comprehensive income |
113.3 |
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110.1 |
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| Less: Net income attributable to noncontrolling interests included in continuing operations |
(25.6) |
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(22.0) |
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| Less: Net income attributable to noncontrolling interests included in discontinued operations |
— |
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(0.6) |
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| Less: Net and comprehensive income attributable to noncontrolling interests |
(25.6) |
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(22.6) |
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| Net and comprehensive income attributable to Encompass Health |
$ |
87.7 |
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$ |
87.5 |
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| Weighted average common shares outstanding: |
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| Basic |
99.4 |
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99.2 |
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| Diluted |
100.9 |
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100.2 |
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Earnings per common share: |
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Basic earnings per share attributable to Encompass Health common shareholders: |
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Continuing operations |
$ |
0.89 |
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$ |
0.65 |
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Discontinued operations |
(0.01) |
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0.23 |
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Net income |
$ |
0.88 |
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$ |
0.88 |
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Diluted earnings per share attributable to Encompass Health common shareholders: |
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Continuing operations |
$ |
0.88 |
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$ |
0.64 |
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Discontinued operations |
(0.01) |
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0.23 |
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Net income |
$ |
0.87 |
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$ |
0.87 |
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| Amounts attributable to Encompass Health common shareholders: |
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| Income from continuing operations |
$ |
88.7 |
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$ |
64.4 |
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| (Loss) income from discontinued operations, net of tax |
(1.0) |
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23.1 |
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| Net income attributable to Encompass Health |
$ |
87.7 |
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$ |
87.5 |
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Encompass Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, 2023 |
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December 31, 2022 |
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(In Millions) |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ |
85.0 |
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$ |
21.8 |
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| Restricted cash |
34.3 |
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31.6 |
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| Accounts receivable |
514.5 |
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536.8 |
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| Other current assets |
127.9 |
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127.0 |
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| Total current assets |
761.7 |
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717.2 |
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| Property and equipment, net |
2,988.3 |
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2,939.2 |
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| Operating lease right-of-use assets |
212.7 |
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212.5 |
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|
| Goodwill |
1,270.7 |
|
|
1,263.2 |
|
|
| Intangible assets, net |
287.2 |
|
|
282.3 |
|
|
|
|
|
|
|
| Other long-term assets |
226.7 |
|
|
222.1 |
|
|
|
|
|
|
|
| Total assets |
$ |
5,747.3 |
|
|
$ |
5,636.5 |
|
|
| Liabilities and Shareholders’ Equity |
|
|
|
|
| Current liabilities: |
|
|
|
|
| Current portion of long-term debt |
$ |
26.0 |
|
|
$ |
25.2 |
|
|
| Current operating lease liabilities |
26.3 |
|
|
25.6 |
|
|
| Accounts payable |
141.1 |
|
|
132.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| Accrued medical insurance |
31.8 |
|
|
25.0 |
|
|
| Accrued expenses and other current liabilities |
366.9 |
|
|
367.2 |
|
|
|
|
|
|
|
| Total current liabilities |
592.1 |
|
|
575.9 |
|
|
| Long-term debt, net of current portion |
2,722.5 |
|
|
2,741.8 |
|
|
| Long-term operating lease liabilities |
199.2 |
|
|
199.7 |
|
|
|
|
|
|
|
| Deferred income tax liabilities |
87.0 |
|
|
83.0 |
|
|
| Other long-term liabilities |
183.3 |
|
|
174.2 |
|
|
|
|
|
|
|
| |
3,784.1 |
|
|
3,774.6 |
|
|
| Commitments and contingencies |
|
|
|
|
|
|
|
|
|
| Redeemable noncontrolling interests |
37.5 |
|
|
35.6 |
|
|
| Shareholders’ equity: |
|
|
|
|
| Encompass Health shareholders’ equity |
1,383.5 |
|
|
1,310.3 |
|
|
| Noncontrolling interests |
542.2 |
|
|
516.0 |
|
|
| Total shareholders’ equity |
1,925.7 |
|
|
1,826.3 |
|
|
| Total liabilities and shareholders’ equity |
$ |
5,747.3 |
|
|
$ |
5,636.5 |
|
|
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Three Months Ended March 31, |
|
| |
2023 |
|
2022 |
|
| |
(In Millions) |
|
| Cash flows from operating activities: |
|
|
|
|
| Net income |
$ |
113.3 |
|
|
$ |
110.1 |
|
|
| Loss (income) from discontinued operations, net of tax |
1.0 |
|
|
(23.7) |
|
|
| Adjustments to reconcile net income to net cash provided by operating activities— |
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
63.9 |
|
|
57.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation |
7.9 |
|
|
6.1 |
|
|
| Deferred tax expense |
4.0 |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
| Other, net |
1.2 |
|
|
8.0 |
|
|
| Change in assets and liabilities, net of acquisitions— |
|
|
|
|
| Accounts receivable |
23.7 |
|
|
7.5 |
|
|
| Other assets |
(3.7) |
|
|
13.6 |
|
|
| Accounts payable |
1.2 |
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
| Other liabilities |
16.7 |
|
|
(8.5) |
|
|
|
|
|
|
|
| Net cash (used in) provided by operating activities of discontinued operations |
(1.3) |
|
|
36.4 |
|
|
| Total adjustments |
113.6 |
|
|
132.5 |
|
|
| Net cash provided by operating activities |
227.9 |
|
|
218.9 |
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| Purchases of property and equipment |
(96.6) |
|
|
(112.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other, net |
(7.4) |
|
|
(8.8) |
|
|
| Net cash used in investing activities of discontinued operations |
— |
|
|
(1.4) |
|
|
| Net cash used in investing activities |
(104.0) |
|
|
(123.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal payments on debt, including pre-payments |
(0.6) |
|
|
(103.9) |
|
|
|
|
|
|
|
| Borrowings on revolving credit facility |
30.0 |
|
|
130.0 |
|
|
| Payments on revolving credit facility |
(45.0) |
|
|
(25.0) |
|
|
|
|
|
|
|
| Debt amendment costs |
— |
|
|
(20.0) |
|
|
|
|
|
|
|
| Taxes paid on behalf of employees for shares withheld |
(7.7) |
|
|
(7.2) |
|
|
|
|
|
|
|
|
|
|
|
|
| Contributions from noncontrolling interests of consolidated affiliates |
17.0 |
|
|
14.0 |
|
|
| Dividends paid on common stock |
(15.6) |
|
|
(28.5) |
|
|
| Distributions paid to noncontrolling interests of consolidated affiliates |
(31.8) |
|
|
(20.8) |
|
|
| Other, net |
(4.3) |
|
|
(4.6) |
|
|
| Net cash provided by financing activities of discontinued operations |
— |
|
|
5.1 |
|
|
| Net cash used in financing activities |
(58.0) |
|
|
(60.9) |
|
|
| Increase in cash, cash equivalents, and restricted cash |
65.9 |
|
|
34.9 |
|
|
| Cash, cash equivalents, and restricted cash at beginning of period |
53.4 |
|
|
120.3 |
|
|
| Cash, cash equivalents, and restricted cash at end of period |
$ |
119.3 |
|
|
$ |
155.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
(In Millions) |
|
| Reconciliation of Cash, Cash Equivalents, and Restricted Cash |
|
|
|
|
Cash and cash equivalents at beginning of period |
$ |
21.8 |
|
|
$ |
49.4 |
|
|
Restricted cash at beginning of period |
31.6 |
|
|
62.5 |
|
|
| Restricted cash included in other long-term assets at beginning of period |
— |
|
|
0.4 |
|
|
| Cash, cash equivalents, and restricted cash in discontinued operations at beginning of period |
— |
|
|
8.0 |
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
$ |
53.4 |
|
|
$ |
120.3 |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
85.0 |
|
|
$ |
76.6 |
|
|
Restricted cash at end of period |
34.3 |
|
|
57.3 |
|
|
Restricted cash included in other long-term assets at end of period |
— |
|
|
— |
|
|
| Cash, cash equivalents, and restricted cash in discontinued operations at end of period |
— |
|
|
21.3 |
|
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
119.3 |
|
|
$ |
155.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encompass Health Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(In Millions, Except Per Share Data) |
|
| Adjusted EBITDA |
$ |
229.0 |
|
|
$ |
194.9 |
|
|
|
|
|
|
Depreciation and amortization |
(63.9) |
|
|
(57.7) |
|
|
|
|
|
|
Interest expense and amortization of debt discounts and fees |
(36.4) |
|
|
(39.6) |
|
|
|
|
|
|
| Stock-based compensation |
(7.9) |
|
|
(6.1) |
|
|
|
|
|
|
| Loss on disposal or impairment of assets |
(0.7) |
|
|
(0.7) |
|
|
|
|
|
|
|
120.1 |
|
|
90.8 |
|
|
|
|
|
|
| Items not indicative of ongoing operating performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss on early extinguishment of debt |
— |
|
|
(0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of equity securities |
0.5 |
|
|
(2.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pre-tax income |
120.6 |
|
|
88.0 |
|
|
|
|
|
|
Income tax expense |
(31.9) |
|
|
(23.6) |
|
|
|
|
|
|
Income from continuing operations (1) |
$ |
88.7 |
|
|
$ |
64.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic shares |
99.4 |
|
|
99.2 |
|
|
|
|
|
|
| Diluted shares |
100.9 |
|
|
100.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (1) |
$ |
0.89 |
|
|
$ |
0.65 |
|
|
|
|
|
|
Diluted earnings per share (1) |
$ |
0.88 |
|
|
$ |
0.64 |
|
|
|
|
|
|
(1)Income from continuing operations attributable to Encompass Health
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share, as reported |
$ |
0.88 |
|
|
$ |
0.64 |
|
|
|
|
|
|
| Adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of equity securities |
— |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per share* |
$ |
0.88 |
|
|
$ |
0.67 |
|
|
|
|
|
|
* Adjusted EPS may not sum due to rounding.
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
(In Millions) |
Net cash provided by operating activities |
$ |
227.9 |
|
|
$ |
218.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of debt discounts and fees |
36.4 |
|
|
39.6 |
|
|
|
|
|
| Gain (loss) on sale of investments, excluding impairments |
1.7 |
|
|
(4.6) |
|
|
|
|
|
Equity in net income of nonconsolidated affiliates |
0.4 |
|
|
0.9 |
|
|
|
|
|
Net income attributable to noncontrolling interests in continuing operations |
(25.6) |
|
|
(22.0) |
|
|
|
|
|
Amortization of debt-related items |
(2.3) |
|
|
(2.3) |
|
|
|
|
|
Distributions from nonconsolidated affiliates |
(0.1) |
|
|
(1.0) |
|
|
|
|
|
| Current portion of income tax expense |
27.9 |
|
|
21.3 |
|
|
|
|
|
| Change in assets and liabilities |
(37.9) |
|
|
(22.0) |
|
|
|
|
|
| Cash used in (provided by) operating activities of discontinued operations |
1.3 |
|
|
(36.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair market value of equity securities |
(0.5) |
|
|
2.5 |
|
|
|
|
|
| Other |
(0.2) |
|
|
— |
|
|
|
|
|
| Adjusted EBITDA |
$ |
229.0 |
|
|
$ |
194.9 |
|
|
|
|
|
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
As Reported |
|
|
|
|
|
|
|
|
|
|
|
Income Tax Adjustments |
|
|
|
|
|
|
|
Change in Fair Market Value of Equity Securities |
|
|
|
|
|
As Adjusted |
|
(In Millions, Except Per Share Amounts) |
| Adjusted EBITDA* |
$ |
229.0 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
229.0 |
|
| Depreciation and amortization |
(63.9) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(63.9) |
|
Interest expense and amortization of debt discounts and fees |
(36.4) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(36.4) |
|
| Stock-based compensation |
(7.9) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(7.9) |
|
| Loss on disposal or impairment of assets |
(0.7) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(0.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of equity securities |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
(0.5) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense |
120.6 |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
(0.5) |
|
|
|
|
|
|
120.1 |
|
| Provision for income tax expense |
(31.9) |
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
(31.5) |
|
Income from continuing operations attributable to Encompass Health |
$ |
88.7 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
$ |
(0.4) |
|
|
|
|
|
|
$ |
88.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings per share from continuing operations** |
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
0.88 |
|
| Diluted shares used in calculation |
100.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Reconciliation to GAAP provided on page 10
** Adjusted EPS may not sum across due to rounding.
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
As Reported |
|
|
|
|
|
|
|
|
|
Loss on Early Exting. of Debt |
|
Income Tax Adjustments |
|
|
|
|
|
|
|
Change in Fair Market Value of Equity Securities |
|
|
|
|
|
As Adjusted |
|
(In Millions, Except Per Share Amounts) |
| Adjusted EBITDA* |
$ |
194.9 |
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
$ |
194.9 |
|
| Depreciation and amortization |
(57.7) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(57.7) |
|
Interest expense and amortization of debt discounts and fees |
(39.6) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(39.6) |
|
| Stock-based compensation |
(6.1) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(6.1) |
|
| Loss on disposal or impairment of assets |
(0.7) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(0.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss on early extinguishment of debt |
(0.3) |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of equity securities |
(2.5) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax expense |
88.0 |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
— |
|
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
90.8 |
|
| Provision for income tax expense |
(23.6) |
|
|
|
|
|
|
|
|
|
|
(0.1) |
|
|
0.2 |
|
|
|
|
|
|
|
|
(0.6) |
|
|
|
|
|
|
(24.1) |
|
Income from continuing operations attributable to Encompass Health |
$ |
64.4 |
|
|
|
|
|
|
|
|
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
$ |
1.9 |
|
|
|
|
|
|
$ |
66.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
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|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations** |
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
$ |
0.02 |
|
|
|
|
|
|
$ |
0.67 |
|
| Diluted shares used in calculation |
100.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Reconciliation to GAAP provided on page 10
** Adjusted EPS may not sum across due to rounding.
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Income to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Three Months Ended March 31, |
|
|
| |
2023 |
|
2022 |
|
|
|
|
|
(In Millions) |
| Net income |
$ |
113.3 |
|
|
$ |
110.1 |
|
|
|
|
|
| Loss (income) from discontinued operations, net of tax, attributable to Encompass Health |
1.0 |
|
|
(23.7) |
|
|
|
|
|
| Net income attributable to noncontrolling interests included in continuing operations |
(25.6) |
|
|
(22.0) |
|
|
|
|
|
| Provision for income tax expense |
31.9 |
|
|
23.6 |
|
|
|
|
|
Interest expense and amortization of debt discounts and fees |
36.4 |
|
|
39.6 |
|
|
|
|
|
| Depreciation and amortization |
63.9 |
|
|
57.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss on early extinguishment of debt |
— |
|
|
0.3 |
|
|
|
|
|
| Loss on disposal or impairment of assets |
0.7 |
|
|
0.7 |
|
|
|
|
|
| Stock-based compensation |
7.9 |
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair market value of equity securities |
(0.5) |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted EBITDA |
$ |
229.0 |
|
|
$ |
194.9 |
|
|
|
|
|
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
(In Millions) |
| Net cash provided by operating activities |
$ |
227.9 |
|
|
$ |
218.9 |
|
|
|
|
|
| Impact of discontinued operations |
1.3 |
|
|
(36.4) |
|
|
|
|
|
Net cash provided by operating activities of continuing operations |
229.2 |
|
|
182.5 |
|
|
|
|
|
| Capital expenditures for maintenance |
(37.8) |
|
|
(32.2) |
|
|
|
|
|
Distributions paid to noncontrolling interests of consolidated affiliates |
(31.8) |
|
|
(20.8) |
|
|
|
|
|
| Items not indicative of ongoing operating performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Transaction costs and related liabilities |
(0.9) |
|
|
(6.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted free cash flow |
$ |
158.7 |
|
|
$ |
123.2 |
|
|
|
|
|
For the three months ended March 31, 2023, net cash used in investing activities was $104.0 million and resulted primarily from capital expenditures. Net cash used in financing activities during the three months ended March 31, 2023 was $58.0 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, and cash dividends paid on common stock partially offset by contributions from noncontrolling interest of consolidated affiliates.
For the three months ended March 31, 2022, net cash used in investing activities was $123.1 million and primarily resulted from capital expenditures. Net cash used in financing activities during the three months ended March 31, 2022 was $60.9 million and primarily resulted from cash dividends paid on common stock, distributions paid to noncontrolling interests of consolidated affiliates, and net debt repayments and issuance costs.
Encompass Health Corporation and Subsidiaries
Forward-Looking Statements
Statements contained in this press release and the supplemental information which are not historical facts, such as those relating to the business model, strategy, outlook and guidance, dividend strategies, effective income tax rates, labor cost trends, legislative and regulatory developments or their impacts, financial guidance, ability to return value to shareholders, projected capital expenditures, acquisition opportunities, development projects, other balance sheet and cash flow plans, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Encompass Health, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such estimates, projections, and forward-looking information speak only as of the date hereof, and Encompass Health undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual events or results to differ materially from those estimated by Encompass Health include, but are not limited to, an infectious disease outbreak, including the speed, depth, geographic reach and duration of its spread, which could decrease our patient volumes and revenues and lead to staffing and supply shortages and associated cost increases; the legal, regulatory and administrative developments that occur at the federal, state and local levels; Encompass Health's infectious disease prevention and control efforts; the demand for Encompass Health’s services, including based on any downturns in the economy, consumer confidence, or the capital markets; the price of Encompass Health's common stock as it affects Encompass Health's willingness and ability to repurchase shares and the financial and accounting effects of any repurchases; any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings involving Encompass Health, including any matters related to yet undiscovered issues, if any, in acquired operations; Encompass Health's ability to attract and retain key management personnel; any adverse effects on Encompass Health's stock price resulting from the integration of acquired operations; potential disruptions, breaches, or other incidents affecting the proper operation, availability, or security of Encompass Health's or its vendors' or partners’ information systems, including unauthorized access to or theft of patient, business associate, or other sensitive information or inability to provide patient care because of system unavailability as well as unforeseen issues, if any, related to integration of acquired systems; the ability to successfully integrate acquired operations, including realization of anticipated tax benefits, revenues, and cost savings, minimizing the negative impact on margins arising from the changes in staffing and other operating practices, and avoidance of unforeseen exposure to liabilities; Encompass Health's ability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures consistent with its growth strategy; Encompass Health’s ability to realize construction cost savings from prefabrication of hospitals; increases in Medicare audit activity, including increased use of sampling and extrapolation, resulting in additional unpaid reimbursement claims and an increase in the backlog of appealed claims denials; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for Encompass Health's services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels, including as part of national healthcare reform and deficit reduction and Encompass Health's ability to adapt operations to those changes; competitive pressures in the healthcare industry and Encompass Health's response thereto; Encompass Health's ability to obtain and retain favorable arrangements with third-party payors; Encompass Health's ability to control costs, particularly labor and employee benefit costs, including group medical expenses; adverse effects resulting from coverage determinations made by Medicare Administrative Contractors regarding its Medicare reimbursement claims and lengthening delays in Encompass Health's ability to recover improperly denied claims through the administrative appeals process on a timely basis; Encompass Health's ability to adapt to changes in the healthcare delivery system, including value-based purchasing and involvement in coordinated care initiatives or programs that may arise with its referral sources; Encompass Health's ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages, which may be worsened by infectious disease outbreaks, and the impact on Encompass Health's labor expenses from potential union activity, staffing shortages, and competitive compensation practices; general conditions in the economy and capital markets, including any instability or uncertainty related to
Encompass Health Corporation and Subsidiaries
Forward-Looking Statements
armed conflict or an act of terrorism, governmental impasse over approval of the United States federal budget, an increase in the debt ceiling, or an international sovereign debt crisis; the increase in the cost of, or the decrease in the availability of, necessary supplies, such as personal protective equipment; the increase in the costs of defending and insuring against alleged professional liability claims, and Encompass Health's ability to predict the estimated costs related to such claims; and other factors which may be identified from time to time in Encompass Health's SEC filings and other public announcements, including Encompass Health's Form 10‑K for the year ended December 31, 2022 and Form 10-Q for the quarters ended March 31, 2022, June 30, 2022, and March 31, 2023, when filed.
EX-99.2
3
ehcq12023earningsslides_.htm
EX-99.2
ehcq12023earningsslides_
Earnings Call April 28, 2022 Supplemental information 2022 First Quarter3 irst Quarter a l April 28, 2023 Supplemental information
Encompass Health 2 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 and guidance, labor availability and costs, legislative and regulatory developments, strategy, capital expenditures, acquisition and other development activities, such as the de novo pipeline, costs and timelines, operational initiatives, dividend strategies, repurchases of securities, effective tax rates, financial performance, financial assumptions, business model, balance sheet and cash flow plans, market share, and shareholder value-enhancing transactions. These estimates, projections and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual events or results, and those differences may be material. There can be no assurance any estimates, projections or forward-looking information will be realized. All such estimates, projections and forward-looking information speak only as of the date hereof. Encompass Health undertakes no duty to publicly update or revise the information contained herein. You are cautioned not to place undue reliance on the estimates, projections and other forward-looking information in this presentation as they are based on current expectations and general assumptions and are subject to various risks, uncertainties and other factors, including those set forth in the earnings release attached as Exhibit 99.1 to the Company’s Form 8-K dated April 27, 2023 (the “Q1 Earnings Release Form 8-K”), the Form 10-K for the year ended December 31, 2022, the Form 10-Q for the quarter ended March 31, 2023, when filed, and in other documents Encompass Health previously filed with the SEC, many of which are beyond Encompass Health’s control, that may cause actual events or results to differ materially from the views, beliefs and estimates expressed herein. Note regarding presentation of non-GAAP financial measures The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934, including Adjusted EBITDA, leverage ratios, adjusted earnings per share, and adjusted free cash flow. Schedules are attached that reconcile the non-GAAP financial measures included in the following presentation to the most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States. The Q1 Earnings Release Form 8-K, provides further explanation and disclosure regarding Encompass Health’s use of non-GAAP financial measures and should be read in conjunction with this supplemental information. Forward-looking statements
Encompass Health 3 Q1 2023 Financial summary ............................................................................................................................................................... 4 Key takeaways ....................................................................................................................................................................................... 5 Revenue ................................................................................................................................................................................................... 6 Adjusted EBITDA .................................................................................................................................................................................... 7 Earnings per share ................................................................................................................................................................................ 8-9 Adjusted free cash flow ....................................................................................................................................................................... 10 2023 Guidance and guidance considerations ................................................................................................................................. 11-12 Adjusted free cash flow assumptions ............................................................................................................................................... 13 Uses of free cash flow .......................................................................................................................................................................... 14 Appendix Map of locations ..................................................................................................................................................................................... 16 Growth targets, fundamentals and value drivers ......................................................................................................................... 17 De novo activity ..................................................................................................................................................................................... 18 Contract labor and sign-on and shift bonus trends ...................................................................................................................... 19 Pre-payment and post-payment claims denials ............................................................................................................................. 20 Debt maturity profile and schedule ................................................................................................................................................. 21-22 New-store/same-store growth ........................................................................................................................................................... 23 Payment sources ................................................................................................................................................................................... 24 Operational metrics .............................................................................................................................................................................. 25 Share information ................................................................................................................................................................................. 26 Reconciliations to GAAP ...................................................................................................................................................................... 27-32 End notes ................................................................................................................................................................................................ 33-34 Table of contents
Encompass Health 4 Q1 2023 Financial summary Q1 ($ in millions) 2023 2022 % △ Encompass Health Net operating revenue $ 1,160.4 $ 1,059.3 9.5 % Adjusted EBITDA $ 229.0 $ 194.9 17.5 % Adjusted EPS $ 0.88 $ 0.67 31.3 % Adjusted free cash flow* $ 158.7 $ 123.2 28.8 % *Refer to page 10 for a discussion of year-to-year change. Reconciliations to GAAP provided on pages 27-32. Encompass Health’s historical results reflect Enhabit Home Health and Hospice (“Enhabit”) as discontinued operations.
Encompass Health 5 Q1 2023 Key takeaways u Revenue Ÿ Net operating revenue growth of 9.5% ü Discharge growth of 9.4% (5.9% same store) u Adjusted EBITDA Ÿ Adjusted EBITDA growth of 17.5% ü Q1 2023 contract labor plus sign-on and shift bonuses of $37.0 million vs. $63.0 million in Q1 2022 ü De novo hospital net pre-opening and ramp up costs of $4.2 million u Expansion activity Ÿ Opened 3 de novos with a total of 149 beds u Guidance Ÿ Increased full-year 2023 guidance u Shareholder distributions Ÿ Paid a $0.15 per share quarterly cash dividend in January 2023 Ÿ Declared a $0.15 per share quarterly cash dividend in February 2023 (paid in April 2023)
Encompass Health 6 Revenue Q1 Q1 Favorable/ ($ in millions) 2023 2022 (Unfavorable) Net operating revenue: Inpatient $ 1,134.2 $ 1,036.2 9.5% Outpatient and other 26.2 23.1 13.4% Total revenue $ 1,160.4 $ 1,059.3 9.5% (Actual Amounts) Discharges 55,557 50,771 9.4% New-store discharge growth 3.5% Same-store discharge growth 5.9% Net patient revenue per discharge $ 20,415 $ 20,409 —% Revenue reserves related to bad debt as a percent of revenue 2.4 % 2.2 % 20 bps u Net operating revenue growth of 9.5% primarily driven by volume growth u Net patient revenue per discharge was essentially flat with Q1 2022 primarily due to sequestration, patient mix, and the annual Supplemental Security Income (“SSI”) rate adjustment. u Outpatient and other revenue includes an increase of $3.6 million in provider tax revenues ($18.0 million in Q1 2023 vs. $14.4 million in Q1 2022). u Revenue reserves related to bad debt as a percent of revenue increased 20 bps to 2.4% primarily due to pre- and post-payment claims reviews in Q1 2023.
Encompass Health 7 Adjusted EBITDA(1) Q1 % of Revenue Q1 % of Revenue($ in millions) 2023 2022 Net operating revenue $ 1,160.4 $ 1,059.3 Operating expenses: Salaries and benefits (629.0) 54.2 % (587.4) 55.5 % Other operating expenses(a) (177.2) 15.3 % (158.3) 14.9 % Supplies (53.8) 4.6 % (49.8) 4.7 % Occupancy costs (13.8) 1.2 % (15.4) 1.5 % Hospital operating expenses (244.8) 21.1 % (223.5) 21.1 % General and administrative expenses(b) (34.2) 2.9 % (33.2) 3.1 % Other income(c) 1.8 0.8 Equity in nonconsolidated affiliates 0.4 0.9 Noncontrolling interests in continuing operations (25.6) (22.0) Adjusted EBITDA $ 229.0 $ 194.9 Percent change 17.5 % In arriving at Adjusted EBITDA, the following were excluded: (a) Loss on disposal or impairment of assets $ 0.7 $ 0.7 (b) Stock-based compensation and the change in fair market value of the non-qualified 401k plan $ 9.2 $ 4.2 (c) Change in fair market value of equity securities and the non- qualified 401k plan $ (1.8) $ 4.4 u Salary and benefits in Q1 2023 includes $37.0 million in contract labor and sign-on and shift bonuses vs. $63.0 million in Q1 2022. u Other operating expenses includes an increase of $5.8 million in provider tax expense ($18.1 million in Q1 2023 vs. $12.3 million in Q1 2022). Reconciliations to GAAP provided on pages 27-32 Refer to page 33-34 for end notes.
Encompass Health 8 Earnings per share - as reported Q1 ($ in millions, except per share data) 2023 2022 Adjusted EBITDA $ 229.0 $ 194.9 Depreciation and amortization (63.9) (57.7) Interest expense and amortization of debt discounts and fees (36.4) (39.6) Stock-based compensation (7.9) (6.1) Loss on disposal or impairment of assets (0.7) (0.7) 120.1 90.8 Items not indicative of ongoing operating performance: Loss on early extinguishment of debt(2) — (0.3) Change in fair market value of equity securities 0.5 (2.5) Pre-tax income 120.6 88.0 Income tax expense (31.9) (23.6) Income from continuing operations* $ 88.7 $ 64.4 Basic shares 99.4 99.2 Diluted shares (see page 26) 100.9 100.2 Basic earnings per share* $ 0.89 $ 0.65 Diluted earnings per share* $ 0.88 $ 0.64 * Earnings per share are determined using income from continuing operations attributable to Encompass Health. Refer to page 33-34 for end notes. u EPS increased primarily due to growth of Adjusted EBITDA. u Depreciation and amortization increased due to recent growth in capital expenditures. u Interest expense decreased due to debt repayment with July 1, 2022 distribution from Enhabit. Y T D
Encompass Health 9 Adjusted earnings per share(3) Refer to page 33-34 for end notes. Q1 2023 2022 Diluted earnings per share, as reported $ 0.88 $ 0.64 Adjustments, net of tax: Change in fair market value of equity securities — 0.02 Adjusted earnings per share* $ 0.88 $ 0.67 u Adjusted earnings per share removes from the GAAP earnings per share calculation the impact of items the Company believes are not indicative of its ongoing operating performance. * Adjusted EPS may not sum due to rounding. See complete calculations of adjusted earnings per share on pages 30-31.
Encompass Health 10 $123.2 $34.1 $3.6 $3.2 $0.2 $(5.6) $158.7 Adjusted Free Cash Flow 3 Mos. 2022 Adjusted EBITDA Working capital and other Cash interest payments Cash tax payments, net of refunds Maintenance capital expenditures Adjusted Free Cash Flow 3 Mos. 2023 Q1 2023 Adjusted free cash flow(4) Reconciliations to GAAP provided on pages 27-32. Refer to page 33-34 for end notes. u Adjusted free cash flow increased by 28.8% in Q1 2023 primarily as a result of increased Adjusted EBITDA. ($ in millions)
Encompass Health 11 2023 Guidance - Updated as of April 27, 2023 Previous 2023 Guidance Updated 2023 Guidance ($ in millions, except per share data) Net Operating Revenue $4,680 to $4,760 $4,700 to $4,770 Adjusted EBITDA (1) $860 to $900 $870 to $910 Adjusted earnings per share from continuing operations attributable to Encompass Health (3) $2.87 to $3.16 $2.94 to $3.23 Refer to page 33-34 for end notes.
Encompass Health 12 2023 Guidance considerations u Pricing Ÿ Medicare pricing increase of 4% for the second and third quarter of 2023 (prior to the impact of sequestration which began reimplementation in Q2 2022) and an estimated 2.9% for the fourth quarter of 2023 Ÿ Managed Care pricing increase of 2% to 3% u Labor Ÿ SWB per FTE (including contract labor, sign-on and shift bonuses) increase of approximately 1.5% to 2.0% ü Reflects expected year-over-year decrease in contract labor expense and sign-on and shift bonuses offsetting increases of approximately 4% for salaries and wages and 5% for benefits Ÿ Employees per occupied bed expected to be approximately 3.40 for Q2-Q4 2023 u De novos Ÿ New hospitals with net pre-opening and ramp-up costs of approximately $10 million to $12 million u Bad debt Ÿ Bad debt reserves of 2.0% to 2.4% of net operating revenue u Corporate Ÿ Tax rate of approximately 26% Ÿ Diluted share count of approximately 101 million shares Changes from previous guidance considerations are underlined.
Encompass Health 13 Adjusted free cash flow(4) assumptions Certain cash flow items ($ in millions) 3 Months 2023 Actuals 2022 2023 Assumptions Cash interest payments (net of amortization of debt discounts and fees) $34.1 $145.5 $135 to $145 Cash payments for income taxes, net of refunds $(0.2) $50.2 $85 to $100 Working capital and other $(1.4) $45.1 $30 to $50 Maintenance CAPEX $37.8 $238.4 $230 to $240 Adjusted free cash flow $158.7 $340.1 $335 to $430 Lower payments in 2022 due to application of overpayments from 2021 2022 includes Q4 payment of deferred payroll taxes resulting from CARES Act and recovery of $12.5 million of previously denied Medicare claims(6) Investment in new equipment, renovations/improvements, and ongoing maintenance to existing hospitals Cash interest payments expected to decrease modestly due to full- year impact of debt repayment with July 1, 2022 distribution from Enhabit Refer to page 33-34 for end notes.
Encompass Health 14 Uses of free cash flow ($ in millions) 3 Months 2023 Actuals 2022 2023 Assumptions Growth in core business IRF bed expansions $9.5 $52.7 $60 to $70 New IRFs - De novos 52.5 276.6 275 to 295 - Acquisitions — — TBD - Replacement IRFs and other 0.1 16.5 — $62.1 $345.8 $335 to $365 Debt reduction Debt redemptions (borrowings), net $18.5 $511.3 TBD Shareholder distributions Cash dividends on common stock $15.6 $99.0 ~$60 Common stock repurchases — — TBD Ÿ ~$198 million remaining under current authorization as of March 31, 2023(5) Refer to page 33-34 for end notes.
Appendix
Encompass Health 16 ~35,900 employees Rehabilitation hospitals “IRFs” IRFs under development* * IRFs under development - previously announced under development as of April 27, 2023 † Based on 2022 and 2021 data Encompass Health Largest owner and operator of rehabilitation hospitals Company profile as of 3/31/23 156 Rehabilitation hospitals “IRFs” 61 are joint ventures 21 37 IRFs under development* States and Puerto Rico 25% of Licensed beds † 33% of Medicare patients served † Key statistics trailing four quarters ~215,900 patient discharges ~$4.45 Billion in revenue FORTUNE® “World’s Most Admired Companies” 2022
Encompass Health 17 Growth targets, fundamentals and value drivers u 2023 - 2027 Growth targets Ÿ 6 to 10 de novos per year Ÿ 80 to 120 bed additions per year Ÿ 6% to 8% discharge CAGR u Large, under penetrated, and growing inpatient rehabilitation market Ÿ Large addressable market indicated by low conversion rate of presumptively eligible inpatient rehabilitation patients Ÿ Favorable demographics driving increased demand for rehabilitation services u Poised to capture incremental market share Ÿ Unparalleled clinical expertise for treating inpatient rehabilitation conditions with consistent delivery of high-quality, cost-effective care Ÿ De novo and bed addition strategy delivers attractive financial returns Ÿ Cash flow and capital availability to fund capacity additions Ÿ Fragmented sector presents unit acquisition and joint venture opportunities Ÿ Significant barriers to entry and economies of scale Ÿ Resilient business model with focus on non-discretionary conditions occurring predominantly in an aging population u Shareholder distributions Ÿ Cash dividend (currently $0.15 per share per quarter) Ÿ Approximately $198 million remaining under current stock repurchase authorization
Encompass Health 18 Inpatient Rehabilitation Hospitals Opened or Under Development Joint venture # of new beds 2023 2024 2025 2026 De novo projects* Eau Claire, WI ü 36 — — — Knoxville, TN** ü 73 — — — Owasso, OK ü 40 — — — Clermont, FL 50 — — — 1 Bowie, MD 60 — — — 2 Columbus, GA ü 40 — — — 3 Prosper, TX 40 — — — 4 Fitchburg, WI*** — 56 — — 5 Kissimmee, FL — 50 — — 6 Atlanta, GA ü — 40 — — 7 Johnston, RI — 50 — — 8 Fort Mill, SC — 39 — — 9 Louisville, KY ü — 40 — — 10 Houston, TX — 61 — — 11 Lake Worth, FL — — 50 — 12 Fort Myers, FL ü — — 60 — 13 Norristown, PA — — 50 — 14 Wildwood, FL — — 50 — 15 Athens, GA ü — — 40 — 16 St. Petersburg, FL — — 50 — 17 Daytona Beach, FL — — 50 — 18 Palm Beach Gardens, FL — — — 50 19 Strongsville, OH — — — 40 20 Amarillo, TX — — — 40 21 Danbury, CT — — — 40 *All dates are tentative and subject to change De novo activity Q1 2023 De novo activity highlights u Opened 3 rehabilitation hospitals JV Ÿ Eau Claire, WI ü Ÿ Knoxville, TN ü Ÿ Owasso, OK ü u Announced de novos Ÿ 50-bed hospital in Johnston, RI IRF development projects announced and underway 21 **Knoxville, TN opened a 22-bed hospital-in-hospital unit and a 51-bed free-standing hospital. *** Fitchburg, WI opening is now scheduled for 2024 due to weather related delays in construction.
Encompass Health 19 Contract labor and sign-on and shift bonus trends 2021 2022 2023 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Contract labor and sign-on and shift bonus expense trends ($ in millions) Sign-on/shift bonus $ 10.8 $ 12.7 $ 15.0 $ 21.3 $ 59.8 $ 21.1 $ 21.8 $ 24.2 $ 15.7 $ 82.8 $ 16.3 Contract labor 10.1 16.0 18.3 30.0 74.4 41.9 35.1 24.8 19.7 121.5 20.7 Total $ 20.9 $ 28.7 $ 33.3 $ 51.3 $ 134.2 $ 63.0 $ 56.9 $ 49.0 $ 35.4 $ 204.3 $ 37.0 Contract labor FTE trends ($ in thousands) Contract labor FTEs 221 318 383 516 359 706 633 481 369 547 459 Contract labor rate/FTE $ 185.2 $ 201.3 $ 189.5 $ 230.7 $ 207.1 $ 240.4 $ 222.6 $ 204.6 $ 211.5 $ 222.0 $ 182.7 Net same-store RN hires 112 5 166 46 329 127 149 183 (32) 427 54
Encompass Health 20 Pre-payment and post-payment claims denials Pre-payment Claims Reviews Period New Denials Collections of Previously Denied Claims Revenue Reserve for New Denials Update of Reserve for Prior Denials ($ in millions) Q1 2023 $34.8 $(31.2) $3.5 $— Q4 2022 35.1 (13.7) 3.6 — Q3 2022 10.5 (10.0) 1.1 — Q2 2022 12.5 (6.5) 1.4 — Q1 2022 1.1 (5.6) 0.3 — Q4 2021 1.4 (8.1) 0.4 — Q3 2021 (0.5) (9.7) — — Q2 2021 0.1 (6.3) — — Q1 2021 (0.2) (5.2) — — Q4 2020 (0.4) (7.2) — 4.5 Q3 2020 (0.6) (6.3) — — Q2 2020 (1.5) (3.5) — — Q1 2020 4.2 (5.0) 1.3 — Pre-payment and Post-payment Claims Receivables Mar. 31, 2023 Dec. 31, 2022 Dec. 31, 2021 ($ in millions) Gross claims denials $ 94.8 $ 93.2 $ 105.7 Recorded reserves (22.9) (19.9) (28.3) Net accounts receivable from claims denials $ 71.9 $ 73.3 $ 77.4 * For more information regarding TPE, see https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/ Medicare-FFS-Compliance-Programs/Medical-Review/Targeted-Probe-and-EducateTPE.html u Encompass Health establishes a reserve upon notice that a claim is under review. u Acting through various contractors and programs, CMS regularly reviews and denies Medicare claims. HHS provides an appeals process through its Administrative Law Judges (“ALJs”). We regularly appeal denials to ALJs when we believe the claim is valid or the denial is in error. u Appeals prior to 2018 became part of a nationwide backlog of cases at the ALJ level that a federal judge ordered HHS to clear by the end of 2022. By December 31, 2022, we cleared substantially all of the backlog at the ALJ level. u We have appealed certain adverse ALJ rulings to the Department Appeals Boards (“DAB”), the final level of administrative review. As of March 31, 2023, approximately $51 million in claims are awaiting review at the DAB.(6) In addition, we have appealed approximately $6 million in claims denied by the DAB to several United States District Courts, all of which are pending review as of March 31, 2023. u New claims review activity continued to increase in Q1 2023 as all of our CMS contractors have resumed claim audits under the Targeted Probe and Educate (“TPE”) program* following the temporary suspension of audit activity during the public health emergency. u In Q1 2023, a Supplemental Medical Review Contractor (“SMRC”) initiated a review of claims from March to December 2020 totaling ~$21M. Refer to page 33-34 for end notes.
Encompass Health 21 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 * This chart does not include ~$355 of finance lease obligations or ~$53 of other notes payable. See the debt schedule on page 22. Debt maturity profile - face value $350 Senior Notes 5.75% ($ in millions) Revolver capacity $800 Senior Notes 4.75% $800 Senior Notes 4.5% Revolver As of March 31, 2023* $926 Available $40 Drawn + $34 reserved for LCs Callable Callable beginning February 2025 Callable $400 Senior Notes 4.625% Callable beginning April 2026
Encompass Health 22 Debt schedule Change in March 31, December 31, Debt vs. ($ in millions) 2023 2022 YE 2022 Advances under $1 billion revolving credit facility $ 40.0 $ 55.0 $ (15.0) Bonds Payable: 5.75% Senior Notes due 2025 347.9 347.7 0.2 4.50% Senior Notes due 2028 782.6 781.8 0.8 4.75% Senior Notes due 2030 779.6 779.0 0.6 4.625% Senior Notes due 2031 390.8 390.6 0.2 Other notes payable 52.5 53.1 (0.6) Finance lease obligations 355.1 359.8 (4.7) Long-term debt $ 2,748.5 $ 2,767.0 $ (18.5) Debt to Adjusted EBITDA 3.2 x 3.4 x Leverage net of cash on balance sheet 3.1 x 3.4 x Reconciliations to GAAP provided on pages 27-32. The leverage ratio for 1Q23 stated in terms of the most comparable GAAP measurement would be Debt to Net cash provided by operating activities: 3.8x The leverage ratio for 2022 stated in terms of the most comparable GAAP measurement would be Debt to Net cash provided by operating activities: 3.9x
Encompass Health 23 -10.0% 0.0% 10.0% 20.0% * Includes inpatient rehabilitation hospitals classified as same store during each period New-store/same-store growth North Tampa, FL (50 beds) Cumming, GA (50 beds) Shreveport, LA (40 beds) Waco, TX (40 beds) Greenville, SC (40 beds) Pensacola, FL (40 beds) Discharges Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 New store 2.1% 1.3% 0.9% 1.0% 1.8% 2.0% 3.6% 3.8% 3.3% 3.4% 3.1% 3.5% Same store* (12.8)% (2.8)% (3.8)% (2.2)% 16.9% 6.7% 6.0% 3.8% 1.6% 4.1% 4.2% 5.9% Total by quarter (10.7)% (1.5)% (2.9)% (1.2)% 18.7% 8.7% 9.6% 7.6% 4.9% 7.5% 7.3% 9.4% Total by year (2.6)% 8.7% 6.8% Same-store year* (4.4)% 6.2% 3.1% Sioux Falls, SD (40 beds) Coralville, IA (40 beds) Toledo, OH (40 beds) San Angelo, TX (40 beds) Shiloh, IL (40 beds) St. Augustine, FL (40 beds) Libertyville, IL (60 beds) Henry County, GA (50 beds) Moline, IL (40 beds) Naples, FL (50 beds) Grand Forks, ND (40 beds) Lakeland, FL (50 beds) Cape Coral, FL (40 beds) Jacksonville, FL (50 beds) Knoxville, TN (73 beds) Eau Claire, WI (36 beds) Owasso, OK (40 beds)
Encompass Health 24 Payment sources (percent of revenues) Q1 Full Year 2023 2022 2022 Medicare 65.3 % 65.1 % 65.3 % Medicare Advantage 16.0 % 14.7 % 15.1 % Managed care 11.0 % 12.4 % 11.6 % Medicaid 4.1 % 3.9 % 4.2 % Other third-party payors 0.9 % 1.0 % 0.9 % Workers’ compensation 0.5 % 0.6 % 0.6 % Patients 0.2 % 0.5 % 0.4 % Other income 2.0 % 1.8 % 1.9 % Total 100.0 % 100.0 % 100.0 %
Encompass Health 25 Operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2023 2022 2022 2022 2022 2022 ($ in millions) Net patient revenue-inpatient $ 1,134.2 $ 1,113.0 $ 1,064.6 $ 1,037.8 $ 1,036.2 $ 4,251.6 Net patient revenue-outpatient and other revenues 26.2 24.3 24.9 24.7 23.1 97.0 Net operating revenues $ 1,160.4 $ 1,137.3 $ 1,089.5 $ 1,062.5 $ 1,059.3 $ 4,348.6 (Actual Amounts) Discharges(7) 55,557 54,700 53,743 51,902 50,771 211,116 Net patient revenue per discharge $ 20,415 $ 20,347 $ 19,809 $ 19,995 $ 20,409 $ 20,139 Outpatient visits 31,852 33,138 34,348 35,929 35,229 138,644 Average length of stay 12.5 12.5 12.7 12.6 13.0 12.7 Occupancy % 73.4 % 71.7 % 71.4 % 70.7 % 73.1 % 70.9 % # of licensed beds 10,510 10,356 10,356 10,206 10,028 10,356 Occupied beds 7,714 7,425 7,394 7,216 7,330 7,342 Full-time equivalents (FTEs) - internal 25,122 24,777 24,580 23,649 23,313 24,080 Contract labor FTEs 459 369 481 633 706 547 Total FTEs(8) 25,581 25,146 25,061 24,282 24,019 24,627 EPOB(9) 3.32 3.39 3.39 3.37 3.28 3.35 Refer to page 33-34 for end notes.
Encompass Health 26 Share information Weighted Average for the Period Q1 Full Year (in millions) 2023 2022 2022 2021 2020 Basic shares outstanding 99.4 99.2 99.2 99.0 98.6 Restricted stock awards, dilutive stock options, and restricted stock units 1.5 1.0 1.2 1.2 1.2 Diluted shares outstanding 100.9 100.2 100.4 100.2 99.8 End of Period Q1 Full Year (in millions) 2023 2022 2022 2021 2020 Basic shares outstanding 100.2 99.8 99.8 99.5 99.4
Encompass Health 27 Net cash provided by operating activities reconciled to Adjusted EBITDA(1) Q1 Full Year ($ in millions) 2023 2022 2022 Net cash provided by operating activities $ 227.9 $ 218.9 $ 705.8 Interest expense and amortization of debt discounts and fees 36.4 39.6 175.7 Gain (loss) on sale of investments, excluding impairments 1.7 (4.6) (15.5) Equity in net income of nonconsolidated affiliates 0.4 0.9 2.9 Net income attributable to noncontrolling interests in continuing operations (25.6) (22.0) (93.6) Amortization of debt-related items (2.3) (2.3) (9.7) Distributions from nonconsolidated affiliates (0.1) (1.0) (4.0) Current portion of income tax expense 27.9 21.3 72.2 Change in assets and liabilities (37.9) (22.0) 30.4 Cash used in (provided by) operating activities of discontinued operations 1.3 (36.4) (52.3) Change in fair market value of equity securities (0.5) 2.5 7.4 Other (0.2) — — Adjusted EBITDA $ 229.0 $ 194.9 $ 819.3 Refer to page 33-34 for end notes.
Encompass Health 28 Reconciliation of net income to Adjusted EBITDA(1) Q1 Full Year ($ in millions) 2023 2022 2022 Net income $ 113.3 $ 110.1 $ 365.9 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 1.0 (23.7) (15.2) Net income attributable to noncontrolling interests included in continuing operations (25.6) (22.0) (93.6) Provision for income tax expense 31.9 23.6 100.1 Interest expense and amortization of debt discounts and fees 36.4 39.6 175.7 Depreciation and amortization 63.9 57.7 243.6 Loss on early extinguishment of debt(2)(10) — 0.3 1.4 Loss on disposal or impairment of assets 0.7 0.7 4.8 Stock-based compensation 7.9 6.1 29.2 Change in fair market value of equity securities (0.5) 2.5 7.4 Adjusted EBITDA $ 229.0 $ 194.9 $ 819.3 Refer to page 33-34 for end notes.
Encompass Health 29 Reconciliation of net cash provided by operating activities to adjusted free cash flow(4) Q1 Full Year ($ in millions) 2023 2022 2022 Net cash provided by operating activities $ 227.9 $ 218.9 $ 705.8 Impact of discontinued operations 1.3 (36.4) (52.3) Net cash provided by operating activities of continuing operations 229.2 182.5 653.5 Capital expenditures for maintenance (37.8) (32.2) (238.4) Distributions paid to noncontrolling interests of consolidated affiliates (31.8) (20.8) (96.6) Items not indicative of ongoing operating performance: Transaction costs and related liabilities (0.9) (6.3) 21.6 Adjusted free cash flow $ 158.7 $ 123.2 $ 340.1 Cash dividends on common stock $ 15.6 $ 28.5 $ 99.0 Refer to page 33-34 for end notes.
Encompass Health 30 Adjusted EPS(3) - Q1 2023 For the Three Months Ended March 31, 2023 Adjustments As Reported Income Tax Adjustments Change in Fair Market Value of Equity Securities As Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 229.0 $ — $ — $ 229.0 Depreciation and amortization (63.9) — — (63.9) Interest expense and amortization of debt discounts and fees (36.4) — — (36.4) Stock-based compensation (7.9) — — (7.9) Loss on disposal or impairment of assets (0.7) — — (0.7) Change in fair market value of equity securities 0.5 — (0.5) — Income from continuing operations before income tax expense 120.6 — (0.5) 120.1 Provision for income tax expense (31.9) 0.3 0.1 (31.5) Income from continuing operations attributable to Encompass Health $ 88.7 $ 0.3 $ (0.4) $ 88.6 Diluted earnings per share from continuing operations* $ 0.88 $ — $ — $ 0.88 Diluted shares used in calculation 100.9 * Adjusted EPS may not sum across due to rounding. Refer to page 33-34 for end notes.
Encompass Health 31 For the Three Months Ended March 31, 2022 Adjustments As Reported Loss on Early Exting. of Debt Income Tax Adjustments Change in Fair Market Value of Equity Securities As Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 194.9 $ — $ — $ — $ 194.9 Depreciation and amortization (57.7) — — — (57.7) Interest expense and amortization of debt discounts and fees (39.6) — — — (39.6) Stock-based compensation (6.1) — — — (6.1) Loss on disposal or impairment of assets (0.7) — — — (0.7) Loss on early extinguishment of debt(2) (0.3) 0.3 — — — Change in fair market value of equity securities (2.5) — — 2.5 — Income from continuing operations before income tax expense 88.0 0.3 — 2.5 90.8 Provision for income tax expense (23.6) (0.1) 0.2 (0.6) (24.1) Income from continuing operations attributable to Encompass Health $ 64.4 $ 0.2 $ 0.2 $ 1.9 $ 66.7 Diluted earnings per share from continuing operations* $ 0.64 $ — $ — $ 0.02 $ 0.67 Diluted shares used in calculation 100.2 Adjusted EPS(3) - Q1 2022 * Adjusted EPS may not sum across due to rounding. Refer to page 33-34 for end notes.
Encompass Health 32 Adjusted EPS(3) - 2022 For the Year Ended December 31, 2022 Adjustments As Reported Loss on Early Exting. of Debt Income Tax Adjustments Bondholder Consent Fees Associated with Enhabit Distribution Change in Fair Market Value of Equity Securities As Adjusted ($ in millions, except per share amounts) Adjusted EBITDA $ 819.3 $ — $ — $ — $ — $ 819.3 Depreciation and amortization (243.6) — — — — (243.6) Interest expense and amortization of debt discounts and fees (175.7) — — 20.5 — (155.2) Stock-based compensation (29.2) — — — — (29.2) Loss on disposal or impairment of assets (4.8) — — — — (4.8) Loss on early extinguishment of debt(2)(10) (1.4) 1.4 — — — — Change in fair market value of equity securities (7.4) — — — 7.4 — Income from continuing operations before income tax expense 357.2 1.4 — 20.5 7.4 386.5 Provision for income tax expense (100.1) (0.4) 7.4 (5.3) (1.9) (100.3) Income from continuing operations attributable to Encompass Health $ 257.1 $ 1.0 $ 7.4 $ 15.2 $ 5.5 $ 286.2 Diluted earnings per share from continuing operations* $ 2.56 $ 0.01 $ 0.07 $ 0.15 $ 0.05 $ 2.85 Diluted shares used in calculation 100.4 * Adjusted EPS may not sum across due to rounding. Refer to page 33-34 for end notes.
Encompass Health 33 End notes * Reconciliations to GAAP provided on pages 27-32 (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 measure and the leverage ratio as a liquidity measure on an ongoing basis. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity. In evaluating Adjusted EBITDA, the reader should be aware that in the future the Company may incur expenses similar to the adjustments set forth. (2) In the first quarter of 2022, the Company redeemed the remaining $100 million of its 5.125% Senior Notes due 2023. The redemption was completed at 100% of par using drawings under the Company’s revolving credit facility. As a result of the redemption, the Company recorded a $0.3 million loss on early extinguishment of debt in the first quarter of 2022. (3) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to investors because it provides better comparability of ongoing operating performance to prior periods given that it excludes the impact of government, class action, and related settlements, professional fees - accounting, tax, and legal, mark-to-market adjustments for stock appreciation rights, gains or losses related to hedging and equity instruments, loss on early extinguishment of debt, adjustments to its income tax provision (such as valuation allowance adjustments, settlements of income tax claims and windfall tax benefits), items related to corporate and facility restructurings, and certain other items deemed to be non-indicative of ongoing operating performance. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company's ongoing operating performance. Accordingly, they can complicate comparisons of the Company's results of operations across periods and comparisons of the Company's results to those of other healthcare companies. Adjusted earnings per share should not be considered as a measure of financial performance under generally accepted accounting principles in the United States as the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted earnings per share is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies.* (4) 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, dividends paid on preferred stock, distributions to noncontrolling interests, and certain other items deemed to be non-indicative of ongoing operating performance. Common stock dividends are not included in the calculation of adjusted free cash flow. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. (5) 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, 2018, the remaining repurchase authorization was approximately $58 million. On July 24, 2018, the Company's board approved resetting the aggregate common stock repurchase authorization to $250 million. As of March 31, 2023, the remaining repurchase authorization was approximately $198 million. (6) In December 2017, the Company received notice of a Uniform Program Integrity Contractor (“UPIC”) audit at one of our hospitals. The UPIC sampled 100 claims and challenged the propriety of a subset of the sample representing $1.3 million in previously paid claims. The UPIC extrapolated the alleged error rate to all claims from that hospital during a period of approximately four years, resulting in an alleged overpayment of $33.9 million. Our Medicare Administrative Contractor (“MAC”) later reduced the determination of overpayment to $30.5 million, which it collected through recoupment of current claims during 2019. We appealed the overpayment determination to an Administrative Law Judge (“ALJ”), who heard the appeal in August 2021. In October 2022, the ALJ overturned $12.5 million of the overpayment determination. We received payment of this amount, plus $3.2 million in interest, in December 2022. We have appealed the remaining $18.0 million of the overpayment determination to the next level of administrative appeal, challenging both the denials and the improper use of extrapolation. It is not possible to predict when this matter will be resolved or the ultimate outcome.
Encompass Health 34 End notes (continued) * Reconciliations to GAAP provided on pages 27-32 (7) Represents discharges from 156 consolidated hospitals in Q1 2023; 153 consolidated hospitals in Q4 2022 and Q3 2022; 150 consolidated hospitals in Q2 2022; and 147 consolidated hospitals in Q1 2022. (8) Full-time equivalents included in the table represent Encompass Health employees who participate in or support the operations of our hospitals and include full-time equivalents related to contract labor. (9) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including full-time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is determined by multiplying the number of licensed beds by the Company’s occupancy percentage. (10) 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 of the redemption, the Company recorded a $1.1 million loss on early extinguishment of debt in the second quarter of 2022.
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