BIRMINGHAM, Ala., April 25, 2019 /PRNewswire/ -- Encompass
Health Corp. (NYSE: EHC), a national leader in integrated
healthcare, offering facility-based and home-based patient care
through its network of inpatient rehabilitation hospitals, home
health agencies and hospice agencies, today reported its results of
operations for the first quarter ended March 31, 2019.
"The strength of our business model was demonstrated again in
the first quarter of 2019 as we made continued progress on our
operational and strategic initiatives and generated strong
financial results," said President and Chief Executive Officer of
Encompass Health Mark Tarr.
Consolidated results
|
|
|
|
|
Growth
|
|
Q1
2019
|
|
Q1
2018
|
|
Dollars
|
|
Percent
|
|
(In Millions, Except
per Share Data)
|
Net operating
revenues
|
$
|
1,124.0
|
|
|
$
|
1,046.0
|
|
|
$
|
78.0
|
|
|
7.5
|
%
|
Income from
continuing operations attributable to Encompass Health per diluted
share
|
1.04
|
|
|
0.85
|
|
|
0.19
|
|
|
22.4
|
%
|
Adjusted earnings per
share
|
1.04
|
|
|
0.93
|
|
|
0.11
|
|
|
11.8
|
%
|
Cash flows provided
by operating activities
|
159.9
|
|
|
216.3
|
|
|
(56.4)
|
|
|
(26.1)
|
%
|
Adjusted
EBITDA
|
242.9
|
|
|
223.3
|
|
|
19.6
|
|
|
8.8
|
%
|
Adjusted free cash
flow
|
127.8
|
|
|
170.2
|
|
|
(42.4)
|
|
|
(24.9)
|
%
|
Revenue growth was driven by volume and pricing growth in both
of the Company's operating segments.
The increase in income from continuing operations attributable
to Encompass Health per diluted share and adjusted earnings per
share resulted primarily from increased revenue.
The decrease in cash flows provided by operating activities and
adjusted free cash flow resulted primarily from increased working
capital.
See attached supplemental information for calculations of
non-GAAP measures and reconciliations to their most comparable GAAP
measure.
Inpatient rehabilitation segment results
|
|
|
|
|
Growth
|
|
Q1
2019
|
|
Q1
2018
|
|
Dollars
|
|
Percent
|
Net operating
revenues:
|
(In
Millions)
|
Inpatient
|
$
|
847.6
|
|
|
$
|
817.1
|
|
|
$
|
30.5
|
|
|
3.7
|
%
|
Outpatient and
other
|
22.5
|
|
|
23.2
|
|
|
(0.7)
|
|
|
(3.0)
|
%
|
Total segment
revenue
|
$
|
870.1
|
|
|
$
|
840.3
|
|
|
$
|
29.8
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
(Actual
Amounts)
|
Discharges
|
45,609
|
|
|
45,108
|
|
|
501
|
|
|
1.1
|
%
|
Same-store discharge
growth
|
|
|
|
|
|
|
(0.2)
|
%
|
Net patient
revenue per discharge
|
$
|
18,584
|
|
|
$
|
18,114
|
|
|
$
|
470
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Adjusted
EBITDA
|
$
|
230.0
|
|
|
$
|
223.8
|
|
|
$
|
6.2
|
|
|
2.8
|
%
|
- Revenue - Revenue growth resulted from volume growth and
an increase in net patient revenue per discharge. Discharge growth
from new stores resulted from the Company's joint ventures in
Murrells Inlet, South Carolina
(September 2018) and Winston-Salem, North Carolina (October 2018), as well as wholly owned hospitals
in Shelby County, Alabama
(April 2018) and Bluffton, South Carolina (June 2018). Same-store discharge growth in the
first quarter of 2019 was negatively impacted by approximately 20
basis points due to the ongoing effects of Hurricane Michael on
operations in Panama City,
Florida. Same-store discharge growth was 4.8% in the first
quarter of 2018, with a severe influenza season (approximately 100
to 200 basis points) and the timing of discharges around Easter and
Passover (approximately 50 basis points) contributing to that
growth. Growth in net patient revenue per discharge primarily
resulted from an increase in reimbursement rates from all payors
and improvements in discharge destination.
Revenue reserves as a percent of revenue increased 30 basis points
to 1.4%. Revenue reserves as a percent of revenue were lower in the
first quarter of 2018 primarily due to the recoupment of previously
denied claims.
- Adjusted EBITDA - The increase in Adjusted EBITDA
primarily resulted from revenue growth. The increase in salaries
and benefits as a percent of revenue was lower than the expected
range.
Home health and
hospice segment results
|
|
|
|
|
|
Growth
|
|
Q1
2019
|
|
Q1
2018
|
|
Dollars
|
|
Percent
|
Net operating
revenues:
|
(In
Millions)
|
Home health
|
$
|
219.5
|
|
|
$
|
185.3
|
|
|
$
|
34.2
|
|
|
18.5
|
%
|
Hospice
|
34.4
|
|
|
20.4
|
|
|
14.0
|
|
|
68.6
|
%
|
Total segment
revenue
|
$
|
253.9
|
|
|
$
|
205.7
|
|
|
$
|
48.2
|
|
|
23.4
|
%
|
|
|
|
|
|
|
|
|
Home Health
Metrics
|
(Actual
Amounts)
|
Admissions
|
37,944
|
|
|
33,855
|
|
|
4,089
|
|
|
12.1
|
%
|
Same-store admissions
growth
|
|
|
|
|
|
|
6.4
|
%
|
Episodes
|
63,626
|
|
|
56,658
|
|
|
6,968
|
|
|
12.3
|
%
|
Same-store episode
growth
|
|
|
|
|
|
|
5.4
|
%
|
Revenue per
episode
|
$
|
3,057
|
|
|
$
|
2,934
|
|
|
$
|
123
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Adjusted
EBITDA
|
$
|
46.3
|
|
|
$
|
33.5
|
|
|
$
|
12.8
|
|
|
38.2
|
%
|
- Revenue - Revenue growth resulted from volume growth and
an increase in revenue per episode. Volume growth included the
impact of the Camellia Healthcare acquisition which closed on
May 1, 2018. The increase in revenue
per episode primarily resulted from a Medicare reimbursement rate
increase, receipt of an approximate $1
million Bundled Payments for Care Improvement reconciliation
payment in the first quarter of 2019, and changes in patient mix.
Revenue per episode in the first quarter of 2018 was negatively
impacted by an approximate $4 million
reserve for a Zone Program Integrity Contractor audit.
Hospice revenue increased primarily due to acquisitions and
same-store admissions growth of 13.7%.
- Adjusted EBITDA - Growth in Adjusted EBITDA primarily
resulted from revenue growth and improvements in caregiver
optimization and productivity in home health and increased scale
and efficiencies in hospice.
General and
administrative expenses
|
|
Q1
2019
|
|
% of Consolidated
Revenue
|
|
Q1
2018
|
|
% of Consolidated
Revenue
|
|
(In
Millions)
|
General and
administrative expenses,
excluding stock-based compensation
|
$
|
33.4
|
|
|
3.0%
|
|
$
|
34.0
|
|
|
3.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
- General and administrative expenses decreased as a
percent of consolidated revenue primarily due to expenses
associated with the Company's rebranding and name change in Q1 2018
and operating leverage resulting from revenue growth. During the
first quarter of 2019, the Company invested $0.8 million in its rebranding and name change,
all of which was included in general and administrative expenses.
During the first quarter of 2018, the Company invested $3.6 million in its rebranding and name
change.
Repurchases of common stock
During the first quarter of 2019, the Company repurchased
219,708 shares of its common stock for approximately $13 million. As of March
31,2019, the Company had approximately $237 million remaining under its existing stock
repurchase authorization.
"Our leverage ratio at the end of the first quarter remained at
2.8x," said Executive Vice President and Chief Financial Officer of
Encompass Health Doug Coltharp. "The strength of our balance sheet
and cash flow generation position us with substantial flexibility
to deploy capital."
2019 guidance
On April 17, 2019, the Centers for
Medicare and Medicaid Services released its notice of proposed rule
making for fiscal year 2020 under the inpatient rehabilitation
facility prospective payment system (the "2020 Proposed IRF Rule").
Based on its analysis of the adjustments included in the proposed
rule and other factors, including the acuity of the Company's
patients over the three-month period prior to the release of the
proposed rule, the Company currently estimates its Medicare payment
rates for its inpatient rehabilitation segment will be flat to down
0.25% in fiscal year 2020 (effective October
1, 2019).
Based on its results for the first quarter of 2019 and its
current expectations for the remainder of 2019, including the
impact of the 2020 Proposed IRF Rule discussed above on the fourth
quarter of 2019, the Company is reiterating its full-year guidance
for 2019.
|
Full-Year 2019
Guidance
|
|
(In Millions, Except
Per Share Data)
|
Net operating
revenues
|
$4,500 to
$4,600
|
Adjusted
EBITDA
|
$925 to
$945
|
Adjusted earnings per
share from continuing operations attributable to Encompass
Health
|
$3.71 to
$3.85
|
This guidance does not include the Company's pending acquisition
of Alacare Home Health and Hospice which is expected to close in
June 2019.
For additional considerations regarding the Company's 2019
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
9:00 a.m. Eastern Time on Friday,
April 26, 2019, to discuss its results for the first quarter
of 2019. 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 877 587-6761 and
giving the pass code 3564805. International callers should dial 706
679-1635 and give the same pass code. 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
As a national leader in integrated healthcare services,
Encompass Health (NYSE: EHC) offers both facility-based and
home-based patient care through its network of inpatient
rehabilitation hospitals, home health agencies and hospice
agencies. With a national footprint that includes 130 hospitals,
221 home health locations and 59 hospice locations in 37 states and
Puerto Rico, the Company is
committed to delivering high-quality, cost-effective integrated
care across the healthcare continuum. Driven by a set of shared
values, 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 Twitter 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, 2019 (the "March 2019 Form 10‑Q"), when filed, as well as
the Company's Current Report on Form 8-K filed on April 25,
2019 (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 26, 2019 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, in the
supplemental information, 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 non-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 non-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
2019 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 $150 million to
$160 million
- Amortization of debt-related items - approximately $4 million
The Q1 Earnings Form 8-K and, when filed, the March 2019 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 Operations
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
|
(In Millions,
Except per Share Data)
|
Net operating
revenues
|
$
|
1,124.0
|
|
|
$
|
1,046.0
|
|
Operating
expenses:
|
|
|
|
Salaries and
benefits
|
620.8
|
|
|
570.2
|
|
Other operating
expenses
|
150.1
|
|
|
141.2
|
|
Occupancy
costs
|
19.6
|
|
|
18.6
|
|
Supplies
|
40.1
|
|
|
39.9
|
|
General and
administrative expenses
|
53.4
|
|
|
61.1
|
|
Depreciation and
amortization
|
52.5
|
|
|
45.9
|
|
Total operating
expenses
|
936.5
|
|
|
876.9
|
|
Interest expense and
amortization of debt discounts and fees
|
37.2
|
|
|
35.6
|
|
Other (income)
loss
|
(3.7)
|
|
|
0.1
|
|
Equity in net income
of nonconsolidated affiliates
|
(2.5)
|
|
|
(2.3)
|
|
Income from
continuing operations before income tax expense
|
156.5
|
|
|
135.7
|
|
Provision for income
tax expense
|
30.8
|
|
|
30.0
|
|
Income from
continuing operations
|
125.7
|
|
|
105.7
|
|
Loss from
discontinued operations, net of tax
|
(0.5)
|
|
|
(0.5)
|
|
Net
income
|
125.2
|
|
|
105.2
|
|
Less: Net income
attributable to noncontrolling interests
|
(22.9)
|
|
|
(21.4)
|
|
Net income
attributable to Encompass Health
|
$
|
102.3
|
|
|
$
|
83.8
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
|
98.4
|
|
|
97.8
|
|
Diluted
|
99.7
|
|
|
99.4
|
|
|
|
|
|
Earnings per
common share:
|
|
|
|
Basic earnings per
share attributable to Encompass Health common
shareholders:
|
|
|
|
Continuing
operations
|
$
|
1.05
|
|
|
$
|
0.86
|
|
Discontinued
operations
|
(0.01)
|
|
|
(0.01)
|
|
Net income
|
$
|
1.04
|
|
|
$
|
0.85
|
|
Diluted earnings
per share attributable to Encompass Health common
shareholders:
|
|
|
|
Continuing
operations
|
$
|
1.04
|
|
|
$
|
0.85
|
|
Discontinued
operations
|
(0.01)
|
|
|
(0.01)
|
|
Net income
|
$
|
1.03
|
|
|
$
|
0.84
|
|
|
|
|
|
Amounts
attributable to Encompass Health common
shareholders:
|
|
|
|
Income from
continuing operations
|
$
|
102.8
|
|
|
$
|
84.3
|
|
Loss from
discontinued operations, net of tax
|
(0.5)
|
|
|
(0.5)
|
|
Net income
attributable to Encompass Health
|
$
|
102.3
|
|
|
$
|
83.8
|
|
Encompass Health
Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
March 31,
2019
|
|
December 31,
2018
|
|
(In
Millions)
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
56.1
|
|
|
$
|
69.2
|
|
Restricted
cash
|
59.0
|
|
|
59.0
|
|
Accounts
receivable
|
500.6
|
|
|
467.7
|
|
Other current
assets
|
67.0
|
|
|
66.2
|
|
Total current
assets
|
682.7
|
|
|
662.1
|
|
Property and
equipment, net
|
1,736.2
|
|
|
1,634.8
|
|
Operating lease
right-of-use assets
|
284.9
|
|
|
—
|
|
Goodwill
|
2,111.6
|
|
|
2,100.8
|
|
Intangible assets,
net
|
435.4
|
|
|
443.4
|
|
Deferred income tax
assets
|
40.5
|
|
|
42.9
|
|
Other long-term
assets
|
292.5
|
|
|
291.0
|
|
Total
assets
|
$
|
5,583.8
|
|
|
$
|
5,175.0
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Current portion of
long-term debt
|
$
|
37.3
|
|
|
$
|
35.8
|
|
Current operating
lease liabilities
|
48.3
|
|
|
—
|
|
Accounts
payable
|
94.7
|
|
|
90.0
|
|
Accrued expenses and
other current liabilities
|
587.9
|
|
|
546.7
|
|
Total current
liabilities
|
768.2
|
|
|
672.5
|
|
Long-term debt, net
of current portion
|
2,521.8
|
|
|
2,478.6
|
|
Long-term operating
lease liabilities
|
245.0
|
|
|
—
|
|
Other long-term
liabilities
|
159.3
|
|
|
205.2
|
|
|
3,694.3
|
|
|
3,356.3
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interests
|
273.0
|
|
|
261.7
|
|
Shareholders'
equity:
|
|
|
|
Encompass Health
shareholders' equity
|
1,314.3
|
|
|
1,276.7
|
|
Noncontrolling
interests
|
302.2
|
|
|
280.3
|
|
Total shareholders'
equity
|
1,616.5
|
|
|
1,557.0
|
|
Total liabilities
and shareholders' equity
|
$
|
5,583.8
|
|
|
$
|
5,175.0
|
|
Encompass Health
Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
|
(In
Millions)
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
125.2
|
|
|
$
|
105.2
|
|
Loss from
discontinued operations, net of tax
|
0.5
|
|
|
0.5
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities—
|
|
|
|
Depreciation and
amortization
|
52.5
|
|
|
45.9
|
|
Stock-based
compensation
|
19.4
|
|
|
26.1
|
|
Deferred tax expense
(benefit)
|
2.6
|
|
|
(3.0)
|
|
Other, net
|
(0.8)
|
|
|
1.6
|
|
Change in assets and
liabilities, net of acquisitions—
|
|
|
|
Accounts
receivable
|
(29.6)
|
|
|
8.3
|
|
Other
assets
|
(3.8)
|
|
|
14.2
|
|
Accrued
payroll
|
(14.8)
|
|
|
(9.5)
|
|
Other
liabilities
|
11.7
|
|
|
27.7
|
|
Net cash used in
operating activities of discontinued operations
|
(3.0)
|
|
|
(0.7)
|
|
Total
adjustments
|
34.2
|
|
|
110.6
|
|
Net cash provided
by operating activities
|
159.9
|
|
|
216.3
|
|
Cash flows from
investing activities:
|
|
|
|
Purchases of property
and equipment
|
(72.3)
|
|
|
(59.9)
|
|
Acquisitions of
businesses, net of cash acquired
|
(13.7)
|
|
|
(0.6)
|
|
Other, net
|
(5.5)
|
|
|
(0.1)
|
|
Net cash used in
investing activities
|
(91.5)
|
|
|
(60.6)
|
|
Cash flows from
financing activities:
|
|
|
|
Borrowings on
revolving credit facility
|
25.0
|
|
|
95.0
|
|
Payments on revolving
credit facility
|
(30.0)
|
|
|
(95.0)
|
|
Dividends paid on
common stock
|
(28.3)
|
|
|
(25.4)
|
|
Purchase of equity
interests in consolidated affiliates
|
—
|
|
|
(65.1)
|
|
Distributions paid to
noncontrolling interests of consolidated affiliates
|
(19.5)
|
|
|
(15.4)
|
|
Taxes paid on behalf
of employees for shares withheld
|
(15.9)
|
|
|
(8.3)
|
|
Other, net
|
(13.0)
|
|
|
(2.5)
|
|
Net cash used in
financing activities
|
(81.7)
|
|
|
(116.7)
|
|
(Decrease)
increase in cash, cash equivalents, and restricted
cash
|
(13.3)
|
|
|
39.0
|
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
133.5
|
|
|
116.8
|
|
Cash, cash
equivalents, and restricted cash at end of period
|
$
|
120.2
|
|
|
$
|
155.8
|
|
|
|
|
|
Reconciliation of
Cash, Cash Equivalents, and Restricted Cash
|
|
|
|
Cash and cash
equivalents at beginning of period
|
$
|
69.2
|
|
|
$
|
54.4
|
|
Restricted cash at
beginning of period
|
59.0
|
|
|
62.4
|
|
Restricted cash
included in other long-term assets at beginning of
period
|
5.3
|
|
|
—
|
|
Cash, cash
equivalents, and restricted cash at beginning of period
|
$
|
133.5
|
|
|
$
|
116.8
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$
|
56.1
|
|
|
$
|
86.4
|
|
Restricted cash at
end of period
|
59.0
|
|
|
69.4
|
|
Restricted cash
included in other long-term assets at end of period
|
5.1
|
|
|
—
|
|
Cash, cash
equivalents, and restricted cash at end of period
|
$
|
120.2
|
|
|
$
|
155.8
|
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
|
(In Millions,
Except Per Share Data)
|
Adjusted
EBITDA
|
$
|
242.9
|
|
|
$
|
223.3
|
|
Depreciation and
amortization
|
(52.5)
|
|
|
(45.9)
|
|
Interest expense and
amortization of debt discounts and fees
|
(37.2)
|
|
|
(35.6)
|
|
Stock-based
compensation expense
|
(19.4)
|
|
|
(26.1)
|
|
Noncash loss on
disposal of assets
|
(1.1)
|
|
|
(0.8)
|
|
|
132.7
|
|
|
114.9
|
|
Certain items
non-indicative of ongoing operating performance:
|
|
|
|
Transaction
costs
|
(0.6)
|
|
|
(1.0)
|
|
SARs mark-to-market
impact on noncontrolling interests
|
0.8
|
|
|
1.0
|
|
Change in fair market
value of equity securities
|
0.9
|
|
|
(0.6)
|
|
Payroll taxes on SARs
exercise
|
(0.2)
|
|
|
—
|
|
Pre-tax
income
|
133.6
|
|
|
114.3
|
|
Income tax
expense
|
(30.8)
|
|
|
(30.0)
|
|
Income from
continuing operations (1)
|
$
|
102.8
|
|
|
$
|
84.3
|
|
|
|
|
|
Basic
shares
|
98.4
|
|
|
97.8
|
|
Diluted
shares
|
99.7
|
|
|
99.4
|
|
|
|
|
|
Basic earnings per
share (1)
|
$
|
1.05
|
|
|
$
|
0.86
|
|
Diluted earnings
per share (1)
|
$
|
1.04
|
|
|
$
|
0.85
|
|
|
(1)
Income from continuing operations attributable to Encompass
Health
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share
|
|
|
Q1
|
|
2019
|
|
2018
|
|
|
|
|
Earnings per
share, as reported
|
$
|
1.04
|
|
|
$
|
0.85
|
|
Adjustments, net of
tax:
|
|
|
|
Mark-to-market
adjustments for stock appreciation rights
|
0.06
|
|
|
0.08
|
|
Transaction
costs
|
—
|
|
|
0.01
|
|
Change in fair market
value of equity securities
|
(0.01)
|
|
|
—
|
|
Income tax
adjustments
|
(0.05)
|
|
|
—
|
|
Adjusted earnings
per share(1)
|
$
|
1.04
|
|
|
$
|
0.93
|
|
|
(1)
Adjusted EPS may not sum due to rounding.
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share
|
|
|
For the Three
Months Ended March 31, 2019
|
|
|
|
Adjustments
|
|
|
|
As
Reported
|
|
Mark-to-Market
Adjustment for Stock Compensation Expense
|
|
Income Tax
Adjustments
|
|
Transaction
Costs
|
|
Change in Fair
Market Value of Equity Securities
|
|
Payroll Taxes on
SARs Exercise
|
|
As
Adjusted
|
|
(In Millions,
Except Per Share Amounts)
|
Adjusted
EBITDA(1)
|
$
|
242.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
242.9
|
|
Depreciation and
amortization
|
(52.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52.5)
|
|
Interest expense and
amortization of debt discounts and fees
|
(37.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37.2)
|
|
Stock-based
compensation
|
(19.4)
|
|
|
9.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.8)
|
|
Loss on disposal of
assets
|
(1.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.1)
|
|
Transaction
costs
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SARs mark-to-market
impact on noncontrolling interests
|
0.8
|
|
|
(0.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Change in fair market
value of equity securities
|
0.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
—
|
|
Payroll taxes on SARs
exercise
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
Income from
continuing operations before income tax expense
|
133.6
|
|
|
8.8
|
|
|
—
|
|
|
0.6
|
|
|
(0.9)
|
|
|
0.2
|
|
|
142.3
|
|
Provision for income
tax expense
|
(30.8)
|
|
|
(2.4)
|
|
|
(5.2)
|
|
|
(0.2)
|
|
|
0.2
|
|
|
—
|
|
|
(38.4)
|
|
Income from
continuing operations attributable to Encompass
Health
|
$
|
102.8
|
|
|
$
|
6.4
|
|
|
$
|
(5.2)
|
|
|
$
|
0.4
|
|
|
$
|
(0.7)
|
|
|
$
|
0.2
|
|
|
$
|
103.9
|
|
Add: Interest,
amortization, and loss on extinguishment of convertible debt, net
of tax
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Numerator for
diluted earnings per share
|
$
|
102.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share from continuing operations(2)
|
$
|
1.04
|
|
|
$
|
0.06
|
|
|
$
|
(0.05)
|
|
|
$
|
—
|
|
|
$
|
(0.01)
|
|
|
$
|
—
|
|
|
$
|
1.04
|
|
Diluted shares
used in calculation
|
99.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
See reconciliation of net income to Adjusted EBITDA
|
(2)
Adjusted EPS may not sum across due to rounding.
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share
|
|
|
For the Three
Months Ended March 31, 2018
|
|
|
|
Adjustments
|
|
|
|
As
Reported
|
|
Mark-to-Market
Adjustment for Stock Appreciation Rights
|
|
Income Tax
Adjustments
|
|
Transaction
Costs
|
|
Change in Fair
Market Value of Equity Securities
|
|
As
Adjusted
|
|
(In Millions,
Except Per Share Amounts)
|
Adjusted
EBITDA(1)
|
$
|
223.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
223.3
|
|
Depreciation and
amortization
|
(45.9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45.9)
|
|
Interest expense and
amortization of debt discounts and fees
|
(35.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35.6)
|
|
Stock-based
compensation
|
(26.1)
|
|
|
11.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14.5)
|
|
Loss on disposal of
assets
|
(0.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8)
|
|
Transaction
costs
|
(1.0)
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
SARs mark-to-market
impact on noncontrolling interests
|
1.0
|
|
|
(1.0)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Change in fair market
value of equity securities
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
Income from
continuing operations before income tax expense
|
114.3
|
|
|
10.6
|
|
|
—
|
|
|
1.0
|
|
|
0.6
|
|
|
126.5
|
|
Provision for income
tax expense
|
(30.0)
|
|
|
(3.0)
|
|
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.2)
|
|
|
(33.7)
|
|
Income from
continuing operations attributable to Encompass
Health
|
$
|
84.3
|
|
|
$
|
7.6
|
|
|
$
|
(0.2)
|
|
|
$
|
0.7
|
|
|
$
|
0.4
|
|
|
$
|
92.8
|
|
Add: Interest,
amortization, and loss on extinguishment of convertible debt, net
of tax
|
—
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Numerator for
diluted earnings per share
|
$
|
84.3
|
|
|
|
|
|
|
|
|
|
|
$
|
92.8
|
|
Diluted earnings
per share from continuing operations, as
reported(2)
|
$
|
0.85
|
|
|
$
|
0.08
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.93
|
|
Diluted shares
used in calculation
|
99.4
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
See reconciliation of net income to Adjusted EBITDA
|
(2)
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,
|
|
2019
|
|
2018
|
|
(In
Millions)
|
Net
income
|
$
|
125.2
|
|
|
$
|
105.2
|
|
Loss from
discontinued operations, net of tax, attributable to Encompass
Health
|
0.5
|
|
|
0.5
|
|
Net income
attributable to noncontrolling interests
|
(22.9)
|
|
|
(21.4)
|
|
Provision for income
tax expense
|
30.8
|
|
|
30.0
|
|
Interest expense and
amortization of debt discounts and fees
|
37.2
|
|
|
35.6
|
|
Depreciation and
amortization
|
52.5
|
|
|
45.9
|
|
Net noncash loss on
disposal of assets
|
1.1
|
|
|
0.8
|
|
Stock-based
compensation expense
|
19.4
|
|
|
26.1
|
|
Transaction
costs
|
0.6
|
|
|
1.0
|
|
SARs mark-to-market
impact on noncontrolling interests
|
(0.8)
|
|
|
(1.0)
|
|
Change in fair market
value of equity securities
|
(0.9)
|
|
|
0.6
|
|
Payroll taxes on SARs
exercise
|
0.2
|
|
|
—
|
|
Adjusted
EBITDA
|
$
|
242.9
|
|
|
$
|
223.3
|
|
Reconciliation of
Segment Adjusted EBITDA to Income from Continuing Operations Before
Income Tax Expense
|
|
|
Three Months Ended
March 31,
|
|
2019
|
|
2018
|
|
(In
Millions)
|
Total segment
Adjusted EBITDA
|
$
|
276.3
|
|
|
$
|
257.3
|
|
General and
administrative expenses
|
(53.4)
|
|
|
(61.1)
|
|
Depreciation and
amortization
|
(52.5)
|
|
|
(45.9)
|
|
Loss on disposal of
assets
|
(1.1)
|
|
|
(0.8)
|
|
Interest expense and
amortization of debt discounts and fees
|
(37.2)
|
|
|
(35.6)
|
|
Net income
attributable to noncontrolling interests
|
22.9
|
|
|
21.4
|
|
SARs mark-to-market
impact on noncontrolling interests
|
0.8
|
|
|
1.0
|
|
Change in fair market
value of equity securities
|
0.9
|
|
|
(0.6)
|
|
Payroll taxes on SARs
exercise
|
(0.2)
|
|
|
—
|
|
Income from
continuing operations before income tax expense
|
$
|
156.5
|
|
|
$
|
135.7
|
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to
Adjusted EBITDA
|
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
|
(In
Millions)
|
Net cash provided
by operating activities
|
$
|
159.9
|
|
|
$
|
216.3
|
|
Interest expense and
amortization of debt discounts and fees
|
37.2
|
|
|
35.6
|
|
Equity in net income
of nonconsolidated affiliates
|
2.5
|
|
|
2.3
|
|
Net income
attributable to noncontrolling interests in continuing
operations
|
(22.9)
|
|
|
(21.4)
|
|
Amortization of
debt-related items
|
(1.0)
|
|
|
(1.0)
|
|
Distributions from
nonconsolidated affiliates
|
(2.1)
|
|
|
(1.2)
|
|
Current portion of
income tax expense
|
28.2
|
|
|
33.0
|
|
Change in assets and
liabilities
|
36.5
|
|
|
(40.7)
|
|
Cash used in
operating activities of discontinued operations
|
3.0
|
|
|
0.7
|
|
Transaction
costs
|
0.6
|
|
|
1.0
|
|
SARs mark-to-market
impact on noncontrolling interests
|
(0.8)
|
|
|
(1.0)
|
|
Payroll taxes on SARs
exercise
|
0.2
|
|
|
—
|
|
Change in fair market
value of equity securities
|
(0.9)
|
|
|
0.6
|
|
Other
|
2.5
|
|
|
(0.9)
|
|
Consolidated
Adjusted EBITDA
|
$
|
242.9
|
|
|
$
|
223.3
|
|
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,
|
|
|
2019
|
|
2018
|
|
(In
Millions)
|
Net cash provided
by operating activities
|
$
|
159.9
|
|
|
$
|
216.3
|
|
Impact of
discontinued operations
|
3.0
|
|
|
0.7
|
|
Net cash provided by
operating activities of continuing operations
|
162.9
|
|
|
217.0
|
|
Capital expenditures
for maintenance
|
(29.6)
|
|
|
(36.1)
|
|
Distributions paid to
noncontrolling interests of consolidated affiliates
|
(19.5)
|
|
|
(15.4)
|
|
Items
non-indicative of ongoing operations:
|
|
|
|
Transaction costs and
related assumed liabilities
|
0.6
|
|
|
0.4
|
|
Cash paid for SARs
exercise
|
13.4
|
|
|
4.3
|
|
Adjusted free cash
flow
|
$
|
127.8
|
|
|
$
|
170.2
|
|
For the three months ended March 31, 2019, net cash used in
investing activities was $91.5
million and primarily resulted from capital expenditures.
Net cash used in financing activities during the three months ended
March 31, 2019 was $81.7 million
and primarily resulted from cash dividends paid on common stock,
distributions paid to noncontrolling interests of consolidated
affiliates, taxes paid on behalf of employees for shares withheld
under stock compensation arrangements, net debt payments, and
repurchases of common stock.
For the three months ended March 31, 2018, net cash
used in investing activities was $60.6
million and primarily resulted from capital expenditures.
Net cash used in financing activities during the three months
ended March 31, 2018 was $116.7
million and primarily resulted from purchasing one-third of
the Rollover Shares held by members of the home health and hospice
management team, cash dividends paid on common stock, and
distributions paid to noncontrolling interests of consolidated
affiliates.
Statements contained in this press release and the
supplemental information which are not historical facts, such as
those relating to financial guidance and assumptions, balance sheet
and cash flow plans, a potential settlement of the pending DOJ
investigations, and anticipated acquisitions, are forward-looking
statements. 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, involve a number of risks and uncertainties,
and relate to, among other things, future events, Encompass
Health's plan to repurchase its debt or equity securities, dividend
strategies, effective income tax rates, its business strategy, its
financial plans, its future financial performance, its projected
business results or model, its ability to return value to
shareholders, its projected capital expenditures, its leverage
ratio, its acquisition opportunities, and the impact of future
legislation or regulation. 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, the price of
Encompass Health's common stock as it affects the Company'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 its pending DOJ and HHS-OIG
investigations and 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 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; 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 (such as the patient driven
groupings model and other payment system reforms); 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 and the impact on Encompass Health's labor
expenses from potential union activity and staffing shortages;
general conditions in the economy and capital markets, including
any instability or uncertainty related to 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 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, 2018 and Form 10-Q for the quarter ended
March 31, 2019, when filed.
Media Contact
Casey Lassiter, 205 447-6410
casey.lassiter@encompasshealth.com
Investor Relations Contact
Crissy Carlisle, 205 970-5860
crissy.carlisle@encompasshealth.com
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SOURCE Encompass Health Corp.