BIRMINGHAM, Ala., April 28, 2020 /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, 2020. The
Company also provided an update on the measures it has implemented
to respond to the COVID-19 pandemic.
"Through February, our operating performance was strong in both
business segments," said President and Chief Executive Officer of
Encompass Health Mark Tarr. "Beginning in March, we experienced
lower volumes and higher operating expenses related to the COVID-19
pandemic. While we expect these lower volumes to continue in the
near term, we view them as temporary and remain confident in the
intermediate and long-term growth prospects for our Company based
on the increasing demands for the services we provide to an aging
population."
Consolidated results
|
|
|
|
|
Growth
|
|
Q1
2020
|
|
Q1
2019
|
|
Dollars
|
|
Percent
|
|
(In Millions, Except
per Share Data)
|
Net operating
revenues
|
$
|
1,182.0
|
|
|
$
|
1,124.0
|
|
|
$
|
58.0
|
|
|
5.2
|
%
|
Income from
continuing operations attributable to Encompass Health per diluted
share
|
0.87
|
|
|
1.04
|
|
|
(0.17)
|
|
|
(16.3)
|
%
|
Adjusted earnings per
share
|
0.87
|
|
|
1.04
|
|
|
(0.17)
|
|
|
(16.3)
|
%
|
Cash flows provided
by operating activities
|
29.3
|
|
|
159.9
|
|
|
(130.6)
|
|
|
(81.7)
|
%
|
Adjusted
EBITDA
|
228.0
|
|
|
242.9
|
|
|
(14.9)
|
|
|
(6.1)
|
%
|
Adjusted free cash
flow
|
74.6
|
|
|
127.8
|
|
|
(53.2)
|
|
|
(41.6)
|
%
|
Revenue growth was driven by volume and pricing growth in the
inpatient rehabilitation segment and volume growth in the home
health and hospice segment.
Income from continuing operations attributable to Encompass
Health per diluted share for the first quarter of 2020 compared to
the first quarter of 2019 reflected a decrease in earnings, as
discussed in the segment results sections that follow.
Cash flows provided by operating activities and adjusted free
cash flow for the three months ended March 31, 2020 decreased
primarily due to a decrease in earnings and an increase in working
capital. The increase in working capital included higher accounts
receivable in the Company's home health and hospice segment
primarily due to the transition to the Patient Driven Groupings
Model ("PDGM"), including a reduction in the Request for
Anticipated Payment program for home health agencies. Cash flows
provided by operating activities in the first quarter of 2020
included payment of $101 million for
stock appreciation rights exercised during the period.
See attached supplemental information for calculations of
non-GAAP measures and reconciliations to their most comparable GAAP
measure.
Inpatient rehabilitation segment results
|
|
|
|
|
Growth
|
|
Q1
2020
|
|
Q1
2019
|
|
Dollars
|
|
Percent
|
Net operating
revenues:
|
(In
Millions)
|
Inpatient
|
$
|
890.0
|
|
|
$
|
847.6
|
|
|
$
|
42.4
|
|
|
5.0
|
%
|
Outpatient and
other
|
19.2
|
|
|
22.5
|
|
|
(3.3)
|
|
|
(14.7)
|
%
|
Total segment
revenue
|
$
|
909.2
|
|
|
$
|
870.1
|
|
|
$
|
39.1
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
(Actual
Amounts)
|
Discharges
|
47,750
|
|
|
45,609
|
|
|
2,141
|
|
|
4.7
|
%
|
Same-store discharge
growth
|
|
|
|
|
|
|
2.4
|
%
|
Net patient
revenue per discharge
|
$
|
18,639
|
|
|
$
|
18,584
|
|
|
$
|
55
|
|
|
0.3
|
%
|
Revenue reserves
related to bad debt as a percent of revenue
|
1.2
|
%
|
|
1.4
|
%
|
|
|
|
(20 basis
points)
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Adjusted
EBITDA
|
$
|
215.5
|
|
|
$
|
230.0
|
|
|
$
|
(14.5)
|
|
|
(6.3)
|
%
|
- Revenue - Revenue growth resulted from volume growth and
an increase in net patient revenue per discharge. New-store
discharge growth resulted from joint ventures in Lubbock, Texas (May
2019) and Boise, Idaho
(July 2019), and wholly owned
hospitals in Katy, Texas
(September 2019) and Murrieta, California (February 2020). New-store growth also resulted
from a joint venture hospital in Yuma,
Arizona changing from the equity method of accounting to a
consolidated entity effective July 1,
2019. Growth in net patient revenue per discharge primarily
resulted from an increase in reimbursement rates offset by prior
period cost report adjustments. Revenue reserves related to bad
debt as a percent of revenue decreased 20 basis points to 1.2%
primarily due to the continued favorable resolution of medical
claims reviews.
The decrease in outpatient revenue resulted from the suspension of
hospital-based outpatient services in mid-March 2020 and the closure of certain
hospital-based outpatient programs in 2019.
- Adjusted EBITDA - The decrease in Adjusted EBITDA
primarily resulted from higher salaries and benefits expense, as
well as the increased purchase and use of medical supplies in
March 2020 due to COVID-19. Salaries
and benefits increased as a percent of revenue primarily due to the
ramp up of new stores and overtime paid to employees as a result of
increased volumes early in the first quarter. In addition, employee
productivity decreased in March 2020
due to COVID-19 pandemic related items. Other income within the
segment decreased $4.4 million
primarily due to the year-over-year change in the mark-to-market
adjustment on the Company's non-qualified 401(k) liability, which
is offset in general and administrative expenses.
Home health and hospice segment results
|
|
|
|
|
Growth
|
|
Q1
2020
|
|
Q1
2019
|
|
Dollars
|
|
Percent
|
Net operating
revenues:
|
(In
Millions)
|
Home health
|
$
|
224.8
|
|
|
$
|
219.5
|
|
|
$
|
5.3
|
|
|
2.4
|
%
|
Hospice
|
48.0
|
|
|
34.4
|
|
|
13.6
|
|
|
39.5
|
%
|
Total segment
revenue
|
$
|
272.8
|
|
|
$
|
253.9
|
|
|
$
|
18.9
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
Home Health
Metrics
|
(Actual
Amounts)
|
Admissions
|
42,476
|
|
|
37,944
|
|
|
4,532
|
|
|
11.9
|
%
|
Same-store admissions
growth
|
|
|
|
|
|
|
0.2
|
%
|
Episodes
|
68,652
|
|
|
63,626
|
|
|
5,026
|
|
|
7.9
|
%
|
Same-store episode
growth
|
|
|
|
|
|
|
(2.6)
|
%
|
Revenue per
episode
|
$
|
2,909
|
|
|
$
|
3,057
|
|
|
$
|
(148)
|
|
|
(4.8)
|
%
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
Adjusted
EBITDA
|
$
|
41.0
|
|
|
$
|
46.3
|
|
|
$
|
(5.3)
|
|
|
(11.4)
|
%
|
- Revenue - Revenue growth resulted from volume growth.
New-store admissions growth was primarily due to the acquisition of
Alacare on July 1, 2019. Revenue per
episode decreased primarily due to implementation of PDGM on
January 1, 2020, the effects of which
were exacerbated by the COVID-19 pandemic, and the patient mix of
the former Alacare locations. Revenue per episode in the first
quarter of 2020 benefited from the reversal of a $1.6 million reserve for a Zone Program Integrity
Contractor audit.
Hospice revenue increased 39.5%, with approximately 75% of the
increase resulting from the acquisition of Alacare.
- Adjusted EBITDA - The decrease in Adjusted EBITDA
primarily resulted from COVID-19 pandemic related impacts on
patient volumes, staff productivity and medical supplies, lower
reimbursement rates under PDGM, and increased salaries and wages
per full-time equivalent. The segment's administrative costs also
increased year over year due to the implementation of PDGM and the
Review Choice Demonstration, as well as an increase in sale force
full-time equivalents.
General and administrative expenses
|
Q1
2020
|
|
% of
Consolidated
Revenue
|
|
Q1
2019
|
|
% of
Consolidated
Revenue
|
|
(In
Millions)
|
General and
administrative expenses,
excluding stock-based compensation
and transaction costs
|
$
|
28.5
|
|
|
2.4%
|
|
$
|
33.4
|
|
|
3.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
- General and administrative expenses decreased as a
percent of consolidated revenue primarily due to the $4.4 million year-over-year change in the
mark-to-market adjustment on the Company's non-qualified 401(k)
liability (an offset to the negative impact on the inpatient
rehabilitation segment's operating results).
COVID-19 pandemic
The Company continues to take actions to enhance its operational
and financial flexibility and ensure its long-term sustainability.
Recently, the Company's executive team voluntarily reduced their
base compensation for six months. In addition, the Company has:
- secured secondary sources of PPE and other medical
supplies;
- aligned staffing with patient demand;
- amended its senior credit facility to provide covenant
relief;
- developed plans for reducing capital expenditures; and
- suspended its authorized share repurchase program.
After lengthy consideration, the Company has developed plans to
manage labor costs in response to lower patient volumes via
furloughs, changes to compensation structures and workforce
reductions.
Shareholder and other distributions
In February 2020, the Company
settled the final put of the Home Health Holdings rollover shares
and exercise of stock appreciation rights for approximately
$263 million of cash and
approximately $46 million of
Encompass Health common stock.
During the first quarter of 2020, the Company repurchased 80,304
shares of its common stock for $4.9
million. The Company suspended stock repurchases in
mid-March 2020.
In the first quarter of 2020, the Company paid a quarterly cash
dividend of $0.28 per share on its
common stock and declared a quarterly cash dividend of $0.28 per share that was paid in April 2020.
Balance sheet and liquidity
The Company's primary sources of liquidity are cash on hand,
cash flows from operations, and borrowings under its revolving
credit facility. As of March 31,2020,
the Company had approximately $105
million in cash and approximately $613 million available to it under its
$1.0 billion revolving credit
facility. The Company does not face near-term refinancing risk, as
the amounts outstanding under its credit agreement do not mature
until 2024, and its bonds all mature in 2023 and beyond. The
Company's leverage ratio at the end of the first quarter of 2020
was 3.5x.
To further enhance its liquidity and ensure availability under
its credit agreement, in April 2020,
the Company amended its credit agreement primarily to provide
covenant relief due to business disruptions from the COVID-19
pandemic. The amendment included, among other things, the carve-out
of the COVID-19 pandemic from the definition of material adverse
effect for 364 days and modifications to the interest coverage and
leverage ratios under the agreement.
Guidance
Given the rapidly changing operating conditions related to the
COVID-19 pandemic, the Company cannot accurately estimate the
effects it may have on its full-year 2020 financial results. As a
result, the Company withdrew its 2020 guidance and five-year growth
targets in a Current Report on Form 8-K filed on April 16, 2020.
Earnings conference call and webcast
The Company will host an investor conference call at
9:00 a.m. Eastern Time on Wednesday,
April 29, 2020, to discuss its results for the first quarter
of 2020. 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 1397274. 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 134 hospitals,
245 home health locations and 83 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, 2020 (the "March 2020 Form 10‑Q"), when filed, as well
as the Company's Current Report on Form 8-K filed on April 28,
2020 (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 29, 2020 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 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.
The Q1 Earnings Form 8-K and, when filed, the March 2020 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)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In Millions,
Except per Share Data)
|
Net operating
revenues
|
$
|
1,182.0
|
|
|
$
|
1,124.0
|
|
Operating
expenses:
|
|
|
|
Salaries and
benefits
|
679.1
|
|
|
620.8
|
|
Other operating
expenses
|
159.6
|
|
|
150.1
|
|
Occupancy
costs
|
20.2
|
|
|
19.6
|
|
Supplies
|
45.7
|
|
|
40.1
|
|
General and
administrative expenses
|
35.6
|
|
|
53.4
|
|
Depreciation and
amortization
|
58.8
|
|
|
52.5
|
|
Government, class
action, and related settlements
|
2.8
|
|
|
—
|
|
Total operating
expenses
|
1,001.8
|
|
|
936.5
|
|
Interest expense and
amortization of debt discounts and fees
|
43.2
|
|
|
37.2
|
|
Other expense
(income)
|
1.9
|
|
|
(3.7)
|
|
Equity in net income
of nonconsolidated affiliates
|
(0.8)
|
|
|
(2.5)
|
|
Income from
continuing operations before income tax expense
|
135.9
|
|
|
156.5
|
|
Provision for income
tax expense
|
27.1
|
|
|
30.8
|
|
Income from
continuing operations
|
108.8
|
|
|
125.7
|
|
Loss from
discontinued operations, net of tax
|
(0.1)
|
|
|
(0.5)
|
|
Net and
comprehensive income
|
108.7
|
|
|
125.2
|
|
Less: Net and
comprehensive income attributable to noncontrolling
interests
|
(21.7)
|
|
|
(22.9)
|
|
Net and
comprehensive income attributable to Encompass
Health
|
$
|
87.0
|
|
|
$
|
102.3
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
|
98.2
|
|
|
98.4
|
|
Diluted
|
99.6
|
|
|
99.7
|
|
|
|
|
|
Earnings per
common share:
|
|
|
|
Basic earnings per
share attributable to Encompass Health common
shareholders:
|
|
|
|
Continuing
operations
|
$
|
0.88
|
|
|
$
|
1.05
|
|
Discontinued
operations
|
—
|
|
|
(0.01)
|
|
Net income
|
$
|
0.88
|
|
|
$
|
1.04
|
|
Diluted earnings
per share attributable to Encompass Health common
shareholders:
|
|
|
|
Continuing
operations
|
$
|
0.87
|
|
|
$
|
1.04
|
|
Discontinued
operations
|
—
|
|
|
(0.01)
|
|
Net income
|
$
|
0.87
|
|
|
$
|
1.03
|
|
|
|
|
|
Amounts
attributable to Encompass Health common
shareholders:
|
|
|
|
Income from
continuing operations
|
$
|
87.1
|
|
|
$
|
102.8
|
|
Loss from
discontinued operations, net of tax
|
(0.1)
|
|
|
(0.5)
|
|
Net income
attributable to Encompass Health
|
$
|
87.0
|
|
|
$
|
102.3
|
|
Encompass Health
Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In
Millions)
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
104.9
|
|
|
$
|
94.8
|
|
Restricted
cash
|
56.7
|
|
|
57.4
|
|
Accounts
receivable
|
543.4
|
|
|
506.1
|
|
Other current
assets
|
79.5
|
|
|
97.5
|
|
Total current
assets
|
784.5
|
|
|
755.8
|
|
Property and
equipment, net
|
2,003.3
|
|
|
1,959.3
|
|
Operating lease
right-of-use assets
|
267.9
|
|
|
276.5
|
|
Goodwill
|
2,312.1
|
|
|
2,305.2
|
|
Intangible assets,
net
|
464.7
|
|
|
476.3
|
|
Deferred income tax
assets
|
1.5
|
|
|
2.9
|
|
Other long-term
assets
|
303.7
|
|
|
304.7
|
|
Total
assets
|
$
|
6,137.7
|
|
|
$
|
6,080.7
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Current portion of
long-term debt
|
$
|
40.2
|
|
|
$
|
39.3
|
|
Current operating
lease liabilities
|
40.8
|
|
|
40.4
|
|
Accounts
payable
|
98.0
|
|
|
94.6
|
|
Accrued expenses and
other current liabilities
|
407.2
|
|
|
546.7
|
|
Total current
liabilities
|
586.2
|
|
|
721.0
|
|
Long-term debt, net
of current portion
|
3,321.9
|
|
|
3,023.3
|
|
Long-term operating
lease liabilities
|
235.1
|
|
|
243.8
|
|
Other long-term
liabilities
|
163.3
|
|
|
159.9
|
|
|
4,306.5
|
|
|
4,148.0
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interests
|
34.0
|
|
|
239.6
|
|
Shareholders'
equity:
|
|
|
|
Encompass Health
shareholders' equity
|
1,443.9
|
|
|
1,352.2
|
|
Noncontrolling
interests
|
353.3
|
|
|
340.9
|
|
Total shareholders'
equity
|
1,797.2
|
|
|
1,693.1
|
|
Total liabilities
and shareholders' equity
|
$
|
6,137.7
|
|
|
$
|
6,080.7
|
|
Encompass Health
Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In
Millions)
|
Cash flows from
operating activities:
|
|
|
|
Net income
|
$
|
108.7
|
|
|
$
|
125.2
|
|
Loss from
discontinued operations, net of tax
|
0.1
|
|
|
0.5
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities—
|
|
|
|
Depreciation and
amortization
|
58.8
|
|
|
52.5
|
|
Stock-based
compensation
|
7.1
|
|
|
19.4
|
|
Deferred tax
expense
|
1.4
|
|
|
2.6
|
|
Other, net
|
7.7
|
|
|
(0.8)
|
|
Change in assets and
liabilities, net of acquisitions—
|
|
|
|
Accounts
receivable
|
(36.6)
|
|
|
(29.6)
|
|
Other
assets
|
15.8
|
|
|
(3.8)
|
|
Accrued
payroll
|
(24.0)
|
|
|
(14.8)
|
|
Other
liabilities
|
(109.6)
|
|
|
11.7
|
|
Net cash used in
operating activities of discontinued operations
|
(0.1)
|
|
|
(3.0)
|
|
Total
adjustments
|
(79.5)
|
|
|
34.2
|
|
Net cash provided
by operating activities
|
29.3
|
|
|
159.9
|
|
Cash flows from
investing activities:
|
|
|
|
Purchases of property
and equipment
|
(83.5)
|
|
|
(72.3)
|
|
Acquisitions of
businesses, net of cash acquired
|
(1.1)
|
|
|
(13.7)
|
|
Other, net
|
1.6
|
|
|
(5.5)
|
|
Net cash used in
investing activities
|
(83.0)
|
|
|
(91.5)
|
|
Cash flows from
financing activities:
|
|
|
|
Borrowings on
revolving credit facility
|
330.0
|
|
|
25.0
|
|
Payments on revolving
credit facility
|
(25.0)
|
|
|
(30.0)
|
|
Dividends paid on
common stock
|
(29.0)
|
|
|
(28.3)
|
|
Purchase of equity
interests in consolidated affiliates
|
(162.3)
|
|
|
—
|
|
Distributions paid to
noncontrolling interests of consolidated affiliates
|
(19.1)
|
|
|
(19.5)
|
|
Taxes paid on behalf
of employees for shares withheld
|
(15.6)
|
|
|
(15.9)
|
|
Other, net
|
(7.9)
|
|
|
(13.0)
|
|
Net cash provided
by (used in) financing activities
|
71.1
|
|
|
(81.7)
|
|
Increase
(decrease) in cash, cash equivalents, and restricted
cash
|
17.4
|
|
|
(13.3)
|
|
Cash, cash
equivalents, and restricted cash at beginning of
period
|
159.6
|
|
|
133.5
|
|
Cash, cash
equivalents, and restricted cash at end of period
|
$
|
177.0
|
|
|
$
|
120.2
|
|
|
|
|
|
Reconciliation of
Cash, Cash Equivalents, and Restricted Cash
|
|
|
|
Cash and cash
equivalents at beginning of period
|
$
|
94.8
|
|
|
$
|
69.2
|
|
Restricted cash at
beginning of period
|
57.4
|
|
|
59.0
|
|
Restricted cash
included in other long-term assets at beginning of
period
|
7.4
|
|
|
5.3
|
|
Cash, cash
equivalents, and restricted cash at beginning of period
|
$
|
159.6
|
|
|
$
|
133.5
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$
|
104.9
|
|
|
$
|
56.1
|
|
Restricted cash at
end of period
|
56.7
|
|
|
59.0
|
|
Restricted cash
included in other long-term assets at end of period
|
15.4
|
|
|
5.1
|
|
Cash, cash
equivalents, and restricted cash at end of period
|
$
|
177.0
|
|
|
$
|
120.2
|
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In Millions,
Except Per Share Data)
|
Consolidated
Adjusted EBITDA
|
$
|
228.0
|
|
|
$
|
242.9
|
|
Depreciation and
amortization
|
(58.8)
|
|
|
(52.5)
|
|
Interest expense and
amortization of debt discounts and fees
|
(43.2)
|
|
|
(37.2)
|
|
Stock-based
compensation expense
|
(7.1)
|
|
|
(19.4)
|
|
Loss on disposal of
assets
|
(0.1)
|
|
|
(1.1)
|
|
|
118.8
|
|
|
132.7
|
|
Certain items
non-indicative of ongoing operating performance:
|
|
|
|
Transaction
costs
|
—
|
|
|
(0.6)
|
|
Gain on consolidation
of Treasure Coast
|
2.2
|
|
|
—
|
|
SARs mark-to-market
impact on noncontrolling interests
|
—
|
|
|
0.8
|
|
Change in fair market
value of equity securities
|
(2.5)
|
|
|
0.9
|
|
Government, class
action, and related settlements
|
(2.8)
|
|
|
—
|
|
Payroll taxes on SARs
exercise
|
(1.5)
|
|
|
(0.2)
|
|
Pre-tax
income
|
114.2
|
|
|
133.6
|
|
Income tax
expense
|
(27.1)
|
|
|
(30.8)
|
|
Income from
continuing operations (1)
|
$
|
87.1
|
|
|
$
|
102.8
|
|
|
|
|
|
Basic
shares
|
98.2
|
|
|
98.4
|
|
Diluted
shares
|
99.6
|
|
|
99.7
|
|
|
|
|
|
Basic earnings per
share (1)
|
$
|
0.88
|
|
|
$
|
1.05
|
|
Diluted earnings
per share (1)
|
$
|
0.87
|
|
|
$
|
1.04
|
|
|
|
(1)
|
Income from
continuing operations attributable to Encompass Health
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share
|
|
|
Q1
|
|
2020
|
|
2019
|
|
|
|
|
Earnings per
share, as reported
|
$
|
0.87
|
|
|
$
|
1.04
|
|
Adjustments, net of
tax:
|
|
|
|
Government, class
action, and related settlements
|
0.02
|
|
|
—
|
|
Mark-to-market
adjustments for stock compensation expense
|
—
|
|
|
0.06
|
|
Income tax
adjustments
|
(0.04)
|
|
|
(0.05)
|
|
Change in fair market
value of equity securities
|
0.02
|
|
|
(0.01)
|
|
Gain on consolidation
of Treasure Coast
|
(0.02)
|
|
|
—
|
|
Payroll taxes on SARs
exercise
|
0.01
|
|
|
—
|
|
Adjusted earnings
per share(1)
|
$
|
0.87
|
|
|
$
|
1.04
|
|
|
|
(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, 2020
|
|
|
|
Adjustments
|
|
|
|
As
Reported
|
|
Gov't, Class
Action, & Related Settlements
|
|
Income Tax
Adjustments
|
|
Change in
Fair Market
Value of
Equity
Securities
|
|
Gain on
Consolidation
of Treasure
Coast
|
|
Payroll
Taxes
on SARs
Exercise
|
|
As
Adjusted
|
|
(In Millions,
Except Per Share Amounts)
|
Adjusted
EBITDA(1)
|
$
|
228.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
228.0
|
|
Depreciation and
amortization
|
(58.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(58.8)
|
|
Government, class
action, and related settlements
|
(2.8)
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
Interest expense and
amortization of debt discounts and fees
|
(43.2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43.2)
|
|
Stock-based
compensation
|
(7.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.1)
|
|
Loss on disposal of
assets
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
Change in fair market
value of equity securities
|
(2.5)
|
|
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on consolidation
of Treasure Coast
|
2.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.2)
|
|
|
—
|
|
|
—
|
|
Payroll taxes on SARs
exercise
|
(1.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
Income from
continuing operations before income tax expense
|
114.2
|
|
|
2.8
|
|
|
—
|
|
|
2.5
|
|
|
(2.2)
|
|
|
1.5
|
|
|
118.8
|
|
Provision for income
tax expense
|
(27.1)
|
|
|
(0.7)
|
|
|
(4.3)
|
|
|
(0.6)
|
|
|
0.6
|
|
|
(0.4)
|
|
|
(32.5)
|
|
Income from
continuing operations attributable to Encompass
Health
|
$
|
87.1
|
|
|
$
|
2.1
|
|
|
$
|
(4.3)
|
|
|
$
|
1.9
|
|
|
$
|
(1.6)
|
|
|
$
|
1.1
|
|
|
$
|
86.3
|
|
Diluted earnings
per share from continuing operations(2)
|
$
|
0.87
|
|
|
$
|
0.02
|
|
|
$
|
(0.04)
|
|
|
$
|
0.02
|
|
|
$
|
(0.02)
|
|
|
$
|
0.01
|
|
|
$
|
0.87
|
|
Diluted shares
used in calculation
|
99.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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
|
|
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
Reconciliation of Net Income to Adjusted EBITDA
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In
Millions)
|
Net
income
|
$
|
108.7
|
|
|
$
|
125.2
|
|
Loss from
discontinued operations, net of tax, attributable to Encompass
Health
|
0.1
|
|
|
0.5
|
|
Net income
attributable to noncontrolling interests
|
(21.7)
|
|
|
(22.9)
|
|
Provision for income
tax expense
|
27.1
|
|
|
30.8
|
|
Interest expense and
amortization of debt discounts and fees
|
43.2
|
|
|
37.2
|
|
Government, class
action, and related settlements
|
2.8
|
|
|
—
|
|
Depreciation and
amortization
|
58.8
|
|
|
52.5
|
|
Loss on disposal of
assets
|
0.1
|
|
|
1.1
|
|
Stock-based
compensation expense
|
7.1
|
|
|
19.4
|
|
Transaction
costs
|
—
|
|
|
0.6
|
|
Gain on consolidation
of Treasure Coast
|
(2.2)
|
|
|
—
|
|
SARs mark-to-market
impact on noncontrolling interests
|
—
|
|
|
(0.8)
|
|
Change in fair market
value of equity securities
|
2.5
|
|
|
(0.9)
|
|
Payroll taxes on SARs
exercise
|
1.5
|
|
|
0.2
|
|
Adjusted
EBITDA
|
$
|
228.0
|
|
|
$
|
242.9
|
|
Reconciliation of
Segment Adjusted EBITDA to
|
Income from
Continuing Operations Before Income Tax Expense
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In
Millions)
|
Total segment
Adjusted EBITDA
|
$
|
256.5
|
|
|
$
|
276.3
|
|
General and
administrative expenses
|
(35.6)
|
|
|
(53.4)
|
|
Depreciation and
amortization
|
(58.8)
|
|
|
(52.5)
|
|
Loss on disposal of
assets
|
(0.1)
|
|
|
(1.1)
|
|
Government, class
action, and related settlements
|
(2.8)
|
|
|
—
|
|
Interest expense and
amortization of debt discounts and fees
|
(43.2)
|
|
|
(37.2)
|
|
Net income
attributable to noncontrolling interests
|
21.7
|
|
|
22.9
|
|
SARs mark-to-market
impact on noncontrolling interests
|
—
|
|
|
0.8
|
|
Change in fair market
value of equity securities
|
(2.5)
|
|
|
0.9
|
|
Gain on consolidation
of Treasure Coast
|
2.2
|
|
|
—
|
|
Payroll taxes on SARs
exercise
|
(1.5)
|
|
|
(0.2)
|
|
Income from
continuing operations before income tax expense
|
$
|
135.9
|
|
|
$
|
156.5
|
|
Encompass Health
Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to
Adjusted EBITDA
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In
Millions)
|
Net cash provided
by operating activities
|
$
|
29.3
|
|
|
$
|
159.9
|
|
Interest expense and
amortization of debt discounts and fees
|
43.2
|
|
|
37.2
|
|
Equity in net income
of nonconsolidated affiliates
|
0.8
|
|
|
2.5
|
|
Net income
attributable to noncontrolling interests in continuing
operations
|
(21.7)
|
|
|
(22.9)
|
|
Amortization of
debt-related items
|
(1.4)
|
|
|
(1.0)
|
|
Distributions from
nonconsolidated affiliates
|
(1.0)
|
|
|
(2.1)
|
|
Current portion of
income tax expense
|
25.7
|
|
|
28.2
|
|
Change in assets and
liabilities
|
154.4
|
|
|
36.5
|
|
Cash used in
operating activities of discontinued operations
|
0.1
|
|
|
3.0
|
|
Transaction
costs
|
—
|
|
|
0.6
|
|
SARs mark-to-market
impact on noncontrolling interests
|
—
|
|
|
(0.8)
|
|
Payroll taxes on SARs
exercise
|
1.5
|
|
|
0.2
|
|
Change in fair market
value of equity securities
|
2.5
|
|
|
(0.9)
|
|
Other
|
(5.4)
|
|
|
2.5
|
|
Consolidated
Adjusted EBITDA
|
$
|
228.0
|
|
|
$
|
242.9
|
|
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,
|
|
2020
|
|
2019
|
|
(In
Millions)
|
Net cash provided
by operating activities
|
$
|
29.3
|
|
|
$
|
159.9
|
|
Impact of
discontinued operations
|
0.1
|
|
|
3.0
|
|
Net cash provided by
operating activities of continuing operations
|
29.4
|
|
|
162.9
|
|
Capital expenditures
for maintenance
|
(37.8)
|
|
|
(29.6)
|
|
Distributions paid to
noncontrolling interests of consolidated affiliates
|
(19.1)
|
|
|
(19.5)
|
|
Items
non-indicative of ongoing operations:
|
|
|
|
Transaction costs and
related assumed liabilities
|
—
|
|
|
0.6
|
|
Cash paid for SARs
exercise (inclusive of payroll taxes)
|
102.1
|
|
|
13.4
|
|
Adjusted free cash
flow
|
$
|
74.6
|
|
|
$
|
127.8
|
|
For the three months ended March 31, 2020, net cash used in
investing activities was $83.0
million and primarily resulted from capital expenditures.
Net cash provided by financing activities during the three months
ended March 31, 2020 was $71.1
million and primarily resulted from net borrowings on the
revolving credit facility offset by the settlement of the final put
and exercise of the Home Health Holdings rollover shares and SARs,
cash dividends paid on common stock, and distributions paid to
noncontrolling interests of consolidated affiliates.
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.
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 nature of the COVID-19 pandemic and its
impact on Encompass Health's business and financial assumptions,
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, 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 continued
spread of COVID-19, including the speed, depth, geographic reach
and duration of the spread, which could decrease our patient
volumes and revenues and lead to staffing and supply shortages and
associated cost increases; actions to be taken by the Company in
response to the pandemic; the legal, regulatory and administrative
developments that occur at the federal, state and local levels; the
Company's infectious disease prevention and control efforts; the
demand for the Company's services, including based on any downturns
in the economy, consumer confidence, or the capital markets and
unemployment among family members; 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 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' 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 for home health, the new patient assessment
measures, referred to as "Section GG functional measures," for
inpatient rehabilitation, and other payment system reforms) 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 the
pandemic, 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, 2019 and Form 10-Q for the quarter ended
March 31, 2020, 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.