Encompass Health reports results for third quarter 2021

·13 min read

Revises full-year guidance for 2021

BIRMINGHAM, Ala., Oct. 27, 2021 /PRNewswire/ -- Encompass Health Corporation (NYSE: EHC), a national leader in integrated healthcare, offering facility-based and home-based patient care through its network of inpatient rehabilitation hospitals and home health and hospice agencies, today reported its results of operations for the third quarter ended September 30, 2021.

(PRNewsfoto/Encompass Health Corporation)
(PRNewsfoto/Encompass Health Corporation)

"Our consolidated financial results for the third quarter were solid, with year-over-year growth in revenues and Adjusted EBITDA. Our inpatient rehabilitation business continued to experience strong revenue and Adjusted EBITDA growth in spite of labor challenges," said President and Chief Executive Officer of Encompass Health Mark Tarr. "Our home health and hospice business experienced COVID-related headwinds which limited volume growth and increased costs. We remain very confident in the long-term trends for each of our businesses and in our competitive position. Although we have seen improvement in operating trends during October, we are lowering our full-year 2021 guidance as a result of the current and we believe transient challenges."

Consolidated results






Growth


Q3 2021


Q3 2020


Dollars


Percent


(In Millions, Except Per Share Data)

Net operating revenues

$

1,284.8



$

1,173.9



$

110.9



9.4

%

Income from continuing operations attributable

to Encompass Health per diluted share

1.00



0.78



0.22



28.2

%

Adjusted earnings per share

1.03



0.78



0.25



32.1

%

Cash flows provided by operating activities

177.6



173.4



4.2



2.4

%

Adjusted EBITDA

245.6



230.2



15.4



6.7

%

Adjusted free cash flow

124.1



124.1





%














Nine Months Ended
September 30,






2021


2020





Cash flows provided by operating activities

$

592.0



$

425.0



$

167.0



39.3

%

Adjusted free cash flow

437.1



366.9



70.2



19.1

%

Revenue growth resulted from strong discharge growth and favorable pricing in our inpatient rehabilitation segment, partly offset by volume and cost headwinds in the home health and hospice business.

The increase in income from continuing operations attributable to Encompass Health per diluted share and adjusted earnings per share in 2021 primarily resulted from revenue growth.

The increase in year-to-date cash flows provided by operating activities and adjusted free cash flow primarily resulted from revenue growth and the lower maintenance capital expenditures in 2021, partly offset by higher cash taxes paid year-to-date in 2021.

See attached supplemental information for calculations of non-GAAP measures and reconciliations to their most comparable GAAP measure.

Inpatient rehabilitation segment results






Growth


Q3 2021


Q3 2020


Dollars


Percent

Net operating revenues:

(In Millions)

Inpatient

$

983.7



$

883.2



$

100.5



11.4

%

Outpatient and other

27.2



16.2



11.0



67.9

%

Total segment revenue

$

1,010.9



$

899.4



$

111.5



12.4

%










(Actual Amounts)

Discharges

49,983



45,962



4,021



8.7

%

Same-store discharge growth







6.7

%

Net patient revenue per discharge

$

19,681



$

19,216



$

465



2.4

%

Revenue reserves related to bad debt as a percent of revenue

2.0

%


1.4

%




60 basis
points










(In Millions)

Adjusted EBITDA

$

231.6



$

209.2



$

22.4



10.7

%

  • Revenue – Inpatient revenue growth resulted from increased volumes and pricing. Total discharge growth for the third quarter of 2021 was 8.7% with same-store growth of 6.7%. Revenue reserves related to bad debt as a percent of revenue increased 60 basis points primarily attributable to claims processing delays by managed care payors.

    Growth in net patient revenue per discharge of 2.4% primarily resulted from an increase in reimbursement rates and higher patient acuity.

    The increase in outpatient and other revenue included an increase of $11.3 million in provider tax revenues (offset by an increase of approximately $9.3 million in provider tax expenses included in other operating expenses).

  • Adjusted EBITDA – The 10.7% increase in Adjusted EBITDA in the third quarter of 2021 primarily resulted from revenue growth partially offset by higher expenses.

Home health and hospice segment results






Growth


Q3 2021


Q3 2020


Dollars


Percent

Net operating revenues:

(In Millions)

Home health revenue

$

221.1



$

223.3



$

(2.2)



(1.0)

%

Hospice revenue

52.8



51.2



1.6



3.1

%

Total segment revenue

$

273.9



$

274.5



$

(0.6)



(0.2)

%









Adjusted EBITDA

$

46.4



$

51.8



$

(5.4)



(10.4)

%









Home Health

Starts of care:

(Actual Amounts)

Episodic admissions

37,577



40,765



(3,188)



(7.8)

%

Same-store episodic admissions growth







(9.7)

%

Episodic recertifications

27,742



29,830



(2,088)



(7.0)

%

Total episodic starts of care

65,319



70,595



(5,276)



(7.5)

%









Total admissions

48,412



48,838



(426)



(0.9)

%

Same-store total admissions growth







(2.7)

%

Total recertifications

32,942



33,786



(844)



(2.5)

%

Total starts of care

81,354



82,624



(1,270)



(1.5)

%

Revenue per episode

$

2,916



$

2,910



$

6



0.2

%









Hospice

Admissions:








Same store

2,884



3,354



(470)



(14.0)

%

New store

378





378



11.3

%

Total admissions

3,262



3,354



(92)



(2.7)

%

  • Revenue – Total admissions were down 0.9% and same-store admissions were down 2.7%. The decline in admissions was attributable primarily to COVID-related challenges.

    Home health revenue per episode increased 0.2%, less than expected, due to the mix between early and late payment periods resulting from the decline of episodic admissions during the quarter.

  • Adjusted EBITDA - The 10.4% decrease in Adjusted EBITDA resulted primarily from COVID-related challenges that limited volume and increased expenses.

General and administrative expenses


Q3 2021


% of
Consolidated
Revenue


Q3 2020


% of
Consolidated
Revenue


(In Millions)

General and administrative expenses,
excluding stock-based compensation

$

32.4



2.5%


$

30.8



2.6%













General and administrative expenses decreased as a percent of consolidated revenue primarily due to the increased revenue base year-over-year.

General and administrative expenses in the above table exclude $4.6 million in costs associated with the strategic alternatives review of the Company's home health and hospice business for the third quarter of 2021.

2021 guidance

The Company revised its full-year guidance as follows:


Full-Year 2021 Guidance Ranges


Previous Guidance


Updated Guidance


(In Millions, Except Per Share Data)

Net operating revenues

$5,100 to $5,250


$5,080 to $5,130

Adjusted EBITDA

$1,050 to $1,070


$1,025 to $1,045

Adjusted earnings per share from continuing operations attributable to Encompass Health

$4.32 to $4.47


$4.23 to $4.38

The Company's 2021 guidance assumes the continuation of the current structure of the business for 2021.

For additional considerations regarding the Company's 2021 guidance ranges, 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.

Update on Strategic Alternatives Review for Home Health and Hospice Business

The Company expects to effect the partial or full separation of its home health and hospice business into an independent public company via a carve-out IPO, spin-off, or split-off. The Company is targeting such a transaction in the first half of 2022 and expects to announce a more precise timing and the form of the separation transaction in connection with its fourth quarter earnings release. While there can be no assurance that a transaction of this nature will be consummated, the Company has made significant progress on the various tasks necessary to complete a separation transaction and will further its state of readiness over the balance of this year.

The Company has previously indicated that it believes that a full or partial separation of the home health and hospice business will enhance the long-term success and value of the business. The Company has thoroughly evaluated a broad array of public and private transaction alternatives and believes that effecting the separation via the formation of an independent public company is superior to the other alternatives considered. Among other considerations, this belief is based on the anticipated strategic focus, future growth and value creating opportunities, execution risks, and tax efficiency resulting from such a transaction.

As the Company has previously reported, many of the key preparatory actions for a separation have been completed, including but not limited to, audited carve-out financial statements for the home health and hospice business, a confidential submission of a draft registration statement on Form S-1 with the United States Securities and Exchange Commission and certain required regulatory filings.

This press release does not constitute an offer to sell or the solicitation of an offer to buy securities, and shall not constitute an offer, solicitation, or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of that jurisdiction.

Earnings conference call and webcast

The Company will host an investor conference call at 10:00 a.m. Eastern Time on Thursday, October 28, 2021 to discuss its results for the third quarter of 2021. 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 800 347-7407 and giving the pass code EHCQ321. International callers should dial 203 518-9704 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 145 hospitals and 249 home health locations and 95 hospice locations in 42 states and Puerto Rico, the Company provides high-quality, cost-effective integrated healthcare. 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 September 30, 2021 (the "September 2021 Form 10-Q"), when filed, as well as the Company's Current Report on Form 8-K filed on October 27, 2021 (the "Q3 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 October 28, 2021 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 Q3 Earnings Form 8-K. Readers are encouraged to review the "Note Regarding Presentation of Non-GAAP Financial Measures" included in the Q3 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 2021 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 $160 million to $170 million

  • Amortization of debt-related items - approximately $5 million

The Q3 Earnings Form 8-K and, when filed, the September 2021 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 Balance Sheets

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2021


2020


2021


2020


(In Millions, Except Per Share Data)

Net operating revenues

$

1,284.8



$

1,173.9



$

3,802.9



$

3,430.0


Operating expenses:








Salaries and benefits

730.1



664.9



2,125.5



1,995.9


Other operating expenses

173.4



163.4



508.4



471.3


Occupancy costs

19.8



20.3



60.2



60.8


Supplies

53.2



52.5



155.1



148.8


General and administrative expenses

43.9



39.1



136.7



117.7


Depreciation and amortization

64.9



61.2



190.8



180.7


Government, class action, and related settlements







2.8


Total operating expenses

1,085.3



1,001.4



3,176.7



2,978.0


Loss on early extinguishment of debt





1.0




Interest expense and amortization of debt discounts and fees

39.9



49.0



124.5



138.0


Other income

(0.4)



(2.5)



(6.4)



(6.4)


Equity in net income of nonconsolidated affiliates

(0.9)



(1.0)



(2.9)



(2.5)


Income from continuing operations before income tax expense

160.9



127.0



510.0



322.9


Provision for income tax expense

34.1



26.9



108.1



65.8


Income from continuing operations

126.8



100.1



401.9



257.1


Loss from discontinued operations, net of tax

(0.1)





(0.4)




Net and comprehensive income

126.7



100.1



401.5



257.1


Less: Net and comprehensive income attributable to noncontrolling interests

(26.7)



(22.4)



(80.9)



(58.9)


Net and comprehensive income attributable to Encompass Health

$

100.0



$

77.7



$

320.6



$

198.2










Weighted average common shares outstanding:








Basic

99.0



98.7



99.0



98.5


Diluted

100.2



99.9



100.1



99.7


Earnings per common share:








Basic earnings per share attributable to Encompass Health common shareholders:








Continuing operations

$

1.01



$

0.78



$

3.22



$

2.01


Discontinued operations








Net income

$

1.01



$

0.78



$

3.22



$

2.01


Diluted earnings per share attributable to Encompass Health common shareholders:








Continuing operations

$

1.00



$

0.78



$

3.20



$

1.99


Discontinued operations








Net income

$

1.00



$

0.78



$

3.20



$

1.99






...

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting