PR Newswire
BIRMINGHAM, Ala., Aug. 1, 2023
Increases full-year guidance
BIRMINGHAM, Ala., Aug. 1, 2023 /PRNewswire/ -- Encompass Health Corporation (NYSE: EHC), the largest owner and operator of inpatient rehabilitation hospitals in the United States, today reported its results of operations for the second quarter ended June 30, 2023.
Summary results
Growth | |||||||
Q2 2023 | Q2 2022 | Dollars | Percent | ||||
(In Millions, Except Per Share Data) | |||||||
Net operating revenue | $ 1,187.1 | $ 1,062.5 | $ 124.6 | 11.7 % | |||
Income from continuing operations attributable to Encompass Health per diluted share | 0.91 | 0.38 | 0.53 | 139.5 % | |||
Adjusted earnings per share | 0.95 | 0.63 | 0.32 | 50.8 % | |||
Cash flows provided by operating activities | 206.7 | 244.6 | (37.9) | (15.5) % | |||
Adjusted EBITDA | 249.6 | 196.4 | 53.2 | 27.1 % | |||
Adjusted free cash flow | 124.2 | 144.3 | (20.1) | (13.9) % | |||
(Actual Amounts) | |||||||
Discharges | 57,011 | 51,902 | 9.8 % | ||||
Same-store discharge growth | 6.2 % | ||||||
Net patient revenue per discharge | $ 20,387 | $ 19,995 | 2.0 % | ||||
See attached supplemental information for calculations of non-GAAP measures and reconciliations to their most comparable GAAP measure.
"We are very pleased with our second quarter performance," said President and Chief Executive Officer of Encompass Health Mark Tarr. "Strong discharge growth of 9.8% combined with year-over-year improvement in labor costs to drive Adjusted EBITDA growth of 27.1%. Our value proposition and operating strategy continue to be validated and we remain highly optimistic about the long-term prospects of our business. We are increasing our 2023 guidance to reflect our strong first half results and updated expectations for the balance of the year."
- Revenue growth of 11.7% resulted primarily from increased volumes. Total discharge growth for the second quarter of 2023 was 9.8% including same-store growth of 6.2%. Net revenue per discharge grew 2.0%, inclusive of a 30 basis point decline in revenue reserves related to bad debt as a percent of revenue.
- Cash flows provided by operating activities decreased 15.5% over the prior year to $206.7 million, due primarily to an increase in cash tax payments.
- The 27.1% increase in Adjusted EBITDA primarily resulted from increased revenue and a decrease in contract labor expense and sign-on and shift bonuses.
2023 Guidance
The Company increased its full-year guidance as follows:
Full-Year 2023 Guidance | |||
Previous Guidance | Updated Guidance | ||
(In Millions, Except Per Share Data) | |||
Net operating revenue | $4,700 to $4,770 | $4,750 to $4,810 | |
Adjusted EBITDA | $870 to $910 | $920 to $950 | |
Adjusted earnings per share from continuing operations attributable to Encompass Health | $2.94 to $3.23 | $3.31 to $3.53 | |
For considerations regarding the Company's 2023 guidance, see the supplemental information posted on the Company's website at http://investor.encompasshealth.com. See also the "Other information" section below for an explanation of why the Company does not provide guidance for comparable GAAP measures for Adjusted EBITDA and adjusted earnings per share.
Earnings conference call and webcast
The Company will host an investor conference call at 10:00 a.m. Eastern Time on Wednesday, August 2, 2023 to discuss its results for the second quarter of 2023. For reference during the call, the Company will post certain supplemental information at http://investor.encompasshealth.com.
The conference call may be accessed by dialing 800 267-6316 and giving the conference ID EHCQ223. International callers should dial 203 518-9765 and give the same conference ID. Please call approximately ten minutes before the start of the call to ensure you are connected. The conference call will also be webcast live and will be available for on-line replay at http://investor.encompasshealth.com by clicking on an available link.
About Encompass Health
Encompass Health (NYSE: EHC) is the largest owner and operator of inpatient rehabilitation hospitals in the United States. With a national footprint that includes 158 hospitals in 37 states and Puerto Rico, the Company provides high-quality, compassionate rehabilitative care for patients recovering from a major injury or illness, using advanced technology and innovative treatments to maximize recovery. Encompass Health is ranked as one of Fortune's 100 Best Companies to Work For. For more information, visit encompasshealth.com, or follow us on our newsroom, Twitter, Instagram and Facebook.
Other information
The information in this press release is summarized and should be read in conjunction with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the "June 2023 Form 10-Q"), when filed, as well as the Company's Current Report on Form 8-K filed on August 1, 2023 (the "Q2 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 August 2, 2023 earnings call.
The financial data contained in the press release and supplemental information include non-GAAP financial measures, including the Company's adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow. Reconciliations to their most comparable GAAP measure, except with regard to non-GAAP guidance, are included below or in the Q2 Earnings Form 8-K. Readers are encouraged to review the "Note Regarding Presentation of Non-GAAP Financial Measures" included in the Q2 Earnings Form 8-K which provides further explanation and disclosure regarding the Company's use of these non-GAAP financial measures.
Excluding net operating revenues, the Company does not provide guidance on a GAAP basis because it is unable to predict, with reasonable certainty, the future impact of items that are deemed to be outside the control of the Company or otherwise not indicative of its ongoing operating performance. Such items include government, class action, and related settlements; professional fees—accounting, tax, and legal; mark-to-market adjustments for stock appreciation rights; gains or losses related to hedging instruments; loss on early extinguishment of debt; adjustments to its income tax provision (such as valuation allowance adjustments and settlements of income tax claims); items related to corporate and facility restructurings; and certain other items the Company believes to be not indicative of its ongoing operations. These items cannot be reasonably predicted and will depend on several factors, including industry and market conditions, and could be material to the Company's results computed in accordance with GAAP.
However, the following reasonably estimable GAAP measures for 2023 would be included in a reconciliation for Adjusted EBITDA if the other reconciling GAAP measures could be reasonably predicted:
- Interest expense and amortization of debt discounts and fees - estimate of $145 million to $155 million
- Amortization of debt-related items - approximately $10 million
The Q2 Earnings Form 8-K and, when filed, the June 2023 Form 10-Q can be found on the Company's website at http://investor.encompasshealth.com and the SEC's website at www.sec.gov.
Encompass Health Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) | |||||||
Three Months Ended | Six Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
(In Millions, Except Per Share Data) | |||||||
Net operating revenues | $ 1,187.1 | $ 1,062.5 | $ 2,347.5 | $ 2,121.8 | |||
Operating expenses: | |||||||
Salaries and benefits | 636.2 | 585.9 | 1,265.2 | 1,173.3 | |||
Other operating expenses | 172.7 | 169.3 | 350.6 | 328.3 | |||
Occupancy costs | 14.3 | 13.8 | 28.1 | 29.2 | |||
Supplies | 52.0 | 47.3 | 105.8 | 97.1 | |||
General and administrative expenses | 55.4 | 36.2 | 98.8 | 73.6 | |||
Depreciation and amortization | 72.6 | 60.5 | 136.5 | 118.2 | |||
Total operating expenses | 1,003.2 | 913.0 | 1,985.0 | 1,819.7 | |||
Loss on early extinguishment of debt | — | 1.1 | — | 1.4 | |||
Interest expense and amortization of debt discounts and fees | 36.3 | 60.4 | 72.7 | 100.0 | |||
Other (income) expense | (2.7) | 6.4 | (6.3) | 10.0 | |||
Equity in net income of nonconsolidated affiliates | (0.9) | (1.0) | (1.3) | (1.9) | |||
Income from continuing operations before income tax expense | 151.2 | 82.6 | 297.4 | 192.6 | |||
Provision for income tax expense | 32.8 | 22.8 | 64.7 | 46.4 | |||
Income from continuing operations | 118.4 | 59.8 | 232.7 | 146.2 | |||
(Loss) income from discontinued operations, net of tax | (1.2) | 11.5 | (2.2) | 35.2 | |||
Net and comprehensive income | 117.2 | 71.3 | 230.5 | 181.4 | |||
Less: Net income attributable to noncontrolling interests included in continuing operations | (25.8) | (21.9) | (51.4) | (43.9) | |||
Less: Net income attributable to noncontrolling interests included in discontinued operations | — | (0.7) | — | (1.3) | |||
Less: Net and comprehensive income attributable to noncontrolling interests | (25.8) | (22.6) | (51.4) | (45.2) | |||
Net and comprehensive income attributable to Encompass Health | $ 91.4 | $ 48.7 | $ 179.1 | $ 136.2 | |||
Weighted average common shares outstanding: | |||||||
Basic | 99.5 | 99.2 | 99.5 | 99.2 | |||
Diluted | 101.1 | 100.3 | 101.0 | 100.2 | |||
Earnings per common share: | |||||||
Basic earnings per share attributable to Encompass Health common shareholders: | |||||||
Continuing operations | $ 0.92 | $ 0.38 | $ 1.81 | $ 1.03 | |||
Discontinued operations | (0.01) | 0.11 | (0.02) | 0.34 | |||
Net income | $ 0.91 | $ 0.49 | $ 1.79 | $ 1.37 | |||
Diluted earnings per share attributable to Encompass Health common shareholders: | |||||||
Continuing operations | $ 0.91 | $ 0.38 | $ 1.79 | $ 1.02 | |||
Discontinued operations | (0.01) | 0.11 | (0.02) | 0.34 | |||
Net income | $ 0.90 | $ 0.49 | $ 1.77 | $ 1.36 | |||
Amounts attributable to Encompass Health common shareholders: | |||||||
Income from continuing operations | $ 92.6 | $ 37.9 | $ 181.3 | $ 102.3 | |||
(Loss) income from discontinued operations, net of tax | (1.2) | 10.8 | (2.2) | 33.9 | |||
Net income attributable to Encompass Health | $ 91.4 | $ 48.7 | $ 179.1 | $ 136.2 | |||
Encompass Health Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) | |||
June 30, | December 31, | ||
(In Millions) | |||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 117.5 | $ 21.8 | |
Restricted cash | 36.5 | 31.6 | |
Accounts receivable | 532.3 | 536.8 | |
Other current assets | 137.7 | 127.0 | |
Total current assets | 824.0 | 717.2 | |
Property and equipment, net | 3,062.2 | 2,939.2 | |
Operating lease right-of-use assets | 206.2 | 212.5 | |
Goodwill | 1,270.7 | 1,263.2 | |
Intangible assets, net | 278.1 | 282.3 | |
Other long-term assets | 219.7 | 222.1 | |
Total assets | $ 5,860.9 | $ 5,636.5 | |
Liabilities and Shareholders' Equity | |||
Current liabilities: | |||
Current portion of long-term debt | $ 22.8 | $ 25.2 | |
Current operating lease liabilities | 26.1 | 25.6 | |
Accounts payable | 155.8 | 132.9 | |
Accrued medical insurance | 34.1 | 25.0 | |
Accrued expenses and other current liabilities | 416.2 | 367.2 | |
Total current liabilities | 655.0 | 575.9 | |
Long-term debt, net of current portion | 2,697.6 | 2,741.8 | |
Long-term operating lease liabilities | 192.3 | 199.7 | |
Deferred income tax liabilities | 83.2 | 83.0 | |
Other long-term liabilities | 175.8 | 174.2 | |
3,803.9 | 3,774.6 | ||
Commitments and contingencies | |||
Redeemable noncontrolling interests | 39.3 | 35.6 | |
Shareholders' equity: | |||
Encompass Health shareholders' equity | 1,475.3 | 1,310.3 | |
Noncontrolling interests | 542.4 | 516.0 | |
Total shareholders' equity | 2,017.7 | 1,826.3 | |
Total liabilities and shareholders' equity | $ 5,860.9 | $ 5,636.5 | |
Encompass Health Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) | |||
Six Months Ended June 30, | |||
2023 | 2022 | ||
(In Millions) | |||
Cash flows from operating activities: | |||
Net income | $ 230.5 | $ 181.4 | |
Loss (income) from discontinued operations, net of tax | 2.2 | (35.2) | |
Adjustments to reconcile net income to net cash provided by operating activities— | |||
Depreciation and amortization | 136.5 | 118.2 | |
Stock-based compensation | 23.5 | 13.8 | |
Deferred tax expense (benefit) | 0.3 | (6.5) | |
Other, net | 3.1 | 22.5 | |
Change in assets and liabilities, net of acquisitions— | |||
Accounts receivable | 11.5 | 16.4 | |
Other assets | (8.4) | 4.9 | |
Accounts payable | 4.0 | 4.7 | |
Other liabilities | 34.3 | 67.4 | |
Net cash (used in) provided by operating activities of discontinued operations | (2.9) | 75.9 | |
Total adjustments | 201.9 | 317.3 | |
Net cash provided by operating activities | 434.6 | 463.5 | |
Cash flows from investing activities: | |||
Purchases of property and equipment | (213.8) | (225.6) | |
Other, net | (18.7) | (17.2) | |
Net cash used in investing activities of discontinued operations | — | (3.5) | |
Net cash used in investing activities | (232.5) | (246.3) | |
