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Encompass Health reports results for fourth quarter 2021 and issues full-year 2022 guidance

·12 min read

BIRMINGHAM, Ala., Feb. 1, 2022 /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 fourth quarter and full year ended December 31, 2021.

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

"We delivered solid financial results in 2021, including double-digit growth in consolidated revenue and Adjusted EBITDA in spite of the challenges related to the pandemic," said President and Chief Executive Officer of Encompass Health Mark Tarr. "Our hospital and home care teams have continued to provide high quality, compassionate care to patients in need of our services. We remain confident in the long-term prospects for both of our businesses."

Consolidated results






Growth


Q4 2021


Q4 2020


Dollars


Percent


(In Millions, Except per Share Data)

Net operating revenues

$ 1,318.7


$ 1,214.4


$ 104.3


8.6 %

Income from continuing operations attributable to Encompass Health per diluted share

0.91


0.86


0.05


5.8 %

Adjusted earnings per share

0.97


0.93


0.04


4.3 %

Cash flows provided by operating activities

123.8


279.7


(155.9)


(55.7) %

Adjusted EBITDA

252.7


239.9


12.8


5.3 %

Adjusted free cash flow

61.7


213.0


(151.3)


(71.0) %


Year Ended December 31,






2021


2020





Cash flows provided by operating activities

$ 715.8


$ 704.7


11.1


1.6 %

Adjusted free cash flow

498.8


579.9


(81.1)


(14.0) %

Revenue growth in the fourth quarter resulted from strong discharge growth and favorable pricing in our inpatient rehabilitation segment.

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.

Cash flows provided by operating activities grew 1.6% in 2021. Adjusted free cash flow decreased 14.0% as a result of increased working capital and cash tax payments.

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

Inpatient rehabilitation segment results






Growth


Q4 2021


Q4 2020


Dollars


Percent

Net operating revenues:

(In Millions)

Inpatient

$ 1,015.2


$ 914.9


$ 100.3


11.0 %

Outpatient and other

27.4


18.2


9.2


50.5 %

Total segment revenue

$ 1,042.6


$ 933.1


$ 109.5


11.7 %










(Actual Amounts)

Discharges

50,977


46,503


4,474


9.6 %

Same-store discharge growth







6.0 %

Net patient revenue per discharge

$ 19,915


$ 19,674


$ 241


1.2 %

Revenue reserves related to bad debt as a percent of revenue

2.3 %


2.2 %




10 basis points










(In Millions)

Adjusted EBITDA

$ 236.3


$ 218.0


$ 18.3


8.4 %

  • Revenue – Inpatient revenue growth resulted from increased volumes and pricing. Total discharge growth for the fourth quarter of 2021 was 9.6% with same-store growth of 6.0%. Revenue reserves related to bad debt as a percent of revenue increased 10 basis points, primarily attributable to a shift in payor mix.

    Growth in net patient revenue per discharge of 1.2% primarily resulted from an increase in reimbursement rates, partially offset by payor mix (faster growth in Managed Care and Medicare Advantage).

    The increase in outpatient and other revenue included an increase of $9.7 million in provider tax revenues (offset by an increase of approximately $4.7 million in provider tax expense included in other operating expenses).

  • Adjusted EBITDA – The 8.4% increase in Adjusted EBITDA in the fourth quarter of 2021 primarily resulted from revenue growth. Higher compensation costs were partially offset by improved operating leverage in hospital operating expenses.

Home health and hospice segment results






Growth


Q4 2021


Q4 2020


Dollars


Percent

Net operating revenues:

(In Millions)

Home health

$ 224.0


$ 227.7


$ (3.7)


(1.6) %

Hospice

52.1


53.6


(1.5)


(2.8) %

Total segment revenue

$ 276.1


$ 281.3


$ (5.2)


(1.8) %









Adjusted EBITDA

$ 52.6


$ 55.5


$ (2.9)


(5.2) %









Home Health

Starts of care:

(Actual Amounts)

Total admissions

50,817


48,533


2,284


4.7 %

Same-store total admissions growth







2.4 %

Total recertifications

32,621


33,497


(876)


(2.6) %

Total starts of care

83,438


82,030


1,408


1.7 %









Episodic admissions

37,908


40,830


(2,922)


(7.2) %

Same-store episodic admissions growth







(9.5) %

Episodic recertifications

27,273


30,064


(2,791)


(9.3) %

Total episodic starts of care

65,181


70,894


(5,713)


(8.1) %









Revenue per episode

$ 3,010


$ 2,883


$ 127


4.4 %









Hospice

Admissions:








Same store

2,861


3,348


(487)


(14.5) %

New store

362



362


10.8 %

Total admissions

3,223


3,348


(125)


(3.7) %

  • Revenue – Home health total admissions increased 4.7% and same-store total admissions increased 2.4%.

    Episodic admissions declined 7.2% in the quarter. Approximately 50% of the decline related to the conversion of admissions to non-episodic under a large managed care contract initiated in February 2021.

    Home health revenue per episode increased 4.4%, driven by an increase in Medicare reimbursement and patient mix.

  • Adjusted EBITDA - The 5.2% decrease in Adjusted EBITDA resulted primarily from higher costs of services related to industry-wide staffing challenges.

General and administrative expenses


Q4 2021


% of
Consolidated
Revenue


Q4 2020


% of
Consolidated
Revenue


(In Millions)

General and administrative expenses, excluding stock-based compensation

$ 36.2


2.7%


$ 33.6


2.8%

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 $13.3 million in costs associated with the strategic alternatives review of the Company's home health and hospice business for the fourth quarter of 2021.

Full-year consolidated results


Full-Year


Growth


2021


2020


Dollars


Percent


(in millions, except per share data)

Net operating revenues

$ 5,121.6


$ 4,644.4


$ 477.2


10.3 %

Income from continuing operations attributable to Encompass Health per diluted share

4.11


2.85


1.26


44.2 %

Adjusted earnings per share

4.23


2.89


1.34


46.4 %

Adjusted EBITDA

1,028.0


860.3


167.7


19.5 %

See the attached supplemental information for additional details regarding these calculations.

Announced spin off of the home health and hospice business

On January 19, 2022, the Company announced its intention to spin off its home health and hospice business to form an independent, publicly traded company (the "HH&H Business") and to rebrand the HH&H Business as Enhabit Home Health & Hospice. The spin-off, which is expected to be tax-free to Encompass Health's shareholders, will result in Encompass Health shareholders owning stock in both companies. The Company intends to consummate the spin-off in the first half of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, regulatory approvals and receipt of a favorable IRS private letter ruling. Additional information regarding the spin-off is provided in the supplemental slides accompanying this release.

2022 guidance

The Company provided the following guidance for full-year 2022.


2022 Guidance Ranges


(In Millions, Except Per Share Data)

Net operating revenues

$5,380 to $5,500

Adjusted EBITDA

$1,015 to $1,065

Adjusted earnings per share from continuing operations attributable to Encompass Health

$3.83 to $4.19

The Company's 2022 guidance assumes the continuation of the current structure of the business for 2022. Guidance is not inclusive of any costs incurred in 2022 related to the preparations for the planned spin-off of Enhabit Home Health & Hospice including rebranding, professional fees, or personnel additions specifically required for an independent public company.

For additional considerations regarding the Company's 2022 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.

Earnings conference call and webcast

The Company will host an investor conference call at 10:00 a.m. Eastern Time on Wednesday, February 2, 2022 to discuss its results for the fourth 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 866 342-8591 and giving the pass code EHCQ421. International callers should dial 203 518-9713 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 251 home health locations and 96 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 Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"), when filed, as well as the Company's Current Report on Form 8-K filed on February 1, 2022 (the "Q4 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 February 2, 2022 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 Q4 Earnings Form 8-K. Readers are encouraged to review the "Note Regarding Presentation of Non-GAAP Financial Measures" included in the Q4 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 2022 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 $10 million

The Q4 Earnings Form 8-K and, when filed, the 2021 Form 10-K 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)



For the Three
Months Ended
December 31,


For the Year Ended
December 31,


2021


2020


2021


2020


(In Millions)

Net operating revenues

$ 1,318.7


$ 1,214.4


$ 5,121.6


$ 4,644.4

Operating expenses:








Salaries and benefits

761.0


686.1


2,886.5


2,682.0

Other operating expenses

176.8


163.1


685.2


634.4

Occupancy costs

20.0


20.4


80.2


81.2

Supplies

54.2


51.7


209.3


200.5

General and administrative expenses

60.6


37.8


197.3


155.5

Depreciation and amortization

65.8


62.3


256.6


243.0

Government, class action, and related settlements




2.8

Total operating expenses

1,138.4


1,021.4


4,315.1


3,999.4

Loss on early extinguishment of debt


2.3


1.0


2.3

Interest expense and amortization of debt discounts and fees

40.1


46.2


164.6


184.2

Other income

(5.9)


(4.2)


(12.3)


(10.6)

Equity in net income of nonconsolidated affiliates

(1.1)


(1.0)


(4.0)


(3.5)

Income from continuing operations before income tax expense

147.2


149.7


657.2


472.6

Provision for income tax expense

31.5


38.0


139.6


103.8

Income from continuing operations

115.7


111.7


517.6


368.8

Loss from discontinued operations, net of tax



(0.4)


Net and comprehensive income

115.7


111.7


517.2


368.8

Less: Net and comprehensive income attributable to noncontrolling interests

(24.1)


(25.7)


(105.0)


(84.6)

Net and comprehensive income attributable to Encompass Health

$ 91.6


$ 86.0


$ 412.2


$ 284.2









Weighted average common shares outstanding:








Basic

99.0


98.7


99.0


98.6

Diluted

100.2


100.1


100.2


99.8

Earnings per common share:








Basic earnings per share attributable to Encompass Health common shareholders:








Continuing operations

$ 0.92


$ 0.87


$ 4.15


$ 2.87

Discontinued operations




Net income

$ 0.92


$ 0.87


$ 4.15


$ 2.87

Diluted earnings per share attributable to Encompass Health common shareholders:








Continuing operations

$ 0.91


$ 0.86


$ 4.11


$ 2.85

Discontinued operations




Net income

$ 0.91


$ 0.86


$ 4.11


...