BIRMINGHAM, Ala., Oct. 29, 2018 /PRNewswire/ — Encompass Health Corp. (NYSE: EHC), a national leader in post-acute care, 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 third quarter ended September 30, 2018.

"The third quarter was another strong quarter for Encompass Health," said President and Chief Executive Officer of Encompass Health Mark Tarr. "In addition to solid operating results, we continued to provide enhanced, coordinated post-acute care to patients, with our clinical collaboration rate increasing to 34.3%. We also continued to invest in growth opportunities in both business segments. Thus far in 2018, we've opened four new inpatient rehabilitation hospitals and added 16 net home health locations and 20 new hospice locations to our portfolio."

Consolidated results

         

Growth

 

Q3 2018

 

Q3 2017

 

Dollars

 

Percent

 

(In Millions, Except per Share Data)

Net operating revenues

$

1,067.6

   

$

981.6

   

$

86.0

   

8.8

%

Income from continuing operations
   attributable to Encompass Health per diluted
   share

0.89

   

0.67

   

0.22

   

32.8

%

Adjusted earnings per share

0.91

   

0.66

   

0.25

   

37.9

%

Cash flows provided by operating activities

198.5

   

174.9

   

23.6

   

13.5

%

Adjusted EBITDA

224.3

   

204.6

   

19.7

   

9.6

%

Adjusted free cash flow

143.4

   

123.2

   

20.2

   

16.4

%

           
 

Nine Months Ended
September 30,

       
 

2018

 

2017

       

Cash flows provided by operating activities

$

584.0

   

$

506.9

   

$

77.1

   

15.2

%

Adjusted free cash flow

424.8

   

377.2

   

47.6

   

12.6

%

 

Revenue growth was driven by volume and pricing growth in the inpatient rehabilitation segment and volume growth in the home health and hospice segment. See the "Other Information" section of this release for discussion of the Company's adoption of a new accounting standard for revenue recognition.

The increase in income from continuing operations attributable to Encompass Health per diluted share and adjusted earnings per share resulted primarily from increased revenue, a lower effective tax rate resulting from income tax reform, and property insurance recoveries related to the 2017 hurricanes.

Growth in cash flows provided by operating activities and adjusted free cash flow resulted primarily from revenue growth and favorable working capital changes.

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

Inpatient rehabilitation segment results

         

Growth

 

Q3 2018

 

Q3 2017

 

Dollars

 

Percent

Net operating revenues:

(In Millions)

Inpatient

$

798.4

   

$

758.2

   

$

40.2

   

5.3

%

Outpatient and other

27.2

   

25.3

   

1.9

   

7.5

%

Total segment revenue

$

825.6

   

$

783.5

   

$

42.1

   

5.4

%

               
 

(Actual Amounts)

Discharges

44,230

   

42,948

   

1,282

   

3.0

%

Same-store discharge growth

           

2.0

%

Net patient revenue per discharge

$

18,051

   

$

17,654

   

$

397

   

2.2

%

               
 

(In Millions)

Adjusted EBITDA

$

212.9

   

$

200.3

   

$

12.6

   

6.3

%

 

  • 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 venture in Murrells Inlet, South Carolina (September 2018), as well as wholly owned hospitals in Pearland, Texas (October 2017), Shelby County, Alabama (April 2018), and Bluffton, South Carolina (June 2018 – formerly referred to as Hilton Head, South Carolina). Growth in net patient revenue per discharge primarily resulted from an increase in reimbursement rates from all payors and patient mix within non-Medicare payors.

    Other revenue in the third quarter of 2018 included $4.5 million of business interruption insurance recoveries related to the 2017 hurricanes.
     

  • Adjusted EBITDA – The increase in Adjusted EBITDA primarily resulted from revenue growth. Expense ratios in the third quarter of 2018 were impacted by the inclusion of $4.5 million of business interruption insurance recoveries related to the 2017 hurricanes. Expense ratios in the third quarter of 2017 were impacted by the inclusion of $2.5 million of hurricane-related expenses. After removing the impact of the hurricane-related items in both years, salaries and benefits as a percent of revenue were essentially flat as labor management and productivity gains were offset by group medical cost increases and the ramping up of new stores. Other operating expenses as a percent of net operating revenues increased primarily due to increases in contract services.

Home health and hospice segment results

         

Growth

 

Q3 2018

 

Q3 2017

 

Dollars

 

Percent

Net operating revenues:

(In Millions)

Home health

$

209.2

   

$

180.3

   

$

28.9

   

16.0

%

Hospice

32.8

   

17.8

   

15.0

   

84.3

%

Total segment revenue

$

242.0

   

$

198.1

   

$

43.9

   

22.2

%

               

Home Health Metrics

(Actual Amounts)

Admissions

34,364

   

31,471

   

2,893

   

9.2

%

Same-store admissions growth

           

3.8

%

Episodes

61,765

   

53,757

   

8,008

   

14.9

%

Same-store episode growth

           

6.9

%

Revenue per episode

$

2,995

   

$

3,008

   

$

(13)

   

(0.4)

%

               
 

(In Millions)

Adjusted EBITDA

$

43.2

   

$

34.8

   

$

8.4

   

24.1

%

 

  • Revenue – Revenue growth was driven by volume growth, including the impact of the Camellia Healthcare acquisition which closed on May 1, 2018. Revenue per episode decreased 0.4% as the impact of Medicare reimbursement rate cuts was partially offset by changes in patient mix.

    Hospice revenue increased primarily due to acquisitions and same-store admissions growth of 21.1%.
     

  • Adjusted EBITDA – Growth in Adjusted EBITDA primarily resulted from revenue growth and operating leverage of support and overhead costs.

Corporate general and administrative expenses

 

Q3 2018

 

% of
Consolidated
Revenue

 

Q3 2017

 

% of
Consolidated
Revenue

 

(In Millions)

General and administrative expenses,
   excluding stock-based compensation

$

31.8

   

3.0%

 

$

30.5

   

3.1%

                       

 

  • General and administrative expenses decreased as a percent of consolidated revenue primarily due to operating leverage resulting from revenue growth.

    During the third quarter of 2018, the Company invested $1.9 million in its rebranding and name change, all of which was included in general and administrative expenses. During the third quarter of 2017, the Company invested $1.5 million in its rebranding and name change.

"Growth in Adjusted EBITDA and favorable working capital flows have driven a 12.6% increase in adjusted free cash flow for the first nine months of 2018," said Executive Vice President and Chief Financial Officer of Encompass Health Doug Coltharp. "Our strong and consistent free cash flow generation, together with the level and structure of our debt capital, positions us with great flexibility to capitalize on growth opportunities."

2018 guidance

Based on its results for the first nine months of 2018 and its current expectations for the remainder of 2018, the Company is increasing its full-year guidance ranges for 2018.

 

Full-Year 2018 Guidance Ranges

 

Previous Guidance

 

Updated Guidance

 

(In Millions, Except Per Share Data)

Net operating revenues

$4,200 to $4,275

 

$4,250 to $4,300

Adjusted EBITDA

$865 to $880

 

$880 to $890

Adjusted earnings per share from continuing
   operations attributable to Encompass Health

$3.45 to $3.58

 

$3.55 to $3.63

 

For additional considerations regarding the Company's 2018 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 9:00 a.m. Eastern Time on Tuesday, October 30, 2018 to discuss its results for the third quarter of 2018. 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 8884687. 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 post-acute care, 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 spans 130 hospitals and 273 home health & hospice locations in 36 states and Puerto Rico, the Company is committed to delivering high-quality, cost-effective care across the post-acute continuum. Driven by a set of shared values, Encompass Health is the result of the union between HealthSouth Corporation and Encompass Home Health & Hospice, and 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 September 30, 2018 (the "September 2018 Form 10‑Q"), when filed, as well as the Company's Current Report on Form 8-K filed on October 29, 2018 (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 30, 2018 earnings call.

During the first quarter of 2018, the Company adopted a new accounting standard (ASC 606 – Revenue from Contracts with Customers) which clarifies the standards for recognizing revenue. The impact to the Company's financial reporting was that amounts previously presented as provision for doubtful accounts became a component of net operating revenues. This had the effect of reducing net operating revenues but had no effect on Adjusted EBITDA and adjusted earnings per share. The Company retrospectively adopted the new standard during the first quarter of 2018, which means previously reported quarterly and full-year results for 2017 have been updated to reflect the requirements of the new standard. For additional information, see the supplemental information posted on the Company's website at http://investor.encompasshealth.com.

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 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 2018 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 $147 million to $157 million
  • Amortization of debt-related items – approximately $7 million

The Q3 Earnings Form 8-K and, when filed, the September 2018 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.

Media Contact
Casey Lassiter, 205 447-6410
casey.lassiter@encompasshealth.com

Investor Relations Contact
Crissy Carlisle, 205 970-5860
crissy.carlisle@encompasshealth.com

 

 

Encompass Health Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2018

 

2017

 

2018

 

2017

 

(In Millions, Except per Share Data)

Net operating revenues

$

1,067.6

   

$

981.6

   

$

3,181.3

   

$

2,905.1

 

Operating expenses:

             

Salaries and benefits

592.3

   

542.1

   

1,740.7

   

1,600.0

 

Other operating expenses

142.9

   

136.2

   

433.5

   

393.3

 

Occupancy costs

19.6

   

18.6

   

57.7

   

54.8

 

Supplies

38.6

   

36.5

   

117.8

   

110.6

 

General and administrative expenses

49.9

   

39.7

   

165.9

   

128.6

 

Depreciation and amortization

51.2

   

46.2

   

146.8

   

137.2

 

Total operating expenses

894.5

   

819.3

   

2,662.4

   

2,424.5

 

Loss on early extinguishment of debt

   

0.3

   

   

10.7

 

Interest expense and amortization of debt discounts and
   fees

37.3

   

36.8

   

110.6

   

118.5

 

Other income

(1.7)

   

(1.0)

   

(2.9)

   

(2.9)

 

Equity in net income of nonconsolidated affiliates

(2.1)

   

(2.1)

   

(6.4)

   

(6.2)

 

Income from continuing operations before income tax
   expense

139.6

   

128.3

   

417.6

   

360.5

 

Provision for income tax expense

30.2

   

43.1

   

89.5

   

111.4

 

Income from continuing operations

109.4

   

85.2

   

328.1

   

249.1

 

Loss from discontinued operations, net of tax

(0.1)

   

(0.1)

   

(0.4)

   

(0.2)

 

Net income

109.3

   

85.1

   

327.7

   

248.9

 

Less: Net income attributable to noncontrolling interests

(20.7)

   

(19.2)

   

(63.5)

   

(53.2)

 

Net income attributable to Encompass Health

$

88.6

   

$

65.9

   

$

264.2

   

$

195.7

 
               

Weighted average common shares outstanding:

             

Basic

98.0

   

97.8

   

97.9

   

92.3

 

Diluted

100.0

   

99.0

   

99.7

   

99.1

 
               

Earnings per common share:

             

Basic earnings per share attributable to Encompass
   Health common shareholders:

             

Continuing operations

$

0.90

   

$

0.67

   

$

2.69

   

$

2.11

 

Discontinued operations

   

   

   

 

Net income

$

0.90

   

$

0.67

   

$

2.69

   

$

2.11

 

Diluted earnings per share attributable to
   Encompass Health common shareholders:

             

Continuing operations

$

0.89

   

$

0.67

   

$

2.65

   

$

2.08

 

Discontinued operations

   

   

   

 

Net income

$

0.89

   

$

0.67

   

$

2.65

   

$

2.08

 
               

Cash dividends per common share

$

0.27

   

$

0.25

   

$

0.77

   

$

0.73

 
               

Amounts attributable to Encompass Health common
   shareholders:

             

Income from continuing operations

$

88.7

   

$

66.0

   

$

264.6

   

$

195.9

 

Loss from discontinued operations, net of tax

(0.1)

   

(0.1)

   

(0.4)

   

(0.2)

 

Net income attributable to Encompass Health

$

88.6

   

$

65.9

   

$

264.2

   

$

195.7

 
 
 

 

Encompass Health Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 
   

September 30,
 2018

 

December 31,
 2017

   

(In Millions)

Assets

       

Current assets:

       

Cash and cash equivalents

 

$

56.9

   

$

54.4

 

Restricted cash

 

62.1

   

62.4

 

Accounts receivable

 

458.0

   

472.1

 

Other current assets

 

61.0

   

113.3

 

Total current assets

 

638.0

   

702.2

 

Property and equipment, net

 

1,591.0

   

1,517.1

 

Goodwill

 

2,081.1

   

1,972.6

 

Intangible assets, net

 

443.2

   

403.1

 

Deferred income tax assets

 

82.6

   

63.6

 

Other long-term assets

 

296.0

   

235.1

 

Total assets

 

$

5,131.9

   

$

4,893.7

 

Liabilities and Shareholders' Equity

       

Current liabilities:

       

Current portion of long-term debt

 

$

37.1

   

$

32.3

 

Accounts payable

 

86.0

   

78.4

 

Accrued expenses and other current liabilities

 

486.5

   

406.8

 

Total current liabilities

 

609.6

   

517.5

 

Long-term debt, net of current portion

 

2,503.9

   

2,545.4

 

Other long-term liabilities

 

198.2

   

185.3

 
   

3,311.7

   

3,248.2

 

Commitments and contingencies

       

Redeemable noncontrolling interests

 

236.5

   

220.9

 

Shareholders' equity:

       

Encompass Health shareholders' equity

 

1,318.5

   

1,181.7

 

Noncontrolling interests

 

265.2

   

242.9

 

Total shareholders' equity

 

1,583.7

   

1,424.6

 

Total liabilities and shareholders' equity

 

$

5,131.9

   

$

4,893.7

 
 
 

 

Encompass Health Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 
   

Nine Months Ended September 30,

   

2018

 

2017

   

(In Millions)

Cash flows from operating activities:

       

Net income

 

$

327.7

   

$

248.9

 

Loss from discontinued operations, net of tax

 

0.4

   

0.2

 

Adjustments to reconcile net income to net cash provided by
   operating activities—

       

Depreciation and amortization

 

146.8

   

137.2

 

Loss on early extinguishment of debt

 

   

10.7

 

Equity in net income of nonconsolidated affiliates

 

(6.4)

   

(6.2)

 

Stock-based compensation

 

65.6

   

37.9

 

Deferred tax (benefit) expense

 

(8.0)

   

51.3

 

Other, net

 

11.5

   

16.4

 

Change in assets and liabilities, net of acquisitions—

       

Accounts receivable

 

12.3

   

(11.5)

 

Other assets

 

15.3

   

(7.4)

 

Accounts payable

 

   

6.1

 

Accrued payroll

 

(6.7)

   

3.1

 

Accrued interest payable

 

8.2

   

7.3

 

Other liabilities

 

18.0

   

13.6

 

Net cash used in operating activities of discontinued operations

 

(0.7)

   

(0.7)

 

Total adjustments

 

255.9

   

257.8

 

Net cash provided by operating activities

 

584.0

   

506.9

 

Cash flows from investing activities:

       

Purchases of property and equipment

 

(171.5)

   

(155.7)

 

Additions to capitalized software costs

 

(13.2)

   

(14.6)

 

Acquisitions of businesses, net of cash acquired

 

(135.8)

   

(36.6)

 

Other, net

 

(5.8)

   

7.6

 

Net cash used in investing activities

 

(326.3)

   

(199.3)

 
         
 

 

Encompass Health Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

 

 

 

 

 
   

Nine Months Ended September 30,

   

2018

 

2017

   

(In Millions)

Cash flows from financing activities:

       

Principal payments on debt, including pre-payments

 

(16.1)

   

(125.4)

 

Borrowings on revolving credit facility

 

285.0

   

241.3

 

Payments on revolving credit facility

 

(315.0)

   

(255.3)

 

Repurchases of common stock, including fees and expenses

 

   

(38.1)

 

Dividends paid on common stock

 

(74.4)

   

(67.0)

 

Purchase of equity interests in consolidated affiliates

 

(65.1)

   

 

Proceeds from exercising stock warrants

 

   

26.6

 

Distributions paid to noncontrolling interests of consolidated
   affiliates

 

(56.5)

   

(38.3)

 

Taxes paid on behalf of employees for shares withheld

 

(8.3)

   

(19.8)

 

Other, net

 

(3.1)

   

5.4

 

Net cash used in financing activities

 

(253.5)

   

(270.6)

 

Increase in cash, cash equivalents, and restricted cash

 

4.2

   

37.0

 

Cash, cash equivalents, and restricted cash at beginning of period

 

116.8

   

101.4

 

Cash, cash equivalents, and restricted cash at end of period

 

$

121.0

   

$

138.4

 
         

Reconciliation of Cash, Cash Equivalents, and Restricted Cash

       

Cash and cash equivalents at beginning of period

 

$

54.4

   

$

40.5

 

Restricted cash at beginning of period

 

62.4

   

60.9

 

Cash, cash equivalents, and restricted cash at beginning of
   period

 

$

116.8

   

$

101.4

 
         

Cash and cash equivalents at end of period

 

$

56.9

   

$

67.6

 

Restricted cash at end of period

 

62.1

   

70.8

 

Restricted cash included in other long-term assets at end of
   period

 

2.0

   

 

Cash, cash equivalents, and restricted cash at end of period

 

$

121.0

   

$

138.4

 
         

Supplemental schedule of noncash financing activity:

       

Conversion of convertible debt

 

$

   

$

319.4

 
 
 

 

Encompass Health Corporation and Subsidiaries

Supplemental Information

Earnings Per Share

 

 

 

 

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2018

 

2017

 

2018

 

2017

 

(In Millions, Except Per Share Data)

Adjusted EBITDA

$

224.3

   

$

204.6

   

$

679.2

   

$

614.9

 

Depreciation and amortization

(51.2)

   

(46.2)

   

(146.8)

   

(137.2)

 

Interest expense and amortization of debt discounts
   and fees

(37.3)

   

(36.8)

   

(110.6)

   

(118.5)

 

Stock-based compensation expense

(18.1)

   

(9.2)

   

(65.6)

   

(37.9)

 

Noncash gain (loss) on disposal of assets

1.0

   

(3.0)

   

(2.2)

   

(3.3)

 
 

118.7

   

109.4

   

354.0

   

318.0

 

Certain items non-indicative of ongoing operating
   performance:

             

Loss on early extinguishment of debt

   

(0.3)

   

   

(10.7)

 

Transaction costs

   

   

(1.0)

   

 

SARs mark-to-market impact on noncontrolling
   interests

0.3

   

   

2.2

   

 

Change in fair market value of equity securities

(0.1)

   

   

(1.1)

   

 

Pre-tax income

118.9

   

109.1

   

354.1

   

307.3

 

Income tax expense

(30.2)

   

(43.1)

   

(89.5)

   

(111.4)

 

Income from continuing operations (1)

$

88.7

   

$

66.0

   

$

264.6

   

$

195.9

 
               

Basic shares

98.0

   

97.8

   

97.9

   

92.3

 

Diluted shares

100.0

   

99.0

   

99.7

   

99.1

 
               

Basic earnings per share (1)

$

0.90

   

$

0.67

   

$

2.69

   

$

2.11

 

Diluted earnings per share (1)

$

0.89

   

$

0.67

   

$

2.65

   

$

2.08

 
 

(1)       Income from continuing operations attributable to Encompass Health

 
 

 

Encompass Health Corporation and Subsidiaries

Supplemental Information

Adjusted Earnings Per Share

 

 

 

 

 
 

Q3

 

9 Months

 

2018

 

2017

 

2018

 

2017

               

Earnings per share, as reported

$

0.89

   

$

0.67

   

$

2.65

   

$

2.08

 

Adjustments, net of tax:

             

Mark-to-market adjustments for stock appreciation
   rights

0.03

   

(0.01)

   

0.18

   

0.08

 

Transaction costs

   

   

0.01

   

 

Change in fair market value of equity securities

   

   

0.01

   

 

Income tax adjustments

(0.01)

   

   

(0.01)

   

(0.10)

 

Adjusted earnings per share(1)

$

0.91

   

$

0.66

   

$

2.83

   

$

2.07

 
 

(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 September 30, 2018

     

Adjustments

   
 

As
Reported

 

Mark-to-Market Adjustment for Stock Compensation Expense

 

Income Tax Adjustments

 

Change in Fair Market Value of Equity Securities

 

As
Adjusted

 

(In Millions, Except Per Share Amounts)

Adjusted EBITDA(1)

$

224.3

   

$

   

$

   

$

   

$

224.3

 

Depreciation and amortization

(51.2)

   

   

   

   

(51.2)

 

Interest expense and amortization of debt discounts and fees

(37.3)

   

   

   

   

(37.3)

 

Stock-based compensation

(18.1)

   

4.2

   

   

   

(13.9)

 

Gain on disposal of assets

1.0

   

   

   

   

1.0

 

SARs mark-to-market impact on noncontrolling interests

0.3

   

(0.3)

   

   

   

 

Change in fair market value of equity securities

(0.1)

   

   

   

0.1

   

 

Income from continuing operations before income tax
   expense

118.9

   

3.9

   

   

0.1

   

122.9

 

Provision for income tax expense

(30.2)

   

(1.1)

   

(0.7)

   

   

(32.0)

 

Income from continuing operations attributable to
   Encompass Health

$

88.7

   

$

2.8

   

$

(0.7)

   

$

0.1

   

$

90.9

 

Add: Interest, amortization, and loss on extinguishment of
   convertible debt, net of tax

 

                 

 

Numerator for diluted earnings per share

$

88.7

               

$

90.9

 
                   

Diluted earnings per share from continuing operations(2)

$

0.89

   

$

0.03

   

$

(0.01)

   

$

   

$

0.91

 

Diluted shares used in calculation

100.0

                 
 

(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 September 30, 2017

     

Adjustments

   
 

As
Reported

 

Mark-to-Market Adjustment for Stock Appreciation Rights

 

Loss on Early Extinguishment of Debt

 

Income Tax Adjustments

 

As
Adjusted

 

(In Millions, Except Per Share Amounts)

Adjusted EBITDA(1)

$

204.6

   

$

   

$

   

$

   

$

204.6

 

Depreciation and amortization

(46.2)

   

   

   

   

(46.2)

 

Loss on early extinguishment of debt

(0.3)

   

   

0.3

   

   

 

Interest expense and amortization of debt discounts and fees

(36.8)

   

   

   

   

(36.8)

 

Stock-based compensation

(9.2)

   

(1.0)

   

   

   

(10.2)

 

Loss on disposal of assets

(3.0)

   

   

   

   

(3.0)

 

Income from continuing operations before income tax
   expense

109.1

   

(1.0)

   

0.3

   

   

108.4

 

Provision for income tax expense

(43.1)

   

0.4

   

(0.1)

   

(0.4)

   

(43.2)

 

Income from continuing operations attributable to
   Encompass Health

$

66.0

   

$

(0.6)

   

$

0.2

   

$

(0.4)

   

$

65.2

 

Add: Interest, amortization, and loss on extinguishment of
   convertible debt, net of tax

               

 

Numerator for diluted earnings per share

$

66.0

               

$

65.2

 

Diluted earnings per share from continuing operations, as
 reported(2)

$

0.67

   

$

(0.01)

   

$

   

$

   

$

0.66

 

Diluted shares used in calculation

99.0

                 
 

(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 Nine Months Ended September 30, 2018

     

Adjustments

   
 

As
Reported

 

Mark-to-Market Adjustment for Stock Compensation Expense

 

Income Tax Adjustments

 

Transaction Costs

 

Change in Fair Market Value of Equity Securities

 

As
Adjusted

 

(In Millions, Except Per Share Amounts)

Adjusted EBITDA(1)

$

679.2

   

$

   

$

   

$

   

$

   

$

679.2

 

Depreciation and amortization

(146.8)

   

   

   

   

   

(146.8)

 

Interest expense and amortization of debt discounts and
   fees

(110.6)

   

   

   

   

   

(110.6)

 

Stock-based compensation

(65.6)

   

26.6

   

   

   

   

(39.0)

 

Loss on disposal of assets

(2.2)

   

   

   

   

   

(2.2)

 

Transaction costs

(1.0)

   

   

   

1.0

   

   

 

SARs mark-to-market impact on noncontrolling interests

2.2

   

(2.2)

   

   

   

   

 

Change in fair market value of equity securities

(1.1)

   

   

   

   

1.1

   

 

Income from continuing operations before income
   tax expense

354.1

   

24.4

   

   

1.0

   

1.1

   

380.6

 

Provision for income tax expense

(89.5)

   

(6.8)

   

(1.4)

   

(0.3)

   

(0.3)

   

(98.3)

 

Income from continuing operations attributable to
   Encompass Health

$

264.6

   

$

17.6

   

$

(1.4)

   

$

0.7

   

$

0.8

   

$

282.3

 

Add: Interest, amortization, and loss on
   extinguishment of convertible debt, net of tax

                   

 

Numerator for diluted earnings per share

$

264.6

                   

$

282.3

 
                       

Diluted earnings per share from continuing
   operations, as reported(2)

$

2.65

   

$

0.18

   

$

(0.01)

   

$

0.01

   

$

0.01

   

$

2.83

 

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 Nine Months Ended September 30, 2017

     

Adjustments

   
 

As
Reported

 

Mark-to-Market Adjustment for Stock Compensation Expense

 

Loss on Early Extinguishment of Debt

 

Income Tax Adjustments

 

As
Adjusted

 

(In Millions, Except Per Share Amounts)

Adjusted EBITDA(1)

$

614.9

   

$

   

$

   

$

   

$

614.9

 

Depreciation and amortization

(137.2)

   

   

   

   

(137.2)

 

Loss on early extinguishment of debt

(10.7)

   

   

0.3

   

   

(10.4)

 

Interest expense and amortization of debt discounts and fees

(118.5)

   

   

   

   

(118.5)

 

Stock-based compensation

(37.9)

   

13.9

   

   

   

(24.0)

 

Loss on disposal of assets

(3.3)

   

   

   

   

(3.3)

 

Income from continuing operations before income tax
   expense

307.3

   

13.9

   

0.3

   

   

321.5

 

Provision for income tax expense

(111.4)

   

(5.6)

   

(0.1)

   

(10.4)

   

(127.5)

 

Income from continuing operations attributable to
   Encompass Health

$

195.9

   

$

8.3

   

$

0.2

   

$

(10.4)

   

$

194.0

 

Add: Interest, amortization, and loss on extinguishment of
   convertible debt, net of tax

10.8

               

10.8

 

Numerator for diluted earnings per share

$

206.7

               

$

204.8

 
                   

Diluted earnings per share from continuing operations(2)

$

2.08

   

$

0.08

   

$

   

$

(0.10)

   

$

2.07

 

Diluted shares used in calculation

99.1

                 
 

(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
September 30,

 

Nine Months Ended
September 30,

 
 

2018

 

2017

 

2018

 

2017

 
 

(In Millions)

Net income

$

109.3

   

$

85.1

   

$

327.7

   

$

248.9

   

Loss from discontinued operations, net of tax, attributable
   to Encompass Health

0.1

   

0.1

   

0.4

   

0.2

   

Net income attributable to noncontrolling interests

(20.7)

   

(19.2)

   

(63.5)

   

(53.2)

   

Provision for income tax expense

30.2

   

43.1

   

89.5

   

111.4

   

Interest expense and amortization of debt discounts and
   fees

37.3

   

36.8

   

110.6

   

118.5

   

Depreciation and amortization

51.2

   

46.2

   

146.8

   

137.2

   

Loss on early extinguishment of debt

   

0.3

   

   

10.7

   

Net noncash (gain) loss on disposal of assets

(1.0)

   

3.0

   

2.2

   

3.3

   

Stock-based compensation expense

18.1

   

9.2

   

65.6

   

37.9

   

Transaction costs

   

   

1.0

   

   

SARs mark-to-market impact on noncontrolling interests

(0.3)

   

   

(2.2)

   

   

Change in fair market value of equity securities

0.1

   

   

1.1

   

   

Adjusted EBITDA

$

224.3

   

$

204.6

   

$

679.2

   

$

614.9

   

 

 

Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

Year Ended
December 31,
2017

 

2018

 

2017

 

2018

 

2017

 
 

(In Millions)

Total segment Adjusted EBITDA

$

256.1

   

$

235.1

   

$

778.5

   

$

705.6

   

$

947.1

 

General and administrative expenses

(49.9)

   

(39.7)

   

(165.9)

   

(128.6)

   

(171.7)

 

Depreciation and amortization

(51.2)

   

(46.2)

   

(146.8)

   

(137.2)

   

(183.8)

 

Gain (loss) on disposal of assets

1.0

   

(3.0)

   

(2.2)

   

(3.3)

   

(4.6)

 

Loss on early extinguishment of debt

   

(0.3)

   

   

(10.7)

   

(10.7)

 

Interest expense and amortization of debt
   discounts and fees

(37.3)

   

(36.8)

   

(110.6)

   

(118.5)

   

(154.4)

 

Net income attributable to noncontrolling
   interests

20.7

   

19.2

   

63.5

   

53.2

   

79.1

 

SARs mark-to-market impact on
   noncontrolling interests

0.3

   

   

2.2

   

   

 

Change in fair market value of equity
   securities

(0.1)

   

   

(1.1)

   

   

 

Tax reform impact on noncontrolling
   interests

   

   

   

   

(4.6)

 

Income from continuing operations
    before income tax expense

$

139.6

   

$

128.3

   

$

417.6

   

$

360.5

   

$

496.4

 

 

 

 

Encompass Health Corporation and Subsidiaries

Supplemental Information

Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA

 

 

 

 

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

Year Ended
December 31,

 

2018

 

2017

 

2018

 

2017

 

2017

 

2016

 

(In Millions)

Net cash provided by operating
   activities

$

198.5

   

$

174.9

   

$

584.0

   

$

506.9

   

$

658.3

   

$

640.2

 

Professional fees—accounting, tax, and
   legal

   

   

   

   

   

1.9

 

Interest expense and amortization of
   debt discounts and fees

37.3

   

36.8

   

110.6

   

118.5

   

154.4

   

172.1

 

Equity in net income of
   nonconsolidated affiliates

2.1

   

2.1

   

6.4

   

6.2

   

8.0

   

9.8

 

Net income attributable to
   noncontrolling interests in continuing
   operations

(20.7)

   

(19.2)

   

(63.5)

   

(53.2)

   

(79.1)

   

(70.5)

 

Amortization of debt-related items

(1.0)

   

(1.0)

   

(3.0)

   

(7.7)

   

(8.7)

   

(13.8)

 

Distributions from nonconsolidated
   affiliates

(2.0)

   

(2.2)

   

(5.5)

   

(6.6)

   

(8.6)

   

(8.5)

 

Current portion of income tax expense

34.6

   

36.0

   

97.5

   

60.1

   

85.0

   

31.0

 

Change in assets and liabilities

(24.8)

   

(23.5)

   

(47.1)

   

(11.2)

   

7.4

   

30.1

 

Tax reform impact on noncontrolling
   interests

   

   

   

   

4.6

   

 

Cash used in operating activities of
   discontinued operations

0.1

   

0.1

   

0.7

   

0.7

   

0.6

   

0.7

 

Transaction costs

   

   

1.0