Encompass Health reports results for third quarter 2022
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 third quarter ended September 30, 2022.
“Our third quarter results are further evidence of the strong demand for our inpatient rehabilitation services,” said President and Chief Executive Officer of Encompass Health Mark Tarr. “Third quarter discharge growth was 7.5%, inclusive of 4.1% same-store growth. We made continued progress on reducing contract labor through our hiring and retention initiatives, but elevated staffing costs again impacted our profitability. Consequently, we have revised our 2022 guidance. We remain confident in the long-term prospects for our business.”
On July 1, 2022, Encompass Health completed the spin off of Enhabit Home Health & Hospice (“Enhabit”), which is now an independent, publicly traded company. Enhabit’s historical results are reported in Encompass Health’s discontinued operations.
Summary results
| Growth | |||||||
| Q3 2022 | Q3 2021 | Dollars | Percent | ||||
| (In Millions, Except Per Share Data) | |||||||
| Net operating revenue | $ 1,089.5 | $ 1,010.8 | $ 78.7 | 7.8 % | |||
| Income from continuing operations attributable to
Encompass Health per diluted share | 0.63 | 0.76 | (0.13) | (17.1) % | |||
| Adjusted earnings per share | 0.67 | 0.76 | (0.09) | (11.8) % | |||
| Cash flows provided by operating activities | 70.1 | 177.6 | (107.5) | (60.5) % | |||
| Adjusted EBITDA | 195.3 | 199.3 | (4.0) | (2.0) % | |||
| Adjusted free cash flow | 26.6 | 87.7 | (61.1) | (69.7) % | |||
| Nine Months Ended September 30, | |||||||
| 2022 | 2021 | ||||||
| Cash flows provided by operating activities | $ 533.6 | $ 592.0 | $ (58.4) | (9.9) % | |||
| Adjusted free cash flow | 294.1 | 302.0 | (7.9) | (2.6) % | |||
Net operating revenue and Adjusted EBITDA
| % of Revenue | % of Revenue | |||||||
| (In Millions) | Q3 2022 | Q3 2021 | ||||||
| Net operating revenue | $ 1,089.5 | $ 1,010.8 | ||||||
| % Change | 7.8 % | |||||||
| Salaries and benefits | (605.6) | (55.6) % | (537.0) | (53.1) % | ||||
| Hospital operating expenses | (236.6) | (21.7) % | (217.6) | (21.5) % | ||||
| General and administrative expenses | (32.0) | (2.9) % | (32.2) | (3.2) % | ||||
| Other income | 0.9 | 0.7 | ||||||
| Equity in nonconsolidated affiliates | 0.7 | 0.9 | ||||||
| Noncontrolling interests in continuing operations | (21.6) | (26.3) | ||||||
| Adjusted EBITDA | $ 195.3 | $ 199.3 | ||||||
| % Change | (2.0) % | |||||||
| (Actual Amounts) | ||||||||
| Discharges | 53,743 | 49,983 | ||||||
| % Change | 7.5 % | |||||||
| Same-store discharge growth | 4.1 % | |||||||
| Net patient revenue per discharge | $ 19,809 | $ 19,681 | ||||||
| % Change | 0.7 % | |||||||
- Revenue – Inpatient revenue growth resulted primarily from increased volumes. Total discharge growth for the third quarter of 2022 was 7.5% with same-store growth of 4.1%. Revenue reserves related to bad debt as a percent of revenue remained constant at 2.0%.
Growth in net patient revenue per discharge of 0.7% primarily resulted from an increase in reimbursement rates, offset by the resumption of sequestration.
- Adjusted EBITDA – The decrease in Adjusted EBITDA primarily resulted from increased staffing costs.
2022 Guidance
The Company is revising its guidance for full-year 2022.
| Prior | Updated | |
| 2022 Guidance Ranges | 2022 Guidance Ranges | |
| provided August 1, 2022 | provided October 26, 2022 | |
| (In Millions, Except Per Share Data) | ||
| Net operating revenue | $4,250 to $4,300 | $4,320 to $4,350 |
| Adjusted EBITDA | $820 to $840 | $800 to $820 |
| Adjusted earnings per share from continuing operations attributable to Encompass Health | $2.77 to $2.91 | $2.71 to $2.86 |
Earnings conference call and webcast
The Company will host an investor conference call at 10:00 a.m. Eastern Time on Thursday, October 27, 2022 to discuss its results for the third quarter of 2022. 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 800 274-8461 and giving the conference ID EHCQ322. International callers should dial 203 518-9843 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 153 hospitals in 36 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 September 30, 2022 (the “September 2022 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on October 26, 2022 (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 27, 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 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 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 $150 million to $160 million
- Amortization of debt-related items – approximately $10 million
| Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited) | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In Millions, Except Per Share Data) | |||||||
| Net operating revenues | $ 1,089.5 | $ 1,010.8 | $ 3,211.3 | $ 2,972.4 | |||
| Operating expenses: | |||||||
| Salaries and benefits | 605.6 | 537.0 | 1,778.9 | 1,554.8 | |||
| Other operating expenses | 172.0 | 151.4 | 500.3 | 442.2 | |||
| Occupancy costs | 12.4 | 14.5 | 41.6 | 44.5 | |||
| Supplies | 51.1 | 46.7 | 148.2 | 136.0 | |||
| General and administrative expenses | 37.9 | 38.9 | 111.5 | 123.7 | |||
| Depreciation and amortization | 62.1 | 55.5 | 180.3 | 162.9 | |||
| Total operating expenses | 941.1 | 844.0 | 2,760.8 | 2,464.1 | |||
| Loss on early extinguishment of debt | — | — | 1.4 | 1.0 | |||
| Interest expense and amortization of debt discounts and fees | 38.2 | 39.9 | 138.2 | 124.3 | |||
| Other expense (income) | 3.6 | (0.5) | 13.6 | (4.8) | |||
| Equity in net income of nonconsolidated affiliates | (0.7) | (0.9) | (2.6) | (2.5) | |||
| Income from continuing operations before income tax expense | 107.3 | 128.3 | 299.9 | 390.3 | |||
| Provision for income tax expense | 21.8 | 26.2 | 68.2 | 79.4 | |||
| Income from continuing operations | 85.5 | 102.1 | 231.7 | 310.9 | |||
| (Loss) income from discontinued operations, net of tax | (18.5) | 24.6 | 16.7 | 90.6 | |||
| Net and comprehensive income | 67.0 | 126.7 | 248.4 | 401.5 | |||
| Less: Net income attributable to noncontrolling interests
included in continuing operations | (21.6) | (26.3) | (65.5) | (79.6) | |||
| Less: Net income attributable to noncontrolling interests
included in discontinued operations | — | (0.4) | (1.3) | (1.3) | |||
| Less: Net and comprehensive income attributable to
noncontrolling interests | (21.6) | (26.7) | (66.8) | (80.9) | |||
| Net and comprehensive income attributable to
Encompass Health | $ 45.4 | $ 100.0 | $ 181.6 | $ 320.6 | |||
| Weighted average common shares outstanding: | |||||||
| Basic | 99.2 | 99.0 | 99.2 | 99.0 | |||
| Diluted | 100.5 | 100.2 | 100.3 | 100.1 | |||
| Earnings per common share: | |||||||
| Basic earnings per share attributable to Encompass
Health common shareholders: | |||||||
| Continuing operations | $ 0.64 | $ 0.76 | $ 1.67 | $ 2.32 | |||
| Discontinued operations | (0.19) | 0.24 | 0.15 | 0.90 | |||
| Net income | $ 0.45 | $ 1.00 | $ 1.82 | $ 3.22 | |||
| Diluted earnings per share attributable to Encompass
Health common shareholders: | |||||||
| Continuing operations | $ 0.63 | $ 0.76 | $ 1.66 | $ 2.31 | |||
| Discontinued operations | (0.18) | 0.24 | 0.15 | 0.89 | |||
| Net income | $ 0.45 | $ 1.00 | $ 1.81 | $ 3.20 | |||
| Amounts attributable to Encompass Health common
shareholders: | |||||||
| Income from continuing operations | $ 63.9 | $ 75.8 | $ 166.2 | $ 231.3 | |||
| (Loss) income from discontinued operations, net of tax | (18.5) | 24.2 | 15.4 | 89.3 | |||
| Net income attributable to Encompass Health | $ 45.4 | $ 100.0 | $ 181.6 | $ 320.6 | |||
| Encompass Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited) | |||
| September 30, 2022 | December 31, 2021 | ||
| (In Millions) | |||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ 59.8 | $ 49.4 | |
| Restricted cash | 44.3 | 62.5 | |
| Accounts receivable | 500.1 | 515.8 | |
| Other current assets | 129.6 | 114.9 | |
| Current assets of discontinued operations | — | 178.8 | |
| Total current assets | 733.8 | 921.4 | |
| Property and equipment, net | 2,807.4 | 2,581.2 | |
| Operating lease right-of-use assets | 195.7 | 193.7 | |
| Goodwill | 1,247.4 | 1,237.0 | |
| Intangible assets, net | 284.9 | 158.4 | |
| Other long-term assets | 206.6 | 230.0 | |
| Noncurrent assets of discontinued operations | 0.1 | 1,543.2 | |
| Total assets | $ 5,475.9 | $ 6,864.9 | |
| Liabilities and Shareholders’ Equity | |||
| Current liabilities: | |||
| Current portion of long-term debt | $ 26.2 | $ 37.8 | |
| Current operating lease liabilities | 22.7 | 23.5 | |
| Accounts payable | 134.1 | 134.0 | |
| Accrued expenses and other current liabilities | 421.6 | 421.1 | |
| Current liabilities of discontinued operations | 0.1 | 132.4 | |
| Total current liabilities | 604.7 | 748.8 | |
| Long-term debt, net of current portion | 2,719.0 | 3,240.5 | |
| Long-term operating lease liabilities | 183.3 | 179.6 | |
| Deferred income tax liabilities | 46.7 | 23.3 | |
| Other long-term liabilities | 174.0 | 172.7 | |
| Noncurrent liabilities of discontinued operations | 0.4 | 100.8 | |
| 3,728.1 | 4,465.7 | ||
| Commitments and contingencies | |||
| Redeemable noncontrolling interests | 37.8 | 42.2 | |
| Shareholders’ equity: | |||
| Encompass Health shareholders’ equity | 1,217.0 | 1,911.3 | |
| Noncontrolling interests | 493.0 | 445.7 | |
| Total shareholders’ equity | 1,710.0 | 2,357.0 | |
| Total liabilities and shareholders’ equity | $ 5,475.9 | $ 6,864.9 | |
| Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) | |||
| Nine Months Ended September 30, | |||
| 2022 | 2021 | ||
| (In Millions) | |||
| Cash flows from operating activities: | |||
| Net income | $ 248.4 | $ 401.5 | |
| Income from discontinued operations, net of tax | (16.7) | (90.6) | |
| Adjustments to reconcile net income to net cash provided by operating activities— | |||
| Depreciation and amortization | 180.3 | 162.9 | |
| Loss on early extinguishment of debt | 1.4 | 1.0 | |
| Equity in net income of nonconsolidated affiliates | (2.6) | (2.5) | |
| Distributions from nonconsolidated affiliates | 3.7 | 2.4 | |
| Stock-based compensation | 21.1 | 19.6 | |
| Deferred tax (benefit) expense | (7.7) | 1.6 | |
| Realized loss (gain) on sale of investments | 16.5 | (1.8) | |
| Other, net | 9.7 | 4.2 | |
| Change in assets and liabilities, net of acquisitions— | |||
| Accounts receivable | 22.4 | (10.9) | |
| Other assets | 5.0 | (26.5) | |
| Accounts payable | (0.3) | 9.7 | |
| Accrued payroll | (9.3) | 16.0 | |
| Accrued interest payable | (20.7) | (23.1) | |
| Other liabilities | 26.4 | (5.0) | |
| Net cash provided by operating activities of discontinued operations | 56.0 | 133.5 | |
| Total adjustments | 301.9 | 281.1 | |
| Net cash provided by operating activities | 533.6 | 592.0 | |
| Cash flows from investing activities: | |||
| Acquisitions of businesses, net of cash acquired | — | (1.1) | |
| Purchases of property and equipment | (374.9) | (332.3) | |
| Additions to capitalized software costs | (7.5) | (11.9) | |
| Proceeds from disposal of assets | 5.9 | 17.6 | |
| Purchase of restricted investments | (25.1) | (8.3) | |
| Other, net | (15.4) | (10.0) | |
| Net cash used in investing activities of discontinued operations | (3.6) | (99.6) | |
| Net cash used in investing activities | (420.6) | (445.6) | |
| Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited) | ||||
| Nine Months Ended
September 30, | ||||
| 2022 | 2021 | |||
| (In Millions) | ||||
| Cash flows from financing activities: | ||||
| Principal payments on debt, including pre-payments | (345.3) | (210.9) | ||
| Borrowings on revolving credit facility | 180.0 | 145.0 | ||
| Payments on revolving credit facility | (340.0) | (55.0) | ||
| Principal payments under finance lease obligations | (14.3) | (13.0) | ||
| Debt amendment costs | (21.6) | — | ||
| Taxes paid on behalf of employees for shares withheld | (7.2) | (14.6) | ||
| Contributions from noncontrolling interests of consolidated affiliates | 55.1 | 36.1 | ||
| Dividends paid on common stock | (84.1) | (84.5) | ||
| Distributions paid to noncontrolling interests of consolidated affiliates | (68.2) | (76.2) | ||
| Other, net | 0.3 | (0.1) | ||
| Net cash provided by (used in) financing activities of discontinued operations | 516.1 | (9.2) | ||
| Net cash used in financing activities | (129.2) | (282.4) | ||
| Decrease in cash, cash equivalents, and restricted cash | (16.2) | (136.0) | ||
| Cash, cash equivalents, and restricted cash at beginning of period | 120.3 | 310.9 | ||
| Cash, cash equivalents, and restricted cash at end of period | $ 104.1 | $ 174.9 | ||
| Reconciliation of Cash, Cash Equivalents, and Restricted Cash | ||||
| Cash and cash equivalents at beginning of period | $ 49.4 | $ 185.6 | ||
| Restricted cash at beginning of period | 62.5 | 63.9 | ||
| Restricted cash included in other long-term assets at beginning of period | 0.4 | 21.5 | ||
| Cash, cash equivalents, and restricted cash in discontinued operations
at beginning of period | 8.0 | 39.9 | ||
| Cash, cash equivalents, and restricted cash at beginning of period | $ 120.3 | $ 310.9 | ||
| Cash and cash equivalents at end of period | $ 59.8 | $ 65.7 | ||
| Restricted cash at end of period | 44.3 | 73.6 | ||
| Restricted cash included in other long-term assets at end of period | — | 4.2 | ||
| Cash, cash equivalents, and restricted cash in discontinued operations
at end of period | — | 31.4 | ||
| Cash, cash equivalents, and restricted cash at end of period | $ 104.1 | $ 174.9 | ||
| Encompass Health Corporation and Subsidiaries
Supplemental Information Earnings Per Share | |||||||
| Three Months Ended
September 30, | Nine Months Ended
September 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In Millions, Except Per Share Data) | |||||||
| Adjusted EBITDA | $ 195.3 | $ 199.3 | $ 586.6 | $ 616.5 | |||
| Depreciation and amortization | (62.1) | (55.5) | (180.3) | (162.9) | |||
| Interest expense and amortization of debt discounts
and fees | (38.2) | (39.9) | (138.2) | (124.3) | |||
| Stock-based compensation | (7.3) | (6.6) | (21.1) | (19.6) | |||
| Gain (loss) on disposal or impairment of assets | 1.1 | 5.0 | (2.4) | 1.7 | |||
| 88.8 | 102.3 | 244.6 | 311.4 | ||||
| Items not indicative of ongoing operating performance: | |||||||
| Loss on early extinguishment of debt | — | — | (1.4) | (1.0) | |||
| Change in fair market value of equity securities | (3.1) | (0.3) | (8.8) | 0.3 | |||
| Pre-tax income | 85.7 | 102.0 | 234.4 | 310.7 | |||
| Income tax expense | (21.8) | (26.2) | (68.2) | (79.4) | |||
| Income from continuing operations (1) | $ 63.9 | $ 75.8 | $ 166.2 | $ 231.3 | |||
| Basic shares | 99.2 | 99.0 | 99.2 | 99.0 | |||
| Diluted shares | 100.5 | 100.2 | 100.3 | 100.1 | |||
| Basic earnings per share (1) | $ 0.64 | $ 0.76 | $ 1.67 | $ 2.32 | |||
| Diluted earnings per share (1) | $ 0.63 | $ 0.76 | $ 1.66 | $ 2.31 | |||
| (1) Income from continuing operations attributable to Encompass Health | |||||||
| Encompass Health Corporation and Subsidiaries
Supplemental Information Adjusted Earnings Per Share | |||||||
| Q3 | 9 Months | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| Earnings per share, as reported | $ 0.63 | $ 0.76 | $ 1.66 | $ 2.31 | |||
| Adjustments, net of tax: | |||||||
| Bondholder consent fees associated with Enhabit distribution | — | — | 0.15 | — | |||
| Income tax adjustments | 0.01 | — | 0.08 | (0.03) | |||
| Loss on early extinguishment of debt | — | — | 0.01 | 0.01 | |||
| Change in fair market value of equity securities | 0.02 | — | 0.06 | — | |||
| Adjusted earnings per share* | $ 0.67 | $ 0.76 | $ 1.97 | $ 2.28 | |||
| * 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, 2022 | |||||||
| Adjustments | |||||||
| As Reported | Income Tax
Adjustments | Change in Fair
Market Value of Equity Securities | As Adjusted | ||||
| (In Millions, Except Per Share Amounts) | |||||||
| Adjusted EBITDA* | $ 195.3 | $ — | $ — | $ 195.3 | |||
| Depreciation and amortization | (62.1) | — | — | (62.1) | |||
| Interest expense and amortization of debt discounts and fees | (38.2) | — | — | (38.2) | |||
| Stock-based compensation | (7.3) | — | — | (7.3) | |||
| Gain on disposal or impairment of assets | 1.1 | — | — | 1.1 | |||
| Change in fair market value of equity securities | (3.1) | — | 3.1 | — | |||
| Income from continuing operations before income tax
expense | 85.7 | — | 3.1 | 88.8 | |||
| Provision for income tax expense | (21.8) | 1.3 | (0.8) | (21.3) | |||
| Income from continuing operations attributable
to Encompass Health | $ 63.9 | $ 1.3 | $ 2.3 | $ 67.5 | |||
| Diluted earnings per share from continuing operations** | $ 0.63 | $ 0.01 | $ 0.02 | $ 0.67 | |||
| Diluted shares used in calculation | 100.5 | ||||||
| * See reconciliation of net income to Adjusted EBITDA | |||||||
| ** 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, 2021 | |||||||
| Adjustments | |||||||
| As Reported | Income Tax
Adjustments | Change in Fair
Market Value of Equity Securities | As Adjusted | ||||
| (In Millions, Except Per Share Amounts) | |||||||
| Adjusted EBITDA* | $ 199.3 | $ — | $ — | $ 199.3 | |||
| Depreciation and amortization | (55.5) | — | — | (55.5) | |||
| Interest expense and amortization of debt discounts and fees | (39.9) | — | — | (39.9) | |||
| Stock-based compensation | (6.6) | — | — | (6.6) | |||
| Gain on disposal or impairment of assets | 5.0 | — | — | 5.0 | |||
| Change in fair market value of equity securities | (0.3) | — | 0.3 | — | |||
| Income from continuing operations before income tax
expense | 102.0 | — | 0.3 | 102.3 | |||
| Provision for income tax expense | (26.2) | (0.2) | (0.1) | (26.5) | |||
| Income from continuing operations attributable
to Encompass Health | $ 75.8 | $ (0.2) | $ 0.2 | $ 75.8 | |||
| Diluted earnings per share from continuing operations** | $ 0.76 | $ — | $ — | $ 0.76 | |||
| Diluted shares used in calculation | 100.2 | ||||||
| * See reconciliation of net income to Adjusted EBITDA | |||||||
| ** 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, 2022 | |||||||||||
| Adjustments | |||||||||||
| As
Reported | Loss on Early
Extinguishment of Debt | Income Tax
Adjustments | Bondholder
Consent Fees Associated with Enhabit Distribution | Change in
Fair Market Value of Equity Securities | As
Adjusted | ||||||
| (In Millions, Except Per Share Amounts) | |||||||||||
| Adjusted EBITDA* | $ 586.6 | $ — | $ — | $ — | $ — | $ 586.6 | |||||
| Depreciation and amortization | (180.3) | — | — | — | — | (180.3) | |||||
| Interest expense and amortization of debt discounts
and fees | (138.2) | — | — | 20.5 | — | (117.7) | |||||
| Stock-based compensation | (21.1) | — | — | — | — | (21.1) | |||||
| Loss on disposal or impairment of assets | (2.4) | — | — | — | — | (2.4) | |||||
| Loss on early extinguishment of debt | (1.4) | 1.4 | — | — | — | — | |||||
| Change in fair market value of equity securities | (8.8) | — | — | — | 8.8 | — | |||||
| Income from continuing operations before
income tax expense | 234.4 | 1.4 | — | 20.5 | 8.8 | 265.1 | |||||
| Provision for income tax expense | (68.2) | (0.4) | 8.5 | (5.3) | (2.3) | (67.7) | |||||
| Income from continuing operations attributable
to Encompass Health | $ 166.2 | $ 1.0 | $ 8.5 | $ 15.2 | $ 6.5 | $ 197.4 | |||||
| Diluted earnings per share from continuing
operations** | $ 1.66 | $ 0.01 | $ 0.08 | $ 0.15 | $ 0.06 | $ 1.97 | |||||
| Diluted shares used in calculation | 100.3 | ||||||||||
| * See reconciliation of net income to Adjusted EBITDA | |||||||||||
| ** 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, 2021 | |||||||||
| Adjustments | |||||||||
| As
Reported | Loss on Early
Extinguishment of Debt | Income Tax
Adjustments | Change in Fair
Market Value of Equity Securities | As
Adjusted | |||||
| (In Millions, Except Per Share Amounts) | |||||||||
| Adjusted EBITDA* | $ 616.5 | $ — | $ — | $ — | $ 616.5 | ||||
| Depreciation and amortization | (162.9) | — | — | — | (162.9) | ||||
| Interest expense and amortization of debt discounts and fees | (124.3) | — | — | — | (124.3) | ||||
| Stock-based compensation | (19.6) | — | — | — | (19.6) | ||||
| Gain on disposal or impairment of assets | 1.7 | — | — | — | 1.7 | ||||
| Loss on early extinguishment of debt | (1.0) | 1.0 | — | — | — | ||||
| Change in fair market value of equity securities | 0.3 | — | — | (0.3) | — | ||||
| Income from continuing operations before income
tax expense | 310.7 | 1.0 | — | (0.3) | 311.4 | ||||
| Provision for income tax expense | (79.4) | (0.3) | (3.3) | 0.1 | (82.9) | ||||
| Income from continuing operations attributable to
Encompass Health | $ 231.3 | $ 0.7 | $ (3.3) | $ (0.2) | $ 228.5 | ||||
| Diluted earnings per share from continuing operations** | $ 2.31 | $ 0.01 | $ (0.03) | $ — | $ 2.28 | ||||
| Diluted shares used in calculation | 100.1 | ||||||||
| * | See reconciliation of net income to Adjusted EBITDA |
| ** | 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, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In Millions) | |||||||
| Net income | $ 67.0 | $ 126.7 | $ 248.4 | $ 401.5 | |||
| Loss (income) from discontinued operations, net of tax,
attributable to Encompass Health | 18.5 | (24.6) | (16.7) | (90.6) | |||
| Net income attributable to noncontrolling interests
included in continuing operations | (21.6) | (26.3) | (65.5) | (79.6) | |||
| Provision for income tax expense | 21.8 | 26.2 | 68.2 | 79.4 | |||
| Interest expense and amortization of debt discounts and fees | 38.2 | 39.9 | 138.2 | 124.3 | |||
| Depreciation and amortization | 62.1 | 55.5 | 180.3 | 162.9 | |||
| Loss on early extinguishment of debt | — | — | 1.4 | 1.0 | |||
| (Gain) loss on disposal or impairment of assets | (1.1) | (5.0) | 2.4 | (1.7) | |||
| Stock-based compensation | 7.3 | 6.6 | 21.1 | 19.6 | |||
| Change in fair market value of equity securities | 3.1 | 0.3 | 8.8 | (0.3) | |||
| Adjusted EBITDA | $ 195.3 | $ 199.3 | $ 586.6 | $ 616.5 | |||
| 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, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In Millions) | |||||||
| Net cash provided by operating activities | $ 70.1 | $ 177.6 | $ 533.6 | $ 592.0 | |||
| Interest expense and amortization of debt discounts and fees | 38.2 | 39.9 | 138.2 | 124.3 | |||
| (Loss) gain on sale of investments, excluding impairments | (4.6) | (0.3) | (16.5) | 1.8 | |||
| Equity in net income of nonconsolidated affiliates | 0.7 | 0.9 | 2.6 | 2.5 | |||
| Net income attributable to noncontrolling interests in continuing operations | (21.6) | (26.3) | (65.5) | (79.6) | |||
| Amortization of debt-related items | (2.6) | (1.8) | (7.4) | (5.8) | |||
| Distributions from nonconsolidated affiliates | (0.8) | (0.8) | (3.7) | (2.4) | |||
| Current portion of income tax expense | 23.0 | 28.1 | 75.9 | 77.8 | |||
| Change in assets and liabilities | 69.9 | 17.6 | (23.5) | 39.8 | |||
| Cash used in (provided by) operating activities of discontinued operations | 19.9 | (35.7) | (56.0) | (133.5) | |||
| Change in fair market value of equity securities | 3.1 | 0.3 | 8.8 | (0.3) | |||
| Other | — | (0.2) | 0.1 | (0.1) | |||
| Adjusted EBITDA | $ 195.3 | $ 199.3 | $ 586.6 | $ 616.5 | |||
| Encompass Health Corporation and Subsidiaries
Supplemental Information Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow | |||||||
| Three Months Ended
September 30, | Nine Months Ended
September 30, | ||||||
| 2022 | 2021 | 2022 | 2021 | ||||
| (In Millions) | |||||||
| Net cash provided by operating activities | $ 70.1 | $ 177.6 | $ 533.6 | $ 592.0 | |||
| Impact of discontinued operations | 19.9 | (35.7) | (56.0) | (133.5) | |||
| Net cash provided by operating activities of continuing operations | 90.0 | 141.9 | 477.6 | 458.5 | |||
| Capital expenditures for maintenance | (56.2) | (30.3) | (127.6) | (81.0) | |||
| Distributions paid to noncontrolling interests of consolidated affiliates | (22.3) | (24.8) | (68.2) | (76.2) | |||
| Items not indicative of ongoing operating performance: | |||||||
| Transaction costs and related assumed liabilities | 15.1 | 0.9 | 12.3 | 0.7 | |||
| Adjusted free cash flow | $ 26.6 | $ 87.7 | $ 294.1 | $ 302.0 | |||
For the three months ended September 30, 2021, net cash used in investing activities was $124.0 million and primarily resulted from capital expenditures. Net cash used in financing activities during the three months ended September 30, 2021 was $18.5 million and primarily resulted from cash dividends paid on common stock and distributions to noncontrolling interests of consolidated affiliates partially offset by net debt borrowings.
For the nine months ended September 30, 2022, net cash used in investing activities was $420.6 million and primarily resulted from capital expenditures and purchase of restricted investments. Net cash used in financing activities during the nine months ended September 30, 2022 was $129.2 million and primarily resulted from net debt payments, cash dividends paid on common stock and distributions to noncontrolling interests of consolidated affiliates partially offset by net cash provided by financing activities of discontinued operations and contributions from noncontrolling interests of consolidated affiliates.
For the nine months ended September 30, 2021, net cash used in investing activities was $445.6 million and primarily resulted from capital expenditures and the acquisition of assets from Frontier Home Health and Hospice, included in net cash used in investing activities of discontinued operations. Net cash used in financing activities during the nine months ended September 30, 2021 was $282.4 million and primarily resulted from net debt payments, cash dividends paid on common stock and distributions to noncontrolling interests of consolidated affiliates.
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