Encompass Health reports results for first quarter 2019 and reiterates full-year 2019 guidance

Full-year 2019 guidance now includes the impact of the proposed rule for inpatient rehabilitation hospitals on the fourth quarter of 2019

BIRMINGHAM, Ala., April 25, 2019 /PRNewswire/ -- Encompass Health Corp. (EHC), a national leader in integrated healthcare, 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 first quarter ended March 31, 2019.

"The strength of our business model was demonstrated again in the first quarter of 2019 as we made continued progress on our operational and strategic initiatives and generated strong financial results," said President and Chief Executive Officer of Encompass Health Mark Tarr.

Consolidated results

Revenue growth was driven by volume and pricing growth in both of the Company's operating segments.

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

The decrease in cash flows provided by operating activities and adjusted free cash flow resulted primarily from increased working capital.

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

Inpatient rehabilitation segment results

• 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 ventures in Murrells Inlet, South Carolina (September 2018) and Winston-Salem, North Carolina (October 2018), as well as wholly owned hospitals in Shelby County, Alabama (April 2018) and Bluffton, South Carolina (June 2018). Same-store discharge growth in the first quarter of 2019 was negatively impacted by approximately 20 basis points due to the ongoing effects of Hurricane Michael on operations in Panama City, Florida. Same-store discharge growth was 4.8% in the first quarter of 2018, with a severe influenza season (approximately 100 to 200 basis points) and the timing of discharges around Easter and Passover (approximately 50 basis points) contributing to that growth. Growth in net patient revenue per discharge primarily resulted from an increase in reimbursement rates from all payors and improvements in discharge destination.
  
  Revenue reserves as a percent of revenue increased 30 basis points to 1.4%. Revenue reserves as a percent of revenue were lower in the first quarter of 2018 primarily due to the recoupment of previously denied claims.
  
  
• Adjusted EBITDA - The increase in Adjusted EBITDA primarily resulted from revenue growth. The increase in salaries and benefits as a percent of revenue was lower than the expected range.

• Revenue - Revenue growth resulted from volume growth and an increase in revenue per episode. Volume growth included the impact of the Camellia Healthcare acquisition which closed on May 1, 2018. The increase in revenue per episode primarily resulted from a Medicare reimbursement rate increase, receipt of an approximate $1 million Bundled Payments for Care Improvement reconciliation payment in the first quarter of 2019, and changes in patient mix. Revenue per episode in the first quarter of 2018 was negatively impacted by an approximate $4 million reserve for a Zone Program Integrity Contractor audit.
  
  Hospice revenue increased primarily due to acquisitions and same-store admissions growth of 13.7%.
  
  
• Adjusted EBITDA - Growth in Adjusted EBITDA primarily resulted from revenue growth and improvements in caregiver optimization and productivity in home health and increased scale and efficiencies in hospice.

• General and administrative expenses decreased as a percent of consolidated revenue primarily due to expenses associated with the Company's rebranding and name change in Q1 2018 and operating leverage resulting from revenue growth. During the first quarter of 2019, the Company invested $0.8 million in its rebranding and name change, all of which was included in general and administrative expenses. During the first quarter of 2018, the Company invested $3.6 million in its rebranding and name change.

Repurchases of common stock

During the first quarter of 2019, the Company repurchased 219,708 shares of its common stock for approximately $13 million. As of March 31,2019, the Company had approximately $237 million remaining under its existing stock repurchase authorization.

"Our leverage ratio at the end of the first quarter remained at 2.8x," said Executive Vice President and Chief Financial Officer of Encompass Health Doug Coltharp. "The strength of our balance sheet and cash flow generation position us with substantial flexibility to deploy capital."

2019 guidance

On April 17, 2019, the Centers for Medicare and Medicaid Services released its notice of proposed rule making for fiscal year 2020 under the inpatient rehabilitation facility prospective payment system (the "2020 Proposed IRF Rule"). Based on its analysis of the adjustments included in the proposed rule and other factors, including the acuity of the Company's patients over the three-month period prior to the release of the proposed rule, the Company currently estimates its Medicare payment rates for its inpatient rehabilitation segment will be flat to down 0.25% in fiscal year 2020 (effective October 1, 2019).

Based on its results for the first quarter of 2019 and its current expectations for the remainder of 2019, including the impact of the 2020 Proposed IRF Rule discussed above on the fourth quarter of 2019, the Company is reiterating its full-year guidance for 2019.

This guidance does not include the Company's pending acquisition of Alacare Home Health and Hospice which is expected to close in June 2019.

For additional considerations regarding the Company's 2019 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.

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