Encompass Health reports results for fourth quarter 2018 and reiterates full-year 2019 guidance

BIRMINGHAM, Ala., Feb. 7, 2019 /PRNewswire/ -- Encompass Health Corporation (EHC), a national leader in integrated healthcare services, 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 fourth quarter ended December 31, 2018.

"We ended 2018 with another quarter of strong operating and financial results," said Mark Tarr, President and Chief Executive Officer of Encompass Health. "Through the course of 2018, we met or exceeded our objectives for growth and quality, and we made substantial gains on initiatives such as clinical collaboration, enhanced data analytics, and the development of post-acute solutions. The investments we are making in our business position us well to meet the growing demand for the services we provide."

Consolidated results

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 in 2018.

Income from continuing operations attributable to Encompass Health per diluted share decreased due to the accrual of loss contingencies of $52 million, or $0.52 per share, included in the line item government, class action, and related settlements, $48 million, or $0.48 per share, of which relates to on-going discussions with the United States Department of Justice, as discussed below.

The increase in adjusted earnings per share resulted primarily from increased revenue and a lower effective tax rate resulting from income tax reform.

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.

"The strength and consistency of our free cash flow generation was again evident in the fourth quarter," said Doug Coltharp, Executive Vice President and Chief Financial Officer of Encompass Health. "For 2018, adjusted free cash flow of approximately $538 million was sufficient to fund capacity expansions in both business segments and shareholder distributions, while still reducing funded debt."

Inpatient rehabilitation segment results

• Revenue - Revenue growth resulted from volume growth and an increase in net patient revenue per discharge. Same-store discharge growth was negatively impacted by approximately 50 basis points due to the ongoing effects of Hurricane Michael on operations in Panama City, Florida. 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 Pearland, Texas (October 2017), Shelby County, Alabama (April 2018), and Bluffton, South Carolina (June 2018). Growth in net patient revenue per discharge primarily resulted from an increase in reimbursement rates from all payors and improvements in discharge destination.

Outpatient and other revenue decreased due primarily to continued closures of hospital-based outpatient programs.

Revenue reserves (formerly bad debt expense) as a percent of revenue increased 50 basis points to 1.5% in the fourth quarter of 2018 primarily due to new pre-payment claims denials (net of recoveries) and post-payment reserves for new Medicare Advantage contractual claims reviews with one managed care organization.

• Adjusted EBITDA - The increase in Adjusted EBITDA for the inpatient rehabilitation segment resulted primarily from revenue growth. Salaries and benefits as a percent of revenue increased as labor management and productivity gains were offset by benefit cost increases and the ramping up of new stores. Other operating expenses in the fourth quarter of 2018 included repairs and maintenance costs at the Company's hospital in Panama City, Florida that was impacted by Hurricane Michael.

Home health and hospice segment results

• Revenue - Revenue growth was driven by volume growth, including the impact of the Camellia Healthcare acquisition which closed on May 1, 2018. Same-store admission growth was negatively impacted by approximately 50 basis points due to the ongoing effects of Hurricane Michael on operations in Panama City, Florida. Revenue per episode decreased 0.1% 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 admission growth of 8.6%.

• Adjusted EBITDA - Growth in Adjusted EBITDA primarily resulted from revenue growth, staffing productivity gains and operating leverage of support and overhead costs.

Corporate general and administrative expenses

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

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