ENCOMPASS HEALTH CORP : Regulation FD Disclosure (form 8-K)

Item 7.01. Regulation FD Disclosure.

Subsequent to its earnings release for the fourth quarter of 2020, Encompass
Health Corporation ("Encompass Health" or the "Company") assembled an Investor
Reference Book, a copy of which is attached to this Current Report on Form 8-K
as Exhibit 99.1 and incorporated herein by reference (the "Investor Reference
Book"). The Investor Reference Book addresses, among other things, an overview
of the Company and its industry, its business outlook, and its financial and
operational metrics and initiatives. The Investor Reference Book is available at
http://investor.encompasshealth.com by clicking on an available link.
The Company will participate in the Barclays Global Healthcare Conference, which
is being held as a virtual event, on March 9-11, 2021. In addition to small
group meetings, Encompass Health will participate in a fireside chat at 11:30
a.m. ET on Tuesday, March 9, 2021. Representation from Encompass Health will
include Mark Tarr, President and Chief Executive Officer; Doug Coltharp,
Executive Vice President and Chief Financial Officer; Barb Jacobsmeyer,
Executive Vice President and President of Inpatient Hospitals; and April
Anthony, Executive Vice President and Chief Executive Officer of Home Health and
Hospice. The presentation will be webcast live and will be available at
http://investor.encompasshealth.com by clicking on an available link.
In connection with this conference, the Company is providing current volume
observations for both of its segments. In the inpatient rehabilitation segment,
average daily patient census has been above fourth quarter 2020 levels thus far
in 2021. Census is slightly lower than the same period of last year, as January
and February 2020 were very strong. Early indications for March are that patient
census will be above pre-COVID 2020 levels. The increased length of stay the
Company experienced in 2020 has continued and is impacting total discharges.
The winter storms in Texas did not result in any substantial damage to any of
the Company's hospitals. The Company did experience additional expenses, such as
fuel, water tanks, and temporary lodging for staff, due to the storms. Volumes
were not significantly impacted.
Following a strong January, volumes in the home health and hospice segment were
temporarily disrupted by the winter storms primarily in Texas and Oklahoma.
Based on January volume trends, as a result of the storms, the Company estimates
home health admissions were approximately 700 lower than they would have
otherwise been in February. The decline in home health admissions will have a
lingering impact on second periods and recertifications in March and April.
Based on January volume trends, the Company estimates hospice admissions were
approximately 60 lower due to the winter storms. The Company began seeing
encouraging signs of volume recovery in both homecare service lines to pre-storm
levels during the last week of February.
The Company reiterates as of the date hereof its guidance previously reported in
the Current Report on Form 8-K, dated January 26, 2021, and during the Company's
earnings conference call held on January 27, 2021. Accordingly, the Company
continues to expect the following full-year 2021 ranges:
•Net operating revenues of $5,000 million to $5,170 million;
•Adjusted EBITDA of $925 million to $955 million; and
•Adjusted earnings per share from continuing operations attributable to
Encompass Health of $3.31 to $3.53.
The Company uses "same-store" comparisons to explain the changes in certain
performance metrics and line items within its financial statements. Same-store
comparisons are calculated based on hospitals and home health and hospice
locations open throughout both the full current and prior periods presented.
These comparisons include the financial results of market consolidation
transactions in existing markets, as it is difficult to determine, with
precision, the incremental impact of these transactions on the Company's results
of operations.
The information contained herein is being furnished pursuant to Item 7.01 of
Form 8-K, "Regulation FD Disclosure." This information shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or incorporated by reference in any filing under
the Securities Act of 1933, as amended, or the Exchange Act, except as shall be
expressly set forth by specific reference in such a filing. The furnishing of
this information will not be deemed an admission as to the materiality of any
information contained herein.

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Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the Investor Reference Book include non-GAAP
financial measures, including the Company's adjusted earnings per share,
leverage ratio, Adjusted EBITDA, and adjusted free cash flow.
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 and equity instruments;
loss on early extinguishment of debt; adjustments to its income tax provision
(such as valuation allowance adjustments, settlements of income tax claims and
windfall tax benefits); items related to corporate and facility restructurings;
and certain other items the Company believes to be non-indicative of its ongoing
operating performance. These items cannot be reasonably predicted, will depend
on several factors, including industry and market conditions, and could be
material to the Company's results computed in accordance with generally accepted
accounting principles in the United States ("GAAP").
However, the following reasonably estimable GAAP measures for 2021 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
$164 million to $174 million
• Amortization of debt-related items - approximately $9 million
The Company is providing adjusted earnings per share from continuing operations
attributable to Encompass Health ("adjusted earnings per share"). The Company
believes the presentation of adjusted earnings per share provides useful
additional information to investors because it provides better comparability of
ongoing operating performance to prior periods given that it excludes the impact
of 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 and equity instruments;
loss on early extinguishment of debt; adjustments to its income tax provision
(such as valuation allowance adjustments, settlements of income tax claims and
windfall tax benefits); items related to corporate and facility restructurings;
and certain other items the Company believes to be non-indicative of its ongoing
operating performance. It is reasonable to expect that one or more of these
excluded items will occur in future periods, but the amounts recognized can vary
significantly from period to period and may not directly relate to the Company's
ongoing operating performance. Accordingly, they can complicate comparisons of
the Company's results of operations across periods and comparisons of the
Company's results to those of other healthcare companies. Adjusted earnings per
share should not be considered as a measure of financial performance under GAAP
as the items excluded from it are significant components in understanding and
assessing financial performance. Because adjusted earnings per share is not a
measurement determined in accordance with GAAP and is thus susceptible to
varying calculations, it may not be comparable as presented to other similarly
titled measures of other companies. The Company reconciles adjusted earnings per
share to earnings per share in the Investor Reference Book attached as
Exhibit 99.1.
The leverage ratio referenced therein is defined as the ratio of consolidated
total debt to Adjusted EBITDA for the trailing four quarters. The Company
believes its leverage ratio and Adjusted EBITDA are measures of its ability to
service its debt and its ability to make capital expenditures. Additionally, the
leverage ratio is a standard measurement used by investors to gauge the
creditworthiness of an institution. The Company's credit agreement also includes
a maximum leverage ratio financial covenant which allows the Company to deduct
up to $300 million of cash on hand from consolidated total debt. The Company
reconciles Adjusted EBITDA to net income and to net cash provided by operating
activities in the Investor Reference Book attached as Exhibit 99.1. Adjusted
EBITDA for the Company's reportable segments is reconciled to net income from
continuing operations before income tax expense in the Investor Reference Book
attached as Exhibit 99.1.
The Company uses Adjusted EBITDA on a consolidated basis as a liquidity measure.
The Company believes this financial measure on a consolidated basis is important
in analyzing its liquidity because it is the key component of certain material
covenants contained within the Company's credit agreement, which is discussed in
more detail in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, "Liquidity and Capital Resources," and
Note 10, Long-term Debt, to the consolidated financial statements included in
its Annual Report on Form 10­K for the year ended December 31, 2020 (the "2020
Form 10­K"). These covenants are material terms of the credit agreement.
Noncompliance with these financial covenants under the credit agreement-its
interest coverage ratio and its leverage ratio-could result in the Company's
lenders requiring the Company to immediately repay all amounts borrowed. If the
Company anticipated a potential covenant violation, it would seek relief from
its lenders, which would have some cost to the Company, and such relief might be
on terms less favorable to those in the Company's existing credit agreement. In
addition, if the Company cannot satisfy these financial covenants, it would be
prohibited under the credit agreement from engaging in certain

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activities, such as incurring additional indebtedness, paying common stock
dividends, making certain payments, and acquiring and disposing of assets.
Consequently, Adjusted EBITDA is critical to the Company's assessment of its
liquidity.
In general terms, the credit agreement definition of Adjusted EBITDA, therein
referred to as "Adjusted Consolidated EBITDA," allows the Company to add back to
consolidated net income interest expense, income taxes, and depreciation and
amortization and then add back to consolidated net income (1) all unusual or
nonrecurring items reducing consolidated net income (of which only up to $10
million in a year may be cash expenditures), (2) any losses from discontinued
operations, (3) non-ordinary course fees, costs and expenses incurred with
respect to any litigation or settlement, (4) share-based compensation expense,
(5) costs and expenses associated with changes in the fair value of marketable
securities, (6) costs and expenses associated with the issuance or prepayment
debt and acquisitions, and (7) any restructuring charges not in excess of 20% of
Adjusted Consolidated EBITDA. The Company also subtracts from consolidated net
income all unusual or nonrecurring items to the extent they increase
consolidated net income.
The calculation of Adjusted EBITDA under the credit agreement does not require
us to deduct net income attributable to noncontrolling interests or gains on
fair value adjustments of hedging and equity instruments, disposal of assets,
and development activities. It also does not allow us to add back losses on fair
value adjustments of hedging instruments or unusual or nonrecurring cash
expenditures in excess of $10 million. These items and amounts, in addition to
the items falling within the credit agreement's "unusual or nonrecurring"
classification, may occur in future periods, but can vary significantly from
period to period and may not directly relate to, or be indicative of, the
Company's ongoing liquidity or operating performance. Accordingly, the Adjusted
EBITDA calculation presented here includes adjustments for them.
Adjusted EBITDA is not a measure of financial performance under GAAP, and the
items excluded from Adjusted EBITDA are significant components in understanding
and assessing financial performance. Therefore, Adjusted EBITDA should not be
considered a substitute for net income or cash flows from operating, investing,
or financing activities. Because Adjusted EBITDA is not a measurement determined
in accordance with GAAP and is thus susceptible to varying calculations,
Adjusted EBITDA, as presented, may not be comparable to other similarly titled
measures of other companies. Revenues and expenses are measured in accordance
with the policies and procedures described in Note 1, Summary of Significant
Accounting Policies, to the consolidated financial statements accompanying the
2020 Form 10-K.
The Company also uses adjusted free cash flow as an analytical indicator to
assess its performance. Management believes the presentation of adjusted free
cash flow provides investors an efficient means by which they can evaluate the
Company's capacity to reduce debt, pursue development activities, and return
capital to its common stockholders. The calculation of adjusted free cash flow
and a reconciliation of net cash provided by operating activities to adjusted
free cash flow are included in the Investor Reference Book attached as Exhibit
99.1. This measure is not a defined measure of financial performance under GAAP
and should not be considered as an alternative to net cash provided by operating
activities. The Company's definition of adjusted free cash flow is limited and
does not represent residual cash flows available for discretionary spending.
Because this measure is not determined in accordance with GAAP and is
susceptible to varying calculations, it may not be comparable to other similarly
titled measures presented by other companies. See the consolidated statements of
cash flows included in the 2020 Form 10-K for the GAAP measures of cash flows
from operating, investing, and financing activities.
Forward-Looking Statements
Certain statements in this Current Report on Form 8-K and the Investor Reference
Book attached as Exhibit 99.1 constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to various risks and uncertainties and
include all statements that are not historical statements of fact and those
regarding the Company's intent, belief or expectations, including statements and
assumptions regarding the nature of the COVID-19 pandemic, its impact on the
Company's results of operations, cash flow and liquidity, actions to be taken by
the Company in response to the pandemic, strategy, financial guidance, and the
demand for the Company's services. These forward-looking statements are based on
certain assumptions and expectations, and the Company's ability to predict
results or the actual effect of future actions, plans or strategies, or the
spread and impact of COVID-19 is inherently uncertain. Actual results and
performance could differ materially. Factors which could have a material adverse
effect on the Company's operations and future prospects or which could cause
events or circumstances to differ from the forward-looking statements include,
but are not limited to, the possibility that the Company may not be able to
realize higher values for its home health and hospice business through strategic
transactions; the possibility that the Company may decide not to undertake a
transaction following the review of strategic alternatives or that it is not
able to consummate any proposed transactions resulting from the review due to,
among other things, market, regulatory and other factors; the potential for
disruption to the Company's business resulting from the review of strategic
alternatives or the undertaking of any transactions following the review; the
continued spread of COVID-19, including the speed, depth, geographic reach and
duration of the spread, which could decrease our patient volumes and revenues
and lead to staffing and supply shortages and associated cost

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increases; actions to be taken by the Company in response to the pandemic; the
legal, regulatory and administrative developments that occur at the federal,
state and local levels; the Company's infectious disease prevention and control
efforts; the demand for the Company's services, including based on any downturns
in the economy, consumer confidence, or the capital markets and unemployment
among family members; the price of the Company's common stock as it affects the
Company's willingness and ability to repurchase shares and the financial and
accounting effects of any repurchases; any adverse effects on the Company's
stock price resulting from the integration of acquired operations; the Company's
ability to attract and retain nurses, therapists, and other healthcare
professionals in a highly competitive environment with often severe staffing
shortages, which may be worsened by the pandemic, and the impact on the
Company's labor expenses from potential union activity and staffing shortages;
potential disruptions, breaches, or other incidents affecting the proper
operation, availability, or security of the Company's or its vendors' or
partners' information systems, including unauthorized access to or theft of
patient, business associate, or other sensitive information or inability to
provide patient care because of system unavailability as well as unforseen
issues, if any, related to integration of acquired systems; the ability to
successfully integrate acquired operations, including realization of anticipated
tax benefits, revenues, and cost savings, minimizing the negative impact on
margins arising from the changes in staffing and other operating practices, and
avoidance of unforeseen exposure to liabilities; the Company's ability to
successfully complete and integrate de novo developments, acquisitions,
investments, and joint ventures consistent with its growth strategy; increases
in Medicare audit activity, including increased use of sampling and
extrapolation, resulting in additional unpaid reimbursement claims and an
increase in the backlog of appealed claims denials; the Company's ability to
comply with extensive, complex, and ever-changing federal, state and local
regulations and sub-regulatory guidance in both business in general, such as
privacy and wage and hour regulations, and in the healthcare industry
specifically; any adverse outcome of various lawsuits, claims, and legal or
regulatory proceedings involving the Company, including any matters related to
yet undiscovered issues, if any, in acquired operations; the Company's ability
to attract and retain key management personnel; changes, delays in (including in
connection with resolution of Medicare payment reviews or appeals), or
suspension of reimbursement for the Company's services by governmental or
private payors; changes in the regulation of the healthcare industry at either
or both of the federal and state levels, including as part of national
healthcare reform and deficit reduction (such as the Patient-Driven Groupings
Model for home health, and other payment system reforms) and the Company's
ability to adapt operations to those changes; competitive pressures in the
healthcare industry and the Company's response thereto; the Company's ability to
obtain and retain favorable arrangements with third-party payors; the Company's
ability to control costs, particularly labor and employee benefit costs,
including group medical expenses; adverse effects resulting from coverage
determinations made by Medicare Administrative Contractors regarding its
Medicare reimbursement claims and lengthening delays in the Company's ability to
recover improperly denied claims through the administrative appeals process on a
timely basis; the Company's ability to adapt to changes in the healthcare
delivery system, including value-based purchasing and involvement in coordinated
care initiatives or programs that may arise with its referral sources; the
Company's ability to maintain proper local, state and federal licensing,
including compliance with the Medicare conditions of participation and provider
enrollment requirements, which is required to participate in the Medicare
program; and changes in the Company's payor mix or the acuity of its patients
affecting reimbursement rates; general conditions in the economy and capital
markets, including any instability or uncertainty related to armed conflict or
an act of terrorism, governmental impasse over approval of the United States
federal budget, an increase in the debt ceiling, or an international sovereign
debt crisis; the increase in the costs of defending and insuring against alleged
professional liability claims, including claims associated with patient and
employee exposures to COVID-19, and Encompass Health's ability to predict the
estimated costs related to such claims; as well as other risks detailed from
time to time in Encompass Health's SEC filings and other public announcements,
including its Form 10­K for the year ended December 31, 2020.
When considering forward-looking statements, readers should keep in mind the
risk factors and other cautionary statements in such SEC filings. Readers are
cautioned not to place undue reliance on any of these forward-looking
statements, which reflect management's views as of the date of this
presentation. The Company cannot guarantee future results, levels of activity,
performance or achievements, and, except as required by law, it expressly
disclaims any obligation to release publicly any updates or revisions to any
forward-looking statements to reflect any change in its expectations with regard
thereto or change in events, conditions or circumstances on which any statement
is based.
ITEM 9.01. Financial Statements and Exhibits.
(d)  Exhibits.
     Exhibit Number             Description
          99.1                    Encompass Health Corporation Investor Reference Book

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