Encompass Cash Flows Up Almost 28%, Alacare Deal Closed

Despite its $48 million settlement with the Department of Justice, Encompass enjoyed a financially successful Q2.

Encompass Health Corp.'s net operating revenues topped $1.1 billion, rising 6.3% year-over-year, according to its Q2 earnings report released Monday afternoon. 

The Birmingham, Alabama-based post-acute care provider reported that its adjusted earnings per share (EPS) rose 9.1% while its adjusted EBITDA was not far behind with an 8.9% increase to $252.2 million.

The most dramatic turnaround for the company was in its adjusted cash flow, which jumped nearly 28% during Q2, totaling at $142.2 million.

Related: Encompass Health Q1 Revenues Top $1.1B, Guidance Reiterated

Despite the positive metrics, Encompass again reported that its cash flows from operating activities slid by double digits, falling 14.1% to $145.4 million. For the first half of 2019, that metric is down nearly 21%, which the company attributed this to increased working capital. 

Encompass did not change its full-year guidance for net operating revenues or adjusted EPS, but did increase its outlook for adjusted EBITDA to a range of $940 million to $960 million. 

C-SUITE PERSPECTIVE: 

"Our second quarter results represent continued solid operating performance by both of our business segments and serve as further validation of our strategic positioning," Mark Tarr, CEO of Encompass Health, said in a statement. "Our focus remains on delivering our value proposition of providing high-quality patient outcomes in a cost-effective manner and developing solutions for coordinating patient care across the post-acute episode."

Net operating revenues for the inpatient rehabilitation segment rose nearly $40 million year-over-year, despite an 11.6% drop in outpatient and other net operating revenues. Overall, the total segment revenue grew by 4.7% to $873.9 million.  

The hospice and home health segment grew by 12%, driven by 35.7% growth in hospice and another 8.7% growth in home health. The total segment revenue topped $261 million. 

The company's major acquisition of Q2 was the announcement in April, that it would acquire Alabama-based hospice operator Alacare Home Health & Hospice. The $117 million deal closed in July and resulted in "increase in depreciation and amortization," according to the company's filing. 

Additionally, Encompass also settled with the Department of Justice for $48 million over whistleblower allegations that the company submitted false claims to Medicare beginning in 2007. 

Related: Encompass Health to Pay $48M to Settle False Claims Allegations

Home health admissions rose by double digits in Q2, increasing 11.2%, though revenue per episode fell slightly by 0.3%.

ADDITIONAL Encompass Health Q2 EARNINGS REPORT HIGHLIGHTS:

• Encompass repurchased approximately $31 million shares of stock, bringing its year-to-date total to $44 million.
• Hospice revenue was again bolstered by acquisitions and same-store admissions, increasing 13.6%.
• The provider's stock price ticked up slightly during after hours trading.
• Income from continuing operations per diluted share was flat at $0.92 per share.

For complete financial information, review Encompass Health's filing with the Securities and Exchange Commission.