Document
false0000785161 0000785161 2020-04-28 2020-04-28


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 28, 2020
Encompass Health Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
001-10315
63-0860407
(Commission File Number)
(IRS Employer Identification No.)
 
 
9001 Liberty Parkway, Birmingham, Alabama 35242
(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.     Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
EHC
New York Stock Exchange




The information contained herein is being furnished pursuant to Item 2.02 of Form 8‑K, “Results of Operations and Financial Condition,” and 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, (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 2.02. Results of Operations and Financial Condition.
On April 28, 2020, Encompass Health Corporation (“Encompass Health” or the “Company”) issued a press release reporting the financial results of the Company for the three months ended March 31, 2020. A copy of the press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.
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 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.
ITEM 7.01. Regulation FD Disclosure.
See Item 2.02, “Results of Operations and Financial Condition,” above.
In addition, a copy of the supplemental information which will be discussed during the Company’s earnings call at 9:00 a.m. Eastern Time on Wednesday, April 29, 2020 is attached to this report as Exhibit 99.2 and incorporated herein by reference.
Note Regarding Presentation of Non-GAAP Financial Measures
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.
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 and settlements of income tax claims); 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 generally accepted accounting principles in the United States (“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 press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.
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 $100 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 press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2. Adjusted EBITDA for the Company’s reportable segments is reconciled to net income from continuing operations before income tax expense in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.




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 10‑K for the year ended December 31, 2019 (the “2019 Form 10‑K”). 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 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 2019 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 press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2. 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 condensed consolidated statements of cash flows included in the Company's quarterly report on Form 10-Q for the quarterly period ended March 31, 2020 (the “March 2020 Form 10-Q”), when filed, and in the press release attached as Exhibit 99.1 for the GAAP measures of cash flows from operating, investing, and financing activities.
Forward-Looking Statements
The information contained in the press release and supplemental information includes certain estimates, projections, and other forward-looking statements that involve known and unknown risks and relate to, among other things, future events, the Company’s business strategy, financial plans, dividend strategies or payments, effective income tax rates, plans to repurchase its debt or equity securities, future financial performance, projected business results or model, ability to return value to its shareholders, projected capital expenditures, leverage ratio, acquisition opportunities, and the impact of future legislation or regulation. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “targets,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These estimates, projections, and other forward-looking statements are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.
There can be no assurance that any estimates, projections, or forward-looking statements will be realized.
All such estimates, projections, and forward-looking statements speak only as of the date hereof. The Company undertakes no duty to publicly update or revise that information.
You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking statements in this report, the press release, and supplemental information as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, including those set forth in the attached press release and in the 2019 Form 10‑K, the March 2020 Form 10-Q when filed, and in other documents the Company previously filed with the SEC, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein.
ITEM 9.01. Financial Statements and Exhibits.
(d)    Exhibits.
Exhibit Number
 
Description
 
 
104
 
Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

ENCOMPASS HEALTH CORPORATION
By:
/S/   DOUGLAS E. COLTHARP
 
Name:
Douglas E. Coltharp
 
Title:
Executive Vice President and Chief Financial Officer
Dated: April 28, 2020


Exhibit 99.1

encompasshealthnewlogoa16.jpg
Media Contact
April 28, 2020
Casey Lassiter, 205 447-6410
 
 
 
 
Investor Relations Contact
 
Crissy Carlisle, 205 970-5860
 
 

Encompass Health reports results for first quarter 2020
and provides update on response to COVID-19 pandemic
BIRMINGHAM, Ala. - Encompass Health Corp. (NYSE: 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, 2020. The Company also provided an update on the measures it has implemented to respond to the COVID-19 pandemic.
“Through February, our operating performance was strong in both business segments,” said President and Chief Executive Officer of Encompass Health Mark Tarr. “Beginning in March, we experienced lower volumes and higher operating expenses related to the COVID-19 pandemic. While we expect these lower volumes to continue in the near term, we view them as temporary and remain confident in the intermediate and long-term growth prospects for our Company based on the increasing demands for the services we provide to an aging population.”
Consolidated results
 
 
 
 
 
Growth
 
Q1 2020
 
Q1 2019
 
Dollars
 
Percent
 
(In Millions, Except per Share Data)
Net operating revenues
$
1,182.0

 
$
1,124.0

 
$
58.0

 
5.2
 %
Income from continuing operations attributable to Encompass Health per diluted share
0.87

 
1.04

 
(0.17
)
 
(16.3
)%
Adjusted earnings per share
0.87

 
1.04

 
(0.17
)
 
(16.3
)%
Cash flows provided by operating activities
29.3

 
159.9

 
(130.6
)
 
(81.7
)%
Adjusted EBITDA
228.0

 
242.9

 
(14.9
)
 
(6.1
)%
Adjusted free cash flow
74.6

 
127.8

 
(53.2
)
 
(41.6
)%
Revenue growth was driven by volume and pricing growth in the inpatient rehabilitation segment and volume growth in the home health and hospice segment.
Income from continuing operations attributable to Encompass Health per diluted share for the first quarter of 2020 compared to the first quarter of 2019 reflected a decrease in earnings, as discussed in the segment results sections that follow.

 
 
1
Exhibit 99.1

Cash flows provided by operating activities and adjusted free cash flow for the three months ended March 31, 2020 decreased primarily due to a decrease in earnings and an increase in working capital. The increase in working capital included higher accounts receivable in the Company's home health and hospice segment primarily due to the transition to the Patient Driven Groupings Model (“PDGM”), including a reduction in the Request for Anticipated Payment program for home health agencies. Cash flows provided by operating activities in the first quarter of 2020 included payment of $101 million for stock appreciation rights exercised during the period.
See attached supplemental information for calculations of non-GAAP measures and reconciliations to their most comparable GAAP measure.
Inpatient rehabilitation segment results
 
 
 
 
 
Growth
 
Q1 2020
 
Q1 2019
 
Dollars
 
Percent
Net operating revenues:
(In Millions)
Inpatient
$
890.0

 
$
847.6

 
$
42.4

 
5.0
 %
Outpatient and other
19.2

 
22.5

 
(3.3
)
 
(14.7
)%
Total segment revenue
$
909.2

 
$
870.1

 
$
39.1

 
4.5
 %
 
 
 
 
 
 
 
 
 
(Actual Amounts)
Discharges
47,750

 
45,609

 
2,141

 
4.7
 %
Same-store discharge growth
 
 
 
 
 
 
2.4
 %
Net patient revenue per discharge
$
18,639

 
$
18,584

 
$
55

 
0.3
 %
Revenue reserves related to bad debt as a percent of revenue
1.2
%
 
1.4
%
 
 
 
(20 basis points)

 
 
 
 
 
 
 
 
 
(In Millions)
Adjusted EBITDA
$
215.5

 
$
230.0

 
$
(14.5
)
 
(6.3
)%
•
Revenue - Revenue growth resulted from volume growth and an increase in net patient revenue per discharge. New-store discharge growth resulted from joint ventures in Lubbock, Texas (May 2019) and Boise, Idaho (July 2019), and wholly owned hospitals in Katy, Texas (September 2019) and Murrieta, California (February 2020). New-store growth also resulted from a joint venture hospital in Yuma, Arizona changing from the equity method of accounting to a consolidated entity effective July 1, 2019. Growth in net patient revenue per discharge primarily resulted from an increase in reimbursement rates offset by prior period cost report adjustments. Revenue reserves related to bad debt as a percent of revenue decreased 20 basis points to 1.2% primarily due to the continued favorable resolution of medical claims reviews.
The decrease in outpatient revenue resulted from the suspension of hospital-based outpatient services in mid-March 2020 and the closure of certain hospital-based outpatient programs in 2019.
•
Adjusted EBITDA - The decrease in Adjusted EBITDA primarily resulted from higher salaries and benefits expense, as well as the increased purchase and use of medical supplies in March 2020 due to COVID-19. Salaries and benefits increased as a percent of revenue primarily due to the ramp up of new stores and overtime paid to employees as a result of increased volumes early in the first quarter. In addition, employee productivity decreased in March 2020 due to COVID-19 pandemic related items. Other income within the segment decreased $4.4 million primarily due to the year-over-year change in the mark-to-market adjustment on the Company's non-qualified 401(k) liability, which is offset in general and administrative expenses.

 
 
2


Home health and hospice segment results
 
 
 
 
 
Growth
 
Q1 2020
 
Q1 2019
 
Dollars
 
Percent
Net operating revenues:
(In Millions)
Home health
$
224.8

 
$
219.5

 
$
5.3

 
2.4
 %
Hospice
48.0

 
34.4

 
13.6

 
39.5
 %
Total segment revenue
$
272.8

 
$
253.9

 
$
18.9

 
7.4
 %
 
 
 
 
 
 
 
 
Home Health Metrics
(Actual Amounts)
Admissions
42,476

 
37,944

 
4,532

 
11.9
 %
Same-store admissions growth
 
 
 
 
 
 
0.2
 %
Episodes
68,652

 
63,626

 
5,026

 
7.9
 %
Same-store episode growth
 
 
 
 
 
 
(2.6
)%
Revenue per episode
$
2,909

 
$
3,057

 
$
(148
)
 
(4.8
)%
 
 
 
 
 
 
 
 
 
(In Millions)
Adjusted EBITDA
$
41.0

 
$
46.3

 
$
(5.3
)
 
(11.4
)%
•
Revenue - Revenue growth resulted from volume growth. New-store admissions growth was primarily due to the acquisition of Alacare on July 1, 2019. Revenue per episode decreased primarily due to implementation of PDGM on January 1, 2020, the effects of which were exacerbated by the COVID-19 pandemic, and the patient mix of the former Alacare locations. Revenue per episode in the first quarter of 2020 benefited from the reversal of a $1.6 million reserve for a Zone Program Integrity Contractor audit.
Hospice revenue increased 39.5%, with approximately 75% of the increase resulting from the acquisition of Alacare.
•
Adjusted EBITDA - The decrease in Adjusted EBITDA primarily resulted from COVID-19 pandemic related impacts on patient volumes, staff productivity and medical supplies, lower reimbursement rates under PDGM, and increased salaries and wages per full-time equivalent. The segment's administrative costs also increased year over year due to the implementation of PDGM and the Review Choice Demonstration, as well as an increase in sale force full-time equivalents.
General and administrative expenses
 
Q1 2020
 
% of Consolidated Revenue
 
Q1 2019
 
% of Consolidated Revenue
 
(In Millions)
General and administrative expenses, excluding stock-based compensation and transaction costs
$
28.5

 
2.4%
 
$
33.4

 
3.0%
•
General and administrative expenses decreased as a percent of consolidated revenue primarily due to the $4.4 million year-over-year change in the mark-to-market adjustment on the Company's non-qualified 401(k) liability (an offset to the negative impact on the inpatient rehabilitation segment's operating results).

 
 
3


COVID-19 pandemic
The Company continues to take actions to enhance its operational and financial flexibility and ensure its long-term sustainability. Recently, the Company's executive team voluntarily reduced their base compensation for six months. In addition, the Company has:
•
secured secondary sources of PPE and other medical supplies;
•
aligned staffing with patient demand;
•
amended its senior credit facility to provide covenant relief;
•
developed plans for reducing capital expenditures; and
•
suspended its authorized share repurchase program.
After lengthy consideration, the Company has developed plans to manage labor costs in response to lower patient volumes via furloughs, changes to compensation structures and workforce reductions.
Shareholder and other distributions
In February 2020, the Company settled the final put of the Home Health Holdings rollover shares and exercise of stock appreciation rights for approximately $263 million of cash and approximately $46 million of Encompass Health common stock.
During the first quarter of 2020, the Company repurchased 80,304 shares of its common stock for $4.9 million. The Company suspended stock repurchases in mid-March 2020.
In the first quarter of 2020, the Company paid a quarterly cash dividend of $0.28 per share on its common stock and declared a quarterly cash dividend of $0.28 per share that was paid in April 2020.
Balance sheet and liquidity
The Company's primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under its revolving credit facility. As of March 31,2020, the Company had approximately $105 million in cash and approximately $613 million available to it under its $1.0 billion revolving credit facility. The Company does not face near-term refinancing risk, as the amounts outstanding under its credit agreement do not mature until 2024, and its bonds all mature in 2023 and beyond. The Company's leverage ratio at the end of the first quarter of 2020 was 3.5x.
To further enhance its liquidity and ensure availability under its credit agreement, in April 2020, the Company amended its credit agreement primarily to provide covenant relief due to business disruptions from the COVID-19 pandemic. The amendment included, among other things, the carve-out of the COVID-19 pandemic from the definition of material adverse effect for 364 days and modifications to the interest coverage and leverage ratios under the agreement.
Guidance
Given the rapidly changing operating conditions related to the COVID-19 pandemic, the Company cannot accurately estimate the effects it may have on its full-year 2020 financial results. As a result, the Company withdrew its 2020 guidance and five-year growth targets in a Current Report on Form 8-K filed on April 16, 2020.
Earnings conference call and webcast
The Company will host an investor conference call at 9:00 a.m. Eastern Time on Wednesday, April 29, 2020, to discuss its results for the first quarter of 2020. 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 877 587-6761 and giving the pass code 1397274. International callers should dial 706 679-1635 and give the same pass code. 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
As a national leader in integrated healthcare services, Encompass Health (NYSE: EHC) offers both facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. With a national footprint that includes 134 hospitals, 245 home health locations and 83 hospice locations in 37 states and Puerto Rico, the Company is committed to delivering high-quality, cost-effective integrated care across the healthcare continuum. Driven by a set of shared values, 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 Twitter 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 March 31, 2020 (the “March 2020 Form 10‑Q”), when filed, as well as the Company's Current Report on Form 8-K filed on April 28, 2020 (the “Q1 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 April 29, 2020 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 are included below, in the supplemental information, or in the Q1 Earnings Form 8-K. Readers are encouraged to review the “Note Regarding Presentation of Non-GAAP Financial Measures” included in the Q1 Earnings Form 8-K which provides further explanation and disclosure regarding the Company’s use of these non-GAAP financial measures.
The Q1 Earnings Form 8-K and, when filed, the March 2020 Form 10-Q can be found on the Company's website at http://investor.encompasshealth.com and the SEC's website at www.sec.gov.

 
 
4
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions, Except per Share Data)
Net operating revenues
$
1,182.0

 
$
1,124.0

Operating expenses:
 

 
 

Salaries and benefits
679.1

 
620.8

Other operating expenses
159.6

 
150.1

Occupancy costs
20.2

 
19.6

Supplies
45.7

 
40.1

General and administrative expenses
35.6

 
53.4

Depreciation and amortization
58.8

 
52.5

Government, class action, and related settlements
2.8

 
—

Total operating expenses
1,001.8

 
936.5

Interest expense and amortization of debt discounts and fees
43.2

 
37.2

Other expense (income)
1.9

 
(3.7
)
Equity in net income of nonconsolidated affiliates
(0.8
)
 
(2.5
)
Income from continuing operations before income tax expense
135.9

 
156.5

Provision for income tax expense
27.1

 
30.8

Income from continuing operations
108.8

 
125.7

Loss from discontinued operations, net of tax
(0.1
)
 
(0.5
)
Net and comprehensive income
108.7

 
125.2

Less: Net and comprehensive income attributable to noncontrolling interests
(21.7
)
 
(22.9
)
Net and comprehensive income attributable to Encompass Health
$
87.0

 
$
102.3

 
 
 
 
Weighted average common shares outstanding:
 

 
 

Basic
98.2

 
98.4

Diluted
99.6

 
99.7

 


 


Earnings per common share:
 
 
 
Basic earnings per share attributable to Encompass Health common shareholders:
 
 
 

Continuing operations
$
0.88

 
$
1.05

Discontinued operations
—

 
(0.01
)
Net income
$
0.88

 
$
1.04

Diluted earnings per share attributable to Encompass Health common shareholders:
 
 
 
Continuing operations
$
0.87

 
$
1.04

Discontinued operations
—

 
(0.01
)
Net income
$
0.87

 
$
1.03

 
 
 
 
Amounts attributable to Encompass Health common shareholders:
 
 
 

Income from continuing operations
$
87.1

 
$
102.8

Loss from discontinued operations, net of tax
(0.1
)
 
(0.5
)
Net income attributable to Encompass Health
$
87.0

 
$
102.3


 
 
5
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

 
March 31,
2020
 
December 31,
2019
 
(In Millions)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
104.9

 
$
94.8

Restricted cash
56.7

 
57.4

Accounts receivable
543.4

 
506.1

Other current assets
79.5

 
97.5

Total current assets
784.5

 
755.8

Property and equipment, net
2,003.3

 
1,959.3

Operating lease right-of-use assets
267.9

 
276.5

Goodwill
2,312.1

 
2,305.2

Intangible assets, net
464.7

 
476.3

Deferred income tax assets
1.5

 
2.9

Other long-term assets
303.7

 
304.7

Total assets
$
6,137.7

 
$
6,080.7

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
40.2

 
$
39.3

Current operating lease liabilities
40.8

 
40.4

Accounts payable
98.0

 
94.6

Accrued expenses and other current liabilities
407.2

 
546.7

Total current liabilities
586.2

 
721.0

Long-term debt, net of current portion
3,321.9

 
3,023.3

Long-term operating lease liabilities
235.1

 
243.8

Other long-term liabilities
163.3

 
159.9

 
4,306.5

 
4,148.0

Commitments and contingencies
 
 
 
Redeemable noncontrolling interests
34.0

 
239.6

Shareholders’ equity:
 

 
 

Encompass Health shareholders’ equity
1,443.9

 
1,352.2

Noncontrolling interests
353.3

 
340.9

Total shareholders’ equity
1,797.2

 
1,693.1

Total liabilities and shareholders’ equity
$
6,137.7

 
$
6,080.7


 
 
6
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions)
Cash flows from operating activities:
 
 
 
Net income
$
108.7

 
$
125.2

Loss from discontinued operations, net of tax
0.1

 
0.5

Adjustments to reconcile net income to net cash provided by operating activities—
 

 
 

Depreciation and amortization
58.8

 
52.5

Stock-based compensation
7.1

 
19.4

Deferred tax expense
1.4

 
2.6

Other, net
7.7

 
(0.8
)
Change in assets and liabilities, net of acquisitions—
 
 
 

Accounts receivable
(36.6
)
 
(29.6
)
Other assets
15.8

 
(3.8
)
Accrued payroll
(24.0
)
 
(14.8
)
Other liabilities
(109.6
)
 
11.7

Net cash used in operating activities of discontinued operations
(0.1
)
 
(3.0
)
Total adjustments
(79.5
)
 
34.2

Net cash provided by operating activities
29.3

 
159.9

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(83.5
)
 
(72.3
)
Acquisitions of businesses, net of cash acquired
(1.1
)
 
(13.7
)
Other, net
1.6

 
(5.5
)
Net cash used in investing activities
(83.0
)
 
(91.5
)
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facility
330.0

 
25.0

Payments on revolving credit facility
(25.0
)
 
(30.0
)
Dividends paid on common stock
(29.0
)
 
(28.3
)
Purchase of equity interests in consolidated affiliates
(162.3
)
 
—

Distributions paid to noncontrolling interests of consolidated affiliates
(19.1
)
 
(19.5
)
Taxes paid on behalf of employees for shares withheld
(15.6
)
 
(15.9
)
Other, net
(7.9
)
 
(13.0
)
Net cash provided by (used in) financing activities
71.1

 
(81.7
)
Increase (decrease) in cash, cash equivalents, and restricted cash
17.4

 
(13.3
)
Cash, cash equivalents, and restricted cash at beginning of period
159.6

 
133.5

Cash, cash equivalents, and restricted cash at end of period
$
177.0

 
$
120.2

 
 
 
 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
 
 
 
Cash and cash equivalents at beginning of period
$
94.8

 
$
69.2

Restricted cash at beginning of period
57.4

 
59.0

Restricted cash included in other long-term assets at beginning of period
7.4

 
5.3

Cash, cash equivalents, and restricted cash at beginning of period
$
159.6

 
$
133.5

 
 
 
 
Cash and cash equivalents at end of period
$
104.9

 
$
56.1

Restricted cash at end of period
56.7

 
59.0

Restricted cash included in other long-term assets at end of period
15.4

 
5.1

Cash, cash equivalents, and restricted cash at end of period
$
177.0

 
$
120.2


 
 
7
Encompass Health Corporation and Subsidiaries
Supplemental Information
Earnings Per Share

 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions, Except Per Share Data)
Consolidated Adjusted EBITDA
$
228.0

 
$
242.9

Depreciation and amortization
(58.8
)
 
(52.5
)
Interest expense and amortization of debt discounts and fees
(43.2
)
 
(37.2
)
Stock-based compensation expense
(7.1
)
 
(19.4
)
Loss on disposal of assets
(0.1
)
 
(1.1
)
 
118.8

 
132.7

Certain items non-indicative of ongoing operating performance:
 
 
 
Transaction costs
—

 
(0.6
)
Gain on consolidation of Treasure Coast
2.2

 
—

SARs mark-to-market impact on noncontrolling interests
—

 
0.8

Change in fair market value of equity securities
(2.5
)
 
0.9

Government, class action, and related settlements
(2.8
)
 
—

Payroll taxes on SARs exercise
(1.5
)
 
(0.2
)
Pre-tax income
114.2

 
133.6

Income tax expense
(27.1
)
 
(30.8
)
Income from continuing operations (1)
$
87.1

 
$
102.8

 
 
 
 
Basic shares
98.2

 
98.4

Diluted shares
99.6

 
99.7

 
 
 
 
Basic earnings per share (1)
$
0.88

 
$
1.05

Diluted earnings per share (1)
$
0.87

 
$
1.04

(1) 
Income from continuing operations attributable to Encompass Health

 
 
8
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
Q1
 
2020
 
2019
 
 
 
 
Earnings per share, as reported
$
0.87

 
$
1.04

Adjustments, net of tax:
 
 
 
Government, class action, and related settlements
0.02

 
—

Mark-to-market adjustments for stock compensation expense
—

 
0.06

Income tax adjustments
(0.04
)
 
(0.05
)
Change in fair market value of equity securities
0.02

 
(0.01
)
Gain on consolidation of Treasure Coast
(0.02
)
 
—

Payroll taxes on SARs exercise
0.01

 
—

Adjusted earnings per share(1)
$
0.87

 
$
1.04

(1) 
Adjusted EPS may not sum due to rounding.

 
 
9
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Three Months Ended March 31, 2020
 
 
 
Adjustments
 
 
 
As Reported
 
Gov’t, Class Action, & Related Settlements
 
Income Tax Adjustments
 
Change in Fair Market Value of Equity Securities
 
Gain on Consolidation of Treasure Coast
 
Payroll Taxes on SARs Exercise
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA(1)
$
228.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
228.0

Depreciation and amortization
(58.8
)
 
—

 
—

 
—

 
—

 
—

 
(58.8
)
Government, class action, and related settlements
(2.8
)
 
2.8

 
—

 
—

 
 
 
—

 
—

Interest expense and amortization of debt discounts and fees
(43.2
)
 
—

 
—

 
—

 
—

 
—

 
(43.2
)
Stock-based compensation
(7.1
)
 
—

 
—

 
—

 
—

 
—

 
(7.1
)
Loss on disposal of assets
(0.1
)
 
—

 
—

 
—

 
—

 
—

 
(0.1
)
Change in fair market value of equity securities
(2.5
)
 
 
 
—

 
2.5

 
—

 
—

 
—

Gain on consolidation of Treasure Coast
2.2

 
—

 
—

 
—

 
(2.2
)
 
—

 
—

Payroll taxes on SARs exercise
(1.5
)
 
—

 
—

 
—

 
—

 
1.5

 
—

Income from continuing operations before income tax expense
114.2

 
2.8

 
—

 
2.5

 
(2.2
)
 
1.5

 
118.8

Provision for income tax expense
(27.1
)
 
(0.7
)
 
(4.3
)
 
(0.6
)
 
0.6

 
(0.4
)
 
(32.5
)
Income from continuing operations attributable to Encompass Health
$
87.1

 
$
2.1

 
$
(4.3
)
 
$
1.9

 
$
(1.6
)
 
$
1.1

 
$
86.3

Diluted earnings per share from continuing operations(2)
$
0.87

 
$
0.02

 
$
(0.04
)
 
$
0.02

 
$
(0.02
)
 
$
0.01

 
$
0.87

Diluted shares used in calculation
99.6

 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Reconciliation to GAAP provided on page 13
(2) 
Adjusted EPS may not sum across due to rounding.


 
 
10
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Three Months Ended March 31, 2019
 
 
 
Adjustments
 
 
 
As Reported
 
Mark-to-Market Adjustment for Stock Compensation Expense
 
Income Tax Adjustments
 
Transaction Costs
 
Change in Fair Market Value of Equity Securities
 
Payroll Taxes on SARs Exercise
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA(1)
$
242.9

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
242.9

Depreciation and amortization
(52.5
)
 
—

 
—

 
—

 
—

 
—

 
(52.5
)
Interest expense and amortization of debt discounts and fees
(37.2
)
 
—

 
—

 
—

 
—

 
—

 
(37.2
)
Stock-based compensation
(19.4
)
 
9.6

 
—

 
—

 
—

 
—

 
(9.8
)
Loss on disposal of assets
(1.1
)
 
—

 
—

 
—

 
—

 
—

 
(1.1
)
Transaction costs
(0.6
)
 
—

 
—

 
0.6

 
—

 
—

 
—

SARs mark-to-market impact on noncontrolling interests
0.8

 
(0.8
)
 
—

 
—

 
—

 
—

 
—

Change in fair market value of equity securities
0.9

 
—

 
—

 
—

 
(0.9
)
 
—

 
—

Payroll taxes on SARs exercise
(0.2
)
 
—

 
—

 
—

 
—

 
0.2

 
—

Income from continuing operations before income tax expense
133.6

 
8.8

 
—

 
0.6

 
(0.9
)
 
0.2

 
142.3

Provision for income tax expense
(30.8
)
 
(2.4
)
 
(5.2
)
 
(0.2
)
 
0.2

 
—

 
(38.4
)
Income from continuing operations attributable to Encompass Health
$
102.8

 
$
6.4

 
$
(5.2
)
 
$
0.4

 
$
(0.7
)
 
$
0.2

 
$
103.9

Diluted earnings per share from continuing operations(2)
$
1.04

 
$
0.06

 
$
(0.05
)
 
$
—

 
$
(0.01
)
 
$
—

 
$
1.04

Diluted shares used in calculation
99.7

 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Reconciliation to GAAP provided on page 13
(2) 
Adjusted EPS may not sum across due to rounding.

 
 
11
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Income to Adjusted EBITDA


 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions)
Net income
$
108.7

 
$
125.2

Loss from discontinued operations, net of tax, attributable to Encompass Health
0.1

 
0.5

Net income attributable to noncontrolling interests
(21.7
)
 
(22.9
)
Provision for income tax expense
27.1

 
30.8

Interest expense and amortization of debt discounts and fees
43.2

 
37.2

Government, class action, and related settlements
2.8

 
—

Depreciation and amortization
58.8

 
52.5

Loss on disposal of assets
0.1

 
1.1

Stock-based compensation expense
7.1

 
19.4

Transaction costs
—

 
0.6

Gain on consolidation of Treasure Coast
(2.2
)
 
—

SARs mark-to-market impact on noncontrolling interests
—

 
(0.8
)
Change in fair market value of equity securities
2.5

 
(0.9
)
Payroll taxes on SARs exercise
1.5

 
0.2

Adjusted EBITDA
$
228.0

 
$
242.9

Reconciliation of Segment Adjusted EBITDA to
Income from Continuing Operations Before Income Tax Expense
 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions)
Total segment Adjusted EBITDA
$
256.5

 
$
276.3

General and administrative expenses
(35.6
)
 
(53.4
)
Depreciation and amortization
(58.8
)
 
(52.5
)
Loss on disposal of assets
(0.1
)
 
(1.1
)
Government, class action, and related settlements
(2.8
)
 
—

Interest expense and amortization of debt discounts and fees
(43.2
)
 
(37.2
)
Net income attributable to noncontrolling interests
21.7

 
22.9

SARs mark-to-market impact on noncontrolling interests
—

 
0.8

Change in fair market value of equity securities
(2.5
)
 
0.9

Gain on consolidation of Treasure Coast
2.2

 
—

Payroll taxes on SARs exercise
(1.5
)
 
(0.2
)
Income from continuing operations before income tax expense
$
135.9

 
$
156.5


 
 
12
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA


 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions)
Net cash provided by operating activities
$
29.3

 
$
159.9

Interest expense and amortization of debt discounts and fees
43.2

 
37.2

Equity in net income of nonconsolidated affiliates
0.8

 
2.5

Net income attributable to noncontrolling interests in continuing operations
(21.7
)
 
(22.9
)
Amortization of debt-related items
(1.4
)
 
(1.0
)
Distributions from nonconsolidated affiliates
(1.0
)
 
(2.1
)
Current portion of income tax expense
25.7

 
28.2

Change in assets and liabilities
154.4

 
36.5

Cash used in operating activities of discontinued operations
0.1

 
3.0

Transaction costs
—

 
0.6

SARs mark-to-market impact on noncontrolling interests
—

 
(0.8
)
Payroll taxes on SARs exercise
1.5

 
0.2

Change in fair market value of equity securities
2.5

 
(0.9
)
Other
(5.4
)
 
2.5

Consolidated Adjusted EBITDA
$
228.0

 
$
242.9


 
 
13
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow

 
Three Months Ended March 31,
 
2020
 
2019
 
(In Millions)
Net cash provided by operating activities
$
29.3

 
$
159.9

Impact of discontinued operations
0.1

 
3.0

Net cash provided by operating activities of continuing operations
29.4

 
162.9

Capital expenditures for maintenance
(37.8
)
 
(29.6
)
Distributions paid to noncontrolling interests of consolidated affiliates
(19.1
)
 
(19.5
)
Items non-indicative of ongoing operations:
 
 
 
Transaction costs and related assumed liabilities
—

 
0.6

Cash paid for SARs exercise (inclusive of payroll taxes)
102.1

 
13.4

Adjusted free cash flow
$
74.6

 
$
127.8

For the three months ended March 31, 2020, net cash used in investing activities was $83.0 million and primarily resulted from capital expenditures. Net cash provided by financing activities during the three months ended March 31, 2020 was $71.1 million and primarily resulted from net borrowings on the revolving credit facility offset by the settlement of the final put and exercise of the Home Health Holdings rollover shares and SARs, cash dividends paid on common stock, and distributions paid to noncontrolling interests of consolidated affiliates.
For the three months ended March 31, 2019, net cash used in investing activities was $91.5 million and primarily resulted from capital expenditures. Net cash used in financing activities during the three months ended March 31, 2019 was $81.7 million and primarily resulted from cash dividends paid on common stock, distributions paid to noncontrolling interests of consolidated affiliates, taxes paid on behalf of employees for shares withheld under stock compensation arrangements, net debt payments, and repurchases of common stock.

 
 
14
Encompass Health Corporation and Subsidiaries
Forward-Looking Statements

Statements contained in this press release and the supplemental information which are not historical facts, such as those relating to the nature of the COVID-19 pandemic and its impact on Encompass Health’s business and financial assumptions, balance sheet and cash flow plans, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Encompass Health, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such estimates, projections, and forward-looking information speak only as of the date hereof, and Encompass Health undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information, involve a number of risks and uncertainties, and relate to, among other things, future events, Encompass Health's plan to repurchase its debt or equity securities, dividend strategies, effective income tax rates, its business strategy, its financial plans, its future financial performance, its projected business results or model, its ability to return value to shareholders, its projected capital expenditures, its leverage ratio, its acquisition opportunities, and the impact of future legislation or regulation. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual events or results to differ materially from those estimated by Encompass Health include, but are not limited to, 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 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 Encompass Health'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 outcome of various lawsuits, claims, and legal or regulatory proceedings involving Encompass Health, including any matters related to yet undiscovered issues, if any, in acquired operations; Encompass Health's ability to attract and retain key management personnel; any adverse effects on Encompass Health's stock price resulting from the integration of acquired operations; potential disruptions, breaches, or other incidents affecting the proper operation, availability, or security of Encompass Health's or its vendors' 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 unforeseen 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; Encompass Health'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; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for Encompass Health'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, the new patient assessment measures, referred to as “Section GG functional measures,” for inpatient rehabilitation, and other payment system reforms) and Encompass Health’s ability to adapt operations to those changes; competitive pressures in the healthcare industry and Encompass Health's response thereto; Encompass Health's ability to obtain and retain favorable arrangements with third-party payors; Encompass Health'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 Encompass Health's ability to recover improperly denied claims through the administrative appeals process on a timely basis; Encompass Health'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; Encompass Health's

 
 
15
Encompass Health Corporation and Subsidiaries
Forward-Looking Statements

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 Encompass Health's labor expenses from potential union activity and staffing shortages; 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 and Encompass Health's ability to predict the estimated costs related to such claims; and other factors which may be identified from time to time in Encompass Health's SEC filings and other public announcements, including Encompass Health's Form 10‑K for the year ended December 31, 2019 and Form 10-Q for the quarter ended March 31, 2020, when filed.

 
 
16
Earnings Call April 29, 2020 Supplemental information

 
Forward-looking statements The information contained in this presentation includes certain estimates, projections and other forward-looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including the COVID-19 pandemic and its effects, legislative and regulatory developments, strategy, capital expenditures, acquisition and other development activities, cyber security, dividend strategies, repurchases of securities, effective tax rates, financial performance, financial assumptions, business model, balance sheet and cash flow plans, market share, development of new information tools and models, and shareholder value-enhancing transactions. These estimates, projections and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual events or results, and those differences may be material. There can be no assurance any estimates, projections or forward-looking information will be realized. All such estimates, projections and forward-looking information speak only as of the date hereof. Encompass Health undertakes no duty to publicly update or revise the information contained herein. You are cautioned not to place undue reliance on the estimates, projections and other forward-looking information in this presentation as they are based on current expectations and general assumptions and are subject to various risks, uncertainties and other factors, including those set forth in the earnings release attached as Exhibit 99.1 to the Company’s Form 8-K dated April 28, 2020 (the “Q1 Earnings Release Form 8-K”), the Form 8-K dated April 16, 2020, the Form 10-K for the year ended December 31, 2019, the Form 10-Q for the quarter ended March 31, 2020, when filed, and in other documents Encompass Health previously filed with the SEC, many of which are beyond Encompass Health’s control, that may cause actual events or results to differ materially from the views, beliefs and estimates expressed herein. Note regarding presentation of non-GAAP financial measures The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934, including Adjusted EBITDA, leverage ratios, adjusted earnings per share, and adjusted free cash flow. Schedules are attached that reconcile the non-GAAP financial measures included in the following presentation to the most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States. The Q1 Earnings Release Form 8-K, to which the following presentation is attached as Exhibit 99.2, provides further explanation and disclosure regarding Encompass Health’s use of non-GAAP financial measures and should be read in conjunction with this supplemental information. Encompass Health 2

 
Table of contents Q1 2020 summary.................................................................................................... 4-5 COVID-19 pandemic ................................................................................................. 6 Inpatient rehabilitation segment ................................................................................. 7-8 Home health & hospice segment.................................................................................. 9-10 Consolidated Adjusted EBITDA..................................................................................... 11 Earnings per share................................................................................................... 12-13 Adjusted free cash flow ............................................................................................ 14 Uses of free cash flow .............................................................................................. 15 Appendix Map of locations ..................................................................................................... 17 Expansion activity ................................................................................................... 18 Clinical collaboration ............................................................................................... 19 Pre-payment claims denials - inpatient rehabilitation segment ............................................. 20 Overview of rollover shares and SARs ............................................................................ 21 Debt maturity profile and schedule .............................................................................. 22-23 New-store/same-store growth..................................................................................... 24-26 Payment sources (percent of revenues) ......................................................................... 27 Inpatient rehabilitation operational and labor metrics ....................................................... 28 Home health & hospice operational metrics .................................................................... 29 Share information ................................................................................................... 30 Segment operating results ......................................................................................... 31-32 Reconciliations to GAAP ............................................................................................ 33-39 End notes ............................................................................................................. 40-41 Encompass Health 3

 
Q1 2020 summary Q1 ($millions) 2020 2019 Growth Encompass Health Consolidated Net operating revenues $ 1,182.0 $ 1,124.0 5.2 % Adjusted EBITDA $ 228.0 $ 242.9 (6.1)% Inpatient Rehabilitation Segment Net operating revenues $ 909.2 $ 870.1 4.5 % Adjusted EBITDA $ 215.5 $ 230.0 (6.3)% Home Health and Hospice Segment Net operating revenues $ 272.8 $ 253.9 7.4 % Adjusted EBITDA $ 41.0 $ 46.3 (11.4)% Major takeaways: u Inpatient rehabilitation segment Ÿ Discharge growth of 4.7%; same store = 2.4% Ÿ Net revenue per discharge increase of 0.3% u Home health and hospice segment Ÿ Home health admissions growth of 11.9%; same store = 0.2% Ÿ Revenue per episode decrease of 4.8% u Consolidated Adjusted EBITDA decreased 6.1%. u Adjusted EPS of $0.87 per diluted share decreased 16.3% - see pages 12 and 13. u Adjusted free cash flow of $74.6 million - see page 14. Encompass Health Reconciliations to GAAP provided on pages 33-39 4

 
Q1 2020 summary (cont.) u Expansion activity (see page 18) Ÿ Opened a new 50-bed inpatient rehabilitation hospital in Murrieta, California in February 2020 Ÿ Announced plans to build 40-bed inpatient rehabilitation hospitals in the following locations: ü San Angelo, Texas (in joint venture with Shannon Health) ü Greenville, South Carolina ü Pensacola, Florida ü Shreveport, Louisiana ü Waco, Texas Ÿ Added 23 beds to existing hospitals Ÿ Acquired one new home health location in Lynchburg, Virginia and opened one new hospice location in Allen, Texas u Balance sheet - See debt maturity profile on page 22 Ÿ Leverage ratio of 3.5x at quarter end Ÿ Approximately $613 million available under $1 billion revolving credit facility at quarter end Ÿ Amended senior credit facility in April 2020 (see page 6) u Shareholder and other distributions Ÿ Paid quarterly cash dividend of $0.28 per share in January 2020 Ÿ Declared a $0.28 per share quarterly cash dividend in February 2020 (paid in April 2020) Ÿ Settled the final put of the Home Health Holdings rollover shares and exercise of SARs in February 2020 for approximately $263 million of cash and approximately $46 million of EHC shares (see page 21) Ÿ Repurchased 80,304 shares of common stock for $4.9 million in Q1 2020(1) ü Repurchases were suspended in mid-March(1) Encompass Health Refer to pages 40-41 for end notes. 5

 
We are responding to the rapidly changing environment due to the COVID-19 pandemic. u The safety and well-being of our patients and employees remain a critical focus for us. Ÿ Staying current with the CDC’s guidance on the use of personal protective equipment (“PPE”), which is frequently updated Ÿ Limiting visitors in our hospitals to primary caregivers who require training in order to safely discharge a patient home Ÿ Screening everyone entering our hospitals and self-screening all home health and hospice employees Ÿ Performing pre-visit telephone calls to assess risk factors within the home, including patient and caregiver health status Ÿ Following social distancing recommendations in our therapy gyms and performing therapy in patient rooms, if needed Ÿ Suspended all hospital-based outpatient services Ÿ Implemented work-at-home policies for home office and certain field personnel Ÿ Halted all non-essential travel u We continue to take actions to enhance our operational and financial flexibility and to ensure the Company’s long-term sustainability. Ÿ Managing labor costs in response to lower patient volumes via furloughs, changes to compensation structures and workforce reductions Ÿ Secured secondary sources of PPE and other medical supplies Ÿ Suspended our authorized share repurchase program in mid-March Ÿ Amended our senior credit facility in April 2020 ü Primarily provided covenant relief due to disruptions from the COVID-19 pandemic Ÿ Developed plans for reducing capital expenditures u Given the rapidly changing operating conditions related to the COVID-19 pandemic, we cannot accurately estimate the effects on our full-year 2020 financial results. Ÿ Withdrew 2020 guidance and five-year growth targets on April 16, 2020 u We remain optimistic regarding the intermediate and long-term prospects for both of our business segments. Encompass Health 6

 
Inpatient rehabilitation segment - revenue Q1 Q1 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Inpatient $ 890.0 $ 847.6 5.0% Outpatient and other 19.2 22.5 (14.7%) Total segment revenue $ 909.2 $ 870.1 4.5% (Actual Amounts) Discharges 47,750 45,609 4.7% Same-store discharge growth 2.4% Net patient revenue per discharge $ 18,639 $ 18,584 0.3% Revenue reserves related to bad debt as a percent of revenue 1.2% 1.4% (20 basis points) u Revenue growth was driven by volume and pricing growth. Ÿ New-store discharge growth resulted from joint ventures in Lubbock, TX (May 2019) and Boise, ID (July 2019) and wholly owned hospitals in Katy, TX (September 2019) and Murrieta, CA (February 2020). Ÿ New-store growth also resulted from a joint venture hospital in Yuma, Arizona changing from the equity method of accounting to a consolidated entity effective July 1, 2019.(2) Ÿ Growth in net patient revenue per discharge primarily resulted from an increase in reimbursement rates offset by prior period cost report adjustments. Ÿ The decrease in outpatient revenue resulted from the suspension of hospital-based outpatient services in mid-March 2020 and the closure of certain hospital-based outpatient programs in 2019. Ÿ Revenue reserves related to bad debt as a percent of revenue decreased 20 basis points primarily due to the continued favorable resolution of medical claims reviews. Encompass Health Refer to pages 40-41 for end notes. 7

 
Inpatient rehabilitation segment - Adjusted EBITDA u All expense ratios in Q1 2020 benefited from a decrease in revenue reserves related to bad debt (see page 7). Q1 Q1 u % of % of Salaries and benefits increased as a ($millions) 2020 Revenue 2019 Revenue percent of revenue primarily due to a 3.9% increase in salaries and Net operating revenues $ 909.2 $ 870.1 wages per full-time equivalent and Operating expenses: an increase in employees per Salaries and benefits (482.3) 53.0% (445.0) 51.1% occupied bed due to volume decreases in March 2020. Ÿ (a) Salaries and wages per full-time Other operating expenses (134.7) 14.8% (127.6) 14.7% equivalent were higher than Supplies (39.6) 4.4% (35.6) 4.1% expected in Q1 2020 due to the ramp up of new stores and Occupancy costs (15.3) 1.7% (15.8) 1.8% overtime paid to employees as a Hospital operating expenses (189.6) 20.9% (179.0) 20.6% result of increased volumes early in the first quarter of 2020. Other (expense) income(b) (1.6) 2.8 Ÿ Employee productivity decreased Equity in nonconsolidated affiliates 0.6 2.1 in March 2020 due to COVID-19 Noncontrolling interests (20.8) (21.0) pandemic related items. Segment Adjusted EBITDA $215.5 $ 230.0 ü volume decreases in March ü Percent change (6.3)% performing more individual therapy in patient rooms In arriving at Adjusted EBITDA, the following were excluded: ü donning and doffing of PPE (a) Loss on disposal of assets $ 0.1 $ 1.1 screenings of everyone ü (b) Change in fair market value of equity securities $ 2.5 $ (0.9) entering the hospital u u Supplies increased as a percent of Other income decreased $4.4 million primarily due to the year-over-year revenue primarily due to increased change in the mark-to-market adjustment on the Company’s non-qualified purchase and use of medical 401(k) liability (offset in general and administrative expenses). supplies in March 2020 due to the COVID-19 pandemic. Encompass Health Reconciliations to GAAP provided on pages 33-39 8

 
Home health and hospice segment - revenue Q1 Q1 Favorable/ ($millions) 2020 2019 (Unfavorable) Net operating revenues: Home health revenue $ 224.8 $ 219.5 2.4 % Hospice revenue 48.0 34.4 39.5 % Total segment revenue $ 272.8 $ 253.9 7.4 % Home Health Metrics (Actual Amounts) Admissions 42,476 37,944 11.9 % Same-store admissions growth 0.2 % Episodes 68,652 63,626 7.9 % Same-store episode growth (2.6)% Revenue per episode $ 2,909 $ 3,057 (4.8)% u Revenue growth was driven by volume growth. Ÿ New-store admissions growth was primarily due to the acquisition of Alacare on July 1, 2019. u Revenue per episode decreased primarily due to: Ÿ implementation of the Patient Driven Groupings Model, or “PDGM,” on January 1, 2020 ü The effects of PDGM were exacerbated by the COVID-19 pandemic, including an increase in low utilization payment adjustments, or “LUPAs”. Ÿ patient mix of the former Alacare locations u Revenue per episode in Q1 2020 benefited from the reversal of a $1.6 million reserve for a Zone Program Integrity Contractor audit. u Hospice revenue increased 39.5%, with approximately 75% of the increase resulting from the acquisition of Alacare. Encompass Health 9

 
Home health and hospice segment - Adjusted EBITDA u Segment Adjusted EBITDA for 2019 included the acquisition of Alacare which closed on July 1, 2019. u Q1 Q1 All expense ratios in Q1 % of % of 2020 were impacted by a ($millions) 2020 Revenue 2019 Revenue decrease in Medicare Net operating revenues $ 272.8 $ 253.9 reimbursement rates primarily related to the implementation of PDGM, Cost of services (130.9) 48.0% (116.5) 45.9% the effects of which were Support and overhead costs(a) (100.2) 36.7% (88.8) 35.0% exacerbated by the COVID-19 pandemic. Operating expenses (231.1) 84.7% (205.3) 80.9% u Cost of services as a percent of revenue increased Other income(b) — — primarily due to COVID-19 Equity in net income of nonconsolidated affiliates 0.2 0.4 pandemic related impacts on (c) patient volumes, staff Noncontrolling interests (0.9) (2.7) productivity and medical Segment Adjusted EBITDA $ 41.0 $ 46.3 supplies, as well as an increase in salaries and Percent change (11.4)% wages per full-time equivalent. u In arriving at Adjusted EBITDA, the following were excluded: Support and overhead costs as a percent of revenue (a) Payroll taxes on SARs exercise $ 1.5 $ 0.2 increased primarily due to (b) Gain on consolidation of Treasure Coast(3) $ (2.2) $ — increased administrative (c) SARs mark-to-market impact on noncontrolling costs associated with the interests (see page 21) $ — $ (0.8) implementation of PDGM and the Review Choice Demonstration Program, as well as an increase in sales force full-time equivalents. Reconciliations to GAAP provided on pages 33-39 Encompass Health 10 Refer to pages 40-41 for end notes.

 
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $228.0 million u General and administrative expenses decreased as a percent of consolidated revenue primarily due to the $4.4 million year-over-year change in the mark-to-market adjustment on the Company’s non-qualified 401(k) liability (offset in other expense within the inpatient rehabilitation segment). % of Consolidated % of Consolidated ($millions) Q1 2020 Revenue Q1 2019 Revenue Inpatient rehabilitation segment Adjusted EBITDA $ 215.5 $ 230.0 Home health and hospice segment Adjusted EBITDA 41.0 46.3 General and administrative expenses* (28.5) 2.4% (33.4) 3.0% Consolidated Adjusted EBITDA $ 228.0 $ 242.9 Percentage change (6.1)% * General and administrative expenses in the above table exclude stock compensation of $7.1 million and $19.4 million for the first quarter of Encompass Health 2020 and 2019, respectively. 11 . Reconciliations to GAAP provided on pages 33-39

 
Earnings per share - as reported u Q1 The decrease in EPS resulted primarily (In Millions, Except Per Share Data) 2020 2019 from decreased Adjusted EBITDA, higher Adjusted EBITDA $ 228.0 $ 242.9 depreciation and amortization, and higher Depreciation and amortization (58.8) (52.5) interest expense offset by a decrease in Interest expense and amortization of debt discounts and fees (43.2) (37.2) stock-based compensation. Stock-based compensation expense (7.1) (19.4) u Higher depreciation and amortization Loss on disposal of assets (0.1) (1.1) resulted from capital investments. 118.8 132.7 u Higher interest expense resulted from Certain items non-indicative of ongoing operating performance: increased debt, including the funding of Transaction costs — (0.6) the Alacare acquisition on July 1, 2019 Gain on consolidation of Treasure Coast(3) 2.2 — and purchase of the Home Health Holdings SARs mark-to-market impact on noncontrolling interests (see rollover shares and exercise of SARs (see page 21) — 0.8 page 21). Change in fair market value of equity securities (2.5) 0.9 u Stock-based compensation decreased due (4) Government, class action, and related settlements (2.8) — to the final exercise of the Home Health Payroll taxes on SARs exercise (see page 21) (1.5) (0.2) Holdings SARs in Q1 2020 (see page 21). Pre-tax income 114.2 133.6 u Income tax expense (27.1) (30.8) The lower effective tax rate in 2019 Income from continuing operations* $ 87.1 $ 102.8 primarily resulted from windfall tax Diluted shares (see page 30) 99.6 99.7 benefits related to the vesting of share- Diluted earnings per share* $ 0.87 $ 1.04 based compensation. * Earnings per share are determined using income from continuing operations attributable to Encompass Health. Encompass Health Refer to pages 40-41 for end notes. 12

 
Adjusted earnings per share(5) Q1 2020 2019 Earnings per share, as reported $ 0.87 $ 1.04 Adjustments, net of tax: Government, class action, and related settlements(4) 0.02 — Mark-to-market adjustment for stock compensation expense (see page 21) — 0.06 Income tax adjustments (0.04) (0.05) Change in fair market value of equity securities 0.02 (0.01) Gain on consolidation of Treasure Coast(3) (0.02) — Payroll taxes on SARs exercise 0.01 — Adjusted earnings per share* $ 0.87 $ 1.04 Adjusted earnings per share removes from the GAAP earnings per share calculation the impact of items the Company believes are non-indicative of its ongoing operating performance. * Adjusted EPS may not sum due to rounding. See complete calculations of adjusted earnings per share on pages 38-39. Encompass Health 13 Refer to pages 40-41 for end notes.

 
2020 Adjusted free cash flow(6) ($14.9) $2.0 ($26.5) ($5.6) $127.8 ($8.2) $74.6 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow 3 Mos. 2019 EBITDA and other payments payments, capital expenditures flow 3 Mos. 2020 net of refunds u Adjusted free cash flow was lower in Q1 2020 than Q1 2019 due to increased working capital, a decrease in Adjusted EBITDA, an increase in maintenance capital expenditures and an increase in cash interest payments. Ÿ Increased working capital primarily resulted from higher accounts receivable, the timing of payroll cycles, and the timing of and increase in cash interest payments. ü Accounts receivable in the home health and hospice segment increased approximately $33 million year over year primarily due to the transition to PDGM, including a reduction in the Request for Anticipated Payment, or “RAP,” program for home health agencies.(7) Reconciliations to GAAP provided on pages 33-39 Encompass Health Refer to pages 40-41 for end notes. 14

 
Uses of free cash flow ($millions) 3 Months 2020 2019 Actuals Actuals IRF bed expansions $8.5 $39.8 New IRFs - De novos 29.1 114.2 Growth in core - Acquisitions — — business - Replacement IRFs and other 9.5 83.1 Home health and hospice acquisitions (includes Alacare in 2019) 1.1 231.5 $48.2 $468.6 Debt reduction Debt (borrowings) redemptions, net $(299.5) $(548.2) Quarterly cash dividend currently set at $0.28 per common share(8) Cash dividends on common stock(8) 29.0 108.7 Shareholder Purchase of Home Health Holdings and other rollover shares and exercise of SARs distributions (see page 21) 262.9 231.4 Common stock repurchases 4.9 45.9 $(2.7) $(162.2) ~$199 million authorization remaining as of March 31, 2020(1) Encompass Health See the debt schedule on page 23. Refer to pages 40-41 for end notes. 15

 
Appendix

 
Encompass Health a leading provider of inpatient rehabilitation and home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of March 31, 2020 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 11 Future IRFs** 37 States and Puerto Rico ~43,800 employees Inpatient rehabilitation - 03/31/20 Home health and hospice - 03/31/20 134 IRFs (47 are joint ventures) 245 Home health locations 33 States and Puerto Rico Largest owner and 83 Hospice locations ~32,100 Employees operator of IRFs 31 States † 23% of licensed beds 4th Largest provider of ~11,700 Employees † 31% of Medicare patients served Medicare-certified Key statistics - trailing 4 quarters Key statistics - trailing 4 quarters skilled home health ~164,300 Home health admissions ~189,000 Inpatient discharges services ~11,100 Hospice admissions ~$3.6 Billion in revenue ~$1.1 Billion in revenue † * Excluding markets that have home health licensure barriers ** Previously announced under development Based on 2017 and 2018 data Encompass Health Note: One of the 245 home health locations is nonconsolidated. This location is accounted for using the equity method of accounting. 17

 
Certain development projects may be delayed due Expansion activity to the COVID-19 pandemic. Inpatient Rehabilitation Facilities - As of March 31, 2020 # of New Beds 11 Previously announced IRF 2020 2021 2022 development projects underway De novo: Murrieta, CA 50 — — 2 New states 1 Sioux Falls, SD 40 — — 2 Toledo, OH 40 — Q1 2020 expansion activity highlights: 3 Cumming, GA — 50 — u 4 North Tampa, FL — 50 — Began operating a 50-bed inpatient rehabilitation hospital in Murrieta, California in February 2020 5 Stockbridge, GA — 50 — u Announced plans to build five new 40-bed 6 Greenville, SC — 40 — inpatient rehabilitation hospitals: 7 Pensacola, FL — 40 — Ÿ 8 Shreveport, LA — 40 — San Angelo, Texas - joint venture with Shannon Health 9 Waco, TX — 40 — Ÿ Joint ventures: Greenville, South Carolina Ÿ 10 Coralville, IA 40 — Pensacola, Florida Ÿ 11 San Angelo, TX — 40 Shreveport, Louisiana Bed expansions, net* ~120 ~100 ~100 Ÿ Waco, Texas ~290 ~450 ~100 u Added 23 beds to existing hospitals** Home Health and Hospice Locations # of Locations December 31, 2019 328 Q1 2020 expansion activity highlights: Acquisitions 1 u Acquired one home health location in Virginia Opening of new locations 1 u Merging of locations (2) Opened one hospice location in Texas March 31, 2020 328 * Net bed expansions in each year may change due to the timing of certain regulatory approvals and/or construction delays. Encompass Health For 2021 and 2022, the currently expected range for bed expansions is 100 to 150. 18 ** Does not include the de-licensing of 10 beds in Parkersburg, West Virginia

 
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u Clinical collaboration (all payors) overlap markets* objectives: Ÿ Improve patient experience and outcomes Ÿ 35.9% Reduce total cost of care 35.6% 24,560 across a post-acute 34.0% episode Clinical Collaboration Rate u 21,547 6,815 Coordination between our IRFs 89 89 and HH teams is resulting in 24,560 lower discharges to SNFs and 17,947 29.5% 21,547 higher discharges home. 25.4% 81 13,800 17,947 17.260 13,800 u 18.5% 76 The clinical collaboration8,555 rate with Encompass Health’s 8,555 44,479 72 inpatient rehabilitation 41,858 12,174 hospitals decreased 10 basis 42,950 points in Q1 2020 compared 71 40.637 to Q1 2019. 37,671 Ÿ Medicare fee-for-service clinical collaboration rate was 43.8% in Q1 2020 v. 2015 2016 2017 2018 2019 Q1-20 43.4% in Q1 2019. Ÿ Medicare Advantage clinical collaboration rate Encompass Health EHC Home Health Overlap Markets* was 16.3% in Q1 2020 v. IRF discharges to: 13.5% in Q1 2019. Non-EHC Home Health * Overlap markets have an Encompass Health IRF and an Encompass Health home health location within an Encompass Health approximate 30-mile radius, excluding markets that have home health licensure barriers. Overlap 19 markets are open for 12 months before inclusion in the clinical collaboration rate.

 
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” certain Medicare Administrative Contractors (“MACs”) conducted pre-payment claim reviews and denied payment Impact to Income Statement for certain diagnosis codes. Update of • Encompass Health appeals most denials. On claims it takes to an Collections of Revenue Period New Denials Previously Reserve for Reserve for administrative law judge (“ALJ”), Encompass Health historically has Prior Denied Claims New Denials Denials experienced an approximate 70% success rate. (In Millions) – MACs identify medical documentation issues as a leading basis for denials. Q1 2020 $4.2 $(5.0) $1.3 $— – Encompass Health’s investment in clinical information systems and Q4 2019 3.8 (4.6) 1.1 — its medical services department has further improved its Q3 2019 11.3 (6.1) 3.4 — documentation and reduced technical denials. Q2 2019 3.5 (1.7) 1.1 — • By statute, ALJ decisions are due within 90 days of a request for Q1 2019 1.6 (2.5) 0.5 — hearing, but appeals are taking years. HHS has implemented rule Q4 2018 4.6 (3.2) 1.4 — changes to address the backlog of appeals, but their effect is Q3 2018 0.7 (1.3) 0.2 — uncertain. Q2 2018 1.8 (2.8) 0.5 — • In November 2018, a federal court ordered HHS to reduce the backlog Q1 2018 3.1 (6.8) 0.9 — in the following increments: a 19% reduction by the end of FY 2019; a Q4 2017 0.7 (7.8) 0.2 — 49% reduction by the end of FY 2020; a 75% reduction by the end of FY Q3 2017 7.4 (6.2) 2.2 — 2021; and elimination of the backlog by the end of FY 2022. Q2 2017 16.5 (7.7) 4.9 — • All Medicare providers continue to experience delays resulting in a Q1 2017 19.0 (5.9) 5.7 — growing backlog. – Currently, ALJs are hearing Encompass Health appeals from claims Impact to Balance Sheet denied up to eight years ago. March 31, Dec. 31, Dec. 31, • In late 2017, CMS implemented the Targeted Probe and Educate 2020 2019 2018 (“TPE”) initiative.* (In Millions) • Effective March 2020, CMS suspended most Medicare fee-for-service Pre-payment claims denials $ 153.4 $ 155.3 $ 158.1 medical reviews during the public health emergency, including TPE Recorded reserves (46.0) (46.6) (47.4) and current post-payment reviews. CMS may conduct reviews during or after the public health emergency if there is an indication of Net accounts receivable from potential fraud. pre-payment claims denials $ 107.4 $ 108.7 $ 110.7 * For more information regarding TPE, see https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/ Encompass Health Medicare-FFS-Compliance-Programs/Medical-Review/Targeted-Probe-and-EducateTPE.html 20

 
Overview of rollover shares and SARs held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the post-acquisition entity (“Home Health Holdings”) resulting in a 16.7% ownership interest (the “Rollover Shares”). • The Company also granted stock appreciation rights (“SARs”) based on the fair value of the common Home Health stock of Home Health Holdings to certain members of that management team. Half of the SARs Holdings vested on Jan. 1, 2019, and the other half vested on Jan. 1, 2020. • Home Health Holdings was capitalized with a promissory note to the parent company totaling approximately $385 million (equal to 5.5x the segment’s 2014 EBITDA). This was done to provide the Original opportunity for leveraged returns on the equity, thereby mimicking a private equity transaction Rollover structure. Shares 16.7% • To the extent Home Health Holdings needed cash (e.g., acquisitions, capex, etc.), such amounts were added to the principal amount of the original note and subsequent new notes. Cash generated from the operations of Home Health Holdings has been used to pay interest and a portion of the principal on the notes. Holder – The right (but not the obligation) to sell for cash up to 1/3 of the Rollover Shares to the parent after 1/1/18; Options 2/3 after 1/1/19; and all outstanding Rollover Shares after 1/1/20 Company – The right (but not the obligation) to purchase for cash all or any portion of the Rollover Shares after 1/1/20 Fair value of the Rollover Shares and SARs was determined using the product of Home Health Holdings’ EBITDA for the Valuation trailing 12-month period and a median market price multiple based on a basket of public home health companies and recent transactions, less the current balance of the intracompany note(s) to the parent. In Feb. 2018, July 2019, and Jan. 2020, holders exercised their rights to sell Rollover Shares to EHC. EHC settled the exercises upon payment of approximately $65 million, approximately $163 million, and approximately $162 million in Q1 2018, Q3 2019 and Q1 2020, respectively. After the approximate $162 million payment was made in February 2020, only $46 million of the rollover shares remained outstanding, representing approximately 1.2% Home Health Holdings. In Q1 2019 and Q3 2019, holders exercised vested SARs for cash proceeds of approximately $13 million and Activity approximately $55 million, respectively. In Q1 2020, holders exercised the remaining SARs for cash proceeds of approximately $101 million. On Feb. 20, 2020, the Company and each of April Anthony and Luke James agreed to exchange the remaining rollover shares (approximately $45 million and $1 million, respectively) for an equal value of shares of EHC. The exchange settled in March 2020. Encompass Health 21

 
Debt maturity profile - face value As of March 31, 2020* ($ in millions) $613 Available Callable beginning $350 Drawn November 2017 + $37 reserved for Callable beginning Revolver February 2023 LCs capacity Callable beginning February 2025 $700 Callable beginning Callable beginning Senior September 2020 March 2018 Notes 5.75% $500 $500 $350 Senior Senior $300 Senior Notes Notes Senior Revolver $262 Notes 4.5% 4.75% Notes Term 5.75% 5.125% Loans 2020 2022 2023 2024 2024 2024 2025 2026 2027 2028 2029 2030 No significant debt maturities prior to 2023 * This chart does not include ~$381 million of finance lease obligations or ~$45 million of other notes payable. Encompass Health See the debt schedule on page 23. 22

 
Debt schedule Change in March 31, December 31, Debt vs. ($millions) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 350.0 $ 45.0 $ 305.0 Term loan facility, November 2024 - LIBOR +150bps 261.9 265.2 (3.3) Bonds Payable: 5.125% Senior Notes due 2023 297.5 297.3 0.2 5.75% Senior Notes due 2024(9) 697.5 697.3 0.2 5.75% Senior Notes due 2025 345.8 345.6 0.2 4.50% Senior Notes due 2028(10) 491.9 491.7 0.2 4.75% Senior Notes due 2030(10) 491.8 491.7 0.1 Other notes payable 44.5 44.7 (0.2) Finance lease obligations 381.2 384.1 (2.9) Long-term debt $ 3,362.1 $ 3,062.6 $ 299.5 Debt to Adjusted EBITDA 3.5x 3.2x Encompass Health Reconciliations to GAAP provided on pages 33-39; Refer to pages 40-41 for end notes. 23

 
New-store/same-store growth Inpatient Rehabilitation 25.0 Shelby County, AL (34 beds) Yuma, AZ (51 beds)(2) Bluffton, SC (38 beds) 20.0 Boise, ID (40 beds) Katy, TX (40 beds) Gulfport, MS (33 beds) Murrells Inlet, 15.0 SC (29 beds) Lubbock, TX Westerville, OH (60 beds) (40 beds) Murrieta, CA (50 beds) Pearland, TX Winston-Salem, 10.0 Jackson, TN (40 beds) NC (68 beds) (48 beds) 5.0 0.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Discharges Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 New store 1.9% 2.4% 2.0% 1.9% 1.6% 1.0% 1.7% 1.3% 1.5% 2.4% 2.0% 2.3% Same store 1.6% 1.4% 3.9% 4.8% 3.6% 2.0% 1.9% (0.2)% 2.2% 3.1% 3.2% 2.4% Total by qtr. 3.5% 3.8% 5.9% 6.7% 5.2% 3.0% 3.6% 1.1% 3.7% 5.5% 5.2% 4.7% Total by year 4.0% 4.6% 3.9% Same-store year* 1.8% 2.8% 1.8% Same-store year UDS (11) (0.5)% 1.1% 1.3% * Includes consolidated inpatient rehabilitation hospitals classified as same store during each period Encompass Health Refer to pages 40-41 for end notes. 24

 
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice 30.0 (23 home health locations in Alabama) in July 2019 25.0 Acquired Camellia Healthcare (14 home health locations in 3 states) 20.0 in May 2018 15.0 10.0 5.0 0.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Admissions Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 New store 6.4% 6.7% 3.5% 2.5% 5.3% 5.4% 5.3% 5.7% 2.9% 13.0% 12.3% 11.7% Same store* 13.3% 8.8% 10.1% 7.4% 5.1% 3.8% 5.4% 6.4% 8.3% 9.7% 6.6% 0.2% Total by quarter 19.7% 15.5% 13.6% 9.9% 10.4% 9.2% 10.7% 12.1% 11.2% 22.7% 18.9% 11.9% Total by year 17.0% 10.0% 16.3% Same-store year* 11.4% 5.6% 7.7% u In 2017, the Company acquired or opened 15 home health locations. u In 2018, the Company acquired or opened 23 home health locations. u In 2019, the Company acquired or opened 27 home health locations. u In 2020, the Company acquired or opened 1 home health location and consolidated one former equity method location(3). * Includes consolidated home health agencies classified as same store during each period Encompass Health 25 Refer to pages 40-41 for end notes.

 
New-store/same-store growth Hospice Acquired Camellia Healthcare (18 hospice locations in 3 states) 70.0 Acquired Alacare Home Health & Hospice in May 2018 (23 hospice locations in Alabama) 60.0 in July 2019 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Admissions Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 New store 28.8% 24.2% 8.8% 4.4% 26.1% 40.3% 41.2% 35.5% 15.7% 34.6% 31.1% 30.9% Same store* 13.1% 28.8% 27.2% 36.8% 35.2% 21.1% 8.6% 13.7% 13.6% 5.8% 10.1% (5.3)% Total by quarter 41.9% 53.0% 36.0% 41.2% 61.3% 61.4% 49.8% 49.2% 29.3% 40.4% 41.2% 25.6% Total by year 45.9% 53.5% 39.8% Same-store year* 20.9% 24.6% 12.2% u In 2017, the Company acquired or opened 2 hospice locations. u In 2018, the Company acquired or opened 22 hospice locations. u In 2019, the Company acquired or opened 25 hospice locations. u In 2020, the Company opened 1 hospice location. Encompass Health * Includes consolidated hospice agencies classified as same store during each period 26

 
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q1 Q1 Q1 Full Year 2020 2019 2020 2019 2020 2019 2019 Medicare 70.5% 73.5% 83.0% 84.6% 73.4% 76.0% 75.1% Medicare Advantage 12.3% 9.8% 10.8% 10.0% 11.9% 9.8% 10.6% Managed care 9.9% 9.6% 4.4% 3.3% 8.7% 8.2% 8.3% Medicaid 3.4% 3.0% 1.5% 1.7% 3.0% 2.7% 2.8% Other third-party payors 1.2% 1.1% —% —% 0.9% 0.9% 0.9% Workers’ compensation 0.8% 0.9% 0.1% 0.1% 0.6% 0.7% 0.7% Patients 0.6% 0.7% 0.1% 0.2% 0.5% 0.6% 0.5% Other income 1.3% 1.4% 0.1% 0.1% 1.0% 1.1% 1.1% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Encompass Health 27

 
Inpatient rehabilitation operational and labor metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 19.2 23.2 21.7 22.1 22.5 89.5 Net operating revenues $ 909.2 $ 896.7 $ 872.3 $ 873.9 $ 870.1 $ 3,513.0 (Actual Amounts) Discharges(12) 47,750 47,885 46,669 46,679 45,609 186,842 Net patient revenue per discharge $ 18,639 $ 18,242 $ 18,226 $ 18,248 $ 18,584 $ 18,323 Outpatient visits 69,743 82,536 86,395 104,566 102,028 375,525 Average length of stay 12.7 12.4 12.6 12.5 12.8 12.6 Occupancy % 71.3% 70.0% 69.2% 70.6% 72.3% 69.5% # of licensed beds 9,322 9,249 9,219 9,062 8,941 9,249 Occupied beds 6,647 6,474 6,380 6,398 6,464 6,428 Full-time equivalents (FTEs)(13) 22,318 22,096 22,037 21,570 21,345 21,762 Contract labor 161 159 187 227 246 205 Total FTE and contract labor 22,479 22,255 22,224 21,797 21,591 21,967 EPOB(14) 3.38 3.44 3.48 3.41 3.34 3.42 Refer to pages 40-41 for end notes. Encompass Health 28

 
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues $ 272.8 $ 287.7 $ 289.3 $ 261.1 $ 253.9 $ 1,092.0 Home Health: (Actual Amounts) Admissions(15) 42,476 41,781 42,174 37,828 37,944 159,727 Recertifications 26,553 29,460 30,213 28,129 28,282 116,084 Episodes 68,652 73,055 72,016 66,881 63,626 275,578 Average revenue per episode $ 2,909 $ 2,901 $ 2,980 $ 2,959 $ 3,057 $ 2,972 Episodic visits per episode 16.3 16.4 17.3 17.1 17.7 17.1 Total visits 1,306,230 1,372,326 1,425,323 1,325,362 1,308,610 5,431,621 Cost per visit $ 81 $ 79 $ 78 $ 76 $ 75 $ 77 Hospice: Admissions(16) 2,986 2,866 2,884 2,324 2,378 10,452 Patient days 334,545 345,855 353,549 259,501 239,022 1,197,927 Average daily census 3,676 3,759 3,843 2,852 2,656 3,282 Revenue per day $ 144 $ 147 $ 142 $ 148 $ 144 $ 145 Encompass Health Refer to pages 40-41 for end notes. 29

 
Share information Weighted Average for the Period Q1 Full Year (Millions) 2020 2019 2019 2018 2017 Basic shares outstanding(17) 98.2 98.4 98.0 97.9 93.7 Convertible senior subordinated notes(17) — — — — 4.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.4 1.3 1.4 1.9 1.6 Diluted shares outstanding 99.6 99.7 99.4 99.8 99.3 End of Period Q1 Full Year (Millions) 2020 2019 2019 2018 2017 Basic shares outstanding 99.4 99.1 98.6 98.9 98.3 Encompass Health Refer to pages 40-41 for end notes. 30

 
Segment operating results Q1 2020 Q1 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 909.2 $ 272.8 $ — $ 1,182.0 $ 870.1 $ 253.9 $ — $ 1,124.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (482.3) — (195.3) (677.6) (445.0) — (175.6) (620.6) Other operating expenses(a) (134.7) — (24.8) (159.5) (127.6) — (21.4) (149.0) Supplies (39.6) — (6.1) (45.7) (35.6) — (4.5) (40.1) Occupancy (15.3) — (4.9) (20.2) (15.8) — (3.8) (19.6) Home Health and Hospice: Cost of services sold (excluding depreciation and amortization) — (130.9) 130.9 — — (116.5) 116.5 — Support and overhead costs(b) — (100.2) 100.2 — — (88.8) 88.8 — (671.9) (231.1) — (903.0) (624.0) (205.3) — (829.3) Other (expense) income(c)(d) (1.6) — — (1.6) 2.8 — — 2.8 Equity in net income of nonconsolidated affiliates 0.6 0.2 — 0.8 2.1 0.4 — 2.5 Noncontrolling interests(e) (20.8) (0.9) — (21.7) (21.0) (2.7) — (23.7) Segment Adjusted EBITDA $ 215.5 $ 41.0 $ — 256.5 $ 230.0 $ 46.3 $ — 276.3 General and administrative expenses(f)(g) (28.5) (33.4) Adjusted EBITDA $ 228.0 $ 242.9 In arriving at Adjusted EBITDA, the following were excluded: (a) Loss on disposal of assets $ 0.1 $ — $ — $ 0.1 $ 1.1 $ — $ — $ 1.1 (b) Payroll taxes on SARs exercise $ — $ 1.5 $ — $ 1.5 $ — $ 0.2 $ — $ 0.2 (c) Change in fair market value of $ 2.5 $ — $ — $ 2.5 $ (0.9) $ — $ — $ (0.9) equity securities (d) Gain on consolidation of Treasure $ — $ (2.2) $ — $ (2.2) $ — $ — $ — $ — Coast(3) (e) SARs mark-to-market impact on $ — $ — $ — $ — $ — $ (0.8) $ — $ (0.8) noncontrolling interests (see page 21) (f) Stock-based compensation $ — $ — $ — $ 7.1 $ — $ — $ — $ 19.4 (g) Transaction costs $ — $ — $ — $ — $ — $ — $ — $ 0.6 Encompass Health Reconciliations to GAAP provided on pages 33-39; Refer to pages 40-41 for end notes. 31

 
Segment operating results Year Ended December 31, 2019 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) Other operating expenses(a) (521.9) — (90.6) (612.5) Supplies (147.0) — (20.9) (167.9) Occupancy (64.8) — (17.5) (82.3) Home Health and Hospice: Cost of services sold (excluding depreciation and amortization) — (506.2) 506.2 — Support and overhead costs(b) — (381.7) 381.7 — (2,546.8) (887.9) — (3,434.7) Other income(c)(d) 10.5 — — 10.5 Equity in net income of nonconsolidated affiliates 5.5 1.2 — 6.7 Noncontrolling interests(e) (82.6) (9.5) — (92.1) Segment Adjusted EBITDA $ 899.6 $ 195.8 $ — 1,095.4 General and administrative expenses(f)(g) (130.5) Adjusted EBITDA $ 964.9 In arriving at Adjusted EBITDA, the following were excluded: (a) Loss (gain) on disposal of assets $ 11.2 $ (0.1) $ — $ 11.1 (b) Payroll taxes on SARs exercise $ — $ 1.0 $ — $ 1.0 (c) Change in fair market value of equity securities $ (0.8) $ — $ — $ (0.8) (d) Gain on consolidation of Yuma(2) $ (19.2) $ — $ — $ (19.2) (e) SARs mark-to-market impact on noncontrolling interests (see page 21) $ — $ (5.0) $ — $ (5.0) (f) Stock-based compensation $ — $ — $ — $ 114.4 (g) Transaction costs $ — $ — $ — $ 2.1 Encompass Health Reconciliations to GAAP provided on pages 33-39; Refer to pages 40-41 for end notes. 32

 
Reconciliation of net income to Adjusted EBITDA(18) 2020 Q1 (in millions, except per share data) Total Per Share Net Income $ 108.7 Loss from disc ops, net of tax, attributable to Encompass Health 0.1 Net income attributable to noncontrolling interests (21.7) Income from continuing operations attributable to Encompass Health* 87.1 $ 0.87 Government, class action, and related settlements 2.8 Provision for income tax expense 27.1 Interest expense and amortization of debt discounts and fees 43.2 Depreciation and amortization 58.8 Loss on disposal of assets 0.1 Stock-based compensation expense 7.1 Gain on consolidation of Treasure Coast(3) (2.2) Change in fair market value of equity securities 2.5 Payroll taxes on SARs exercise 1.5 Adjusted EBITDA $ 228.0 Weighted average common shares outstanding: Basic 98.2 Diluted 99.6 * Per share amounts for each period presented are based on diluted weighted-average shares outstanding. Encompass Health Refer to pages 40-41 for end notes. 33

 
Reconciliation of net income to Adjusted EBITDA(18) 2019 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encompass Health 0.5 0.1 — — 0.6 Net income attributable to noncontrolling interests (22.9) (19.7) (21.9) (22.6) (87.1) Income from continuing operations attributable to Encompass Health* 102.8 $ 1.04 91.3 $ 0.92 97.6 $ 0.98 67.6 $ 0.68 359.3 $ 3.62 Provision for income tax expense 30.8 23.5 34.3 27.3 115.9 Interest expense and amortization of debt discounts and fees 37.2 37.7 40.3 44.5 159.7 Depreciation and amortization 52.5 52.7 55.1 58.4 218.7 Loss on early extinguishment of debt — 2.3 — 5.4 7.7 Loss on disposal of assets 1.1 1.3 0.9 7.8 11.1 Stock-based compensation expense 19.4 45.9 21.7 27.4 114.4 Transaction costs 0.6 0.4 1.0 0.1 2.1 Gain on consolidation of Yuma(2) — — (19.2) — (19.2) SARs mark-to-market impact on noncontrolling interests (see page 21) (0.8) (2.6) (0.9) (0.7) (5.0) Change in fair market value of equity securities (0.9) (0.3) — 0.4 (0.8) Payroll taxes on SARs exercise 0.2 — 0.8 — 1.0 Adjusted EBITDA $ 242.9 $ 252.2 $ 231.6 $ 238.2 $ 964.9 Weighted average common shares outstanding: Basic 98.4 98.0 97.8 97.8 98.0 Diluted 99.7 99.3 99.4 99.5 99.4 * Per share amounts for each period presented are based on diluted weighted-average shares outstanding. Encompass Health Refer to pages 40-41 for end notes. 34

 
Net cash provided by operating activities reconciled to Adjusted EBITDA(18) Q1 Full Year (In Millions) 2020 2019 2019 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 Interest expense and amortization of debt discounts and fees 43.2 37.2 159.7 Equity in net income of nonconsolidated affiliates 0.8 2.5 6.7 Net income attributable to noncontrolling interests in continuing operations (21.7) (22.9) (87.1) Amortization of debt-related items (1.4) (1.0) (4.5) Distributions from nonconsolidated affiliates (1.0) (2.1) (6.6) Current portion of income tax expense 25.7 28.2 75.9 Change in assets and liabilities 154.4 36.5 180.1 Cash used in operating activities of discontinued operations 0.1 3.0 4.4 Transaction costs — 0.6 2.1 SARs mark-to-market impact on noncontrolling interests (see page 21) — (0.8) (5.0) Payroll taxes on SARs exercise 1.5 0.2 1.0 Change in fair market value of equity securities 2.5 (0.9) (0.8) Other (5.4) 2.5 3.7 Adjusted EBITDA $ 228.0 $ 242.9 $ 964.9 Encompass Health Refer to pages 40-41 for end notes. 35

 
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Year Ended March 31, December 31, 2020 2019 2019 (In Millions) Total segment Adjusted EBITDA $ 256.5 $ 276.3 $ 1,095.4 General and administrative expenses (35.6) (53.4) (247.0) Depreciation and amortization (58.8) (52.5) (218.7) Loss on disposal of assets (0.1) (1.1) (11.1) Government, class action, and related settlements(4) (2.8) — — Loss on early extinguishment of debt(9) — — (7.7) Interest expense and amortization of debt discounts and fees (43.2) (37.2) (159.7) Net income attributable to noncontrolling interests 21.7 22.9 87.1 SARs mark-to-market impact on noncontrolling interests (see page 21) — 0.8 5.0 Change in fair market value of equity securities (2.5) 0.9 0.8 Gain on consolidation of former equity method location(2)(3) 2.2 — 19.2 Payroll taxes on SARs exercise (1.5) (0.2) (1.0) Income from continuing operations before income tax expense $ 135.9 $ 156.5 $ 562.3 Encompass Health Refer to pages 40-41 for end notes. 36

 
Reconciliation of net cash provided by operating activities to adjusted free cash flow(6) Q1 Full Year (In Millions) 2020 2019 2019 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 Impact of discontinued operations 0.1 3.0 4.4 Net cash provided by operating activities of continuing operations 29.4 162.9 639.7 Capital expenditures for maintenance (37.8) (29.6) (167.1) Distributions paid to noncontrolling interests of consolidated affiliates (19.1) (19.5) (79.8) Items non-indicative of ongoing operating performance: Cash paid for government, class action, and related settlements — — 52.0 Transaction costs and related assumed liabilities — 0.6 2.1 Cash paid for SARs exercise (inclusive of payroll taxes) 102.1 13.4 69.6 Adjusted free cash flow $ 74.6 $ 127.8 $ 516.5 Cash dividends on common stock $ 29.0 $ 28.3 $ 108.7 Encompass Health Refer to pages 40-41 for end notes. 37

 
Adjusted EPS(5) - Q1 2020 For the Three Months Ended March 31, 2020 Adjustments Change in Payroll Gov’t, Class Fair Market Gain on Taxes Action, & Value of Consolidation on As Related Income Tax Equity of Treasure SARs As Reported Settlements Adjustments Securities Coast Exercise Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 228.0 $ — $ — $ — $ — $ — $ 228.0 Depreciation and amortization (58.8) — — — — — (58.8) Government, class action and related settlements (2.8) 2.8 — — — — — Interest expense and amortization of debt discounts and fees (43.2) — — — — — (43.2) Stock-based compensation (7.1) — — — — — (7.1) Loss on disposal of assets (0.1) — — — — — (0.1) Change in fair market value of equity securities (2.5) — — 2.5 — — — Gain on consolidation of Treasure Coast(3) 2.2 — — — (2.2) — — Payroll taxes on SARs exercise (1.5) — — — — 1.5 — Income from continuing operations before income tax expense 114.2 2.8 — 2.5 (2.2) 1.5 118.8 Provision for income tax expense (27.1) (0.7) (4.3) (0.6) 0.6 (0.4) (32.5) Income from continuing operations attributable to Encompass Health $ 87.1 $ 2.1 $ (4.3) $ 1.9 $ (1.6) $ 1.1 $ 86.3 Diluted earnings per share from continuing operations* $ 0.87 $ 0.02 $ (0.04) $ 0.02 $ (0.02) $ 0.01 $ 0.87 Diluted shares used in calculation 99.6 Encompass Health * Adjusted EPS may not sum across due to rounding. 38 Refer to pages 40-41 for end notes.

 
Adjusted EPS(5) - Q1 2019 For the Three Months Ended March 31, 2019 Adjustments Mark-to- Market Change in Adjustment Fair Market Payroll for Stock Value of Taxes on As Compensation Income Tax Transaction Equity SARs As Reported Expense Adjustments Costs Securities Exercise Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 242.9 $ — $ — $ — $ — $ — $ 242.9 Depreciation and amortization (52.5) — — — — — (52.5) Interest expense and amortization of debt discounts and fees (37.2) — — — — — (37.2) Stock-based compensation (19.4) 9.6 — — — — (9.8) Loss on disposal of assets (1.1) — — — — — (1.1) Transaction costs (0.6) — — 0.6 — — — SARs mark-to-market impact on noncontrolling interests (see page 21) 0.8 (0.8) — — — — — Change in fair market value of equity securities 0.9 — — — (0.9) — — Payroll taxes on SARs exercise (0.2) — — — — 0.2 — Income from continuing operations before income tax expense 133.6 8.8 — 0.6 (0.9) 0.2 142.3 Provision for income tax expense (30.8) (2.4) (5.2) (0.2) 0.2 — (38.4) Income from continuing operations attributable to Encompass Health $ 102.8 $ 6.4 $ (5.2) $ 0.4 $ (0.7) $ 0.2 $ 103.9 Diluted earnings per share from continuing operations* $ 1.04 $ 0.06 $ (0.05) $ — $ (0.01) $ — $ 1.04 Diluted shares used in calculation 99.7 Encompass Health * Adjusted EPS may not sum across due to rounding. 39 Refer to pages 40-41 for end notes.

 
End notes (1) On Oct. 28, 2013, the Company announced its board of directors authorized the repurchase of up to $200 million of its common stock. On Feb. 14, 2014, the Company's board approved an increase in this common stock repurchase authorization from $200 million to $250 million. As of June 30, 2018, the remaining repurchase authorization was approximately $58 million. On July 24, 2018, the Company's board approved resetting the aggregate common stock repurchase authorization to $250 million. As of March 31, 2019, the remaining repurchase authorization was approximately $199 million. Repurchases were suspended in mid- March 2020. (2) As a result of negotiations with our partner to amend the joint venture agreement related to Yuma Rehabilitation Hospital, the accounting for this hospital changed from the equity method of accounting to a consolidated entity effective July 1, 2019. We accounted for this change in control as a business combination and consolidated this entity using the acquisition method. As a result of our consolidation of this hospital and the remeasurement of our previously held equity interest at fair value, we recorded a $19.2 million gain as part of other income in the third quarter of 2019. (3) As a result of an amendment to the joint venture agreement related to our home health location in Treasure Coast, Florida, the accounting for this agency changed from the equity method of accounting to a consolidated entity effective January 1, 2020. We accounted for this change in control as a business combination and consolidated this entity using the acquisition method. As a result of our consolidation of this agency and the remeasurement of our previously held equity interest at fair value, we recorded a $2.2 million gain as part of other income in the first quarter of 2020. (4) As previously disclosed, from 2013 to 2019, the Company cooperated with an investigation of alleged improper or fraudulent Medicare and Medicaid claims. The investigation, under the direction of DOJ, produced no evidence of fraud, falsity or wrongdoing. However, based on discussions with DOJ, and having considered the burdens and distractions associated with continuing the investigation and the likely costs of future litigation, the Company estimated a settlement value of $48 million and accrued a loss contingency in that amount in the fourth quarter of 2018. Following further discussions, the Company entered into an agreement effective as of June 21, 2019 to settle the DOJ investigation, together with related qui tam or “whistleblower” lawsuits, for a cash payment of $48 million. (5) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non- GAAP measure. 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 deemed to be non-indicative of 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 generally accepted accounting principles in the United States 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.* (6) Definition of adjusted free cash flow, which is a non-GAAP measure, is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, dividends paid on preferred stock, distributions to noncontrolling interests, and certain other items deemed to be non-indicative of ongoing operating performance. Common stock dividends are not included in the calculation of adjusted free cash flow. 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. (7) On October 31, 2019, CMS released its notice of final rulemaking for calendar year 2020 (the “2020 Final HH Rule”) for home health agencies under the home health prospective payment system (the “HH-PPS”). The 2020 Final HH Rule implemented a net 1.3% market basket increase (market basket update of 1.5% reduced by 0.2% for an extension of the rural payment add-on factor) on January 1, 2020. Additionally, pursuant to the requirements of The Bipartisan Budget Act (“BBA”) of 2018, the 2020 Final HH Rule set out significant changes to the HH-PPS, including a new payment system, referred to as the Patient-Driven Groupings Model (“PDGM”), that uses 30-day payment periods and relies more heavily on clinical characteristics and other patient information (such as principal diagnosis, functional level, referral source, and timing), rather than the former therapy service-use thresholds, to set payments. CMS also finalized a 4.36% reduction in the base payment rate for 2020 intended to offset the provider behavioral changes that CMS assumed PDGM will drive. The 2020 Final HH Rule also eliminated by 2021 the process known as Request for Anticipated Payments (“RAPs”) which allows providers to seek reimbursement of either 50% or 60% of the estimated base payment for the full care episode at the beginning of that episode. As part of eliminating RAPs, beginning January 1, 2021, CMS will require home health agencies to submit “no pay” RAPs within five days of initiating a care episode, with a payment penalty for failing to timely submit the “no pay” RAP. Beginning January 1, 2022, CMS will require home health agencies to submit certain documentation and information through a notice of admission (“NOA”) within five days of initiating a care episode, with a payment penalty for failing to timely submit the NOA. CMS also adopted additional quality reporting measures and significantly increased the standardized patient assessment data elements collected by providers. Encompass Health * Reconciliations to GAAP provided on pages 33-39 40

 
End notes, con’t. (8) On July 20, 2017, the board of directors approved a $0.01 per share, or 4.2%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.25 per common share. On July 24, 2018, the board of directors approved a $0.02 per share, or 8.0%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.27 per common share. On July 23, 2019, the board of directors approved a $0.01 per share, or 3.7%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.28 per common share. (9) In June 2019, the Company redeemed $100 million of its 5.75% Senior Notes due 2024 at a price of 101.917%, which resulted in a total cash outlay of ~$102 million. The redemption was funded using cash on hand and funding under the Company’s revolving credit facility. As a result of this redemption, the Company recorded an approximate $2 million loss on early extinguishment of debt in the second quarter of 2019. In November 2019, the Company redeemed $400 million of its 5.75% Senior Notes due 2024 at a price of 100.958%, which resulted in a total cash outlay of approximately $404 million. The redemption was funded using a portion of the proceeds from the Company’s September 2019 public offering of $1 billion of senior unsecured notes (see end note 11). As a result of the redemption, the Company recorded an approximate $5 million loss on early extinguishment of debt in the fourth quarter of 2019. (10) In September 2019, the Company issued $500 million of 4.5% Senior Notes due 2028 and $500 million of 4.75% Senior Notes due 2030. The proceeds were used to fund the purchase of the home health rollover shares and exercise of SARs in Q3 2019, fund a call of $400 million of 5.75% Senior Notes due 2024 in Q4 2019, and repay borrowings under the Company’s revolving credit facility. (11) Data provided by Uniform Data System for Medical Rehabilitation, a division of UB Foundation Activities, Inc., a data gathering and analysis organization for the rehabilitation industry; represents ~80% of industry, including Encompass Health inpatient rehabilitation sites (12) Represents discharges from 134 consolidated hospitals in Q1 2020; 133 consolidated hospitals in Q4 and Q3 2019; 130 consolidated hospitals in Q2 2019; and 129 consolidated hospitals in Q1 2019 (13) Full-time equivalents included in the table represent Encompass Health employees who participate in or support the operations of our hospitals and include an estimate of full-time equivalents related to contract labor. (14) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is determined by multiplying the number of licensed beds by the Company’s occupancy percentage. (15) Represents home health admissions from 244 consolidated locations in Q1 2020; 243 consolidated locations in Q4 2019; 243 consolidated locations in Q3 2019; 220 consolidated locations in Q2 2019; and 219 consolidated locations in Q1 2019 (16) Represents hospice admissions from 83 locations in Q1 2020 and Q4 2019; 82 locations in Q3 2019; and 59 locations in Q2 and Q1 2019 (17) In November 2013, the Company closed separate, privately negotiated exchanges in which it issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of its 6.5% Series A Convertible Perpetual Preferred Stock. The Company recorded ~$249 million as debt and ~$71 million as equity. In May 2017, the Company provided notice of its intent to redeem all $320 million of outstanding convertible notes. In lieu of receiving the redemption price, the holders had the right to convert their notes into shares of the Company’s common stock at a conversion rate of 27.2221 shares per $1,000 principal amount of Notes, which rate was increased by a make-whole premium. In the aggregate, holders of $319.4 million in principal elected to convert, which resulted in the Company issuing 8,895,483 shares of common stock (approximately 8.6 million shares were previously included in the diluted share count). The remaining $0.6 million of principal was redeemed by cash payment. (18) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a financial measure and the leverage ratio as a liquidity measure on an ongoing basis. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity. In evaluating Adjusted EBITDA, the reader should be aware that in the future the Company may incur expenses similar to the adjustments set forth. Encompass Health 41