Encompass Health (EHC) Q3 Earnings call transcript Oct 29, 2024

Encompass Health, a leading provider of inpatient rehabilitation services in the United States, showcased a robust performance in the third quarter of 2024, as evidenced by an impressive 11.9% revenue growth and a 13.4% increase in adjusted EBITDA. This solid financial performance was driven by a 8.8% increase in total discharges, with the same-store growth rate standing at 6.8%.

Strategic Capacity Additions and Growing Demand for Inpatient Rehabilitation Services

Mark Tarr, the President and CEO of Encompass Health, highlighted the underserved demand for inpatient rehabilitation care, driven by the aging population's growing need for such services. To address this demand, Encompass Health is actively investing in capacity additions, having added 99 beds in Q3 alone. The company plans to open an additional de novo hospital in Houston, which will be its first fully prefabricated hospital, marking a significant milestone in their de novo construction strategy.

Navigating Hurricane Challenges and Prioritizing Patient Safety

The call also addressed the impact of Hurricanes Helene and Milton on Encompass Health's operations. The company's quick response and resilience in the face of these challenges were commended, with only relatively minor damage reported across 25 of their hospitals. Despite some operational disruptions, the company anticipates that its updated guidance incorporates any potential impact from the hurricanes, including the volume, length of stay, and facility repairs.

Financial Performance and Future Outlook

Douglas Coltharp, the CFO of Encompass Health, provided a detailed analysis of the company's financial performance, including a 27.1% increase in adjusted free cash flow. The company's leverage and liquidity remain favorable, with a net leverage of 2.3x compared to 2.7x at year-end 2023. Encompass Health is raising its 2024 guidance, reflecting optimism in its financial health and growth prospects.

Q&A Session and Insights

The Q&A session provided valuable insights into the company's strategy, including its focus on retaining staff, managing labor costs, and leveraging prefabricated construction methods for efficiency and cost savings. Analysts also explored the implications of the ongoing Review Choice Demonstration (RCD) process and the company's plans for future expansion in the Southeast and mid-Atlantic regions.

Conclusion

Encompass Health's strong third-quarter performance, coupled with its strategic investments and robust expansion plans, underscores the company's commitment to meeting the growing demand for inpatient rehabilitation services. The challenges posed by hurricanes and regulatory hurdles notwithstanding, Encompass Health's outlook for the future remains positive, with a focus on enhancing patient care, improving operational efficiency, and driving sustainable growth.