Core Viewpoint - Encompass Health has shown strong performance in its recent earnings report, with significant growth in earnings and revenues, leading to an optimistic outlook for the company moving forward [3][10][11]. Financial Performance - Encompass Health reported Q2 2025 adjusted EPS of $1.40, exceeding estimates by 16.7% and reflecting a 26.1% year-over-year increase [3][4]. - Net operating revenues for Q2 2025 rose 12% year-over-year to $1.5 billion, surpassing consensus estimates by 2.3% [3][4]. - Net income increased by 26.2% year-over-year to $184.9 million, while adjusted EBITDA improved 17.4% year-over-year to $318.6 million, exceeding estimates [6][8]. Operational Highlights - The company added 26 beds to existing hospitals and opened a new de novo hospital during the quarter [4][6]. - Net patient revenue per discharge grew 4.2% year-over-year to $21.7 billion, with total discharges improving by 7.2% year-over-year to 65,237 [5][6]. Financial Position - As of June 30, 2025, Encompass Health had cash and cash equivalents of $99.1 million, up from $85.4 million at the end of 2024 [7]. - Total assets increased by 3.8% to $6.8 billion, while long-term debt decreased by 1.6% to $2.3 billion [7][8]. Capital Deployment - The company repurchased shares worth $24.7 million in Q2 2025 and has approximately $433 million remaining under its buyback authorization [9]. - A quarterly cash dividend of 17 cents per share was paid, which was increased to 19 cents per share in July [9]. Future Outlook - Encompass Health raised its 2025 revenue forecast to between $5.88 billion and $5.98 billion, indicating a 10.4% increase from 2024 [10]. - Adjusted EPS for 2025 is now expected to be between $5.12 and $5.34, suggesting an 18.1% growth from the previous year [11]. - The company aims to open seven de novo hospitals and add 340 beds in 2025, with a long-term growth target of 6-8% CAGR in discharges from 2023 to 2027 [12][13]. Market Position - Encompass Health is positioned favorably within the Zacks Medical - Outpatient and Home Healthcare industry, with a Zacks Rank 2 (Buy) indicating expected above-average returns in the coming months [16][17].

Core Viewpoint - Rosen Law Firm is investigating potential securities claims on behalf of shareholders of Encompass Health Corporation due to allegations of materially misleading business information [1] Group 1: Legal Action and Investor Rights - Shareholders of Encompass Health may be entitled to compensation through a class action without any out-of-pocket fees, as the Rosen Law Firm prepares to seek recovery of investor losses [2] - Investors can join the prospective class action by submitting a form or contacting the law firm directly [2] Group 2: Company Performance and Market Reaction - A New York Times article highlighted serious incidents of patient harm and below-average performance on key safety measures at Encompass Health, leading to a 10.3% drop in the company's stock price on July 15, 2025 [3] Group 3: Rosen Law Firm's Credentials - The Rosen Law Firm has a strong track record in securities class actions, having achieved significant settlements and recognition in the field, including being ranked No. 1 for securities class action settlements in 2017 [4] - The firm has recovered hundreds of millions of dollars for investors, with over $438 million secured in 2019 alone [4]

Core Viewpoint - Rosen Law Firm is investigating potential securities claims on behalf of shareholders of Encompass Health Corporation due to allegations of materially misleading business information [1] Group 1: Investigation and Allegations - The investigation is prompted by an article from The New York Times highlighting serious incidents of patient harm and below-average performance on key safety measures at Encompass Health's rehab hospitals [3] - Following the publication of the article, Encompass Health's stock price dropped by 10.3% on July 15, 2025 [3] Group 2: Class Action Details - Investors who purchased Encompass Health securities may be entitled to compensation through a class action lawsuit without any out-of-pocket fees [2] - The Rosen Law Firm is preparing a class action to seek recovery of investor losses [2] Group 3: Rosen Law Firm's Credentials - Rosen Law Firm has a strong track record in securities class actions, having achieved the largest securities class action settlement against a Chinese company at the time [4] - The firm has been ranked in the top 4 for securities class action settlements since 2013 and recovered hundreds of millions of dollars for investors, including over $438 million in 2019 [4]

Core Viewpoint - Rosen Law Firm is investigating potential securities claims on behalf of shareholders of Encompass Health Corporation due to allegations of materially misleading business information issued to the public [1] Group 1: Investigation and Allegations - The investigation is prompted by an article published by The New York Times on July 15, 2025, which highlighted serious incidents of patient harm and below-average performance on key safety measures at Encompass Health's rehab hospitals [4] - Following the publication of the article, Encompass Health's stock price experienced a significant decline of 10.3% on the same day [4] Group 2: Class Action and Compensation - Shareholders who purchased Encompass Health securities may be entitled to compensation through a class action lawsuit, with no out-of-pocket fees or costs due to a contingency fee arrangement [2] - Interested parties can join the prospective class action by submitting a form or contacting the Rosen Law Firm directly [3] Group 3: Rosen Law Firm's Credentials - The Rosen Law Firm has a strong track record in securities class actions, having achieved the largest securities class action settlement against a Chinese company at the time and consistently ranking in the top 4 for securities class action settlements since 2013 [5] - In 2019, the firm secured over $438 million for investors, showcasing its capability in recovering significant amounts for its clients [5]

Core Viewpoint - Pomerantz LLP is investigating claims of potential securities fraud and unlawful business practices by Encompass Health Corporation and its officers or directors [1] Group 1: Allegations and Impact - A New York Times article published on July 15, 2025, alleged that Encompass's for-profit hospitals perform below average on key safety measures, including high rates of potentially preventable readmissions [3] - The article specifically mentioned that Encompass owns 34 facilities rated by Medicare as having statistically significantly worse rates of potentially preventable readmissions [3] - Following the publication of the article, Encompass's stock price dropped by $12.39 per share, or 10.35%, closing at $107.28 per share on the same day [4] Group 2: Legal Context - Pomerantz LLP is recognized as a leading firm in corporate, securities, and antitrust class litigation, with a history of fighting for victims of securities fraud and corporate misconduct [5] - The firm has a track record of recovering multimillion-dollar damages for class members [5]

Core Viewpoint - Pomerantz LLP is investigating claims of potential securities fraud and unlawful business practices by Encompass Health Corporation and its officers or directors [1] Group 1: Allegations and Impact - A New York Times article published on July 15, 2025, alleged that Encompass's for-profit hospitals perform below average on key safety measures, including having statistically significantly worse rates of potentially preventable readmissions at 34 facilities [3] - The article highlighted alarming mistakes that led to patient fatalities in Encompass-owned facilities [3] - Following the publication of the article, Encompass's stock price dropped by $12.39 per share, or 10.35%, closing at $107.28 per share on the same day [4] Group 2: Legal Context - Pomerantz LLP is recognized as a leading firm in corporate, securities, and antitrust class litigation, with a history of fighting for victims of securities fraud and corporate misconduct [5]

Core Viewpoint - Encompass Health Corp. and BSA Health System have announced a joint venture to establish a 50-bed inpatient rehabilitation hospital in Amarillo, Texas, aimed at enhancing rehabilitation care in the community [1][4]. Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with 169 hospitals across 38 states and Puerto Rico, providing high-quality rehabilitative care [5]. - BSA Health System is the largest healthcare employer in the Texas Panhandle, operating a comprehensive healthcare system that includes a flagship 445-bed hospital and various clinics [7]. Hospital Details - The new hospital will focus on patients recovering from serious conditions such as strokes, brain injuries, and complex orthopedic issues, offering 24-hour nursing care and various therapies [2][3]. - Facilities will include private patient rooms, a therapy gym with advanced technologies, an activities of daily living suite, and an in-house dialysis suite [3]. Strategic Importance - The partnership is expected to enhance acute care capacity in Amarillo and improve the level of rehabilitation care available to the community [4]. - The hospital is projected to open in late 2025 and will be part of Encompass Health's ongoing expansion efforts in Texas [4].

Core Insights - Encompass Health Corp (EHC) shares increased by 7.4% following the release of its second-quarter 2025 results, driven by strong net patient revenue and capacity expansion, despite elevated operating expenses [1][2][3] Financial Performance - Adjusted earnings per share (EPS) for Q2 2025 reached $1.40, exceeding the Zacks Consensus Estimate by 16.7% and reflecting a 26.1% year-over-year increase [2][8] - Net operating revenues rose 12% year-over-year to $1.5 billion, surpassing consensus estimates by 2.3% [2][8] - Net patient revenue per discharge grew 4.2% year-over-year to $21.7 billion, with total discharges increasing by 7.2% to 65,237 [3][4] Operating Expenses - Total operating expenses amounted to $1.2 billion, a 10.4% increase year-over-year, primarily due to higher salaries and benefits [3][4] Income and Cash Flow - Net income for Q2 2025 was $184.9 million, up 26.2% year-over-year [4][6] - Adjusted EBITDA improved 17.4% year-over-year to $318.6 million, exceeding estimates [4][6] - Net cash from operations reached $270.2 million, a 24.3% increase year-over-year, with adjusted free cash flow rising 30.5% to $185.9 million [6] Capital Deployment - EHC repurchased shares worth $24.7 million during the quarter and had approximately $433 million remaining under its buyback authorization [7] - The company declared a quarterly cash dividend of 17 cents per share, which was increased to 19 cents in July [7] 2025 Outlook - The company raised its 2025 net operating revenue forecast to between $5.88 billion and $5.98 billion, indicating a 10.4% increase from 2024 [9][10] - Adjusted EPS for 2025 is now expected to be between $5.12 and $5.34, reflecting an 18.1% growth from 2024 [10] - Adjusted free cash flow is projected to be between $705 million and $795 million, up from previous guidance [10] Growth Strategy - EHC plans to open seven de novo hospitals and add 340 beds, with expectations to add 100-120 beds to existing hospitals in 2025 [11] - The company aims for a compound annual growth rate (CAGR) of 6-8% in discharges from 2023 to 2027 [12]

Core Viewpoint - Encompass Health Corp. plans to construct a 50-bed freestanding inpatient rehabilitation hospital in Haslet, Texas, aimed at enhancing its presence in the state and providing high-quality rehabilitative care to patients recovering from serious illnesses and injuries [1][4]. Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States, with a network of 169 hospitals across 38 states and Puerto Rico [5]. - The company is recognized for its high-quality, compassionate rehabilitative care, utilizing advanced technology and innovative treatments to maximize patient recovery [5]. - Encompass Health has received accolades such as being ranked among Fortune's World's Most Admired Companies™ and Forbes' Most Trusted Companies in America [5]. Hospital Features - The new hospital will cater to patients recovering from conditions such as strokes, neurological disorders, brain injuries, spinal cord injuries, amputations, and complex orthopedic conditions [2]. - It will provide 24-hour nursing care and various therapies, including physical, occupational, and speech therapies, delivered by specialized healthcare professionals [2]. - Facilities will include private patient rooms, a therapy gym with advanced rehabilitation technologies, an activities of daily living suite, an in-house dialysis suite, a dining room, a pharmacy, and a therapy courtyard [3]. Expansion Plans - The construction of the Haslet hospital is expected to begin soon, with an anticipated opening in 2027, as part of Encompass Health's ongoing expansion strategy in Texas [4].

PART I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Encompass Health Corporation's unaudited condensed consolidated financial statements, including statements of operations, comprehensive income, balance sheets, shareholders' equity, and cash flows, for the periods ended June 30, 2025, and December 31, 2024 [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the unaudited condensed consolidated statements of operations, detailing net operating revenues, expenses, and net income for the specified periods Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net operating revenues | $1,457.7 | $1,301.2 | $2,913.1 | $2,617.2 | | Total operating expenses | $1,198.6 | $1,085.6 | $2,387.0 | $2,194.1 | | Income from continuing operations before tax | $236.8 | $186.0 | $475.4 | $364.4 | | Net income attributable to Encompass Health | $142.1 | $114.1 | $293.6 | $226.6 | | Diluted EPS (Net income) | $1.39 | $1.12 | $2.87 | $2.22 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the unaudited condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (Unaudited) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net income | $184.9 | $146.5 | $381.4 | $285.3 | | Other comprehensive income, net of tax | $0.3 | $— | $0.3 | $— | | Comprehensive income | $185.2 | $146.5 | $381.7 | $285.3 | | Comprehensive income attributable to Encompass Health | $142.4 | $114.1 | $293.9 | $226.6 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets, outlining assets, liabilities, and shareholders' equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2025 (Millions) | December 31, 2024 (Millions) | | :-------------------------- | :----------------------- | :--------------------------- | | Total assets | $6,785.7 | $6,534.7 | | Total liabilities | $3,697.5 | $3,685.5 | | Total shareholders' equity | $3,033.1 | $2,792.7 | | Cash and cash equivalents | $99.1 | $85.4 | [Condensed Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section presents the unaudited condensed consolidated statements of shareholders' equity, detailing changes in equity due to net income, dividends, and stock repurchases * For the six months ended June 30, 2025, Encompass Health's common shareholders' equity increased, driven by **$293.6 million in net income**, partially offset by **$34.7 million in dividends declared** and **$56.8 million in common stock repurchases**[27](index=27&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $558.8 | $456.2 | | Net cash used in investing activities | $(323.9) | $(288.1) | | Net cash used in financing activities | $(220.6) | $(90.2) | | Increase in cash, cash equivalents, and restricted cash | $14.3 | $77.9 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, business combinations, debt, equity, and other significant financial items [1. Basis of Presentation](index=13&type=section&id=1.%20Basis%20of%20Presentation) This section outlines the company's business operations as an inpatient rehabilitation services provider and details net operating revenues by payor source * Encompass Health Corporation operates **168 inpatient rehabilitation hospitals** across 38 states and Puerto Rico as of June 30, 2025, with **101 wholly owned** and **67 jointly owned** hospitals[35](index=35&type=chunk) Net Operating Revenues by Payor Source (Unaudited) | Payor Source | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :-------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Medicare | $939.7 | $841.6 | $1,916.2 | $1,695.3 | | Medicare Advantage | $246.0 | $224.2 | $485.3 | $448.4 | | Managed care | $163.0 | $138.7 | $308.3 | $281.1 | | Medicaid | $45.2 | $43.0 | $87.0 | $88.1 | | Other third-party payors | $10.4 | $10.7 | $18.6 | $20.3 | | Workers' compensation | $7.5 | $6.8 | $13.5 | $13.8 | | Patients | $4.6 | $3.7 | $7.7 | $7.6 | | Other income | $41.3 | $32.5 | $76.5 | $62.6 | | Total | $1,457.7 | $1,301.2 | $2,913.1 | $2,617.2 | [2. Business Combinations](index=14&type=section&id=2.%20Business%20Combinations) This section details recent business acquisitions, including the purchase of an inpatient rehabilitation unit and associated goodwill * In May 2025, Encompass Health acquired **51% of the operations** of a 54-bed inpatient rehabilitation unit in Fort Myers, Florida, contributing **$19.0 million in goodwill**[47](index=47&type=chunk)[50](index=50&type=chunk) [3. Variable Interest Entities](index=16&type=section&id=3.%20Variable%20Interest%20Entities) This section describes the company's consolidated variable interest entities, including their total assets and liabilities * As of June 30, 2025, Encompass Health consolidated **eight variable interest entities (VIEs)** with ownership ranging from **50.0% to 75.0%**[52](index=52&type=chunk) Consolidated VIEs' Assets and Liabilities (Unaudited) | Metric | June 30, 2025 (Millions) | December 31, 2024 (Millions) | | :------------------- | :----------------------- | :--------------------------- | | Total assets | $207.9 | $208.1 | | Total liabilities | $48.7 | $45.0 | [4. Marketable Securities](index=17&type=section&id=4.%20Marketable%20Securities) This section details the company's restricted marketable securities and recognized unrealized gains on equity securities * Restricted marketable securities, primarily held by HCS, Ltd (captive insurance company), totaled **$128.1 million** as of June 30, 2025[55](index=55&type=chunk) * Unrealized net gains of **$0.8 million** on equity securities were recognized during the three and six months ended June 30, 2025[56](index=56&type=chunk) Available-for-Sale Debt Securities (June 30, 2025) | Type | Amortized Cost (Millions) | Fair Value (Millions) | | :------------------------------ | :------------------------ | :-------------------- | | U.S. government and agency securities | $48.6 | $48.9 | | Corporate bonds and notes | $39.2 | $39.4 | | Total | $87.8 | $88.3 | [5. Long-term Debt](index=18&type=section&id=5.%20Long-term%20Debt) This section provides a breakdown of the company's long-term debt outstanding and scheduled principal payments Long-term Debt Outstanding (Unaudited) | Debt Type | June 30, 2025 (Millions) | December 31, 2024 (Millions) | | :------------------------------------------ | :----------------------- | :--------------------------- | | Advances under revolving credit facility | $— | $20.0 | | 5.75% Senior Notes due 2025 | $99.9 | $99.8 | | 4.50% Senior Notes due 2028 | $790.2 | $788.4 | | 4.75% Senior Notes due 2030 | $785.5 | $784.2 | | 4.625% Senior Notes due 2031 | $393.0 | $392.5 | | Other notes payable | $84.0 | $94.5 | | Finance lease obligations | $306.9 | $318.4 | | Total | $2,459.5 | $2,497.8 | | Less: Current portion | $(139.2) | $(138.6) | | Long-term debt, net of current portion | $2,320.3 | $2,359.2 | Scheduled Principal Payments on Long-term Debt (Millions) | Period | Face Amount | | :-------------------------- | :---------- | | July 1 through December 31, 2025 | $116.5 | | 2026 | $39.4 | | 2027 | $46.1 | | 2028 | $833.0 | | 2029 | $41.8 | | 2030 | $847.2 | | Thereafter | $566.9 | | Total | $2,490.9 | [6. Redeemable Noncontrolling Interests](index=18&type=section&id=6.%20Redeemable%20Noncontrolling%20Interests) This section details the balance of redeemable noncontrolling interests and their attributable net income * The balance of redeemable noncontrolling interests was **$55.1 million** as of June 30, 2025, with **$4.4 million in net income** attributable to these interests for the six months ended June 30, 2025[61](index=61&type=chunk)[63](index=63&type=chunk) [7. Fair Value Measurements](index=19&type=section&id=7.%20Fair%20Value%20Measurements) This section presents the fair value measurements for financial assets, liabilities, and long-term debt Financial Assets and Liabilities Measured at Fair Value (June 30, 2025) | Item | Fair Value (Millions) | | :------------------------------ | :-------------------- | | Equity securities | $39.8 | | U.S. government and agency securities | $48.9 | | Corporate bonds and notes | $39.4 | | Redeemable noncontrolling interests | $55.1 | Long-term Debt Fair Value (June 30, 2025) | Debt Type | Carrying Amount (Millions) | Estimated Fair Value (Millions) | | :-------------------------- | :------------------------- | :---------------------------- | | 5.75% Senior Notes due 2025 | $99.9 | $99.9 | | 4.50% Senior Notes due 2028 | $790.2 | $792.5 | | 4.75% Senior Notes due 2030 | $785.5 | $789.4 | | 4.625% Senior Notes due 2031 | $393.0 | $386.1 | | Other notes payable | $84.0 | $84.0 | [8. Share-Based Payments](index=20&type=section&id=8.%20Share-Based%20Payments) This section details the issuance of restricted stock awards and stock options to management and board members * During the six months ended June 30, 2025, the company issued **0.4 million restricted stock awards** and **0.1 million stock options** to management and board members[67](index=67&type=chunk) [9. Income Taxes](index=20&type=section&id=9.%20Income%20Taxes) This section covers the provision for income tax expense, the impact of the OBBBA, and projected cash tax payments * Provision for income tax expense was **$92.6 million** for the six months ended June 30, 2025, primarily due to the estimated effective blended federal and state income tax rate and non-deductible executive compensation[68](index=68&type=chunk) * The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, is estimated to produce approximately **$180 million in current deductions**, resulting in about **$50 million in cash tax savings for 2025**[69](index=69&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) * Estimated cash payments for income taxes are projected to be **$110 million to $130 million**, net of refunds, for 2025[121](index=121&type=chunk) [10. Earnings per Common Share](index=21&type=section&id=10.%20Earnings%20per%20Common%20Share) This section presents the basic and diluted earnings per common share attributable to Encompass Health Earnings Per Common Share (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS attributable to Encompass Health (Net income) | $1.41 | $1.13 | $2.91 | $2.25 | | Diluted EPS attributable to Encompass Health (Net income) | $1.39 | $1.12 | $2.87 | $2.22 | [11. Contingencies and Other Commitments](index=22&type=section&id=11.%20Contingencies%20and%20Other%20Commitments) This section outlines the company's exposure to lawsuits, regulatory proceedings, and minimum contractual obligations * The company is subject to various lawsuits, claims, and legal/regulatory proceedings, including 'qui tam' actions, which could materially affect its financial position[74](index=74&type=chunk)[75](index=75&type=chunk) * Minimum amounts due under service and other contracts are **$30.4 million** for the remainder of 2025 and **$52.1 million** in 2026[77](index=77&type=chunk) [12. Segment Reporting](index=23&type=section&id=12.%20Segment%20Reporting) This section details the company's single reportable segment, inpatient rehabilitation, and provides Adjusted EBITDA and net operating revenues by service line * Encompass Health manages its operations as a single reportable segment: **inpatient rehabilitation**, with the CEO evaluating performance based on Adjusted EBITDA[79](index=79&type=chunk)[80](index=80&type=chunk) Adjusted EBITDA and Net Operating Revenues by Service Line (Unaudited) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Adjusted EBITDA | $318.6 | $271.8 | $632.2 | $544.8 | | Inpatient revenues | $1,413.7 | $1,265.5 | $2,831.4 | $2,548.2 | | Outpatient and other revenues | $44.0 | $35.7 | $81.7 | $69.0 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition, operational results, key performance drivers, strategic initiatives, and future outlook, including detailed revenue and expense analysis [Executive Overview](index=25&type=section&id=Executive%20Overview) This overview summarizes Encompass Health's business as a leading inpatient rehabilitation provider, detailing 2025 expansion, long-term outlook, and key challenges including regulatory changes, reimbursement, and staffing [Our Business](index=25&type=section&id=Our%20Business) This section describes Encompass Health's position as the largest owner and operator of inpatient rehabilitation hospitals nationwide * Encompass Health is the nation's largest owner and operator of inpatient rehabilitation hospitals (IRFs), with **168 IRFs** across 38 states and Puerto Rico as of June 30, 2025[87](index=87&type=chunk) [2025 Overview](index=25&type=section&id=2025%20Overview) This section highlights the company's revenue growth, new hospital openings, and bed additions in 2025, along with future development plans * Net operating revenues increased by **12.0%** for the three months and **11.3%** for the six months ended June 30, 2025, primarily due to volume growth and increased pricing[88](index=88&type=chunk) * In 2025, the company began operating new inpatient rehabilitation hospitals in Athens, Georgia (**40 beds**) and Fort Myers, Florida (**60 beds**), and added **51 new beds** to existing hospitals[89](index=89&type=chunk) * The company announced or continued development of **16 new hospitals/expansions** with expected open dates through 2027, including locations in Florida, Connecticut, Texas, South Carolina, Pennsylvania, Arizona, Maine, and Utah[90](index=90&type=chunk) [Business Outlook](index=26&type=section&id=Business%20Outlook) This section presents an optimistic business outlook driven by demographic trends and a strong balance sheet with no significant near-term debt maturities * The company maintains an optimistic outlook for its business, driven by demographic trends such as population aging, with Medicare enrollees aged 65 and older expected to grow approximately **3% per year**, reaching **71 million by 2030**[91](index=91&type=chunk) * Encompass Health has a strong, well-capitalized balance sheet with **no significant debt maturities until 2028**, providing flexibility to adapt to industry changes and support growth[93](index=93&type=chunk) [Key Challenges](index=27&type=section&id=Key%20Challenges) This section outlines significant challenges including healthcare regulations, Medicare reimbursement changes, the RCD program, volume growth, and personnel recruitment and retention * The healthcare industry is highly regulated, with significant challenges related to **Medicare reimbursement** and compliance with federal, state, and local laws[94](index=94&type=chunk)[97](index=97&type=chunk) * The 2026 Final IRF Rule implements a net **2.6% market basket increase**, resulting in an estimated net increase of approximately **2.9%** to the company's Medicare payment rates effective October 1, 2025[97](index=97&type=chunk) * The Review Choice Demonstration (RCD) program, expanded to Alabama and Pennsylvania, poses uncertainty regarding Medicare claim collectability, as the company's Alabama IRFs did not achieve the **90% claim validation rate** in the third cycle[98](index=98&type=chunk)[99](index=99&type=chunk) * Key challenges include maintaining strong volume growth amidst competition and regulatory burdens, and recruiting/retaining high-quality personnel, which has led to increased labor costs and staffing shortages[101](index=101&type=chunk) * The One Big Beautiful Bill Act (OBBBA) includes healthcare-related provisions impacting state Medicaid programs (e.g., enrollee work requirements, provider tax limitations) taking effect in 2027 or later, requiring ongoing evaluation[96](index=96&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, including changes in net operating revenues, expenses, and net income, along with key operational metrics and the impact of specific events [Payor Mix](index=29&type=section&id=Payor%20Mix) This section presents the consolidated net operating revenues broken down by payor source percentages for various periods Consolidated Net Operating Revenues by Payor Source (%) | Payor Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Medicare | 64.5 % | 64.7 % | 65.7 % | 64.8 % | | Medicare Advantage | 16.9 % | 17.2 % | 16.7 % | 17.1 % | | Managed care | 11.2 % | 10.7 % | 10.6 % | 10.7 % | | Medicaid | 3.1 % | 3.3 % | 3.0 % | 3.4 % | | Other third-party payors | 0.7 % | 0.8 % | 0.6 % | 0.8 % | | Workers' compensation | 0.5 % | 0.5 % | 0.5 % | 0.5 % | | Patients | 0.3 % | 0.3 % | 0.3 % | 0.3 % | | Other income | 2.8 % | 2.5 % | 2.6 % | 2.4 % | | Total | 100.0 % | 100.0 % | 100.0 % | 100.0 % | [Our Results (Consolidated)](index=30&type=section&id=Our%20Results%20(Consolidated)) This section provides a consolidated overview of the company's financial results, including net operating revenues, expenses, and net income, with percentage changes Consolidated Results of Operations (Unaudited) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | % Change (3M) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | % Change (6M) | | :------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------ | :---------------------------------------- | :---------------------------------------- | :------------ | | Net operating revenues | $1,457.7 | $1,301.2 | 12.0 % | $2,913.1 | $2,617.2 | 11.3 % | | Total operating expenses | $1,198.6 | $1,085.6 | 10.4 % | $2,387.0 | $2,194.1 | 8.8 % | | Income from continuing operations before tax expense | $236.8 | $186.0 | 27.3 % | $475.4 | $364.4 | 30.5 % | | Provision for income tax expense | $51.0 | $38.3 | 33.2 % | $92.6 | $76.6 | 20.9 % | | Net income attributable to Encompass Health | $142.1 | $114.1 | 24.5 % | $293.6 | $226.6 | 29.6 % | [Operating Expenses as a % of Net Operating Revenues](index=30&type=section&id=Operating%20Expenses%20as%20a%20%25%20of%20Net%20Operating%20Revenues) This section details operating expenses as a percentage of net operating revenues, including salaries, other operating costs, and general and administrative expenses Operating Expenses as a % of Net Operating Revenues | Operating Expense | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Salaries and benefits | 52.7 % | 53.8 % | 52.5 % | 54.0 % | | Other operating expenses | 14.7 % | 14.6 % | 14.8 % | 15.0 % | | Occupancy costs | 1.0 % | 1.1 % | 1.0 % | 1.1 % | | Supplies | 4.3 % | 4.4 % | 4.3 % | 4.4 % | | General and administrative expenses | 4.1 % | 3.9 % | 3.8 % | 3.8 % | | Depreciation and amortization | 5.5 % | 5.6 % | 5.5 % | 5.5 % | | Total operating expenses | 82.2 % | 83.4 % | 81.9 % | 83.8 % | [Net Operating Revenues (Detailed Analysis)](index=31&type=section&id=Net%20Operating%20Revenues%20(Detailed%20Analysis)) This section provides a detailed analysis of net operating revenues, including key operational metrics such as inpatient revenues, discharges, and net patient revenue per discharge Key Operational Metrics (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change (3M) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change (6M) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------ | :----------------------------- | :----------------------------- | :------------ | | Inpatient revenues | $1,413.7 M | $1,265.5 M | 11.7 % | $2,831.4 M | $2,548.2 M | 11.1 % | | Outpatient and other revenues | $44.0 M | $35.7 M | 23.2 % | $81.7 M | $69.0 M | 18.4 % | | Discharges | 65,237 | 60,833 | 7.2 % | 130,222 | 121,944 | 6.8 % | | Net patient revenue per discharge | $21,670 | $20,803 | 4.2 % | $21,743 | $20,896 | 4.1 % | | Outpatient visits | 21,597 | 29,312 | (26.3)% | 41,552 | 59,056 | (29.6)% | | Occupancy % | 76.6 % | 74.5 % | 2.8 % | 77.4 % | 75.0 % | 3.2 % | * Same-store discharges increased by **4.7%** for the three months and **4.5%** for the six months ended June 30, 2025[110](index=110&type=chunk)[111](index=111&type=chunk) * Net patient revenue per discharge increased primarily due to higher reimbursement rates and a decrease in revenue reserves related to bad debt (from **2.9% to 2.0%** of Net operating revenues for Q2 2025)[110](index=110&type=chunk) * Medicaid supplemental payments increased by **$8.5 million** (Q2 2025) and **$13.8 million** (YTD Q2 2025), offset by increased provider tax expenses[112](index=112&type=chunk) [Salaries and Benefits](index=32&type=section&id=Salaries%20and%20Benefits) This section explains changes in salaries and benefits, attributing increases to higher costs and patient volumes, and decreases as a percentage of revenue to efficiency gains * Salaries and benefits increased due to higher salary and benefit costs and increased patient volumes, but decreased as a percentage of Net operating revenues due to a decline in Employees Per Occupied Bed (EPOB) and reduced contract labor and sign-on/shift bonuses[113](index=113&type=chunk) [Other Operating Expenses](index=32&type=section&id=Other%20Operating%20Expenses) This section details the increase in other operating expenses due to provider taxes and development activities, noting an impairment charge in the prior year * Other operating expenses increased due to higher provider taxes and development activities[114](index=114&type=chunk) * The six months ended June 30, 2024, included a **$10.4 million impairment charge** related to the closure of a joint venture hospital in Eau Claire, Wisconsin[115](index=115&type=chunk) [General and Administrative Expenses](index=32&type=section&id=General%20and%20Administrative%20Expenses) This section explains the increase in general and administrative expenses due to mark-to-market adjustments, incentive compensation, and software costs * General and administrative expenses increased due to mark-to-market adjustments on non-qualified deferred compensation, higher incentive compensation, benefits, and software expenses[116](index=116&type=chunk) [Depreciation and Amortization](index=32&type=section&id=Depreciation%20and%20Amortization) This section discusses the increase in depreciation and amortization resulting from capital investments and ongoing development activities * Depreciation and amortization increased due to capital investments and are expected to continue rising with ongoing development activities[117](index=117&type=chunk) [Income from Continuing Operations Before Income Tax Expense](index=32&type=section&id=Income%20from%20Continuing%20Operations%20Before%20Income%20Tax%20Expense) This section attributes the increase in pre-tax income from continuing operations to growth in net operating revenues * Pre-tax income from continuing operations increased due to the growth in Net operating revenues[118](index=118&type=chunk) [Provision for Income Tax Expense](index=32&type=section&id=Provision%20for%20Income%20Tax%20Expense) This section details the increase in income tax expense due to higher pre-tax income and the estimated cash tax savings from the OBBBA * Provision for income tax expense increased due to higher Income from continuing operations before income tax expense[119](index=119&type=chunk) * The OBBBA is expected to generate approximately **$180 million in current deductions**, leading to an estimated **$50 million in cash tax savings for 2025**, with total cash tax payments projected at **$110 million to $130 million**[120](index=120&type=chunk)[121](index=121&type=chunk) [Net Income Attributable to Noncontrolling Interests](index=33&type=section&id=Net%20Income%20Attributable%20to%20Noncontrolling%20Interests) This section explains the increase in net income attributable to noncontrolling interests due to improved profitability of certain joint venture hospitals * Net income attributable to noncontrolling interests increased due to higher profitability from certain existing joint venture hospitals[124](index=124&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section outlines the company's liquidity strategy, cash sources and uses, capital allocation, including cash, credit facility, debt, capital expenditures, dividends, and share repurchases, along with guarantor financial information and Adjusted EBITDA reconciliation [Current Liquidity](index=33&type=section&id=Current%20Liquidity) This section details the company's current liquidity position, including cash and credit facility availability, and compliance with debt covenants * As of June 30, 2025, the company had **$99.1 million in cash and cash equivalents** and approximately **$953 million available** under its revolving credit facility[129](index=129&type=chunk)[130](index=130&type=chunk) * The company has **no significant debt maturities until 2028**, except for approximately **$100 million** of its 2025 Notes[131](index=131&type=chunk) * Encompass Health was in compliance with its credit agreement covenants (maximum leverage ratio of **4.50x** and minimum interest coverage ratio of **3.0x**) as of June 30, 2025[130](index=130&type=chunk) [Sources and Uses of Cash](index=34&type=section&id=Sources%20and%20Uses%20of%20Cash) This section analyzes cash flows from operating, investing, and financing activities, highlighting changes in cash usage for capital expenditures and share repurchases Cash Flows by Activity (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $558.8 | $456.2 | | Net cash used in investing activities | $(323.9) | $(288.1) | | Net cash used in financing activities | $(220.6) | $(90.2) | | Increase in cash, cash equivalents, and restricted cash | $14.3 | $77.9 | * The increase in net cash used in investing activities was primarily due to increased purchases of property, equipment, and intangible assets[134](index=134&type=chunk) * The increase in net cash used in financing activities was primarily due to higher common stock repurchases, increased net debt payments on the revolving credit facility, and lower contributions from noncontrolling interests[135](index=135&type=chunk) [Contractual Obligations](index=35&type=section&id=Contractual%20Obligations) This section presents a summary of consolidated contractual obligations, including long-term debt, lease obligations, and purchase commitments, along with projected capital expenditures Consolidated Contractual Obligations (June 30, 2025, Millions) | Obligation Type | Total | Current | Long-term | | :------------------------------ | :--------- | :--------- | :--------- | | Long-term debt (excluding finance leases) | $2,152.6 | $114.1 | $2,038.5 | | Interest on long-term debt | $404.2 | $100.0 | $304.2 | | Finance lease obligations | $435.1 | $47.2 | $387.9 | | Operating lease obligations | $310.5 | $38.8 | $271.7 | | Purchase obligations | $233.7 | $64.9 | $168.8 | | Total | $3,536.1 | $365.0 | $3,171.1 | * Expected capital expenditures for 2025 are **$785 million to $820 million**, with approximately **$215 million to $225 million** considered nondiscretionary[137](index=137&type=chunk) * Projects under construction have an estimated additional cost to complete of approximately **$380 million** over the next two years[137](index=137&type=chunk) [Authorizations for Returning Capital to Stakeholders](index=35&type=section&id=Authorizations%20for%20Returning%20Capital%20to%20Stakeholders) This section details the company's initiatives to return capital to stakeholders, including increased quarterly cash dividends and common stock repurchase programs * The board of directors approved an increase in the quarterly cash dividend to **$0.19 per share**, payable on October 15, 2025[138](index=138&type=chunk) * The common stock repurchase authorization was reset to **$500 million** on July 24, 2024, with approximately **$433 million remaining** as of June 30, 2025[141](index=141&type=chunk)[165](index=165&type=chunk) * During the six months ended June 30, 2025, the company repurchased **0.6 million shares** of common stock for **$56.8 million**[141](index=141&type=chunk) [Supplemental Guarantor Financial Information](index=36&type=section&id=Supplemental%20Guarantor%20Financial%20Information) This section provides summarized financial information for the company's guarantors, including net operating revenues, expenses, and balance sheet metrics Summarized Financial Information for Guarantors (Unaudited) | Metric | Six Months Ended June 30, 2025 (Millions) | | :------------------------------------------------ | :---------------------------------------- | | Net operating revenues | $1,809.1 | | Intercompany revenues from non-guarantor subsidiaries | $54.9 | | Total net operating revenues | $1,864.0 | | Operating expenses | $1,545.7 | | Intercompany expenses with non-guarantor subsidiaries | $20.6 | | Total operating expenses | $1,566.3 | | Income from continuing operations | $184.3 | | Net income | $182.9 | | Net income attributable to Encompass Health | $182.9 | Summarized Balance Sheet for Guarantors (Unaudited) | Metric | June 30, 2025 (Millions) | December 31, 2024 (Millions) | | :------------------------------------------ | :----------------------- | :--------------------------- | | Total current assets | $642.0 | $609.5 | | Total noncurrent assets | $3,967.7 | $3,825.5 | | Total current liabilities | $677.1 | $677.7 | | Total noncurrent liabilities | $2,579.6 | $2,609.4 | [Adjusted EBITDA](index=37&type=section&id=Adjusted%20EBITDA) This section defines Adjusted EBITDA as a key liquidity measure and provides its reconciliation from net cash provided by operating activities and net income * Adjusted EBITDA is a key liquidity measure used by management to assess the company's ability to service debt and make capital expenditures, and it is a critical component of credit agreement covenants[146](index=146&type=chunk)[147](index=147&type=chunk) Adjusted EBITDA Reconciliation (Unaudited) | Metric | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $558.8 | $456.2 | | Adjusted EBITDA | $632.2 | $544.8 | Net Income to Adjusted EBITDA Reconciliation (Unaudited) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | | :------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net income | $184.9 | $146.5 | $381.4 | $285.3 | | Adjusted EBITDA | $318.6 | $271.8 | $632.2 | $544.8 | [Recent Accounting Pronouncements](index=39&type=section&id=Recent%20Accounting%20Pronouncements) This section directs readers to Note 1 of the financial statements for details on recent accounting pronouncements * For information regarding recent accounting pronouncements, refer to Note 1, Basis of Presentation, in the condensed consolidated financial statements[155](index=155&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as concluded by the CEO and CFO * The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[156](index=156&type=chunk) [Changes in Internal Control Over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that there were no material changes in the company's internal control over financial reporting during the quarter * There were no material changes in the company's Internal Control over Financial Reporting during the quarter ended June 30, 2025[157](index=157&type=chunk) PART II. Other Information This section provides other important information, including legal proceedings, risk factors, equity security sales, and exhibits [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal actions, regulatory audits, and investigations, including 'qui tam' lawsuits, which could materially affect its financial position * Encompass Health is subject to regulatory and governmental audits, investigations, and various legal actions, including "qui tam" lawsuits, which could result in sanctions, damages, fines, and other penalties[159](index=159&type=chunk)[160](index=160&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors from the 2024 Form 10-K are reported, with updates provided in the 'Executive Overview—Key Challenges' section * No material changes to the risk factors disclosed in the 2024 Form 10-K, with updates provided in the "Executive Overview—Key Challenges" section of this report[162](index=162&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's equity security repurchases during the three months ended June 30, 2025, including shares purchased and remaining authorization Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------------------------------------------------------------------------------------- | | April 1 through April 30, 2025 | 183,857 | $102.03 | $439,378,299 | | May 1 through May 31, 2025 | — | — | $439,378,299 | | June 1 through June 30, 2025 | 50,158 | $121.51 | $433,399,426 | | Total | 234,015 | $106.21 | | * As of June 30, 2025, approximately **$433 million remained** under the common stock repurchase authorization, which was reset to **$500 million** on July 24, 2024[141](index=141&type=chunk)[165](index=165&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section confirms that there are no insider trading arrangements to report * There are no insider trading arrangements to report[164](index=164&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL data files * Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, List of Subsidiary Guarantors, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and XBRL formatted financial data files[167](index=167&type=chunk)