Core Insights - Encompass Health Corporation (EHC) has expanded its partnership with Vanderbilt Health to build a new 40-bed inpatient rehabilitation hospital in Lebanon, TN, expected to open in 2028 [1][5][9] Facility Details - The new hospital will feature private patient rooms, a large therapy gym with advanced rehabilitation technologies, daily living suite activities, an in-house dialysis unit, a pharmacy, and a therapy courtyard [2] - Specialized care will be provided for patients recovering from serious illnesses and injuries, including strokes, neurological disorders, traumatic brain injuries, spinal cord injuries, amputations, and complex orthopedic conditions [3] Operational Impact - The facility aims to enhance patient recovery speed and improve health outcomes for residents in Wilson, Smith, Trousdale, and Macon counties [4] - EHC's expansion aligns with the increasing demand for inpatient rehabilitation services due to a rise in patients with serious health conditions [7] Financial Performance - In the first nine months of 2025, EHC reported revenues of $4.4 billion, reflecting a 10.6% increase compared to the same period in the previous year [6] - EHC's share price has increased by 13% over the past year, outperforming the industry average growth of 1.9% [8]

Core Points - Encompass Health Corp. and Vanderbilt Health are collaborating to build a 40-bed freestanding inpatient rehabilitation hospital in Lebanon, Tennessee, expected to open in 2028 [1][3][4] - The new facility aims to provide high-quality rehabilitation care for patients recovering from severe illnesses and injuries, including strokes and neurological disorders, with a focus on comprehensive rehabilitation services [2][4] - The hospital will feature private patient rooms, advanced rehabilitation technologies, and various therapy services, enhancing the existing acute care services in the region [3][4] Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with 172 hospitals across 39 states and Puerto Rico, recognized for its high-quality rehabilitative care [5] - The company has been awarded as America's Most Awarded Leader in Inpatient Rehabilitation and is ranked among Fortune's Most Admired Companies and Forbes' Most Trusted Companies [5]

Core Points - Encompass Health Corp. plans to build a 50-bed freestanding inpatient rehabilitation hospital in Fishers, Indiana, expected to open in 2027 [1][3] - The new facility will cater to patients recovering from various debilitating conditions, including strokes, brain injuries, and complex orthopedic conditions, providing specialized nursing and therapy services [2][3] - The hospital will feature private patient rooms, advanced rehabilitation technologies, and various amenities to enhance patient care and recovery [3] Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with 172 hospitals across 39 states and Puerto Rico [4] - The company is recognized for its high-quality rehabilitative care and has received accolades such as being named America's Most Awarded Leader in Inpatient Rehabilitation [4] - Encompass Health aims to expand its presence in Indiana to meet the growing demand for inpatient rehabilitation services [3][4]

Core Insights - Encompass Health Corporation (EHC) shares have declined by 8.3% following the release of its third-quarter 2025 results, primarily due to increased operating expenses, although strong net patient revenue and capacity expansion measures provided some offset [1][8] Financial Performance - EHC reported adjusted earnings per share (EPS) of $1.23 for Q3 2025, exceeding the Zacks Consensus Estimate by 3.4% and reflecting a year-over-year increase of 19.4% [2][8] - Net operating revenues rose by 9.4% year over year to $1.5 billion, slightly surpassing consensus estimates by 0.1% [2][3] - Net patient revenue per discharge increased by 3.3% year over year to $21.7 billion, outperforming the growth estimate of 2.7% [3][8] - Total operating expenses reached $1.2 billion, an increase of 8.1% year over year, driven by higher salaries and benefits [3][8] - Net income for the quarter was $174.6 million, up 18.7% year over year, while adjusted EBITDA improved by 11.4% to $300.1 million, exceeding estimates [4][8] Operational Highlights - EHC added 39 beds to existing hospitals and opened three de novo hospitals during the quarter [4][8] - Total discharges increased by 5% year over year to 65,839, although this fell short of consensus estimates [3][8] Financial Position - As of September 30, 2025, EHC had cash and cash equivalents of $48.7 million, down from $85.4 million at the end of 2024 [5][6] - Total assets increased by 5.1% to $6.9 billion, while long-term debt rose by 1.5% to $2.4 billion [5][6] - Shareholders' equity advanced by 12.1% to $3.1 billion, and net cash from operations was $270.8 million, a 1.1% increase year over year [6] Capital Deployment - EHC repurchased shares worth $24.9 million during the quarter and has approximately $408 million remaining under its buyback authorization [7][8] - The company declared a quarterly cash dividend of 19 cents per share [7] Future Outlook - EHC raised its 2025 revenue forecast to between $5.905 billion and $5.955 billion, indicating a 10.4% increase from 2024 [9][10] - Adjusted EBITDA for 2025 is now estimated to be between $1.235 billion and $1.255 billion, reflecting a 12.8% growth from 2024 [9][10] - The adjusted EPS outlook for 2025 has been revised to a range of $5.22 to $5.37, suggesting a 19.5% increase from the previous year [10] - The company aims to open seven de novo hospitals and add 340 beds in 2025, with a long-term goal of inaugurating six to ten de novos annually from 2023 to 2027 [11][12]

Core Insights - Encompass Health and BSA Health System have opened the Rehabilitation Hospital of Amarillo, a 50-bed inpatient rehabilitation facility aimed at enhancing access to rehabilitation services in the Texas Panhandle region [1][4]. Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with 172 hospitals across 39 states and Puerto Rico [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 specialized centers [7]. Facility Details - The Rehabilitation Hospital of Amarillo spans over 54,000 square feet and provides rehabilitation services for patients recovering from strokes, brain injuries, spinal cord injuries, amputations, and complex orthopedic conditions [2]. - Patients will receive a minimum of three hours of intensive therapy five days a week, along with 24-hour nursing care and frequent physician visits [2]. Strategic Importance - The new hospital is expected to more than double the region's capacity for inpatient rehabilitation, providing a dedicated care destination close to home for local patients [4]. - The facility is designed with patient needs in mind, featuring private rooms, advanced rehabilitation technologies, and various amenities to support recovery [3].

Financial Performance - Net operating revenues for Q3 2025 reached $1,477.5 million, a 9.3% increase from $1,351.0 million in Q3 2024[16] - Total operating expenses for Q3 2025 were $1,233.9 million, up from $1,141.9 million in Q3 2024, reflecting an increase of 8.0%[16] - Net income attributable to Encompass Health for Q3 2025 was $126.5 million, compared to $108.2 million in Q3 2024, representing a 16.0% increase[16] - Earnings per share (EPS) for Q3 2025 was $1.26, up from $1.09 in Q3 2024, indicating a 15.6% growth[16] - Comprehensive income attributable to Encompass Health for Q3 2025 was $126.7 million, up from $108.2 million in Q3 2024[18] - For the three months ended September 30, 2025, net income was $172.7 million, compared to $145.9 million for the same period in 2024, representing an increase of 18.5%[23] - Net income for the nine months ended September 30, 2025, was $556.0 million, an increase from $432.4 million in 2024, representing a growth of 28.5%[28] - Adjusted EBITDA for Q3 2025 was $300.1 million, up from $269.3 million in Q3 2024, reflecting a 11.5% growth[81] - Adjusted EBITDA for the nine months ended September 30, 2025, was $932.3 million, an increase of 14.5% from $814.1 million in the same period of 2024[150] Assets and Liabilities - Total assets as of September 30, 2025, were $6,865.7 million, an increase from $6,534.7 million as of December 31, 2024[20] - Current liabilities decreased to $762.0 million as of September 30, 2025, down from $841.0 million at the end of 2024[20] - Encompass Health's shareholders' equity increased to $2,373.8 million as of September 30, 2025, compared to $2,067.0 million at the end of 2024[20] - The total shareholders' equity at the end of September 2025 was $3,131.9 million, up from $2,669.1 million at the end of September 2024, reflecting a growth of 17.3%[25] - Long-term debt, net of current portion, stood at $2,393.9 million as of September 30, 2025, compared to $2,359.2 million at the end of 2024[60] - Total current liabilities as of September 30, 2025, were $577.3 million, down from $677.3 million as of December 31, 2024[144] - Long-term debt, net of current portion, was $2,328.8 million as of September 30, 2025, compared to $2,273.3 million as of December 31, 2024[144] Cash Flow and Capital Expenditures - Net cash provided by operating activities increased to $829.6 million in 2025 from $724.0 million in 2024, reflecting a rise of 14.6%[28] - The company made capital expenditures of approximately $507 million during the nine months ended September 30, 2025, and expects to spend between $785 million and $820 million for capital expenditures in 2025[137] - The company expects to fund capital expenditures using cash on hand and borrowings under its revolving credit facility[137] Shareholder Returns - Dividends declared for the nine months ended September 30, 2025, were $54.0 million, with a per-share dividend of $0.53, compared to $47.8 million for the same period in 2024[25] - The company repurchased $81.7 million worth of common stock in the open market during the nine months ended September 30, 2025[25] - The company repurchased a total of 221,894 shares of its common stock during the three months ended September 30, 2025, at an average price of $112.69 per share[161] - The maximum number of shares that may yet be purchased under the repurchase plans is approximately $408.5 million[161] Operational Highlights - The company operated 170 inpatient rehabilitation hospitals as of September 30, 2025, with a significant concentration in Florida and Texas[33] - The company expanded its capacity by adding 140 new beds across existing hospitals and new facilities in 2025[89] - The company plans to open new hospitals in St. Petersburg, Amarillo, and Lake Worth by Q4 2025, each with 50 new beds[90] - Discharges increased by 5.0% to 65,839 in Q3 2025, with same-store discharges growing by 2.9%[110] - Net patient revenue per discharge grew by 3.3% to $21,679 in Q3 2025, primarily due to increased reimbursement rates[110] Regulatory and Market Environment - The healthcare industry faces ongoing regulatory challenges, with the One Big Beautiful Bill Act expected to impact Medicaid programs starting in 2027[96] - The company is facing challenges in maintaining hospital volumes due to competition and regulatory burdens, which may impact future growth[101] - The company has engaged with the Medicare Administrative Contractor and CMS to address inconsistencies in the review process affecting claim validation rates[99] - The company expects a net increase of approximately 2.9% in Medicare payment rates effective October 1, 2025, due to the 2026 Final IRF Rule[97] - Medicare accounted for 64.1% of total net operating revenues for the three months ended September 30, 2025, down from 65.4% in the same period of 2024[102] Miscellaneous - The company reported a loss from discontinued operations of $0.4 million in Q3 2025, compared to a loss of $0.7 million in Q3 2024[16] - The company did not record any impairment charges related to its available-for-sale debt securities during the three and nine months ended September 30, 2025[57] - There were no changes in internal control over financial reporting that had a material effect during the quarter ended September 30, 2025[155] - The company continues to face regulatory and legal challenges in the healthcare industry, which may impact its financial position and operations[157]

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Financial Data and Key Metrics Changes - Revenue in Q3 increased by 9.4%, and adjusted EBITDA grew by 11.4%, contributing to year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5% [7][11] - Q3 adjusted free cash flow decreased by 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital [15] - Free cash flow increased by 16.5% to $582.5 million, with an increased full-year adjusted free cash flow estimate of $730 to $810 million [15][16] Business Line Data and Key Metrics Changes - Q3 community discharge rate was 84.6%, discharge to acute rate was 8.6%, and discharge to SNF rate was 6%, all exceeding industry averages [7] - Total discharges increased by 5%, with a 3.3% increase in net revenue per discharge [11] - Q3 2025 adjusted EBITDA included $10.8 million of net provider tax revenue, an increase of $7.7 million from Q3 2024 [13] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services remains significantly underserved, with the Medicare beneficiary population being the fastest-growing segment in the U.S. [9] - The population aged 65 or older is expected to grow to more than 70 million by 2030, with a CAGR of approximately 3% [9] - The average age of Medicare beneficiary patients is 77 years old, with the 75+ population growing at approximately 4% [9] Company Strategy and Development Direction - The company continues to open new hospitals and add beds to existing hospitals, with an expected addition of approximately 127 beds in 2025 and 150 to 200 in both 2026 and 2027 [9][10] - The company has a pipeline of 14 announced new hospitals with 690 beds and more than 40 active projects [10] - The company aims to maintain a balance between de novo programs and increased bed expansions for future growth [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market opportunity for inpatient rehabilitation services, citing a steady rise in occupancy rates [22] - The company has not seen any negative impact on referral patterns despite external challenges, maintaining proactive communication with partners [112] - Management noted that there were no surprises in the quarter, with performance aligning with expectations [38] Other Important Information - The company successfully converted its ERP system to Oracle Fusion without significant operational disruptions [10][100] - The company repurchased approximately 221,000 shares for about $25 million during Q3, totaling approximately $82 million year-to-date [15] Q&A Session Summary Question: How should we think about the accelerated bed addition plan impacting volume growth going forward? - Management indicated that the increase in bed expansions validates their business model and strategy, reflecting the unmet need for IRF services across the country [20] Question: What level of capex as a percent of revenue should we model to maintain discharge growth in the 6% to 8% range? - Management stated that growth capex this year is about $580 million, with an average cost of approximately $800,000 per bed addition [27] Question: What is the target occupancy before expanding a facility? - Management noted that hospitals typically consider bed expansion after reaching 80% sustained occupancy, with private room hospitals able to operate efficiently at mid-90% occupancy [30] Question: Did anything surprise you in the quarter versus initial expectations? - Management reported no surprises, aside from retro payments and property assessments, with overall performance in line with expectations [38] Question: How did payer mix evolve in Q3 compared to the first half? - Management indicated that growth rates for Medicare and Medicare Advantage were comparable, with managed care seeing a 9.2% increase [48] Question: What are the potential impacts from negative headlines that came out earlier in Q3? - Management confirmed no impact on referral patterns, maintaining strong communication with partners [112]

Financial Data and Key Metrics Changes - Revenue in Q3 increased by 9.4%, and adjusted EBITDA grew by 11.4%, contributing to year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5% [7][13] - Q3 adjusted free cash flow decreased by 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital [15] - Free cash flow increased by 16.5% to $582.5 million, with an increased full-year adjusted free cash flow estimate of $730 million to $810 million [15] Business Line Data and Key Metrics Changes - Q3 community discharge rate was 84.6%, discharge to acute rate was 8.6%, and discharge to SNF rate was 6%, all exceeding industry averages [7] - Q3 total discharges increased by 5%, with a 3.3% increase in net revenue per discharge [11] - Annualized RN turnover was 20.2%, and annualized therapist turnover was 7.8%, consistent with favorable trends from the previous year [7] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services remains underserved, with the Medicare beneficiary population being the fastest-growing segment in the U.S. [9] - The population aged 65 or older is projected to grow at a CAGR of approximately 3%, with the average age of Medicare beneficiary patients being 77 years old [9] - The company expects to add approximately 127 beds to existing hospitals in 2025 and 150-200 beds in both 2026 and 2027 [9][13] Company Strategy and Development Direction - The company continues to invest in clinical staff and has opened three new hospitals in Q3, with plans for additional openings in Q4 [8][9] - The company has increased its expected bed addition growth, responding to the unmet need for inpatient rehabilitation services [9][13] - The company has a pipeline of 14 announced new hospitals with 690 beds and more than 40 active projects [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market for inpatient rehabilitation services, citing a steady rise in occupancy rates and the need for additional capacity [21] - Management noted no surprises in Q3 results, with strong labor management and low bad debt levels [40] - The company remains active in Washington despite regulatory challenges and anticipates no significant concerns in the near term [42] Other Important Information - The company completed an ERP system conversion to Oracle Fusion without significant operational disruptions [10][101] - The company repurchased approximately 221,000 shares for about $25 million in Q3, bringing the year-to-date total to approximately $82 million [15] Q&A Session Summary Question: How should we think about the accelerated bed addition plan impacting volume growth going forward? - Management indicated that the increase in bed expansions validates the business model and reflects the unmet need for IRF services [20] Question: What level of capex as a percent of revenue should be modeled to maintain discharge growth? - Management stated that growth CapEx this year is about $580 million, with an average cost of $800,000 per bed addition [29] Question: What is the target occupancy before expanding a facility? - Management noted that hospitals typically consider bed expansion after reaching 80% sustained occupancy [33] Question: Did anything surprise you in the quarter versus initial expectations? - Management reported no surprises, aside from retroactive payments and property assessments, with overall performance in line with expectations [40] Question: How has the payer mix evolved in Q3 compared to the first half? - Management reported balanced growth across payers, with Medicare and Medicare Advantage both showing increases [50] Question: What are the implications of changes in the Medicare landscape? - Management indicated that a slowdown in Medicare Advantage growth could present opportunities within fee-for-service Medicare, which pays at a higher rate [75]

Financial Data and Key Metrics Changes - Revenue in Q3 2025 increased by 9.4%, with year-to-date revenue growth of 10.6% [4] - Adjusted EBITDA grew by 11.4% in Q3 2025, contributing to a year-to-date growth of 14.5% [4][12] - Q3 adjusted free cash flow decreased by 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital [14] - Free cash flow increased by 16.5% to $582.5 million, with an increased full-year adjusted free cash flow estimate of $730 to $810 million [14][15] Business Line Data and Key Metrics Changes - Q3 community discharge rate was 84.6%, with a discharge to acute rate of 8.6% and a discharge to SNF rate of 6% [5] - Total discharges increased by 5% in Q3, with a 3.3% increase in net revenue per discharge [9] - Q3 same-store discharge growth was 6.8%, the highest since Q2 2021 [10] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services remains significantly underserved, particularly as the U.S. population ages [6][8] - The Medicare beneficiary population is projected to grow significantly, with one in five Americans expected to be aged 65 or older by 2030 [6][7] Company Strategy and Development Direction - The company plans to open two additional 50-bed hospitals in Q4 and expects to add approximately 127 beds to existing hospitals in 2025 [6][12] - The company has a pipeline of 14 announced new hospitals with 690 beds, with more than 40 projects in the active pipeline [9] - The strategy includes maintaining a balance between de novo hospital openings and bed expansions to meet the growing demand for IRF services [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market for IRF services, citing a unique position to add capacity in response to unmet needs [18] - The company has not seen any negative impact on referral patterns despite external challenges and remains proactive in communication with partners [62] - Management noted that the overall occupancy rates are on an upward trajectory, with expectations for fluctuations based on capacity additions [60] Other Important Information - The company successfully converted its ERP system to Oracle Fusion without significant operational disruptions [9][55] - The average age of Medicare beneficiary patients is 77 years, with the 75-plus population growing at approximately 4% [7] Q&A Session Summary Question: How should we think about the accelerated bed addition plan impacting volume growth going forward? - Management indicated that the increase in bed expansions reflects the strong performance of de novos and the unmet need for IRF services across the country [18] Question: What level of capex as a percent of revenue should we be modeling to maintain discharge growth? - Growth capex this year is estimated at about $580 million, with an average cost of $800,000 per bed addition [20] Question: What is the target occupancy before expanding a facility? - Facilities typically consider expansion after reaching 80% sustained occupancy, with private room hospitals able to operate efficiently at mid-90% occupancy [22] Question: Did anything surprise you in the quarter versus expectations? - Management noted no surprises other than retro payments and a property assessment, with overall performance aligning with expectations [26] Question: How has the payer mix evolved in Q3 compared to the first half? - Medicare and Medicare Advantage both saw growth, with managed care increasing by 9.2% [28] Question: What are the implications of the Medicare landscape changes? - Management believes that a slowdown in Medicare Advantage growth could lead to greater opportunities in fee-for-service, which pays at a higher rate [40]