Encompass Health (EHC) - 2025 Q2 - Quarterly Results

Executive Summary & Financial Highlights This section provides an overview of Encompass Health's strong Q2 2025 financial and operational performance, updated full-year guidance, and key operational developments Q2 2025 Performance Overview Encompass Health reported strong financial and operational growth for Q2 2025, with significant increases in net operating revenue, earnings per share, and cash flows, driven by higher discharges and improved pricing Q2 2025 Key Financial and Operational Metrics | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Growth (Dollars) | Growth (%) | | :--------------------------------------- | :----------------- | :----------------- | :--------------- | :--------- | | Net operating revenue | $1,457.7 | $1,301.2 | $156.5 | 12.0% | | Income from continuing operations per diluted share | $1.40 | $1.13 | $0.27 | 23.9% | | Adjusted earnings per share | $1.40 | $1.11 | $0.29 | 26.1% | | Cash flows provided by operating activities | $270.2 | $217.4 | $52.8 | 24.3% | | Adjusted EBITDA | $318.6 | $271.8 | $46.8 | 17.2% | | Adjusted free cash flow | $185.9 | $142.5 | $43.4 | 30.5% | | Discharges | 65,237 | 60,833 | - | 7.2% | | Same-store discharge growth | - | - | - | 4.7% | | Net patient revenue per discharge | $21,670 | $20,803 | - | 4.2% | Full-Year 2025 Guidance Update Encompass Health increased its full-year 2025 guidance across key financial metrics, including net operating revenue, Adjusted EBITDA, and Adjusted earnings per share, reflecting a positive outlook Full-Year 2025 Guidance Comparison | Metric | Previous Guidance (Millions) | Updated Guidance (Millions) | | :---------------------------------------------------- | :------------------------- | :------------------------ | | Net operating revenue | $5,850 to $5,925 | $5,880 to $5,980 | | Adjusted EBITDA | $1,185 to $1,220 | $1,220 to $1,250 | | Adjusted earnings per share from continuing operations | $4.85 to $5.10 | $5.12 to $5.34 | Operational Developments The company expanded its capacity for inpatient rehabilitation care by opening a new hospital and adding beds to an existing facility during the quarter - Increased capacity to serve patients by opening a new 60-bed hospital in Fort Myers, Florida, and adding 26 beds to an existing hospital[4] Company Information This section details Encompass Health's identity as the largest inpatient rehabilitation hospital operator, highlighting its operational scale and industry accolades About Encompass Health Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States, providing high-quality, compassionate rehabilitative care and recognized for its industry leadership - Encompass Health (NYSE: EHC) is the largest owner and operator of inpatient rehabilitation hospitals in the United States[7] - Operates 169 hospitals in 38 states and Puerto Rico, focusing on high-quality, compassionate rehabilitative care using advanced technology[7] - Ranked as one of Fortune's World's Most Admired Companies and Forbes' Most Trusted Companies in America[7] Consolidated Financial Statements This section presents the company's condensed consolidated financial statements, including statements of operations, balance sheets, and cash flows, reflecting strong growth Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show substantial year-over-year growth in net operating revenues and net income for both the three and six months ended June 30, 2025 Condensed Consolidated Statements of Operations (Millions) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | 6M 2025 (Millions) | 6M 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 income tax expense | $236.8 | $186.0 | $475.4 | $364.4 | | Net income attributable to Encompass Health | $142.1 | $114.1 | $293.6 | $226.6 | | Diluted EPS from continuing operations attributable to Encompass Health | $1.40 | $1.13 | $2.88 | $2.24 | Condensed Consolidated Balance Sheets The balance sheet reflects an increase in total assets as of June 30, 2025, compared to December 31, 2024, primarily driven by growth in property and equipment, goodwill, and cash Condensed Consolidated Balance Sheets (Millions) | Metric | June 30, 2025 (Millions) | December 31, 2024 (Millions) | | :-------------------------------- | :----------------------- | :--------------------------- | | Total assets | $6,785.7 | $6,534.7 | | Total current assets | $918.1 | $886.9 | | Property and equipment, net | $3,820.3 | $3,643.1 | | Goodwill | $1,303.0 | $1,284.0 | | Total liabilities | $3,697.5 | $3,685.5 | | Total shareholders' equity | $3,033.1 | $2,792.7 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities increased significantly, while cash used in investing and financing activities also saw increases compared to the prior year Condensed Consolidated Statements of Cash Flows (Millions) | Metric | 6M 2025 (Millions) | 6M 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 | | Cash, cash equivalents, and restricted cash at end of period | $137.4 | $182.1 | Supplemental Information & Non-GAAP Reconciliations This section clarifies the use of non-GAAP financial measures and provides detailed reconciliations for Adjusted EBITDA, Adjusted EPS, and Adjusted Free Cash Flow Note Regarding Non-GAAP Financial Measures Encompass Health uses non-GAAP financial measures and provides reconciliations to GAAP, but does not offer GAAP guidance for certain non-GAAP metrics due to the unpredictability of specific items outside its control - The press release includes non-GAAP financial measures such as adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow, with reconciliations to comparable GAAP measures[9] - GAAP guidance is not provided for certain non-GAAP measures (excluding net operating revenues) because the company cannot reasonably predict the future impact of items deemed outside its control or not indicative of ongoing operating performance[10] - Reasonably estimable GAAP measures for 2025, if other reconciling GAAP measures could be predicted, include approximately $125 million for interest expense and amortization of debt discounts and fees, and $10 million for amortization of debt-related items[11] Adjusted EBITDA Reconciliations This section provides detailed reconciliations of both net cash provided by operating activities and net income to Adjusted EBITDA, adjusting for various non-operating and non-recurring items for both quarterly and year-to-date periods Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA This reconciliation details the adjustments from net cash provided by operating activities to Adjusted EBITDA for quarterly and year-to-date periods Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA (Millions) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | 6M 2025 (Millions) | 6M 2024 (Millions) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $270.2 | $217.4 | $558.8 | $456.2 | | Interest expense and amortization of debt discounts and fees | $30.4 | $34.3 | $62.2 | $69.5 | | Current portion of income tax expense | $54.5 | $40.6 | $87.3 | $72.4 | | Adjusted EBITDA | $318.6 | $271.8 | $632.2 | $544.8 | Reconciliation of Net Income to Adjusted EBITDA This reconciliation details the adjustments from net income to Adjusted EBITDA for quarterly and year-to-date periods Reconciliation of Net Income to Adjusted EBITDA (Millions) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | 6M 2025 (Millions) | 6M 2024 (Millions) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net income | $184.9 | $146.5 | $381.4 | $285.3 | | Provision for income tax expense | $51.0 | $38.3 | $92.6 | $76.6 | | Interest expense and amortization of debt discounts and fees | $30.4 | $34.3 | $62.2 | $69.5 | | Depreciation and amortization | $79.9 | $72.9 | $159.1 | $143.2 | | Adjusted EBITDA | $318.6 | $271.8 | $632.2 | $544.8 | Adjusted Earnings Per Share Reconciliations This section provides detailed reconciliations for both GAAP and non-GAAP earnings per share, adjusting for specific items to present a clearer view of ongoing operating performance across various periods Earnings Per Share (GAAP) This table presents the GAAP earnings per share from continuing operations for both quarterly and year-to-date periods Earnings Per Share (GAAP) (Millions) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | 6M 2025 (Millions) | 6M 2024 (Millions) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Income from continuing operations attributable to Encompass Health | $143.0 | $115.3 | $295.0 | $229.1 | | Basic earnings per share from continuing operations | $1.42 | $1.14 | $2.92 | $2.28 | | Diluted earnings per share from continuing operations | $1.40 | $1.13 | $2.88 | $2.24 | Adjusted Earnings Per Share (Non-GAAP) This table presents the adjusted non-GAAP earnings per share for both quarterly and year-to-date periods Adjusted Earnings Per Share (Non-GAAP) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :---------------------------------------------------- | :------ | :------ | :------ | :------ | | Earnings per share, as reported | $1.40 | $1.13 | $2.88 | $2.24 | | Adjusted earnings per share | $1.40 | $1.11 | $2.77 | $2.23 | Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share (Q2 2025) This reconciliation details adjustments from reported diluted EPS to adjusted diluted EPS for Q2 2025 Q2 2025 Adjusted Earnings Per Share Reconciliation (Millions) | Metric | As Reported (Millions) | Income Tax Adjustments (Millions) | Change in Fair Market Value of Equity Securities (Millions) | As Adjusted (Millions) | | :---------------------------------------------------- | :--------------------- | :-------------------------------- | :------------------------------------------ | :--------------------- | | Income from continuing operations attributable to Encompass Health | $143.0 | $0.4 | $(0.2) | $143.2 | | Diluted earnings per share from continuing operations | $1.40 | — | — | $1.40 | Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share (Q2 2024) This reconciliation details adjustments from reported diluted EPS to adjusted diluted EPS for Q2 2024 Q2 2024 Adjusted Earnings Per Share Reconciliation (Millions) | Metric | As Reported (Millions) | Income Tax Adjustments (Millions) | Change in Fair Market Value of Equity Securities (Millions) | As Adjusted (Millions) | | :---------------------------------------------------- | :--------------------- | :-------------------------------- | :------------------------------------------ | :--------------------- | | Income from continuing operations attributable to Encompass Health | $115.3 | $(2.4) | $0.3 | $113.2 | | Diluted earnings per share from continuing operations | $1.13 | $(0.02) | — | $1.11 | Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share (6M 2025) This reconciliation details adjustments from reported diluted EPS to adjusted diluted EPS for the six months ended June 30, 2025 6M 2025 Adjusted Earnings Per Share Reconciliation (Millions) | Metric | As Reported (Millions) | Income Tax Adjustments (Millions) | Change in Fair Market Value of Equity Securities (Millions) | As Adjusted (Millions) | | :---------------------------------------------------- | :--------------------- | :-------------------------------- | :------------------------------------------ | :--------------------- | | Income from continuing operations attributable to Encompass Health | $295.0 | $(11.6) | $(0.7) | $282.7 | | Diluted earnings per share from continuing operations | $2.88 | $(0.11) | $(0.01) | $2.77 | Reconciliation of Income from Continuing Operations Attributable to Encompass Health per Diluted Share to Adjusted Earnings Per Share (6M 2024) This reconciliation details adjustments from reported diluted EPS to adjusted diluted EPS for the six months ended June 30, 2024 6M 2024 Adjusted Earnings Per Share Reconciliation (Millions) | Metric | As Reported (Millions) | Asset Impairment Impact (Millions) | Income Tax Adjustments (Millions) | Change in Fair Market Value of Equity Securities (Millions) | As Adjusted (Millions) | | :---------------------------------------------------- | :--------------------- | :------------------------- | :-------------------------------- | :------------------------------------------ | :--------------------- | | Income from continuing operations attributable to Encompass Health | $229.1 | $1.8 | $(3.0) | $0.1 | $228.0 | | Diluted earnings per share from continuing operations | $2.24 | $0.02 | $(0.03) | — | $2.23 | Adjusted Free Cash Flow Reconciliation The reconciliation shows an increase in adjusted free cash flow for both the three and six months ended June 30, 2025, compared to the prior year, with details on investing and financing activities Adjusted Free Cash Flow Reconciliation (Millions) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | 6M 2025 (Millions) | 6M 2024 (Millions) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $270.2 | $217.4 | $558.8 | $456.2 | | Impact of discontinued operations | $1.2 | $2.0 | $1.9 | $2.7 | | Net cash provided by operating activities of continuing operations | $271.4 | $219.4 | $560.7 | $458.9 | | Capital expenditures for maintenance | $(45.1) | $(48.9) | $(79.1) | $(87.6) | | Distributions paid to noncontrolling interests of consolidated affiliates | $(40.4) | $(27.8) | $(73.3) | $(52.5) | | Adjusted free cash flow | $185.9 | $142.5 | $408.3 | $310.1 | - Net cash used in investing activities was $165.4 million for Q2 2025 and $323.9 million for 6M 2025, primarily due to capital expenditures[29][31] - Net cash used in financing activities was $90.2 million for Q2 2025 and $220.6 million for 6M 2025, primarily from distributions to noncontrolling interests, stock repurchases, net debt payments, and cash dividends[29][31] Corporate Disclosures This section provides details on the upcoming earnings conference call and includes important forward-looking statements and risk disclosures Earnings Conference Call and Webcast Encompass Health will host an investor conference call and webcast on August 5, 2025, to discuss its second-quarter 2025 results, with details provided for access - An investor conference call will be held at 10:00 a.m. Eastern Time on Tuesday, August 5, 2025, to discuss Q2 2025 results[5] - Access to the conference call is available by dialing 800 343-4849 (domestic) or 203 518-9848 (international) using conference ID EHCQ225, or via live webcast at http://investor.encompasshealth.com[6](index=6&type=chunk) Forward-Looking Statements This section contains a standard disclaimer that statements in the report regarding future events are forward-looking and subject to various risks and uncertainties, meaning actual results may differ materially from projections - Statements in the press release and supplemental information that are not historical facts are forward-looking statements, subject to risks and uncertainties[34] - Actual events or results may differ materially due to factors such as infectious disease outbreaks, demand for services, legal proceedings, ability to attract and retain personnel, cybersecurity risks, and changes in healthcare regulation and reimbursement[34][36] - Encompass Health undertakes no duty to publicly update or revise such forward-looking information[34]