Key Takeaways EHC expands Tennessee footprint with a new JV inpatient rehab hospital in Lebanon with Vanderbilt Health.The 40-bed facility will offer specialized care and advanced therapy for complex injury recovery.EHC now operates 172 rehab hospitals across 39 states and Puerto Rico, supporting its expansion endeavor.Encompass Health Corporation (EHC) recently expanded ties with one of the Southeast’s foremost academic health systems, Vanderbilt Health, and unveiled plans to construct a new freestanding, ...

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 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 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]

Core Points - Encompass Health has opened its 25th rehabilitation hospital in Florida, specifically in St. Petersburg, to address the increasing demand for inpatient rehabilitation care [1][2][3] - The new facility spans 57,000 square feet and offers comprehensive rehabilitation services for patients recovering from various serious conditions, including strokes and spinal cord injuries [1][2] - The hospital features 50 private patient rooms, advanced rehabilitation technologies, and various amenities designed to enhance patient recovery and comfort [2][3] Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States, with a total of 171 hospitals across 39 states and Puerto Rico [4] - The company has been recognized as America's Most Awarded Leader in Inpatient Rehabilitation for six consecutive years by Newsweek and Statista [4][8] - Encompass Health is also ranked among Fortune's World's Most Admired Companies and Forbes' Most Trusted Companies in America [4]

Core Insights - Encompass Health has opened its first rehabilitation hospital in Connecticut, named Encompass Health Rehabilitation Hospital of Danbury, which is a significant expansion for the company in the Northeast region [1][4]. Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States, with a total of 170 hospitals across 39 states and Puerto Rico [5]. - The company is recognized for providing high-quality rehabilitative care and 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 Danbury hospital has 40 beds and spans 50,500 square feet, offering essential rehabilitation services for patients recovering from various serious 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]. - The facility includes private patient rooms, a therapy gym with advanced rehabilitation technologies, an activities of daily living suite, an in-house dialysis suite, and recreational areas [3].

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].

Financial Data and Key Metrics Changes - Revenue for Q2 increased by 12% to $1.46 billion, while adjusted EBITDA rose by 17.2% to $318.6 million [13][7] - Total discharges for Q2 increased by 7.2%, with same-store discharges growing by 4.7% [7][13] - Net revenue per discharge increased by 4.2%, benefiting from a decrease in bad debt expense to 2% [13][14] - Adjusted free cash flow increased by 30.5% to approximately $186 million, bringing year-to-date adjusted free cash flow to approximately $408 million, a 31.7% increase from 2024 [15][16] Business Line Data and Key Metrics Changes - Neurological conditions and stroke discharges grew by 126.7% in Q2 [8] - The discharge community rate was 84.8%, with discharge to acute and SNF rates at 8.5% and 5.8% respectively, outperforming industry averages [8][11] - The company opened a new 60-bed hospital in Fort Myers, Florida, and added 26 beds to an existing hospital in Q2 [9] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services is significantly underserved, particularly as the U.S. population ages, with the Medicare beneficiary population projected to grow substantially [10] - The average age of Medicare beneficiaries is 77 years, with the population aged 65 and older growing at a CAGR of approximately 3% [10] Company Strategy and Development Direction - The company plans to open five additional hospitals and add 30 to 50 beds to existing hospitals by the end of the year [9] - The company is increasing its 2025 guidance for net operating revenue to between $5.88 billion and $5.98 billion, and adjusted EBITDA to between $1.22 billion and $1.25 billion [18] - The company continues to focus on treating complex medical conditions and developing best-in-class clinical protocols [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the demand for inpatient rehabilitation services remains considerably underserved, with a focus on treating patients with complex medical conditions [10] - The company is optimistic about future growth, citing favorable demographic trends and an increase in Medicare reimbursement rates [12][10] Other Important Information - The company repurchased approximately 232,000 shares for $24.7 million and announced an increase in its quarterly dividend to $0.19 per share [17] - The company has a favorable leverage and liquidity position, with net leverage at two times and approximately $100 million in unrestricted cash [16] Q&A Session Summary Question: What are the occupancy rates and comfort levels for single bedroom facilities? - Management indicated that occupancy in Q2 was 76.6%, up 210 basis points year-over-year, and that stabilization above 80% would prompt consideration for future bed expansions [22][24] Question: What is the company's stance on quality ratings and initiatives? - Management stated that any changes in quality initiatives did not make it into the final rule and expressed willingness to support quality measurements that are agreed upon by the industry [27][28] Question: How does the company share quality results with stakeholders? - Management shares quality metrics such as discharge community rates and patient satisfaction scores with joint ventures and referring physicians [32][34] Question: What is the story behind the increase in managed care pricing assumptions? - The increase is attributed to growth in the VA Community Care Network, which now comprises almost 18% of the managed care business and pays at Medicare CMG rates [38] Question: What are the expectations for EBITDA in the second half of the year? - Management expects to incur most preopening and ramp-up costs in the second half, with guidance reflecting potential increases in bad debt and other costs [42] Question: How is the company addressing benefits expense growth? - Management noted that benefits expense per FTE increased by 18%, driven by high dollar medical claims, and indicated that strategies are in place to manage these costs [100] Question: What is the outlook for outpatient visits and pricing? - Outpatient visits increased by 8% quarter-over-quarter, attributed to a good book of business in remaining facilities, despite a reduction in the overall footprint [124]

Core Insights - Encompass Health Corporation (EHC) has opened a new 50-bed inpatient rehabilitation hospital in Daytona Beach, FL, marking its 169th hospital nationwide and 23rd in Florida, demonstrating the company's commitment to expanding access to rehabilitation care [1][8] Group 1: Hospital Features and Services - The Daytona Beach hospital provides specialized rehabilitation services for patients recovering from strokes, brain injuries, amputations, and orthopedic challenges, featuring private patient rooms, a therapy courtyard, an in-house dialysis suite, and dedicated areas for various therapies [2][8] - This facility represents a shift towards decentralized, patient-centered care in post-acute medicine, expected to enhance recovery outcomes and alleviate pressure on general hospitals in the area [3] Group 2: Growth Strategy - The new hospital is part of EHC's broader 2025 growth plan, which includes opening seven new hospitals this year and adding 100-120 beds to existing facilities, thereby strengthening its national presence [4] - EHC has announced plans to construct a freestanding inpatient rehabilitation hospital in North Las Vegas, NV, expected to begin operations by 2028 [4] Group 3: Market Performance - Year-to-date, EHC shares have increased by 16.2%, contrasting with a 1.5% decline in the industry [5]

Encompass Health (EHC) 2025 Conference Summary Company Overview - Encompass Health is the largest operator of inpatient rehabilitation facilities in the United States [1] Key Points and Arguments Volume Growth and Capacity - Encompass Health has a long-term target for discharge growth of 6% to 8% annually, with total discharge growth exceeding 6% for the last eleven quarters [6][8] - The company reported a first-quarter discharge growth of 10% in the previous year, influenced by an extra day due to leap year and the quarter ending on Easter Sunday [7] - In 2025, Encompass Health plans to open seven new hospitals, with five openings occurring after September, which will affect growth rates [8] - The expected breakdown for discharge growth is approximately two-thirds from same-store growth and one-third from new store growth [8] Occupancy Rates and Bed Expansion - The occupancy rate reached 78.8%, the highest ever recorded, reflecting a systematic increase in private room availability [10] - The percentage of private rooms in the portfolio increased from 40% in 2020 to 56% by the end of Q1 2025, enhancing occupancy levels [12] - Bed expansions are projected to yield high returns, with internal rates of return (IRR) exceeding 30% [13][14] - The company plans to add approximately 120 beds to existing hospitals in 2026 and 2027 [14] Joint Ventures and Market Strategy - Joint ventures (JVs) account for about 40% of Encompass Health's business, with a robust pipeline of potential partnerships [26] - JVs provide advantages such as faster ramp-up times and management fees, enhancing financial returns [27][28] - The company employs a data-driven approach to identify markets for new facilities, considering demographics, competition, and local healthcare needs [19] Medicare Advantage and Payer Mix - The Medicare Advantage payer mix has increased from under 9% in 2018 to approximately 30% in Q1 2025, with ongoing efforts to improve this further [35] - The reimbursement gap between Medicare Advantage and fee-for-service has narrowed from over 25% to less than 2% [36] - The conversion rate for Medicare Advantage referrals to admissions is currently about half that of fee-for-service, indicating significant growth potential [42] Regulatory Environment and Risks - Encompass Health does not foresee immediate risks from potential Medicare cuts, as IRFs represent less than 2% of overall Medicare expenditures [50] - The company is subject to frequent audits and maintains a low bad debt expense of around 2% [51] - There has been no recent discussion regarding the home health transfer policy, which had previously raised concerns [54] Cost Management and Financial Strategy - Construction costs for new facilities are approximately $1.2 million per bed, with bed expansions costing between $800,000 and $850,000 per bed [58] - The company has not observed upward pressure on construction or supply costs, benefiting from reduced demand among contractors [60] - Encompass Health repurchased $32 million of its stock in Q1 2025, indicating a commitment to returning value to shareholders while expanding capacity [64] Additional Important Insights - The aging demographic is a significant driver of growth, with projections indicating that one in five Americans will be over 65 by 2030 [17][18] - The company emphasizes its value proposition in treating complex medical conditions, which resonates with Medicare Advantage plans [40] - Encompass Health's strategic focus on expanding its capacity and improving payer mix positions it well for future growth opportunities [63]