Core Viewpoint - Encompass Health Corp. plans to build a 40-bed inpatient rehabilitation hospital in Bear, Delaware, aimed at enhancing access to specialized rehabilitation care for local residents [1][4]. Group 1: Hospital Features and Services - The new hospital will cater to patients recovering from serious conditions such as strokes, neurological disorders, brain and spinal cord injuries, amputations, and complex orthopedic issues [2]. - Services will include 24-hour nursing care, physical, occupational, and speech therapies, all provided by specialized healthcare professionals [2]. - The facility will feature private patient rooms, a therapy gym with advanced rehabilitation technologies, an activities of daily living suite, an in-house dialysis suite, and additional amenities like a dining room and therapy courtyard [3]. Group 2: Company Background and Expansion - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with a network of 174 hospitals across 39 states and Puerto Rico [5]. - The new hospital will be the second location for Encompass Health in Delaware, complementing an existing facility in Middletown [4]. - The company is recognized for its high-quality rehabilitative care and has received accolades from Newsweek, Statista, and Fortune [5].

Core Insights - Encompass Health Corporation (EHC) is a leading provider of inpatient rehabilitation services in the U.S., focusing on high-quality rehabilitation care for patients recovering from serious injuries, illnesses, or surgeries [2][3] Company Overview - EHC operates 173 inpatient rehabilitation hospitals across 39 U.S. states and Puerto Rico, with a market capitalization of approximately $10 billion [3] - The company's shares have gained 2.7% over the past year, underperforming the industry's average increase of 5.9% during the same period [3] Valuation Metrics - EHC's forward P/E ratio is 16.71x, lower than the industry average of 17.51x, indicating a relatively attractive valuation [4] - The company holds a Zacks Rank 3 (Hold) and a Value Score of B [4] Earnings Estimates - The Zacks Consensus Estimate for EHC's 2026 earnings is $5.90 per share, suggesting an 8.3% year-over-year increase [5] - The consensus estimate for 2026 revenues is $6.4 billion, indicating 8.3% year-over-year growth, with expected revenues of $6.365–$6.465 billion, up from $5.9 billion in 2025 [5] Growth Drivers - EHC is focused on expanding its Inpatient Rehabilitation segment, having opened eight de novo hospitals with 395 beds in 2023 and plans for further expansions [7][10] - The company reported a 10.5% year-over-year increase in revenues in 2025, driven by an expanding patient base [11] Financial Performance - EHC generated $818 million in adjusted free cash flow in 2025, supporting expansion, buybacks, and dividends [9] - Net operating cash flow increased by 17.9% in 2024 and 17.2% in 2025, reaching $1.2 billion [11] - The company returned value to shareholders through $71.1 million in dividends and $158 million in share repurchases [12] Return on Investment - EHC boasts a trailing 12-month return on invested capital (ROIC) of 10%, surpassing the industry average of 6.3%, indicating efficient use of investments [13]

Group 1 - The company has experienced three years of high execution and maintains a positive outlook for the future, driven by aging demographics and an imbalance in supply and demand for services [1] - There is a limited addition of beds in the Inpatient Rehabilitation Facility (IRF) industry, indicating a continued demand for the company's services [1] - The company is positioned to capture growth opportunities due to its scale and the ongoing demand in the market [1] Group 2 - The company is optimistic about discussions in several states regarding the repeal of the certificate of need, which could open up new market opportunities [2] - North Carolina is highlighted as a state with attractive demographics, where the company currently operates one hospital but sees potential for expansion [2]

Company Overview - Encompass Health Corp. (NYSE: EHC) is the largest owner and operator of inpatient rehabilitation hospitals in the United States, with a national footprint of 173 hospitals across 39 states and Puerto Rico [1] - The company is recognized as America's Most Awarded Leader in Inpatient Rehabilitation by Newsweek and Statista, and is ranked among Fortune's World's Most Admired Companies and Forbes' America's Best Companies [1] New Hospital Announcement - Encompass Health announced plans to build a 50-bed inpatient rehabilitation hospital in Flowood, Mississippi, aimed at serving patients recovering from debilitating illnesses and injuries [1] - The hospital will provide 24-hour nursing care and specialized therapies, including physical, occupational, and speech therapies, to help patients restore function and improve quality of life [1] - The facility will feature private patient rooms, a therapy gym with advanced rehabilitation technologies, an activities of daily living suite, an in-house dialysis suite, and additional amenities [1] Strategic Expansion - The new hospital is expected to open in 2027 and will be Encompass Health's second location in Mississippi, complementing an existing facility in Gulfport [1] - The expansion aims to bring high-quality, specialized rehabilitation services closer to residents in the Jackson area and central Mississippi [1]

Financial Data and Key Metrics Changes - In Q4 2025, revenue increased by 9.9% to $1.5 billion, while adjusted EBITDA rose by 15.9% to $335.6 million, driven by 5.3% discharge growth and a 4.1% increase in net revenue per discharge [14][16] - For the full year 2025, revenue grew by 10.5%, and EBITDA increased by 14.9%, with premium labor costs declining by over $21 million from 2024 [6][11] Business Line Data and Key Metrics Changes - The company added 517 beds in 2025, with 390 from new hospitals and 127 from existing hospitals, reflecting ongoing investments in capacity [7] - The full-year discharge to community rate was 84.6%, with discharge to acute care at 8.6% and discharge to skilled nursing facilities (SNF) at 6.1%, all favorable compared to industry averages [6][7] Market Data and Key Metrics Changes - The company experienced strong fee-for-service growth in Q4, although challenges were noted with Medicare Advantage, particularly with one national payer that saw a significant drop in conversion rates [26][27] - The Veterans Affairs (VA) program represented 19% of managed care volume, with a growth rate of 22% for the year, indicating strong performance in this segment [30] Company Strategy and Development Direction - The company plans to augment its capacity expansion strategy by introducing small format hospitals starting in 2027, which will support a hub and spoke strategy in larger markets [7][8] - The company is actively engaging with regulatory bodies to ensure compliance and mitigate risks associated with changes in the IRF industry, particularly regarding the RCD and TEAM models [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to regulatory changes and maintain growth, citing a strong demand for IRF services [10][11] - The initial guidance for 2026 includes net operating revenue of $6.365 billion to $6.465 billion and adjusted EBITDA of $1.34 billion to $1.38 billion, reflecting expectations for continued growth [17] Other Important Information - The company maintained a strong balance sheet with a year-end net financial leverage of 1.9x, allowing for flexibility in investments and shareholder distributions [11][16] - Significant investments were made in operations, including $158 million in share repurchases and over $70 million in cash dividends [11][16] Q&A Session Summary Question: Can you elaborate on volume trends and comp issues for 2026? - Management noted that Q4 faced challenging comps due to strong performance in the previous year, with new hospitals contributing to volume growth [20][21] Question: What is the payer mix and growth across different classes? - Fee-for-service growth was strong, but challenges were noted with Medicare Advantage, particularly with one payer that saw a drop in conversion rates [26][27] Question: How do pilot programs like TEAM typically play out? - Management indicated that past pilot programs have had mixed outcomes, with some being implemented nationally while others did not continue beyond the pilot phase [38][39] Question: What is the rationale behind adding small format hospitals? - The company aims to address market demand and capacity constraints with a new economically feasible model for smaller hospitals, enhancing service delivery in growing markets [90][91] Question: How is the company addressing malpractice concerns? - Management reported no significant changes in malpractice activity from 2024 to 2025, indicating stability in this area [85]

Financial Data and Key Metrics Changes - In Q4 2025, revenue increased by 9.9% to $1.5 billion, while adjusted EBITDA rose by 15.9% to $335.6 million [14] - For the full year 2025, revenue grew by 10.5%, driven by 6% discharge growth and pricing growth, with EBITDA increasing by 14.9% [6][11] - Bad debt expense for Q4 was 2.1%, flat year-over-year, and premium labor costs declined by $5.8 million from Q4 2024 [14][15] Business Line Data and Key Metrics Changes - The company added 517 beds in 2025, with 390 from new hospitals and 127 from existing hospitals [7] - The full-year discharge to community rate was 84.6%, with discharge to acute care at 8.6% and discharge to SNF at 6.1%, all favorable compared to industry averages [6][7] Market Data and Key Metrics Changes - The company experienced strong fee-for-service growth in Q4, although challenges were noted with Medicare Advantage, particularly with one national payer [26][27] - The VA program represented 19% of managed care volume, with a discharge growth of over 20% in Q4 [30] Company Strategy and Development Direction - The company plans to augment its capacity expansion strategy with small format hospitals starting in 2027, facilitating a hub and spoke strategy [7][8] - The company is actively engaging with CMS regarding regulatory changes and believes it is well-prepared for the expansion of RCD into Texas and California [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to regulatory changes and maintain growth, citing a strong demand for IRF services [10][11] - The initial guidance for 2026 includes net operating revenue of $6.365 billion to $6.465 billion and adjusted EBITDA of $1.34 billion to $1.38 billion [17] Other Important Information - The company allocated $158 million to share repurchases and returned over $70 million in cash dividends in 2025, maintaining a strong balance sheet with a net leverage ratio of 1.9 times [11][16] - The company is implementing an admit and appeal strategy for Medicare Advantage denials, aiming to ensure compliance with Medicare coverage requirements [29][30] Q&A Session Summary Question: Volume evolution and comp issues for 2026 - Management noted that Q4 faced challenging comps due to strong prior year performance and unit consolidations impacting discharge rates [20][21][23] Question: Payer mix and Medicare Advantage challenges - Fee-for-service growth was strong, but there were significant challenges with one national Medicare Advantage payer, leading to a drop in conversion rates [26][27][28] Question: TEAM pilot program implications - Management explained that past pilot programs have had mixed outcomes, with some leading to national implementation while others did not [37][39] Question: Labor costs and staffing improvements - Management attributed lower labor costs to a softening labor market and improved staffing practices, with a notable decrease in turnover rates [50][52][55] Question: RCD experience in Alabama - The company reported a 93% affirmation rate in Alabama, with ongoing appeals for non-affirmed claims showing good success [63][66] Question: Small format hospitals strategy - Management discussed the advantages of small format hospitals, including cost-effectiveness and the ability to meet market demand without extensive new construction [90][92]

Financial Data and Key Metrics Changes - In Q4 2025, revenue increased by 9.9% to $1.5 billion, while adjusted EBITDA rose by 15.9% to $335.6 million, driven by a 5.3% growth in discharges and a 4.1% increase in net revenue per discharge [13][5][11] - For the full year 2025, revenue grew by 10.5%, and EBITDA increased by 14.9%, with premium labor costs declining by over $21 million compared to 2024 [5][11] Business Line Data and Key Metrics Changes - The company added 517 beds in 2025, with 390 from new hospitals and 127 from existing hospitals, reflecting ongoing investments in capacity [6][11] - The full-year discharge to community rate was 84.6%, discharge to acute care was 8.6%, and discharge to skilled nursing facilities (SNF) was 6.1%, all favorable compared to industry averages [5][6] Market Data and Key Metrics Changes - The company experienced strong fee-for-service growth in Q4, although challenges were noted with Medicare Advantage, particularly with one national payer that saw a significant drop in conversion rates [28][27] - The Veterans Affairs (VA) program represented 19% of managed care volume, with a 22% growth for the year, indicating strong performance in this segment [30][11] Company Strategy and Development Direction - The company plans to implement small format hospitals starting in 2027 as part of a hub and spoke strategy to address market demand [6][11] - The company is actively engaging with regulatory bodies to ensure compliance and adapt to changes in the IRF industry, including the implementation of the TEAM model [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to regulatory changes and maintain growth, citing a strong demand for IRF services [10][11] - The company anticipates continued growth in 2026, with guidance for net operating revenue between $6.365 billion and $6.465 billion and adjusted EBITDA between $1.34 billion and $1.38 billion [16][11] Other Important Information - The company maintained a strong balance sheet with a year-end net financial leverage of 1.9 times, allowing for continued investments and shareholder distributions [11][15] - Significant investments were made in operations, including $158 million in share repurchases and over $70 million in cash dividends [11][15] Q&A Session Summary Question: Volume evolution and comp issues for 2026 - Management noted that the back half of 2025 faced challenging comps due to strong performance in the previous year, with new hospitals contributing to volume growth [20][21] Question: Payer mix and Medicare Advantage challenges - Fee-for-service growth was strong, but there were challenges with Medicare Advantage, particularly with a national payer that saw a drop in conversion rates [27][28] Question: TEAM pilot program and its implications - Management explained that the TEAM pilot program is similar to previous models and does not represent new risks, with expectations of continued growth despite regulatory changes [39][40] Question: Labor costs and staffing improvements - Management attributed improvements in labor costs to a softening labor market and effective staffing strategies, resulting in lower premium labor costs [51][52] Question: RCD experience in Alabama - The company reported a 93% affirmation rate in Alabama, with ongoing appeals for non-affirmed claims, indicating a strong position in managing regulatory challenges [66][69]

Core Insights - Encompass Health Corporation reported strong financial performance for Q4 2025, with net operating revenue increasing by 9.9% year-over-year to $1,544.6 million, and adjusted earnings per share rising by 24.8% to $1.46 [2][3] Financial Performance - Net operating revenue for Q4 2025 was $1,544.6 million, compared to $1,405.0 million in Q4 2024, reflecting a growth of $139.6 million [2] - Income from continuing operations attributable to Encompass Health per diluted share increased by 20.3% to $1.42 from $1.18 [2] - Adjusted EBITDA for Q4 2025 was $335.6 million, up 15.9% from $289.6 million in Q4 2024 [2] - Cash flows from operating activities rose by 24.1% to $346.0 million, compared to $278.8 million in the previous year [2] Operational Highlights - The company discharged 67,238 patients in Q4 2025, a 5.3% increase from 63,839 in Q4 2024, with same-store discharge growth of 3.2% [2] - Net patient revenue per discharge increased by 4.1% to $22,273 from $21,399 [2] - Encompass Health added 517 inpatient rehabilitation beds through eight new hospitals and 127 beds to existing facilities during 2025, indicating a significant capacity expansion [3] 2026 Guidance - For 2026, Encompass Health expects net operating revenue between $6,365 million and $6,465 million, and adjusted EBITDA between $1,340 million and $1,380 million [5] - The company anticipates adjusted earnings per share from continuing operations to be in the range of $5.81 to $6.10 [5] Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with 173 hospitals across 39 states and Puerto Rico [9] - The company is recognized for its high-quality rehabilitative care and has received accolades such as being ranked among Fortune's World's Most Admired Companies and Forbes' America's Best Companies [9]

Core Insights - Select Medical Holdings Corporation (SEM) has formed a joint venture with Vibra Healthcare to enhance inpatient rehabilitation services in Southern Kentucky, specifically operating the Southern Kentucky Rehabilitation Hospital in Bowling Green [1][9] Company Strategy - The 76-bed facility will focus on acute inpatient rehabilitation for patients recovering from serious conditions such as strokes, traumatic brain injuries, and spinal cord injuries, addressing critical needs in underserved markets [2][3] - This partnership is a strategic move for SEM to expand its post-acute care services in Kentucky, complementing its existing network of two critical illness recovery hospitals and 65 outpatient rehabilitation centers [3][4] - The collaboration aligns with SEM's long-term growth strategy of expanding its rehabilitation hospital portfolio through capital-efficient joint ventures, supporting its growth objectives in the post-acute care segment [4] Future Plans - SEM is planning to open three new inpatient rehab facilities in 2026, including locations in Tucson, AZ, Ozark, MO, and New Jersey, along with additional acute rehab and neuro transitional units [5] Financial Performance - In the first nine months of 2025, SEM's total revenues increased by 4.7% year over year, indicating positive growth despite a challenging market environment [4][9] - Over the past year, SEM shares have declined by 17.9%, which is an improvement compared to the industry's decline of 26.8% [6]

Core Insights - Encompass Health has opened the Encompass Health Rehabilitation Hospital of Lake Worth, a 50-bed facility aimed at providing essential rehabilitation services for patients recovering from serious conditions [1][2] - The hospital is designed to meet the growing demand for inpatient rehabilitation care in Florida, marking the company's 26th location in the state [3][4] Facility Details - The new hospital spans over 55,000 square feet and offers a range of rehabilitation services, including physical, occupational, and speech therapy, with a minimum of three hours of therapy provided five days a week [1][2] - Amenities include 50 private patient rooms, a spacious therapy gym with advanced rehabilitation technologies, an activities of daily living suite, an in-house dialysis suite, and landscaped therapy courtyards [2] Company Overview - Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the U.S., with a total of 173 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 by Newsweek and Statista [4]