Core Viewpoint - Encompass Health Corporation is facing scrutiny due to allegations of misleading business information, leading to a potential class action lawsuit by The Rosen Law Firm on behalf of shareholders [1][2][6] Group 1: Legal and Regulatory Issues - The Rosen Law Firm is investigating potential securities claims against Encompass Health following allegations of misleading business information [1][6] - A New York Times article reported serious incidents of patient harm and below-average safety performance at some of Encompass Health's rehab hospitals, resulting in a 10.3% drop in stock price on the day of publication [1] Group 2: Market Performance and Analyst Opinions - UBS upgraded Encompass Health's stock to a "Buy" on October 2, 2025, raising the price target from $140 to $150, indicating confidence in the company's future performance despite recent controversies [3][6] - Encompass Health's current stock price is $123.23, reflecting a slight decrease of 0.32, or -0.259% [4][6] - The stock has shown volatility over the past year, with a high of $127.86 and a low of $87.85 [4] Group 3: Financial Metrics - Encompass Health's market capitalization is approximately $12.41 billion, with a trading volume of 1,017,291 shares on the NYSE, indicating a significant market presence [5][6]

Financial Data and Key Metrics Changes - The company's consolidated revenue grew nearly 5% to $1.3 billion, and adjusted EBITDA increased to $125.4 million from $124.7 million in the prior year [9][10] - Earnings per common share from continuing operations rose 88% to $0.32 from $0.17 per share in the same quarter prior year [9] Business Line Data and Key Metrics Changes - Inpatient rehab hospital division revenue rose 17% year over year to $313.8 million, with adjusted EBITDA increasing nearly 15% to $71 million [10] - Outpatient rehabilitation division revenue increased 3.8%, driven by a corresponding 3.8% increase in patient volume [11] - Critical illness recovery hospital division revenue was $601.1 million, a decline of 1% from the same quarter last year [13][14] Market Data and Key Metrics Changes - The occupancy rate for inpatient rehab hospitals was lower than the prior year at 82%, while the same store occupancy rate remained stable at 86% [10] - The occupancy rate for critical illness recovery hospitals improved to 69% from 67% in the prior year [13] Company Strategy and Development Direction - The company plans to add 382 rehab beds by the end of 2027, with a focus on expanding in key markets [6][8] - Upcoming openings include a 45-bed hospital in Temple, Texas, and a 30-bed critical illness recovery hospital in Memphis, Tennessee [7][8] - The company remains committed to delivering value to shareholders through stock repurchases and dividends [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the inpatient rehab division, particularly in states with favorable regulatory environments [25] - The company is optimistic about the outpatient division's prospects, expecting improvements in EBITDA margins [31] - Management acknowledged ongoing challenges with the reimbursement system but remains hopeful for policy reforms [12][45] Other Important Information - The company repurchased over 5.7 million shares at an average price of $14.86, totaling $85.1 million [9] - A cash dividend of $0.0625 per share was declared, payable on August 28, 2025 [9] Q&A Session Summary Question: How did EBITDA per segment come in line versus internal expectations? - Management indicated that critical illness EBITDA came in slightly lower than expectations, while inpatient rehab exceeded expectations, leading to comfort with reaffirmed guidance [22] Question: What is the strategy in states with favorable environments for inpatient rehab? - The company plans to engage with major systems in states like North Carolina to grow their post-acute network without immediate construction [25] Question: How is the outpatient rehab business expected to evolve? - Management expects continued improvement in outpatient rehab, with initiatives aimed at increasing EBITDA margins approaching 10% [29][31] Question: What is the impact of the outlier threshold? - Management noted that the impact was around $60 million in Q1, with expectations of facing headwinds throughout the year but less significant than in Q1 [34] Question: What is the supply-demand picture in the critical illness recovery hospitals? - Demand remains strong due to demographics and medical technology advances, although challenges with reimbursement persist [50][52] Question: What are the trends in labor costs across business lines? - Employee rate increases have improved from 5% to below 3%, indicating a positive trend in labor costs [53]