Encompass Health (US:EHC)2024-10-29 17:40Financial Data and Key Metrics Changes - Revenue increased by 11.9% to $1.35 billion and adjusted EBITDA increased by 13.4% to $269.3 million in Q3 2024 [10][22] - Total discharges increased by 8.8%, with net revenue per discharge increasing by 2.5% [22] - Bad debt expense as a percentage of revenue decreased to 1.9%, down 30 basis points from Q3 2023 and 100 basis points from Q2 2024 [23][24] - Adjusted free cash flow increased by 27.1% to $189.7 million, with a year-to-date total of approximately $0.5 billion [33] Business Line Data and Key Metrics Changes - Discharge growth was broad-based across geographies, payers, and patient types, with neurological and stroke conditions growing by 9% and 9.7% respectively [11] - Medicare discharges increased by 8.8% for the quarter, while Medicare Advantage discharges grew by 12.6% [11][67] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation care is underserved and growing, with the age cohort most in need of these services expected to grow at a 4% to 5% CAGR [12] - By 2030, it is estimated that one in five Americans, over 70 million people, will be aged 65 or older, driving strong demand for inpatient rehabilitation services [12] Company Strategy and Development Direction - The company is continuing to invest in capacity additions, having added 99 beds during Q3, including two de novo hospitals [14] - The Houston project represents a milestone in the company's de novo construction strategy, utilizing full prefabrication to lower costs and shorten construction times [15] - The company anticipates building at least two de novos per annum with full prefabrication, with a robust pipeline of 15 development projects beyond 2024 [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the updated guidance for 2024, anticipating net operating revenue of $5.325 billion to $5.375 billion and adjusted EBITDA of $1.07 billion to $1.09 billion [35] - The company is aware of potential impacts from community recovery post-hurricanes, which may affect volumes and length of stay in Q4 [21] Other Important Information - The company has a favorable leverage and liquidity position, with net leverage at 2.3 times compared to 2.7 times at year-end 2023 [34] - The company issued a notice of redemption for an incremental $100 million of its senior notes due in September 2025 [35] Q&A Session Summary Question: What drove the strong same-store volumes? - Management noted broad growth across all geographic regions and the ramp-up of facilities opened in previous years, contributing to market share gains [41][42] Question: Should FTE growth continue to increase? - Management indicated that total FTE growth is expected to correlate with discharge growth, stabilizing around 3.4% [44][45] Question: What is the estimated revenue impact from lower volumes due to hurricanes? - Management stated that the impact would be minor as hospitals resumed normal operations quickly, but they are evaluating potential longer lengths of stay due to community healthcare system disruptions [47] Question: Are there any expected delays in construction due to hurricanes? - Management confirmed that there are no expected delays for the hospitals scheduled to open in Florida next year, as the sites were secured in advance of the storms [49] Question: What are the key headwinds and tailwinds for 2025? - Management highlighted expected SWB per FTE inflation of 3% to 3.5% and noted uncertainty regarding provider tax contributions due to variability across states [58] Question: What is the company's exposure to election-related programs? - Management indicated that the Tennessee program is not a significant factor for the company, and historically, election outcomes have not had a major impact on operations [70][71]