Encompass Health ((EHC)) has held its Q1 earnings call. Read on for the main highlights of the call.
Encompass Health’s Earnings Call Reflects Optimism Amid Challenges
The recent earnings call for Encompass Health presented an optimistic outlook, highlighting significant revenue and EBITDA growth, strong discharge numbers, and reduced labor costs. While challenges such as increasing benefits expenses and issues with Palmetto’s audit programs persist, the overall sentiment remains positive, with a focus on future growth and expansion.
Strong Revenue and EBITDA Growth
In the first quarter, Encompass Health reported a robust increase in revenues by 10.6%, reaching $1.46 billion. Adjusted EBITDA also saw a significant rise of 14.9%, totaling $313.6 million. These figures underscore the company’s strong financial performance and its ability to generate substantial earnings.
Significant Discharge Growth
The company experienced a notable 6.3% growth in total discharges during the first quarter, with same-store discharges increasing by 4.4%. This growth reflects the company’s effective strategies in patient management and service delivery.
High Occupancy and Expansion Plans
Occupancy rates achieved a high of 78.8%, prompting Encompass Health to plan for expansion. The company intends to add approximately 120 beds in both 2026 and 2027, along with 300 beds through six new facilities in 2025, indicating a strategic focus on meeting growing demand.
Reduced Premium Labor Costs
Premium labor costs decreased by $5 million from Q1 2024 to $28.6 million, showcasing improved labor efficiency. This reduction is a positive indicator of the company’s operational management.
Increased Free Cash Flow Guidance
Encompass Health reported a 32.7% increase in adjusted free cash flow, reaching $222.4 million. Consequently, the full-year guidance was raised to a range of $620 million to $715 million, reflecting confidence in the company’s cash generation capabilities.
Increased Benefits Expense
The company faced a 14% increase in benefits expense per full-time equivalent, driven by higher severity and frequency of group medical claims. This rise in expenses poses a challenge that the company needs to address.
Challenges with Palmetto TPE and RCD Programs
Encompass Health continues to encounter challenges with Palmetto’s TPE and RCD programs in Alabama, with inconsistent audit activities affecting operations. Addressing these issues remains a priority for the company.
Continued Pressure from Pre-Authorization Processes
Pre-authorization processes with Medicare Advantage plans continue to be challenging, contributing to delays in admissions. This ongoing issue highlights the complexities of navigating healthcare regulations.
Forward-Looking Guidance
Looking ahead, Encompass Health has increased its 2025 guidance, anticipating net operating revenue between $5.85 billion and $5.925 billion, adjusted EBITDA from $1.185 billion to $1.220 billion, and adjusted earnings per share between $4.85 and $5.10. The company also plans to expand its capacity with new hospitals and bed additions, reflecting a strategic focus on growth.
In summary, Encompass Health’s earnings call conveyed a positive sentiment, driven by strong financial performance and strategic expansion plans. While challenges such as increased benefits expenses and audit program issues remain, the company’s optimistic outlook and forward-looking guidance suggest continued growth and resilience in the face of industry challenges.