Encompass Health’s Earnings Call Highlights Growth and Optimism

Encompass Health ((EHC)) has held its Q3 earnings call. Read on for the main highlights of the call.

Encompass Health’s recent earnings call conveyed a generally positive sentiment, highlighting significant revenue growth, increased guidance, and successful strategic initiatives. The company celebrated new hospital openings and a seamless ERP system conversion. However, challenges such as volume growth issues due to strong prior year comparisons and increased tax expenses were also noted.

Strong Financial Performance

Encompass Health reported a robust financial performance in the third quarter, with revenue increasing by 9.4% and adjusted EBITDA growing by 11.4%. These figures contributed to a year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5%, showcasing the company’s strong financial health and operational efficiency.

Increased 2025 Guidance

The company raised its 2025 guidance, now projecting net operating revenue between $5.905 billion and $5.955 billion, adjusted EBITDA between $1.235 billion and $1.255 billion, and adjusted earnings per share ranging from $5.22 to $5.37. This optimistic outlook reflects Encompass Health’s confidence in its strategic direction and market position.

Recognition and Quality Metrics

Encompass Health was recognized as America’s most awarded leader in inpatient rehabilitation for the sixth consecutive year by Newsweek and Statista. The company’s quality metrics, such as a Q3 discharge community rate of 84.6%, continue to exceed industry averages, underscoring its commitment to delivering high-quality healthcare services.

New Hospital Openings

In response to growing demand for inpatient rehabilitation facility (IRF) services, Encompass Health opened three new hospitals in the third quarter and added 39 beds to existing facilities. The company plans further expansions, highlighting its strategic focus on increasing capacity and accessibility.

Successful ERP System Conversion

Encompass Health successfully converted its ERP system to Oracle Fusion without significant operational disruptions. This transition marks a critical step in enhancing the company’s technological infrastructure and operational efficiency.

Volume Growth Challenges

The company faced challenges in volume growth, influenced by strong prior year comparisons and the timing of capacity additions. The consolidation of satellite locations negatively impacted Q3 discharge growth by approximately 35 basis points.

Increased Provider Tax and Property Tax Expenses

During the third quarter, Encompass Health experienced a $7.7 million increase in net provider tax revenue, offset by a $1.6 million increase in noncontrolling interest expense and a $1.3 million retroactive property tax assessment, impacting the company’s financials.

High Inflation in Benefits

The company reported a 1.9% increase in benefits expense per FTE, with expectations of high single-digit inflation in group medical claims by 2026. This trend reflects broader economic pressures and poses a challenge for cost management.

Forward-Looking Guidance

Looking ahead, Encompass Health remains optimistic, with plans to open two more hospitals in the fourth quarter and add 127 beds to existing facilities by the end of 2025. The company anticipates continued revenue and EBITDA growth, supported by strategic expansions and operational efficiencies.

In summary, Encompass Health’s earnings call highlighted a positive outlook with strong financial performance and strategic growth initiatives. Despite facing challenges in volume growth and increased tax expenses, the company remains well-positioned for future success, as evidenced by its increased guidance and commitment to quality care.