Encompass Health Corporation Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, good morning, everyone.

Thank you for joining Encompass Health second quarter 2026 earnings call. Before we begin, if you do not already have a copy, the second quarter earnings release, supplemental information, and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On page two of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we'll make forward-looking statements, such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our con- We ask the audience to please stand by.

We have- Good morning, everyone.

This is Doug Coltharp. We apologize for the technical difficulties we're experiencing this morning. These difficulties are arising through our vendors, a vendor we have historically used, and these are not on the Encompass Health side. We appreciate your patience. With that, we are going to start from the top, assuming that you've heard nothing from us this morning, and I'm going to ask Mark Miller to begin.

Thank you, Doug. Good morning, everyone. Thank you for joining Encompass Health's second quarter 2026 earnings call. Before we begin, if you do not already have a copy, the second quarter earnings release, supplemental information, and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On page two of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our control.

Certain risks and uncertainties, like those relating to regulatory developments as well as volume, bad debt, and cost trends that could cause actual results to differ materially from our projections, estimates, and expectations are discussed in the company's SEC filings, including the earnings release and related Form 8-K, the Form 10-K for the year ended December 31, 2025, the Form 10-Q for the quarter ended March 31st, 2026, and the Form 10-Q for the quarter ended June 30th, 2026, when filed. We encourage you to read them. You are cautioned not to place undue reliance on these estimates, projections, guidance, and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures.

For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, at the end of the earnings release, and as part of the Form 8-K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we will adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to President and Chief Executive Officer, Mark Tarr.

Thank you, Mark, and good morning, everyone. We're very pleased with our second quarter results. As revenue grew 9.6%, adjusted EBITDA increased 9.2%, and adjusted EPS increased 10.7%. Based primarily on our Q2 results, we are again raising our guidance for 2026. Doug will review the details in his comments. Patient outcomes were again outstanding. Our Q2 discharge to community rate was 84.7%, discharge to acute rate was 8.4%, and discharge to skilled nursing facilities was 6.1%. Our performance on each of these quality metrics continues to exceed industry averages. We again experienced increased participation in our clinical staff professional growth and development programs, such as our career ladders, providing nurses with support to attain advanced licenses and certifications, including certified rehabilitation RN designation. We believe our success in these programs contributes to our favorable clinical staff turnover trends and helps to drive further declines in premium labor spend.

Our professional growth and development programs also enhance our abilities to serve high acuity, medically complex patients. Demand for inpatient rehabilitation services remains strong, and we continue to invest in capacity additions. In Q2, we opened a new 50-bed hospital in Concordville, Pennsylvania, and a 40-bed hospital in Loganville, Georgia. Our Loganville hospital is our eighth joint venture with Piedmont. We also added 10 beds to existing hospitals. Through the first half of the year, we opened three hospitals with a total of 139 beds and added 54 beds to existing hospitals. Over the balance of the year, we intend to open five more hospitals with a total of 250 beds and add 100 to 150 beds to existing hospitals.

We maintain an active pipeline of new hospital development projects, both wholly owned and joint ventures, while also executing on bed expansion opportunities as warranted by occupancy trends and market dynamics. Our pipeline of announced new hospital projects with opening dates beyond 2026 currently consists of 13 hospitals with 606 beds, and we anticipate additional projects, including small format hospitals, will be announced over the balance of the year. Last month, North Carolina repealed its Certificate of Need law for inpatient rehabilitation care effective October 1st of this year. We believe this is a great result for the citizens of North Carolina who will now benefit from more access to inpatient rehabilitation care. North Carolina exhibits highly favorable population growth and demographic characteristics, and our assessment points to a large underserved market for IRF services. We currently operate one hospital in North Carolina.