Encompass Health (EHC) Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Revenue: Increased by 9.6% year-over-year to approximately $1.76 billion.

Adjusted EBITDA: Rose by 9.2% to $348 million.

Adjusted EPS: Grew by 10.7%, reflecting strong operational performance.

Patient Metrics:

Discharge community rate: 84.7%

Discharge to acute care: 8.4%

Discharge to skilled nursing facilities: 6.1%

Bad Debt Expense: Remained stable at 2.3%, consistent with expectations.

Share Repurchases: Approximately 704,000 shares repurchased for $74.2 million in Q2, totaling 1.4 million shares and $145.8 million year-to-date.

Net Leverage: 1.9x at quarter-end, indicating a strong balance sheet.

2Strategic Updates and Business Highlights

New Facilities: Opened a 50-bed hospital in Concordville, PA, and a 40-bed hospital in Loganville, GA, with plans for five more hospitals and 250 additional beds by year-end.

Career Development Programs: Increased participation in clinical staff growth initiatives, contributing to lower turnover rates (19% for nursing, 7% for therapy) and reduced reliance on premium labor.

North Carolina Expansion: Following the repeal of the Certificate of Need law, EHC plans to prioritize 15 markets for potential new facilities, with an initial focus on wholly-owned and joint venture hospitals.

Medicare Pricing: Anticipated 2.3% increase in net revenue per discharge starting October 1, 2026, based on the recent CMS IRF final rule.

3Forward Guidance and Outlook

2026 Guidance:

Net operating revenue: $6.41 billion to $6.49 billion.

Adjusted EBITDA: $1.365 billion to $1.395 billion.

Adjusted EPS: $6.02 to $6.25.

SWB per FTE Growth: Revised expectation of 3.5% to 4% for the full year, reflecting increased participation in career ladder programs.

4Bad News, Challenges, or Points of Concern

Medicare Advantage Denials: Continued challenges with pre-authorization denials from Medicare Advantage plans, although some marginal improvements were noted.

Net Provider Tax Impact: Adjusted EBITDA benefit expected to be approximately $10 million, down from previous expectations of flat impact.

Labor Costs: While premium labor costs decreased, there are indications of diminishing returns in further reductions, with a noted increase in SWB expense growth.

Occupancy Trends: Although occupancy rates are improving, there is concern about fluctuations in patient acuity and the potential impact on future growth.

5Notable Q&A Insights

Same-Store Discharge Growth: Increased to 2.8%, with expectations for continued strength in the second half due to easier comps and new capacity.

Career Ladder Impact: Enhanced workforce stability and reduced turnover are seen as key drivers for improved patient outcomes and operational efficiency.

VA Program Growth: Experienced a 33% increase, now representing nearly 23% of managed care volume, with significant potential for future growth.

Technology Investments: Ongoing initiatives with AI and partnerships aimed at improving operational efficiencies, though many benefits are still anticipated in the future. Overall, EHC demonstrated strong financial performance in Q2 2026, with strategic initiatives focused on capacity expansion and workforce development, while facing challenges related to Medicare Advantage denials and labor costs. The company is optimistic about its growth trajectory and has raised its full-year guidance.