Encompass Health Corporation (EHC) is the nation's largest owner and operator of inpatient rehabilitation hospitals, providing specialized rehabilitative treatment on an inpatient basis. With a network of 160 hospitals across 37 states and Puerto Rico, Encompass Health has established itself as a leader in the inpatient rehabilitation industry.

Financials

Encompass Health's strong financial performance is evident in its 2023 results. The company reported annual net income of $352 million, annual revenue of $4.80 billion, annual operating cash flow of $850.8 million, and annual free cash flow of $267.7 million. These robust financials demonstrate Encompass Health's ability to generate consistent profitability and cash flow, which supports its growth initiatives and shareholder returns.

In the first quarter of 2024, Encompass Health continued its momentum, reporting a 13.4% increase in net operating revenues to $1.32 billion compared to the same period in 2023. This growth was primarily driven by a 10% increase in discharges, including a 6.7% increase in same-store discharges. Encompass Health also benefited from an increase in net patient revenue per discharge of 2.8% during the quarter.

Encompass Health's adjusted EBITDA for the first quarter of 2024 increased 19.2% to $273 million, reflecting the company's ability to effectively manage its operating expenses. Salaries and benefits, the largest component of operating expenses, increased 13.1% during the quarter, while other operating expenses increased 14.6%. Encompass Health's focus on cost control and operational efficiency has enabled it to maintain strong profitability margins, with an operating profit margin of 13% in the first quarter of 2024.

Business Overview

The company's geographic diversification is a key strength, with its hospitals spread across 37 states and Puerto Rico. This broad footprint allows Encompass Health to capitalize on regional demand trends and mitigate the impact of localized challenges. Additionally, the company's revenue mix is well-balanced, with Medicare and Medicare Advantage accounting for 81.9% of net operating revenues in the first quarter of 2024, providing stability and predictability to its top line.

Encompass Health's growth strategy is centered on expanding its inpatient rehabilitation hospital network through a combination of de novo developments, acquisitions, and joint ventures. During the first quarter of 2024, the company added 51 new beds to existing hospitals and announced plans to open 6 de novo hospitals with a total of 280 beds, as well as a 40-bed freestanding hospital to be licensed as a satellite location of an existing facility. Over the balance of 2024, Encompass Health expects to add another 93 beds to existing hospitals, including the satellite location.

The company's focus on clinical excellence and quality of care is a key differentiator. Encompass Health has consistently achieved high patient satisfaction scores and quality outcomes, which are critical in a highly regulated industry like healthcare. The company's ongoing investments in clinical technologies and protocols, such as the implementation of in-house dialysis capabilities and its quality of life improvement project, further enhance its ability to deliver exceptional patient care.

Liquidity

Encompass Health's strong financial position and liquidity provide ample flexibility to fund its growth initiatives and return capital to shareholders. As of March 31, 2024, the company had no amounts drawn on its $1 billion revolving credit facility and more than $130 million in cash on hand. Its net leverage ratio declined to 2.5x in the first quarter of 2024, down from 2.7x at the end of 2023, demonstrating its ability to generate significant cash flow and maintain a healthy balance sheet.

The company's shareholder-friendly capital allocation strategy includes a quarterly cash dividend and a share repurchase program. In the first quarter of 2024, Encompass Health paid a $0.15 per share dividend and declared another $0.15 per share dividend for the second quarter. The company's board of directors has also authorized the repurchase of up to $250 million of its common stock, with approximately $198 million remaining under the authorization as of March 31, 2024.

Outlook

Looking ahead, Encompass Health has provided guidance for 2024, raising its expectations for net operating revenues to $5.25 billion to $5.325 billion and adjusted EBITDA to $1.03 billion to $1.065 billion. This guidance reflects the company's confidence in its ability to continue delivering strong financial performance, driven by robust demand for its services and its focus on operational excellence.

Conclusion

In conclusion, Encompass Health's consistent financial performance, strategic growth initiatives, and commitment to clinical quality position the company well to capitalize on the growing demand for inpatient rehabilitation services. With its strong balance sheet, diversified revenue streams, and experienced management team, Encompass Health is poised to maintain its leadership position in the industry and deliver long-term value for its shareholders.