Encompass Health Corporation

Good morning, everyone, and welcome to Encompass Health's fourth quarter 2022 earnings conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star 1 on your telephone keypad. You will be limited to one question and one follow-up question. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mark Miller, Encompass Health Chief Investor Relations Officer.

Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's fourth quarter 2022 earnings call. Before we begin, if you do not already have a copy, the fourth quarter earnings release supplemental information and related form 8K 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, 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 labor 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 8K and the form 10K for the year ended December 31st, 2022 when filed. We encourage you to read them. Your caution not to place undue reliance on the 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 8K 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 Mark Tarr, and Compass Health's President and Chief Executive Officer.

Mark, thank you and good morning, everyone. Fourth quarter is a very strong finish to 2022, driving our full year results to the top end of our guidance range. Patient volume remained a particular bright spot with Q4 discharge growth of 7.3%, contributing to a full year discharge growth of 6.8%. vigilance on labor management, and a solid contribution from our 2022 de novos facilitated Q4 year-over-year adjusted EBITDA growth of 16.4%. For fiscal year 2022, we were able to overcome an increase of approximately $70 million in contract labor and sign-on and shift bonuses, $16 million in net pre-opening and new store ramp-up costs, at our de novos and double-digit second-half inflation in food and utility costs to generate a year-over-year increase in adjusted EBITDA. And we did so while continuing to strengthen our competitive position. We invested nearly $600 million in capex in our business in 2022. This includes upgrades to many of our legacy hospitals, in many instances reducing or eliminating semi-private rooms, and shared bathrooms, as well as building replacement hospitals in two key strategic markets, Huntsville, Alabama, and Tustin, California. We also continue to invest in our facility-based technology through initiatives like our Tableau on-site dialysis rollout. We now offer in-house dialysis in 41 of our hospitals and will continue the rollout in 2023. Reducing our reliance on third-party providers and obviating patient transport to receive this service leads to fewer disruptions to therapy schedules and improved patient outcomes and satisfaction. It also reduces our cost for these services. A central element of our strategy is investing in capacity expansions to meet the needs of a significantly under-penetrated and growing market for inpatient and rehabilitative services. In 2022, we opened nine de novo hospitals, the most ever in a single year for us. These facilities exceeded our expectations by contributing $4 million in four-wall EBITDA in Q4. We also added 87 beds to existing facilities, leading to a net 4.4 increase in licensed beds in 2022. As we've mentioned previously, we are increasingly utilizing prefabrication alternatives to contain design and construction costs and increase our speed to market. Our use of prefabrication has progressed from head walls to bathrooms to exterior walls, and in 2022, uber modules, which are two patient rooms adjoined by a corridor. We anticipate piloting full hospital prefabrication beginning in Q3 of this year with anticipated cost savings of almost 15% and speed to market gains of 25% as compared to conventional construction once the program is fully ramped. We complemented these investments in our business with the return of nearly $100 million to our shareholders through the cash dividend on our common stock. The strength and consistency of our free cash flow generation allowed us to fund these investments and shareholder distributions primarily with internally generated funds. Our leverage in Q4 was 3.4 times unchanged from Q3, and our liquidity remained strong. Evidenced by our strong, consistent discharge growth our value proposition continues to resonate across our constituencies. Within our payer mix, we further consolidated the gains made with Medicare Advantage achieving 4.1% discharge growth in 2022. Our Q4 same-store Medicare Advantage discharges were 41% higher than Q4 of 2019. The normalization of patient flows through healthcare facilitated 8.6% discharge growth in Medicare fee-for-service. We do believe that Q4 volumes benefited from early and aggressive flu season as well. None of this success has been accomplished without more than 30,000 dedicated associates. The past three years have been complicated with a lingering pandemic, tightening labor markets, burgeoning inflation, and the strategic alternatives view for our home health and hospice business. Our team has consistently risen to meet these challenges and to seize opportunities. Our value proposition and our operating strategy have been further validated and we remain highly optimistic about the long-term prospects of our business. As is our custom, Today we are also providing our initial guidance for 2023. Our revenue guidance reflects our expectations of continued high single-digit growth driven this year by both volume and pricing gains. We also expect solid adjusted EBITDA growth. Given continued uncertainty around the trajectory of further labor cost improvements, and the impact of inflation elsewhere in our cost structure, we believe it is prudent to exercise some caution in establishing our initial guidance range. Our 2023 guidance includes revenue of $4.68 to $4.76 billion, adjusted EBITDA of $860 to $900 million, and adjusted EPS $2.87 to $3.16. A list of considerations underpinning these guidance ranges can be found on page 13 of the supplemental slides. I also want to note that we are planning to host an investor day in New York City on September 27th of 2023. At that meeting, we'll provide more detailed insight into key elements of our strategy including de novo hospitals, clinical technologies, and labor management. We will also provide investors with the opportunity to hear from an array of our teammates within the senior management ranks. Please mark your calendars for September 27th. Details will follow in the days ahead, and we hope to see you there. With that, I'll turn it over to Doug to provide some further details on our operating results. Thank you, Mark, and good morning, everyone.