Encompass Health Corporation

To all sites on hold, we do appreciate your patience in holding. We ask that you please continue to hold. Your conference will begin momentarily. Music Good morning, everyone, and welcome to Encompass Health's third quarter 2023 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's Chief Investor Relations Officer. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's third quarter 2023 earnings call. Before we begin, if you do not already have a copy, the third 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 included in the earnings release and related Form 8-K. The Form 10-K for the year ended December 31st, 2022, and the Form 10-Q for the quarters ended March 31st, 2023, June 30th, 2023, and September 30th, 2023 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 gap 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 you 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, Encompass Health's President and Chief Executive Officer.

Thank you, Mark, and good morning, everyone. We're very pleased with our third quarter results, driven by continued strong volume growth and a substantial year-over-year reduction in premium labor costs. Our third quarter revenues increased 10.8%, and adjusted EBITDA increased 21.6%. Q3 total discharges increased 7.3%, with same-store discharges up 4.3%. Our strong volume growth continues to underscore our value proposition to referral sources, payers, and patients. Our patient acuity continued to broaden with more normalized patient flows through the healthcare system. Stroke discharges were up 5.8% year over year, while knee and hip replacement and fracture of the lower extremity discharges grew approximately 14% in the aggregate year over year, though off a relatively small base. Given the strong demand for inpatient rehabilitation services, we have continued to invest in capacity additions. We opened one 40-bed de novo in the third quarter, bringing us to six de novos year to date. We also added 26 beds to existing hospitals in the third quarter for total capacity additions of 340 beds over the first nine months of 2023. Based on favorable weather conditions and construction efficiencies, we are accelerating the opening of our Fitchburg, Wisconsin hospital from first quarter of 2024 to fourth quarter of 2023. As a result, we now plan to open two de novos in Q4 and add five beds to existing hospitals, resulting in a total of 441 beds for the year. Three of our bed addition projects originally scheduled for 2023 have shifted to 2024 due in each case to local permitting issues. As a result of this shift, we expect to add more than 150 beds to existing hospitals in 2024. We continue to build and maintain an active pipeline of de novo projects, both wholly owned and JVs, with acute care hospitals. We currently have announced 18 de novos with opening dates beyond 2023. During Q3, we again met the increasing demand for our services while reducing contract labor and sign-on and shift bonus expenditures. Contract labor was down approximately $6 million or 24% from Q3 of 2022, while sign-on and shift bonuses decreased approximately $10 million or 41% from Q3 of 2022. For the second consecutive quarter, our talent acquisition efforts resulted and over 200 net same-store RN hires. Please be mindful that hiring results may vary significantly from quarter to quarter based on seasonality and other factors. Review Choice Demonstration, or RCD, began on August 21st in Alabama. Recall that under RCD, every claim is reviewed for documentation and medical necessity. We elected pre-claim review as we believe it allows for a more iterative process and the potential for real-time adjustments. Our results thus far are encouraging. The affirmation rate target set by CMS under RCD is 80% of claims submitted during the first six months, and our affirmation rate is well above that. Given our Q3 results and expectations for Q4, we are updating our 2023 guidance to include net operating revenue of $4.77 to $4.8 billion, adjusted EBITDA of $940 to $955 million, and adjusted earnings per share of $3.41 to $3.52. The key considerations underlying our guidance can be found on page 12 of the supplemental slides. Now with that, I'll turn it over to Doug for further call.