Encompass Health Corporation

Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Good morning, everyone, and welcome to Encompass Health's second quarter 2024 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 one on your telephone keypad. You will be limited to one question and one follow-up. 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 second quarter 2024 earnings call. Before we begin, if you do not already have a copy, The second 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, the form 10K for the year ended December 31st, 2023, the form 10Q for the quarter ended March 31st, 2024, and the form 10Q for the quarter ended June 30th, 2024, 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 to 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 Mark Tarr, Encompass Health's President and Chief Executive Officer.

Thank you, Mark, and good morning, everyone. We are pleased with our second quarter performance as strong discharge growth facilitated an increase of 9.6% in revenue and 8.9% in adjusted EBITDA. Total discharges for Q2 increased 6.7%, including 4.8% in same store. Our discharge growth continues to be broad-based across geographies, payers, and patient type. Neurological conditions and stroke are two most common primary conditions treated grew 6.3% and 6.6% respectively, while smaller categories, including other orthopedic conditions, major multiple trauma, and knee and hip replacement experienced double digit increases. Within our payer mix, Medicare discharges increased 7.2% for the quarter, while Medicare Advantage discharges grew 9.6 for the quarter. Owing largely to our Q2 results, we are again increasing our 2024 guidance. Doug will cover the details of the quarter and increase guidance in his comments. Demand for earth services remains strong, and we are continuing to invest in capacity additions to meet the needs of patients requiring inpatient rehabilitation services. During Q2, we added 194 beds to our capacity, comprised of three de novo hospitals with a total of 130 beds, one 40-bed satellite hospital, and the addition of 24 beds to existing hospitals. In July, we expanded into a new state for our company as we opened a 50-bed hospital in Johnston, Rhode Island. Over the balance of the year, we expect to open two additional de novos with a total of 100 beds and add approximately 30 more beds to existing hospitals. We are continuing the expansion of our joint venture partnership with Piedmont, the leading healthcare system in the state of Georgia. In May, we opened a 40-bed ERF unit within Piedmont's Atlanta Hospital. In July, We expanded the relationship further by adding our existing 70-bed hospital in Augusta, Georgia. Our joint venture relationship with Piedmont now includes six open hospitals and the previously announced plans to build hospitals in Athens and Loganville, Georgia. With 15 development projects beyond 2024 already announced and underway, Our pipeline remains robust and balanced between wholly owned and joint ventures. We also recently made the decision to undertake a major ERP conversion from predominantly an Oracle PeopleSoft platform to Oracle Fusion. The conversion is intended to create a highly capable and sustainable cloud-based ERP infrastructure to support the future growth of our company and facilitate our culture of continuous operational improvement. Fusion includes specialized supply chain solutions for healthcare organizations that represent an upgrade from the functionality within our current system. Other key Fusion modules include financial and human capital management processes. We are pleased to have identified a solution that allows us to maintain and build upon our strategic relationship with Oracle and we have engaged a leading consulting firm to assist us with the design and implementation of Fusion. Our efforts in this regard began in earnest in Q2 and we expect to go live sometime late in 2025. During the quarter, We also resumed activity under our share repurchase authorization, buying back approximately 200,000 shares of our common stock for approximately $17 million. In July, we announced an increase in our share repurchase authorization to $500 million. We also announced an increase in the company's quarterly dividend, next payable in October, of approximately 13% to 17 cents per share. On July 31st, 2024, CMS released the 2025 IRF Final Rule. This included a net market basket update of 3%, which we estimate would result in approximately 3.3% increase for our IRFs beginning October 1st, 2024, based on our current patient mix. Across our more than 160 inpatient rehabilitation hospitals, we are providing high-quality, cost-effective care to medically complex patients. Our dedicated clinical teams work collaboratively with physicians to administer this care, producing leading scores in patient satisfaction and quality outcomes. This value proposition increasingly resonates with patients, caregivers, referral sources and payers. The demand for inpatient rehabilitation services remains considerably underserved and continues to grow as the US population ages. We intend to continue to expand our capacity and capabilities to help meet this need. Now I'll turn it over to Doug.