Encompass Health Corporation

Good morning, everyone, and welcome to Encompass Health's third 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 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 2024 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, including the earnings release and related form 8K, the form 10K for the year ended December 31st, 2023, and the form 10Q for the quarters ended March 31st, 2024, June 30th, 2024, and September 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 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 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 performance, highlighted by an increase of 11.9% in revenue and 13.4% in adjusted EBITDA. Q3 total discharges increased 8.8%, including 6.8% in same store. Once again, discharge growth was broad-based across geographies, payers, and patient type. Neurological and stroke, our two most common primary conditions treated, grew 9% and 9.7% respectively. Within our payer mix, Medicare discharges increased 8.8% for the quarter while Medicare Advantage discharges grew 12.6%. Going largely to our Q3 results, we are again increasing our 2024 guidance. Doug will cover the details of the quarter and guidance in his comments. The demand for inpatient rehabilitation care is underserved and growing. For more than a decade, the AIDS cohort most in need of these services has grown at a 4% to 5% CAGR, while the total supply of licensed IRF beds has been essentially static. It is estimated that by 2030, one in five Americans, more than 70 million people, will be aged 65 or older. Older adults disproportionately experience chronic health conditions, which is likely to continue to drive strong demand for inpatient rehabilitation services. We are continuing to invest in capacity additions to meet the needs of patients requiring such services. During Q3, we added 99 beds to our capacity, comprised of two de novo hospitals with a total of 89 beds and the addition of 10 beds to existing hospitals. We expect to open one additional de novo in 2024, a 61-bed hospital in Houston that will be our first fully prefabricated hospital, and add approximately 22 more beds to existing hospitals. The Houston project marks an important milestone in our de novo construction strategy. Full prefabrication will facilitate lower costs and shorter design and construction times, but the process is not without complexities. Together with our primary prefab partner, Blocks, we have learned a great deal on the Houston project, paving the way for efficiencies on future de novos. These efficiencies are starting to materialize on our Athens, Georgia de novo scheduled to open in the first quarter of 2025. We currently anticipate that at least two de novos per annum will be built with full prefabrication. With 15 development projects beyond 2024 already announced and underway, our pipeline remains robust and balanced between wholly owned and joint ventures. Many areas in the southeast and mid-Atlantic regions of the US were significantly impacted by hurricanes Helene and Milton. We operate numerous hospitals within these geographies. We are very proud of our leadership and how they've prepared for and performed during and in the aftermath of these hurricanes. And we are humbled by the resiliency of our dedicated employees, some of whom experienced damage to their homes and personal property as well as electricity and water outages given our presence in hurricane prone markets we have well-defined protocols for dealing with large storms these protocols prioritize the safety and well-being of our patients and employees our physical plants withstood hurricanes very well 25 of our hospitals including 10 that incorporated at least one element of prefabrication as part of either the initial build or bed addition or in some way impacted by the hurricanes, yet in total experienced only relatively minor damage. This is a testament to the quality and strength of our hospitals. We are still gathering estimates on required repairs, which we currently believe will amount to less than $1 million of expenses to be incurred in Q4. For the safety of our patients and staff, we chose to evacuate our Largo and Cape Coral Florida hospitals ahead of Hurricane Milton, with our Largo hospital closing for five days and Cape Coral for six days. Many patients from these two hospitals were evacuated safely to other Encompass Health hospitals and were accompanied by members of our clinical staff as needed. Again, a testament to our hospital staff. Four additional Florida locations did not admit patients prior to and immediately after Hurricane Milton passed through Florida on October 9th and 10th. By Saturday, October 12th, all of our hospitals had resumed normal operations and were admitting patients. Although our operations are back to normal, some of the communities we serve are still in recovery mode. Disruptions to the healthcare systems in those communities may impact our volumes and length of stay in Q4, and we have attempted to account for that as well as the aforementioned facility repairs in our updated guidance. Now I'll turn it over to Doug.