Encompass Health Corporation

Good morning, everyone, and welcome to Encompass Health's first quarter 2025 earnings conference call. At this time, I'd 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 the star and 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 to potentially being recorded, you may disconnect at this time. I'll now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer.

Thank you, Operator, and good morning, everyone. Thank you for joining Encompass Health's first quarter 2025 earnings call. Before we begin, if you do not already have a copy, the first 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 such as guidance and growth projections, 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 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 10-K for the year ended December 31, 2024, and the Form 10-Q for the quarter ended March 31, 2025, 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, Encompass Health's President and Chief Executive Officer.

Thank you, Mark, and good morning, everyone. We are pleased to report another strong quarter. First quarter revenues increased 10.6% and adjusted EBITDA increased 14.9%. First quarter total discharge growth of 6.3% was a strong result, particularly in light of Q1 2024's 10% discharge growth. Recall that Q1 of 2024 benefited from an extra day due to leap year and because the quarter ended on Easter Sunday. First quarter of 2025, same-store discharges grew 4.4%. Once again, the efforts of our dedicated and highly competent clinical team allowed us to accommodate this volume while maintaining outstanding patient outcomes. Our Q1 discharge community rate was 84%, our discharge to acute rate was 8.9%, and our discharge to SNF rate was down to 6.4%. Our performance on each of these quality metrics compare favorably to the industry average. We continue to invest in our clinical team by providing professional growth and development programs such as our clinical ladder and in-house continuing education opportunities. These programs contribute to the continuing improvement in our clinical turnover trends. Q1 of 2025 annualized RN turnover was 20.1%, down from previous year's 20.4%, and annualized therapist turnover rate was 6.3%, down from prior year's 7.7%. Due in large part to our Q1 results, we are increasing our 2025 guidance. Doug will go into greater detail in his comments. Demand for ERS services remains strong, and we are continuing to invest in capacity additions to meet the needs of patients requiring inpatient rehabilitation services. In Q1, we opened a new 40-bed joint venture hospital in Athens, Georgia, our seventh JV hospital in partnership with Piedmont. We also added 25 beds to existing hospitals. Over the balance of the year, We plan to open six Denobos with a total of 300 beds, as well as a 50 bed freestanding satellite hospital. Consistent with our historical practice, the satellite will be accounted for as a bed addition. We anticipate adding another 125 to 145 beds to existing hospitals in 2025, inclusive of the aforementioned satellite. We continue to build and maintain an active pipeline of de novo projects, both wholly owned and JVs, while also monitoring and assessing bed expansion opportunities. Our pipeline of announced de novo projects with opening dates beyond 2025 currently consists of 10 hospitals with 500 beds, and we anticipate additional projects will be announced over the balance of the year. In response to strong volumes and current occupancy levels at some of our hospitals, we have increased our bed expansion plans and now expect to add approximately 120 beds to existing hospitals in both 2026 and 2027. The demand for inpatient rehabilitation services remains considerably underserved and continues to grow as the U.S. population ages. We intend to continue to expand our capacity and capabilities to help meet this need. On April 11th of this year, CMS released the 2026 IRF proposed rule. This included a proposed net market basket update of 2.6%, which we estimate would result in a 2.7% increase for our Medicare patients beginning October 1st 2025 based on our current patient meds. Based on historical practice, we expect the IRF final rule to be released in late July or early August. Yesterday, we announced that Pat Toor has been promoted to the newly established position of Chief Operating Officer, where he will oversee hospital operations across the organization. PATH promotion was prompted by our significant growth and robust development pipeline. Since joining Encompass Health in 2018, PATH has held several leadership roles, most recently group president overseeing three of our geographic operating regions with a total of 69 hospitals. PATH has been instrumental in shaping our operational success and driving the delivery of exceptional care to the patients and communities we serve. Many of you met Pat at our investor day in 2023 and at investor conferences and meetings since then. And we are excited to have him in this new role. He's with us here in the room this morning. Now I'll turn it over to Doug.