Encompass Health Corporation

Good morning, ladies and gentlemen, welcome to today's encompass health 4th, quarter 2025 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. You will be limited to 1 question and 1 follow up question. Just a reminder. Today's call is being recorded. And if you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Mark Miller, Encompass Health's Chief Investor Relations Officer. Mark, please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining Encompass Health's fourth quarter 2025 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'll 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 and the Form 10K for the year ended December 31, 2025 when filed. We encourage you to read them. Your caution not to place under 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 our President and Chief Executive Officer, Mark Tark.

Thank you, Mark, and good morning, everyone. Our Q4 performance was, again, very strong, capping a stellar 2025. Our 2025 revenue increased 10.5%, driven by 6% discharge growth and pricing growth benefiting from patient mix and patient outcome quality. 2025 EBITDA grew 14.9%, as we gained operating leverage and exercised disciplined expense management. Most notably, premium labor spend in 2025 declined by more than $21 million from 2024, even as we added capacity and significantly increased the number of patients we treated. Our quality and patient outcome scores for 2025 were outstanding. Our full-year discharge to community rate was 84.6%, discharge to acute care was 8.6%, and discharge to SNF rate was 6.1%. Each of these quality metrics is favorable compared to the industry average. I'd like to recognize our clinicians and support staff who bring their expertise and compassion to our hospitals every day and deliver outstanding patient care. We continue to generate attractive returns from the investments we are making in capacity additions. In 2025, we added 517 beds, 390 via eight new hospitals, and 127 through the addition of beds to existing hospitals. We will continue investing in capacity additions as the underlying growth in the target demographic remains at approximately 4%, and the demand supply gap of licensed earth beds continues to widen. We'll be augmenting our historical two-pronged approach to capacity expansion, de novos and bed additions, with a third modality, small format hospitals, beginning in 2027. This will facilitate a hub and spoke strategy to larger and growing markets. In October, we converted our enterprise resource planning, or ERP system, to Oracle Fusion without significant disruptions to our business. Fusion provides us a flexible and sustainable cloud-based IT infrastructure to support our growing business. We are keenly aware of market anxiety regarding IRF industry regulatory changes, specifically the extension of RCD and the initiation of the team model. Beginning with RCD, during 2025, we undertook significant engagement with Palmetto and CMS to ensure correct and consistent application of reimbursement criteria. Our seven hospitals in Alabama currently have an aggregate average affirmation rate of approximately 93% for cycle four, which we believe validates our admissions and documentation practices. Leveraging our experience in Alabama, we believe we are prepared for the expansion of RCD into Texas and California this year. The MACs responsible for our hospitals in these states are Novitas and Noridian. Novitas, the MAC responsible for most of our hospitals in Texas, has gained substantial expertise with RCD in Pennsylvania, where providers have achieved very favorable affirmation rates. As RCD extends to other states and we elect 100% prepayment review Affirmation of our claims should reduce our exposure to other Medicare claims audits. The team model implementation began on January 1st. Encompass has 89 hospitals in the initial team markets, 41 of which are joint ventures with acute care partners. As a reminder, there is no downside risk to the subject acute care hospitals in 2026 under the default track. As we have consistently done with all regulatory changes, we have prepared extensively for TEAM. It is another episodic payment pilot similar to previous models such as CJR and BPCI or BPCI, versions of which have been continuously in place since 2014. In those prior cases, concerns regarding the impact to our patient flows were greatly overstated. The presence of these models notwithstanding, with the exception of 2020 for obvious reasons, we have recorded positive total and same store discharge growth every year. Regulatory change is a constant in our business, and we have a long track record of successfully adapting and continuing to grow as the underlying demand for IRF services continues to grow. Our strategic relationship with Palantir continues to bear fruit. In 2025, we focused on initiatives that streamlined admission documentation and enhanced our responses to claims denials. We recently extended and expanded our agreement with Palantir and look forward to additional successes in 2026 and beyond. In 2025, in addition to substantial investments we made in our operations, we allocated $158 million to share repurchases and returned an excess of $70 million in cash dividends. We maintain a strong balance sheet with year-end net financial leverage of 1.9 times. The need for the services we provide has never been greater and is growing. We are uniquely positioned to fill the void. We are incredibly proud of our recent historical performance, but we do not rest on our laurels or focus. Our focus is on the future, which for Encompass Health is very bright. Our company is never before been presented with greater opportunity, and we have never been better positioned to capitalize. Our expectation for continued growth is reflected in our initial 2026 guidance. I'll now turn it over to Doug to provide some additional details on P4 and the specifics of our 2026 guidance.