• Revenue: Increased 10.6% to $1.46 billion.
• Adjusted EBITDA: Increased 14.9% to $313.6 million.
• Total Discharge Growth: Increased 6.3%.
• Same Store Discharges: Grew 4.4%.
• Net Revenue per Discharge: Increased 3.9%.
• Q1 Adjusted Free Cash Flow: Increased 32.7% to $222.4 million.
• Contract Labor Costs: Declined $5 million to $28.6 million.
• Net Leverage: 2.1 times at quarter end.
• Unrestricted Cash: $95.8 million.
• 2025 Guidance - Net Operating Revenue: $5.85 billion to $5.925 billion.
• 2025 Guidance - Adjusted EBITDA: $1.185 billion to $1.220 billion.
• 2025 Guidance - Adjusted EPS: $4.85 to $5.10.

• Warning! GuruFocus has detected 4 Warning Sign with PHIN.

Release Date: April 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First quarter revenues increased by 10.6% and adjusted EBITDA rose by 14.9%, indicating strong financial performance.
• Total discharge growth of 6.3% was achieved, with same-store discharges growing by 4.4%, showcasing robust operational performance.
• The company opened a new 40-bed joint venture hospital in Athens, Georgia, and plans to open six De Novos with a total of 300 beds, reflecting strategic expansion efforts.
• Encompass Health Corp (NYSE:EHC) reported a decrease in premium labor costs, with contract labor costs down by $2.9 million from the previous year.
• The company increased its 2025 guidance for net operating revenue, adjusted EBITDA, and adjusted earnings per share, demonstrating confidence in future performance.

Negative Points

• Benefits expense per FTE increased by 14%, driven by an increase in the severity and frequency of group medical claims, which could impact future profitability.
• The company anticipates elevated group medical expense growth in Q2, which may affect financial results.
• Despite a decrease in contract labor costs, the company still faces challenges in maintaining labor efficiency and managing staffing levels.
• The company's exposure to regulatory developments and potential changes in Medicare and Medicaid reimbursement rates pose risks to future financial performance.
• The high occupancy rates and demand for inpatient rehabilitation services may strain existing resources and require significant capital investment for expansion.

Q & A Highlights

Q: It's been a long time since we've seen such a big move up in Medicare fee for service. Is this due to any strategic actions that you guys have put in place, or something else? A: Douglas Coltharp, CFO: We haven't seen Medicare fee for service discharges grow faster than Medicare Advantage discharges since mid-2022. This was somewhat of a surprise and not due to any deliberate strategic actions. We don't anticipate this as a new trend and expect to return to previous payer mix dynamics.

Q: Can you talk about your employee's preoccupied bed and occupancy? Are you behind on hiring with the current demand, or is this seasonal? A: Mark Tarr, CEO: We remain committed to the 3.4 EPOB number. We got leverage in Q1 due to high occupancy, but we are not behind on hiring. We redirected resources to existing hospitals, reducing contract labor. We expect EPOB to move north due to seasonality and new capacity additions.

Q: There's a lot of conversation around tariffs. What are your updated thoughts on supply cost or construction expenses? A: Douglas Coltharp, CFO: We don't believe we have much near-term risk related to construction costs or supply chain due to tariffs. Much of the material for current projects is already procured. We are fairly insulated for fiscal year 2025.

Q: Are you seeing any increased interest in partnerships with hospitals due to challenges like DPP payments? A: Douglas Coltharp, CFO: We continue to see more interest from acute care hospitals for partnerships, reflected in our pipeline. We expect at least half of our De novos to be joint ventures. Our success with partners like Piedmont encourages other systems to consider similar partnerships.

Q: How are you thinking about the durability of demand in an economic slowdown? A: Mark Tarr, CEO: Demand for our services does not fluctuate with economic conditions. Our patients are non-discretionary, so we do not anticipate any decline in demand during a recessionary economy.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.