Encompass Health Raises 2026 Guidance After Q2 Revenue and Earnings Growth

Encompass Health (NYSE: EHC ) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

7% increase in adjusted EPS for Q2 2026, leading to an upward revision of their full-year guidance. 7% and noted robust demand for inpatient rehabilitation services, leading to several new hospital openings and bed expansions. Future plans include the opening of five more hospitals by year-end and significant capacity additions, with a focus on expanding into North Carolina following the repeal of the Certificate of Need law. Encompass Health has been successful in reducing premium labor costs and improving clinical staffing through professional growth programs, which have contributed to better staff retention and lower turnover rates.

Management expressed confidence in their admit-and-appeal strategy to combat Medicare Advantage plan denials, reporting an 89% success rate in appeals, and noted continued emphasis on strategic growth through both wholly owned and joint venture hospital developments. Full Transcript OPERATOR Good morning everyone and welcome to Encompass Health's second quarter 2026 earnings conference call. At this time I would like to inform all participants that their lines will be in listen-only mode. After the speakers' 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 Chief Investor Relations Officer. Please go ahead. Mark Miller, Chief Investor Relations Officer Thank you, operator, and good morning everyone. Thank you for joining Encompass Health's second quarter 2026 earnings call.

com. On page 2 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. Doug Coltharp Good morning everyone.

Good morning everyone. This is Doug Coltharp. We apologize for the technical difficulties we're experiencing this morning. These difficulties are arising through our vendor, the vendor we have historically used, and these are not on the Encompass Health side.

We appreciate your patience and, with that, we are going to start from the top, assuming that you've heard nothing from us this morning. And I'm going to ask Mark Miller to begin. Mark Miller, Chief Investor Relations Officer Thank you, Doug, and good morning everyone. Thank you for joining Encompass Health's second quarter 2026 earnings call.

com. On page 2 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 8-K, the Form 10-K for the year ended December 31, 2025, the Form 10-Q for the quarter ended March 31, 2026, and the Form 10-Q for the quarter ended June 30, 2026. When filed, we encourage you to read them.

You are cautioned not to place undue reliance on these 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 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 President and Chief Executive Officer Mark Tarr. Mark Tarr, President and Chief Executive Officer Thank you, Mark, and good morning everyone.

We're very pleased with our second quarter results. 7%. Based primarily on our Q2 results, we are again raising our guidance for 2026. Doug will review the details in his comments.

Patient outcomes were again outstanding. 1%. Our performance on each of these quality metrics continues to exceed industry averages. We again experienced increased participation in our clinical staff professional growth and development programs such as our Career Ladders, providing nurses with support to attain advanced licenses and certifications including Certified Rehabilitation RN designation.

We believe our success in these programs contributes to our favorable clinical staff turnover trends and helps to drive further declines in premium labor spend. Our professional growth and development programs also enhance our abilities to serve high-acuity medically complex patients. Demand for inpatient rehabilitation services remains strong and we continue to invest in capacity additions. In Q2 we opened a new 50-bed hospital in Concordville, Pennsylvania and a 40-bed hospital in Loganville, Georgia.

Our Loganville hospital is our eighth joint venture with Piedmont. We also added 10 beds to existing hospitals. Through the first half of the year, we opened three hospitals with a total of 139 beds and added 54 beds to existing hospitals. Over the balance of the year, we intend to open five more hospitals with a total of 250 beds and add 100 to 150 beds to existing hospitals.

We maintain an active pipeline of new hospital development projects, both wholly owned and joint ventures, while also executing on bed expansion opportunities as warranted by occupancy trends and market dynamics. Our pipeline of announced new hospital projects with opening dates beyond 2026 currently consists of 13 hospitals with 606 beds, and we anticipate additional projects, including small-format hospitals, will be announced over the balance of the year. Last month, North Carolina repealed its Certificate of Need law for inpatient rehabilitation care effective October 1st of this year.

We believe this is a great result for the citizens of North Carolina who will now benefit from more access to inpatient rehabilitation care. North Carolina exhibits highly favorable population growth and demographic characteristics, and our assessment points to a large underserved market for IRF services. We currently operate one hospital in North Carolina, replicating our approach to CON repeal in Florida. In anticipation of the CON revocation in North Carolina, we conducted a thorough market-by-market analysis across the state.

This has led to an initial prioritization of 15 markets, and we currently have three real estate parcels under contract. We anticipate our next hospital opening in North Carolina to occur in late 2028 or early 2029. 3% increase in net revenue per discharge for our Medicare patients beginning October 1st of 2026 based on our current patient mix. Now I'll turn it over to Doug.

Doug Coltharp Thank you, Mark, and good morning everyone. 6% over the second quarter of 2025. 9% increase in net revenue per discharge. Net revenue per discharge growth was driven by higher patient acuity.

We continue to see very solid growth in medically complex categories including stroke and brain injury. 3%, in line with our expectations, and the increase over last year is primarily due to a favorable reserve adjustment that occurred in Q2 25. 5 million year-over-year decrease in net provider tax impact. Essentially all of the year-over-year change in net provider tax impact relates to out-of-period adjustments to our accruals for the fiscal year 2025 Florida Medicaid program based on revisions promulgated by the state and approved by CMS in Q2 of this year.

4%, in part driven by increased participation in our career ladder programs, partly offset by a decline in premium labor. 6 million from Q2 25 to $25 million. 1%, an improvement of 20 basis points from Q2 25. 1 million in the first half of 2025.

We continue to expect net pre-opening and ramp-up costs of $18 million to $22 million for the full year. 8 million. 5% senior notes due in 2028. 9 times.

Our leverage and liquidity remain well positioned. 21 per share, and within our earnings release yesterday we announced an increase in our common stock repurchase authorization to $1 billion. As Mark mentioned, we have again raised our 2026 guidance as follows. 25.

The considerations underlying our guidance can be found on page 11 of the supplemental slides. I want to take just a moment to highlight updated assumptions. 3% reflects the IRF Final Rule released on July 30. 5% to 4% as we expect increased participation in both our nursing and therapy career ladder programs.

As we have previously stated, we believe these programs contribute to favorable clinical staff retention trends, higher quality patient outcomes, and reduced reliance on premium labor. We previously indicated that we expected the net provider tax impact to adjusted EBITDA for 2026 to be essentially flat with 2025 at approximately $21 million. Based on the retroactive adjustments specific to Florida that I mentioned earlier, we now expect the net benefit to adjusted EBITDA in 2026 to be approximately $10 million. And with that we will open the lines for questions.

OPERATOR Thank you. If you'd like to ask a question, press star 1 on your telephone keypad. To leave the queue at any time, press star 2. As a reminder, please limit yourself to one question and one follow-up.

Once again, that is star 1 to ask a question, and we'll take our first question from Peto Chickering with Deutsche Bank. Your line is now open. Mark Tarr, President and Chief Executive Officer Morning, Peto. Pito Chickering, Analyst Hey, good morning, guys.

Thanks for taking my questions and, you know, nice job getting this earnings call going this morning. So you raised the guidance the back half of the year by about $5 million despite assuming 10 basis points of lower Medicare pricing in the fourth quarter and S&B that's 500 basis points higher than you had assumed previously. So can you bridge us the back half of the year versus last quarter? Help understand how you got so much leverage, raised EBITDA despite those two macro pressures?

Okay, fair enough. And then can you talk about the same-store discharge growth and the core of the durability of that strength? Just as you think about the second quarter '26 stacked comps heading into easier comps in the back half of the year, should we be modeling more same-store discharge growth in the 4 percent for 3Q and 4Q? Mark Tarr, President and Chief Executive Officer We didn't know it was going to be so hard, Peter.

Doug Coltharp Yeah, Peter, this is Doug. I'll take a shot at it. So we had some favorability in the second quarter, and really for the first half, in a couple of areas. One is pricing, which was driven predominantly by patient acuity.

There's no certainty that that continues into the second half, but it does represent a source of potential upside. Additionally, we did see some further benefits in EPOB. Some of that is attributable to the fact that we've been running at a higher year-to-date occupancy level, and I can go through some of that if you'd like. And it's also an ancillary benefit related to the career ladder program participation.

And again, the causality there is we believe that the career ladder program participation is contributing to favorable clinical staff turnover. And when you've got favorable clinical staff turnover, that means that your new hires can consequentially come down, which means that you're spending less hours that would get into the EPOB calculation during orientation. OPERATOR Thank you. Doug Coltharp Yeah.

So again, this is a statement you've heard us make repeatedly for the last several quarters, but we believe increasingly that the distinction between same-store and total discharge growth is going to become less relevant and less consequential. We are up against easier comps in the second half of the year, and so that will be favorable. We also anticipate that the impact of the four unit closures that we had beginning in June of last year will dissipate a bit further. We've got a lot of new capacity coming on in the second half of the year.

It is skewed more heavily towards Q4 than Q3, but that will be a contributor to some extent for total discharge growth as well. Pito Chickering, Analyst Great. Thanks so much. OPERATOR And we will take our next question from Matthew Gilmore with KeyBanc.

Please go ahead. Mark Tarr, President and Chief Executive Officer Morning, Matt. Hey, Matt. Matthew Gilmore, Analyst at KeyBanc Hey, good morning, guys.

Thanks for the question. Maybe following up on the North Carolina comments, I think you had mentioned there's 15 markets you're prioritizing. I was curious what you thought the overall opportunity is in North Carolina and would that be enough to impact your de novo target of 6 to 10 per year, or just maybe bias you towards the high end as you're thinking about, you know, beyond 2027. Doug Coltharp Yeah, this is Doug.

I think right now if we could get 15 open, we'd feel pretty good about that. But that certainly doesn't mean that the opportunities in the state of North Carolina would be exhausted at that level. And I should note that that 15 is looking at markets both large and small as well. There are good, good pockets of opportunity really dispersed across the state, which is very exciting to us.

I think at a minimum it would drive us, probably beginning in 2029, towards the high end of that 6 to 10 range. And there is some possibility, just on how quickly we can pull those together, as well as some opportunities that continue to develop in other states, that we could wind up going above that. Right now we're going to stay with the 6 to 10 range and hope that North Carolina pushes us to the upper end. Pat Matt, this is Pat.

One additional point that I'd make there: as we get the small-format hospital concept up and rolling, that will provide substantial opportunity and runway for us to continue to grow in North Carolina beyond just the traditional de novo format. Doug Coltharp And I think, you know, to piggyback on what Pat said, we've talked before about one of the benefits of the introduction of small-format hospitals is it allows us to approach certain markets with a hub-and-spoke type strategy. And given that we only have one hospital in the state of North Carolina and the extensive opportunities that are there, we're essentially starting with a blank sheet of paper.

And so really utilizing the combination of de novos and small-format hospitals to pursue that hub-and-spoke strategy in that market could be very compelling.