EHC - Earnings call transcript Q2 2022 | Encompass Health Corporation

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Operator

Good morning, everyone, and welcome to Encompass Health's Second Quarter 2022 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer.

Mark Miller

Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's second quarter 2022 earnings call. With me on the call today are Mark Tarr, President and Chief Executive Officer; Doug Coltharp, Chief Financial Officer; and Patrick Darby, General Counsel and Corporate Secretary.

are you earnings already related release, filed the if the a Form begin, website with quarter our second supplemental SEC we do have not copy, X-K at Before encompasshealth.com. on available information and you of of statements, safe the also forth earnings information, are on detail find in the release. On Page greater supplemental the will X set the harbor which last page

beyond our many Enhabit from ended our the the projections, SEC XX, which X-K, ended We encourage call, Certain are materially forward-looking subject differ as of the and XXXX, estimates we you which the our and risks expectations, the spin-off its year well the the uncertainties, discussed are During and magnitude and value to for XXXX, on results statements, impact including Form Form uncertainties, actual read control. to risks filings, quarter and related are could like when them. Inc. company's December will to to filed. June and earnings relating COVID-XX stockholder of XX, in the business release as impact Form make for those and and of XX-K cause XX-Q that

to as estimates, only not of undue cautioned events current today. these on to presented, do statements. You update are which based forward-looking speak and reliance We projections, undertake on place other the guidance are information future duty a forward-looking estimates and not of

will certain Our and supplemental non-GAAP financial this information measures. on include discussion call

of which on I'll supplemental the Tarr. to turn filed that, the over as the Mark available SEC, information, reconciliation Form and [Operator With with X-K the directly our is end all part at earnings release For Instructions] GAAP of the comparable available call of most the the of such to are website. the measure yesterday at end measures,

Mark Tarr

and on July yesterday morning, traded reported culminated everyone. independent an the X review Enhabit publicly and we The QX services will not earnings after our Hospice another business following quarter Demand to of business. company. QX for you, in to market Enhabit's its rehabilitation results Health was spin-off this grow. Home Mark, close & solid call inpatient be of strategic the continues has for be thank on Enhabit results. good Encompass its our QX commenting call. Accordingly,

is what Our market. remains in payers, value are share proposition resonating we an gaining underserved across and

de rising we novo services addition this Our are bed meet provide the increasing and availability highly demand. the strategies to of specialized

business. future to de QX, open capital second six these the expansions the of substantial year. IRF opened X bringing XXXX, of in for prospects in openings the commitment total to We novos capacity three novos more de the the year-to-date. Our our of in three We'll underscores confidence half that making

We XX in in number We openings expect added the to to a hospitals raising similar existing XXXX. the quarter, year-to-date total of beds XX.

add and approximately of XXXX. total in to We to XX beds expect to a in beds additional hospitals XXX XXX existing XXXX

on Our was total quarter a growth and in an a same-store CAGR. top in impressive on total grew and growth on discharges in of XX.X% resulting X.X% This XX.X% same-store X.X% XXXX, discharge QX basis the X-year basis.

necessitated shift As bonuses. in staffing has services market a our tight the past case the agency continued skilled demand for sign-on and strong several and been the quarters, for clinicians labor utilization for elevated of

during in sign-on the QX totaled $XX.X QX a Contract million labor and XXXX. million chose into did $XX.X comments, and redeploy As negotiated $XX sequential FTEs. sign-on savings our with rates we both see and labor we in with labor FTEs our the QX number had on to we plus QX declining. QX, our bonuses in and million to portion shift compared of in contract for internal of costs improvement foreshadowed contract the Consistent contract QX bonuses call, shift labor

for Our FTE resources the challenging of XXXX. market approximately QX to We $XXX,XXX acquisition talent in conditions QX compared $XXX,XXX a to resources our adding in labor responded to agency clinical rate of including team. skilled ways, substantial per was approximately number

a This Same-store strategy year. professionals. first same function as We half recruitment gaining now last in RN XXX comprising the centralized new were over built net of for to have compared XX headway. period XXX XXXX hires is the

fill of hire to bonuses For and we more contract XXXX, existing to RNs of staff the shift This second sign-on facilitate and our utilization will a continue labor. elevated decrease as to half we in remain gaps. use in expect

Assuming normalizing industry conditions, we rates to further. decline expect agency

rates the highly duration decline remains of emergency as final rates. IRF issued of XXXX the extension the the the and uncertain public week remain health rule. CMS elevated of pace variable, the prolong agency However, may last

For of implement estimate net a basket in Medicare X, payments We IRFs, will update rule rule of XXXX. beginning the X% our net increase approximately the market as a taken will that whole, October final a X.X%. for final result

the impact sequestration. include not does increase this reminder, of a As

positive in is to it rate elevated does rule for adequately relative rates, update the reimbursement IRF While costs. not the our compensate current operating

cautioned sent Payment should analysis PPS, the to with Congress front, research or the more for a recommendations legislative as required by of as unified the XXXX. happen System, substantially and prototype on July Congress are X, PAC to required. Post-Acute on that prototype report On CMS make to a regulatory not IMPACT and CMS did what Act Care Prospective

historical response PAC it to a Enhabit impacts is and July XX, that potential these of rate $X.XX per spin-off completion strategy. announced our dividend Board our too the our a in share our the of reflects continued Directors October. be the commitment in and to of from reasons, robust we paid to early other quarterly to elevate hospital de or novo PPS. any from to of The On declared decline business is For evaluate recent

that, Doug. June key turn found and We With EBITDA guidance The underlying slides. I'll of XXXX for over EPS. X XX the are supplemental affirming to on on this revenue, can IRF our issued adjusted guidance considerations it adjusted be Page

Doug Coltharp

months IRF Thank adjusted of business million you, up trends we million, quarter QX, the EBITDA over of $X.XXX the billion XX% Mark, first several key everyone. six revenues approximately of $XXX.X free of last adjusted quarters In flow cash of free approximately million. and Adjusted second and the The generated good $XXX.X cash XXXX. with $XXX our morning, in experienced was in XXXX. continued largely year-to-date flow

As the that Mark in discussed, continue modest we to good combined per increase a volume revenue our revenue with X.X% to see in growth produce growth X.X% quarter. discharge

approximately from several shift million rates has FTEs, peaked comprised bonuses. the labor in but XXX bonuses IRF shift Revenue every QX, near-term approximately plus XX% we continuation in related of $XX.X reserves was declines Contract case for Contract to which million to in Medicare. contract challenges XX rate of $XXX,XXX and debt $X.X XXX approximately in to collection month QX in agency XXXX past shifts quarters, approximately payment at not sign-on Probe approximately did $XXX,XXX due Contract in declined QX $XX.X $XXX,XXX to contract managed times Medicare a $XXX.X at costs. sequentially increased X.X%, result also to Mark providers. also elevated Targeted and Rates alluded labor March, February growth bad rates to and or XX% and month impact resumption limit TPE million compared peaked and the requirements. for additional declined The which labor and in in been did declined The contract care, bad declined also to As labor and basis in expense the during QX. primarily staffing XX% volume experienced patient payer the was and had in our the initiative declined the contractors June, Educated have as expense QX. FTEs of and QX. mix to June. points that sign-on adds of reserve resumed have labor to Advantage for Agency million $XX.X uncertainty FTE per sequential in quarter. QX labor in higher every decline. longer responsibility. million debt recently of The

million. a our between of the a difference is within capital X% capital is that, expectation working range of to half cash also free I free $XXX to XXXX and from which point and result, the for affirmed flow X.X%. are half second XXXX now to our of second The related debt questions. expected to our large line changes relates full skewed and in $XXX are first half like million, guidance, X% range million tax year-to-date a payments, IRF that year. we bad for $XXX cash with to revenue expenditures, As we'll year out open reserves cash to to And the increasing would flow

Operator

will [Operator from come Instructions] UBS. Our Andrew question Mok first with

Andrew Mok

in against tracked there half guidance, year to there's I Is meaningful that I the still held in anything wanted year. know out improvement? quarter you as then internal the how you full Hi, call better the good earnings expectations. back morning. a ramp sequential besides that but labor driving think understand would just And the of

Doug Coltharp

Yes.

say our line much second in affirming pretty the very with board. guidance, would that was I I we're expectations and that it's So that think evidenced fact - across much in quarter our the

to and the year-over-year are the growth. the of positive year, the of half continued of results going in think puts side, in that discharge drive I the second we terms takes the expect puts - on improved

comments. bad that in anticipated was implemented EBITDA on first Andrew, are and a quarter turns those trend swing You've positive on the the then in - the my will impact, got primary the are implementation and that given X or costs, or debt uncertainty the increase increase the the that and which outlined store labor improving sequestration, against got and first the We've I the the pricing half. Weighing the in QX reserve. July half would the around I then that in second just which considerations. modestly continuation of modestly the full lines suggest began of turns in new significant in drag be

Andrew Mok

forecasting Got And lot of now back then it. hospital helpful. a operators lower half are demand inpatient in XXXX. the of That's

seeing downstream better utilization any that to slowing growth. Just of inpatient impacts your to having wanted you're market in and discharge the whether what understand is

Mark Tarr

not impact. seen We've Mark. a It's negative

with if that have pattern resuming standpoint, back in with years XXXX place COVID. quarter, the to business difficult the compared versus think I marketplaces more elective more particularly referral an our as resuming the seen very are think the ability I the couple that have year patterns we in we've kind anything, - well. against prior second acute care in growth normalized of to procedures last given comp, to from Certainly, nicely similar did looking to come of the

really that would the second we're that anything the in not of seeing half would negatively impact So we year. see

Operator

America. from Fischbeck come will question next Our Kevin Bank with of

Joanna Gajuk

filling is for Gajuk in Good this Joanna Kevin. morning. Actually,

the contract the and guess you you then follow-up first question, you've contract and it. a said I on that a labor, decline so to So seen on labor follow-up continue a but still -

So levels you do should you think here? continue think - way expect is should back exit Or model structurally to should going year, these assume there all Or business still the normalization the as into to be to we be the - be it's that next How elevated? changing we about to you XXXX? return year?

Doug Coltharp

improvement don't think conditions levels We that really don't on taking the it. about back and as see But XXXX we'll that cost we to that knows address to There's half proactive those out to long be market a exit seen. staffing, the that, is it been pointed back answer year. I of we've remains get do, time certainly based by the to do utilization the steps back to do Joanna. that get of provided both tangible through contract believe expect evidence, takes we uncertainty that do we to some labor sequential anybody assuming we levels, very see, How ever we the I continued and the of that the of XXXX. lot improving.

Mark Tarr

reduction to right we noted, first of with year, that very mean, RN ability XXX which that new net story. we're prior for XXX hires half favorable nurses, hire into our labor the now shows contract the making I the the plays in progress versus As the

Doug Coltharp

XXX same is bear mind, in store. And that

recruit to staff nursing of So were on that, hospital new able all in the top first to our openings half. sufficient of we address

Joanna Gajuk

sounds beds. also novos it start Yes. opening Because because you and both additional more you - keep actually, was that de keep here my second but question getting like

these So to staffing they really and buildings. issues about are that beds new it? it the new like Is of sounds no way because major think

Doug Coltharp

a not on have any constraints with staffing whole. which Staffing board. capacity as timing we're our remarks, correct. limited as That's impacted new And referenced we way nor volume the in constraints bringing our have in

Mark Tarr

and cases, hospitals not the new been did We've markets with de towards new having some pleased new we're the and, the previously a in rehabilitation environment the with exist. of hospital very receptivity that novo entering staff

Doug Coltharp

did within the was opening own required end in of capacity. the and that delays they provide to, that We attributable a the on experiencing But basis novos, delaying new couple experience bringing were their XXX% state are agencies a approvals and on modest some was de shortages. on to nothing and staffing actually, constraints our some of local of

Operator

question Brian from will with Tanquilut next come Jefferies. Our

Brian Tanquilut

morning. Good follow up on labor. just to I on questions guess the contract

the So you've kind from into be How of and as for of paid, trend or year year? maybe, to next thinking about flattened sign-on about I shift QX that think that Doug, out I the it the should mean, half QX. bonuses back we

Doug Coltharp

modest as contract run current more Yes. We that level well a expect but than would the at from much labor. improve to rate

opportunity So volume right utilizing. rate that have it's you an there of then good think it's reduction, number about don't And the that you're increase a and trade net now for just to much hires. really RN pretty we really

Brian Tanquilut

it. Got

And the the inpatient out, maybe makeup lot you maybe, the of lot CAGR X% without through obviously JVs. growth Okay. just think noise set able you're on thoughts to a novos Enhabit discharge about Mark, a are of any target of rehab X% that? and know then the in I anymore, as I XXXX, see how you background to adding de of that

next X% to years. maybe that how any to over on just the X% So color get to four

Mark Tarr

in demographic about on the top strategy I de high. there already bringing novo that next up the are previously we'll the with year, This tailwind. de which I of was We be our plays grow business this brought that opportunities to on out year We've favorable advantage eight very runway the as last very on strategy, the marketplace. take bed enthusiastic novos mean, that we're year, for addition the stepped and there well. ability The of in think, nine.

a the continued that out to between meet ability to demand nice ahead go runway really and got add we've our So capacity us. and of demand,

Doug Coltharp

be in generally you the a by store, against. balance you're instance, that time, smooth the to store. you as being uneven X.X% this out the you depending it'll And on something up expect to for speaking, comps little But contributed new with quarter, come it X% saw, range in same over from

Operator

Ransom question Raymond will Our next with John come from James.

John Ransom

Good morning.

this the question, it. one just So it's tell so I Doug, to getting but going you won't to like I'm got I'm you, ask

Enhabit disappointing. So at little the to whole process, of, a I least looks this think, has kind point,

you times, have couldn't I tell And and Plan so numbers ended think a spin up being X.Xx mean, bounds what type and it within around resulted? of the merger of have now you some us, is know. the couple I vanilla the spin sale EBITDA come A down how of it's can that as

Are tax to we reasons or we us tell forthcoming. weren't the reasons, other really decided and either say, best - go what So just we route this can other you just did." option to was things the "Hey, for

Doug Coltharp

fair longer very folks anticipated. than question. process took know had most lot a And it's the John, I a

a the we me had well. longer of course market of really that a Let tell that the took conditions process. we the lot time is, outset shifted occurred had that anticipated during And one couple the as they it times. result pretty you, length process at factors: two And took a volatile was than of of

market those of Some of those some just were and COVID-related generally oriented.

in a evaluation. the in also was X-month them looked X-month an be our decision efficacy that going those that the to or a period it stand prevailing a the is judged be and of should just where the of extremely way recognize And this they you long-term number market on work, going thing value alternatives enumerated but transaction to one wasn't every Board that at made. then best and the to X-month the of choose sure based of conducted They to will shareholders, that for chosen conditions make or is that spins test time. and other even generate our the something wanted Board the we we The that thorough one confident

like call a their Their challenging yes, done looks so operating start. They but follows not results And Enhabit separately, can it this is this off address to yet. one. is

Mark Tarr

mean, number add, at I'll a it's and continue in of Mark. deal I we great John, a of have are us confidence team Enhabit. shareholders, to that

to future. look So forward the

Doug Coltharp

sufficiently? your question John, does address that

John Ransom

I say. mean, can I think you that's all

fine. that's - I that's think So

Now the down my is process, is, other been lot a of drama, have of happier on this you lot question question, a time. this guys bogged

year if not legacy you we're now, from a that been with now, wrestling still otherwise different from you're that if EHC - is might the years here not with sitting what were Now Enhabit? two case

Mark Tarr

excited to some opportunity We're what very in Well, holds, the I continue about the the future grow we've think it here. of articulated us business. IRF about for to

it's you know an As area know, quite well. that John, we

We and have team growth. here develop that been to built contribute a that's

excited about so what And we're think holds. very the future I

Doug Coltharp

more story, is those Yes, the I becomes highlight superiority great we're able for outside to to a think of invested it of new clinical involved with focused we're of the some maybe one our bear and easier maybe on understand. capital, And the just protocols. really returns the capabilities our caregivers model clinical patients a of we'll highlight bringing and getting new that bit operating on the John, that the additional regard to efficiency who our and technologies to the results, to benefit are be

Operator

Bank. from come will Pito question next Our Deutsche with Chickering

Pito Chickering

shift full-time futility bonuses, bonuses. and still hourly as exclude But rates? bonuses pretty How first the labor for be sign-on and questions. the and here. this those you're exclude if expenses costs contract are seeing are exclude shift did volatile or contract And Labor rates subbing right an you out in all with Good in relief pieces the that moving now employee are versus morning, guys. And Thanks may and exercise what hourly we compare sequentially sign-on XQ? labor where quarter? bonuses in pressure taking

Doug Coltharp

of year, to it's began of because making the those, aggressively, QX we last interesting competitive. adjustments kind in FTEs really With remain pretty market for internal

And see really increase. year, of half on the base expect of level going we the that back we're in normalized we to so move internal of a pretty FTEs, that as

So range. call it X.X% in the X% to something

Pito Chickering

I hourly guess. moving that - sequentially the there's year-over-year, is are employee rate, full-time Because still average stable? think just many so If I XQ, is the parts XQ,

Doug Coltharp

Yes.

So the bit we needed because that we've with a do to little adjustments. move regard the the half, it yet, to really what was done weren't elevated market into anniversarying half we get in favorable. second but And you more second as comparisons

Now you're significantly. where merit say, not looking slightly was, pre-XXXX at but more is just which cycle, it normalized a elevated over

Pito Chickering

Yes, more of sort perfect. then questions on And two that.

any color us On labor, FTEs I June. of you you on the the the that contract number that how guess can in June costs rate? give much did in or give run

Doug Coltharp

did a June the June. not that you I rate to number going $XXX.X don't rates don't to to We I want down give get so we're habit. in - into million on to mention in monthly was a want give basis. the a

We continue a it basis. on quarterly to report

Pito Chickering

over upfront? sign-on ones enough. is accounting Two more The time or that Yes. that Fair bonuses, all here. for realized quick is

Doug Coltharp

upfront. all It's

Pito Chickering

or versus, identical XX where All sort XXXX, the do they the to of similar right, add-ons the add-ons then bed to new on months of XXXX? was projects, the the previous find ROIC you track as that question say, XXXX, is the perfect. last it bed And in you sort the or is, ramp, as last for ROIC

Doug Coltharp

Yes.

right So is I looking so depend the we're investment elevated we got of right things up. we've now vintage now, on costs costs the evaluate elevated. say it projects, that one that new which is And and going construction as labor does are you're at. experiencing - will

market a number that labor couple a because that specifically particularly cancel, the particular of have couple aggregate costs out within years that I is to projects stand of difficult early been So we pipeline, where does of down, the decided projects. a of impact XX result, stand been pipeline of may down of will projects. say a be comprised the very It's total in typically construction P&L. our there conditions limited on a that about but impacted not as

of elevated what less when I labor able in assumptions capital, serves to the facility returns then cost with we're or construction about we addition a think By projected a time and either large, by trajectory that to handful. continuing we're capacity and any costs even to existing weighted move our we're about seeing can talking exceed just why novo the bed a that's an than the good costs, we add of return. And additions. a turbocharge is we're see and pretty forward course, model de and recent still that the average margin to

Operator

question Borsch next Our Matthew Markets. come Capital Instructions] from BMO will with [Operator

Matthew Borsch

at? to on other a - very be look you And you. the to now on are you Could you I it synergistic realize And so, areas that not ask about that, I that strong the inpatient stage? focus just at make Health enough acquisitions - that things that conclusion types see willing look of thinking share? ultimately if operating at might to strongly that you're you Thank that synergistic Home about make a would and are sense there this area, to what with could you'd reached rehab was hold

Doug Coltharp

gap scanning our regard the into is With on be us landscape constantly provider to nothing now there's our moving compelling the a that right screen we're in Matt, required portfolio, that universe, be compelling. an to capability decide the space either it suggests to adjacent to because radar take existing would next level. businesses our model that in and there because any there's are ought or if to the new added

there's as the if in again facilities. even post-acute we've IRFs. facie best demand neutrality post-acute adjacencies the is a and the is have separated invest in We inpatient Hospice, be remains this very And space patient that underpenetrated. And as evolution towards continue even prima decision and to no very the the remaining country out be in in If so think say use for ultimate a the rehabilitation inpatient very think to would Health slow, and there prepare progression & that is freestanding criteria change and the if way going services high of we site gradual some we to the you you And fact already SNFs. regard because an hospitals made to think Home stated estimate we've an IRF those we out LTACs that for to at CMS-XX-eligible with that, annual but that on basis, way of than the their if look care the less in into acute of just XX% find an U.S. coming discharges bed. before,

if space a or to Moreover, there's adjust IRF post-acute, So we it and those move physical LTAC than to eventually white a staffing SNF into. construction, to clinical that model in towards the belief complement an better the expertise exists are that site for the us inpatient today for changing either positioned our do conditions. neutrality is tremendous grow the

we thoughts the that's our addresses With to community. those, A, evaluation remain now we're or other more service could it for think value will can't a enhance does need it of when we operator, it really right to internally and efficient is replicate as I to kind open, specific do So that that competitively? more that evaluate make that line think us we us think constant evaluation. that on provider own? is can we something a services And is proposition we any position a something us. or And about, So vendor? trying either our a add-on must what regard Or point B, to to buy

Operator

with come Sarah question Barclays. next from Our James will

Sarah James

what quarantine morning. COVID related spread for on is phases Can symptoms understand to And there portion just is move we higher the discussion CDC good with help lower, contract Hi, as frequency and rate the permanent but where is you positive? into any staff is are testing your quarantine internally of length? labor around or that of us testing then

Mark Tarr

we Mark. we this take - - question. is where I'll contract not take bringing portion me be Right marketplace, COVID let of the in to current see the first now, at So difficulties this labor your given staffing we're rates staff in as of point. experiencing the we quarantined offset would

is the might much the prior it it or neutralized period to last from marketplace year where that. pretty out peak there been year versus in have in So that even

Doug Coltharp

question, CDC certain staff And of the to able pass of flexibility is be clinical to an for a they test. guidelines that within to still Sarah, there who is then the providing able your yes, the meet our exposure receives they're second member - work, part COVID to that

Sarah James

have I that than or initially just capital to or to of that how then circle many build And of that has Can on to facilities process? capacity wanted idea build out property are in flexibility the Great. add rooms you space footprints existing been more back give need space. you to give an your within add us deployment. larger of footprint? buy know part where therapeutic strategy your always guys you to are you Like

Doug Coltharp

Yes.

existing acres of more be bag land expanded that's our of that legacy to capacity usable house within seven that the to single-story still Typically, growth. XX well. a - as room almost novo. to maybe we room disruption say, capacity without last is there hospitals. are the or in that would - board much five buying I still for It's two mixed exceptions, has de additional but \ without We're brought novo So we de exception, on that years has every one a are for facility have a building can

You've ability XXX the forth. to But existing remain in base. got the and a and physical terms variety XXX requirements beds add we the very greater construction and confident of to of annum so in per those CON and location that to

just some timing. that's be bit of to a little Now based going lumpy on

high where that QX probably to now this example, end Mark next timing, on his means just beds open XX of year, late the in we an one year. be up year, in project has think in we're range next and moved from As that of going alluded towards the fact the we'll that comments early based to QX

Operator

there are further over like would for back this I or call any At the Mark turn questions, to so time, closing remarks. Miller to no additional

Mark Miller

anyone call you (XXX) me for Thank additional at If you. Thank XXX-XXXX. joining questions, has again call. please today's

Operator

Thank you, your and gentlemen. concludes participation. ladies and appreciate conference, we today's This

at You may time. any disconnect

Encompass Health (EHC) 2 Aug 222022 Q2 Earnings call transcript