Encompass Health (EHC) Barclays 27th Annual Global Healthcare Conference summary

Growth and operational performance

• Achieved approximately 6% same-store discharge growth over the past two years, with at least 4% from same-store sources for 10 consecutive quarters.

• Growth is driven by increased occupancy, bed additions, and maturing de novo facilities, with new openings contributing to the overall target of 6-8% multi-year CAGR.

• De novo facilities now open with about 50 beds, up from 40, to achieve economies of scale and address construction cost increases.

• Bed expansions at existing sites are planned for future growth and deliver high financial returns.

• Eight new hospitals are opening this year, including five in Florida, with openings weighted toward the latter part of the year.

Market strategy and competitive positioning

• Focus on clinical excellence, especially in neuro and stroke programs, with strong patient outcomes and high rates of discharge to home.

• Specialization in inpatient rehabilitative care, with deep data on top conditions, supports strong relationships with referral sources.

• Aggressive labor market strategies and competitive wages have improved retention and reduced turnover.

• Willingness to invest in premium labor during high-demand periods has paid off in volume and reputation.

Financial management and capital allocation

• Salaries, wages, and benefits per FTE are expected to rise 3.5% in 2025, with premium labor costs stable and leverage from business growth.

• Group medical costs rose sharply in 2024 due to high-dollar claims and increased prescription drug utilization, especially GLP-1s and new cancer drugs.

• Free cash flow remains strong, with leverage near 2x; growth CapEx is the top priority, followed by shareholder distributions and potential for increased share repurchases.

• Startup costs for new hospitals are about $20 million, mostly incurred in the second half of the year.