Encompass Health (EHC) Q1 2025 earnings summary

Executive summary

• Net operating revenue for Q1 2025 increased 10.6% year-over-year to $1.46 billion, driven by 6.3% discharge growth and a 3.9% rise in net revenue per discharge.

• Adjusted EBITDA rose 14.9% to $313.6 million, with adjusted EPS up 22.3% to $1.37 and net income attributable to shareholders up 34.7% to $151.5 million.

• Opened a new 40-bed hospital in Athens, GA, added 25 beds to existing hospitals, and continued development of multiple new facilities.

• Labor efficiency improved, with annualized RN turnover at 20.1% and therapist turnover at 6.3%.

• Continued shareholder returns through $32.1 million in stock repurchases and quarterly dividends.

Financial highlights

• Inpatient revenue increased 10.5% year-over-year; outpatient and other revenue up 13.2%.

• Adjusted free cash flow grew 32.7% to $222.4 million; cash flow from operations was $288.6 million, up 20.9%.

• Net leverage at quarter-end was 2.1x, with $95.8 million in unrestricted cash and no significant debt maturities until 2028.

• Premium labor costs declined by $5 million to $28.6 million; contract labor FTEs were 1.3% of total FTEs.

• Net patient revenue per discharge rose 3.9% to $21,816.

Outlook and guidance

• 2025 guidance raised: net operating revenue of $5.85–$5.925 billion, adjusted EBITDA of $1.185–$1.22 billion, and adjusted EPS of $4.85–$5.10.

• Full-year adjusted free cash flow expected at $620–$715 million.

• Bed expansion plans increased for 2025–2027, with 100–120 beds to be added in 2025 and about 120 beds each in 2026 and 2027.

• CMS 2026 IRF proposed rule could result in a 2.7% Medicare rate increase starting October 2025.

• Full-year 2025 cash tax payments estimated at $160–$180 million.