Encompass Health (EHC) Q4 2023 earnings summary

Executive summary

• FY 2023 net operating revenue rose 10.4% to $4,801.2M; Adjusted EBITDA increased 18.5% to $971.1M and adjusted free cash flow rose 54.6% to $525.7M.

• Q4 revenue and Adjusted EBITDA each grew 9.6% YoY; discharges rose 8.3%, including 5.3% same-store growth.

• Operated 161 inpatient rehabilitation hospitals across 37 states and Puerto Rico.

Financial highlights

• Q4 net operating revenue was $1,246.8M versus $1,137.3M; FY revenue was $4,801.2M versus $4,348.6M.

• Q4 Adjusted EBITDA was $255.0M versus $232.7M; FY Adjusted EBITDA was $971.1M versus $819.3M.

• Q4 adjusted EPS was $0.95 versus $0.88; FY adjusted EPS was $3.64 versus $2.85. 2023 reported diluted EPS was $0.94 in Q4 and $3.59 for FY.

• Operating cash flow was $201.0M in Q4 and $850.8M for FY 2023; adjusted free cash flow was $93.5M and $525.7M, versus $46.0M and $340.1M, respectively.

• FY discharges were 229,480, up 8.7%, including 4.8% same-store growth; net patient revenue per discharge rose 1.6%.

Outlook and guidance

• 2024 guidance: net operating revenue $5.2B–$5.3B, Adjusted EBITDA $1.015B–$1.055B and adjusted EPS $3.77–$4.06.

• 2024 pricing assumptions: Medicare increase of 3.3% for Q1–Q3 and estimated 2.5%–3.0% for Q4; managed-care pricing increase of 2%–3%.

• Salaries and benefits per FTE, including contract labor and bonuses, assumed to increase 4%–5%; bad-debt reserves projected at 2.0%–2.4% of revenue.

• Plans include 6 de novos with 280 beds, ~150 beds added to existing hospitals, and $15M–$18M in de novo pre-opening and ramp-up costs.

• Adjusted free cash flow assumptions were $465M–$565M; maintenance capex $185M–$195M, cash taxes $145M–$165M, and interest expense and debt-related amortization $140M–$150M.