EHC · Encompass Health Corporation

Encompass Health delivered strong Q1 2026 results with net operating revenue rising 9.0% to $1,586.6 million, fueled by 4.3% discharge growth (1.6% same-store) and 3.7% higher net patient revenue per discharge. Inpatient revenue increased 8.2% to $1,533.7 million, while other revenue surged 40.3% due to $15.3 million in higher Medicaid supplemental payments. Operating expenses grew more slowly, with salaries and benefits up to 51.6% of revenue from 52.4%, and other operating expenses at 15.2%, enabling Adjusted EBITDA margins to expand to 22.0% from 21.5%. CEO Mark Tarr highlighted capacity expansion, including a new 49-bed hospital in Irmo, South Carolina, and 44 beds added to existing facilities, validating the company's operating strategy amid growing inpatient rehabilitation demand. GAAP diluted EPS from continuing operations reached $1.77, up 19.6%, while Adjusted EPS of $1.60 rose 16.8%, adjusted for items like a $17.5 million gain on Gamma Knife sale and income tax adjustments. Operating cash flow strengthened 8.5% to $313.1 million, though adjusted free cash flow declined 12.9% to $193.8 million due to higher maintenance capex and working capital needs. Balance sheet remains solid with net leverage at 1.9x following credit agreement amendment extending maturity to 2031. Shareholder returns included a $0.19 quarterly dividend and $71.6 million in share repurchases (707,965 shares). The company raised full-year 2026 guidance, narrowing net operating revenue to $6,375-$6,470 million (from $6,365-$6,465 million), holding Adjusted EBITDA at $1,350-$1,380 million (from $1,340-$1,380 million), and lifting Adjusted EPS to $5.89-$6.11 (from $5.81-$6.10), reflecting confidence in 3.0% Medicare pricing, 2.0-3.0% managed care growth, 3.0-3.5% labor cost inflation, and planned capacity additions of 8 new hospitals (389 beds) plus 150-200 existing bed expansions.