Encompass Health (EHC) 28 Apr 232023 Q1 Earnings call transcript

Good morning, everyone, and welcome to Encompass Health's First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Today's conference is being recorded.[Operator Instructions]. I will now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer.

Thank you, operator, and good morning, everyone. Encompass Quarter joining Earnings for you Health's XXXX First Call. Thank

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

we the are During beyond of forward-looking subject to will control. call, make which statements risks our many which and uncertainties, are

filings, materially uncertainties, and our expectations and the X-K, them. discussed filed. XX, labor for risks related XXXX, well trends March the Form projections, ended as earnings in to and XX, XX-K the bad the SEC are release December and the like Certain differ to regulatory cost developments read actual year as from XX-Q encourage those relating you cause Form that ended estimates XXXX, and debt the could company's Form including volume, quarter We to for results when

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

undertake do statements. not a We duty to forward-looking update these

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

the at is part SEC, end with such are end most of measures, measure as X-K release comparable the available website. earnings on and our which Form of of filed the For supplemental reconciliation the available at the to of all GAAP the information yesterday the directly

to and question everyone to will remind adhere submit the we rule one to one question I everyone question. a would like to follow-up allow that

yourself you Chief to additional free Health's the I'll that, please Tarr, turn have put Mark in and Executive call to Officer. over questions, queue. back the Encompass With feel If President

quarter first with improvement strong again everyone. results, good substantial exhibited We're and costs. our Mark, very volume morning, you, growth labor which Thank year-over-year pleased and once in

adjusted XX.X%. and X.X% increased revenues EBITDA quarter first increased Our

Demand in the meet for four novo services. needs adding inpatient and quarter three remained earlier in novos have and we to requiring of additions rehabilitation a a to patients of invest services de de the first strong We this XXX IRF continued total month, opened capacity beds.

the and balance to add novos plan existing the Over three de of year, more XX open beds we hospitals. to

Fitchburg, due novo of has to originally Our Wisconsin de QX year construction in scheduled moved to QX XXXX this to open weather-related of delays. been

active acute both an of joint wholly We ventures projects, and continue maintain build de novo to owned pipeline with and care hospitals.

have currently opening for in certificate patients need. in novos this XXXX. Connecticut, the high-quality look of beyond XX received Connecticut, providing which Danbury our IRF services We de recently Danbury, first market. This approval development for we with we state forward pipeline and be includes to hospital a under will dates to

contract $X QX, sequential XXXX. $XX During QX increase sign-on approximately in Contract of XX% QX XX% decreased for million down million a sign-on expenditures. the of bonuses while sign-on contract shift or XXXX, or XXXX. to of labor bonus from reducing was labor bonus while and demand labor IRF services we approximately and QX again met shift shift On basis, similar were and from expenditures and and

As to due were to patient increased, rates higher compared contract primarily QX, FTEs but lower, labor volumes.

July or for early beginning increase in our X.X% a in in IRFs Earlier rule. IRF this resulted released to X be XXXX. in proposed result would hires of CMS of XX net X%, October rule basket is estimate The August. net a same-store the This issued QX. Our final we talent XXXX which market new update expected month, late acquisition RN IRF efforts included

in transport dialysis on also hospitals providers our XX rollout. our to reduces therapy to for fewer leads continue these services. on-site our to in-house dialysis service like our in continuing now Tableau outcomes cost this schedules of hospital-based disruptions through XXXX. and Tableau obviating roll and in invest out our Reducing initiatives On-site are to patient technology will offer We to and receive and via satisfaction. reliance dialysis third-party improved patient We

underlying now to guidance, $XXX million of EBITDA the now guidance found $X.XX for XXXX. supplemental can we on $X.XX. $X.XX share increasing our and Page Moving our are to to of of to billion, per net be adjusted key $XXX earnings $X.X operating revenue The adjusted We of expect billion slides. XX considerations guidance million

management. City an more Finally, we I detailed XX, York XXXX. in into want Investor At of our September to labor remind Please elements for the mark will days investors New follow are that We de key host insights planning see September Day to and meeting, provide on that hope XX. technologies we hospitals, your will you to calendars novo Details ahead. clinical there. strategy, in including

quarter. the Now over turn Doug I'll some further for it color on to

Mark, everyone. morning, Thank good you, and

our XX.X% $XXX very increased prior with the results. stated, QX adjusted we to the $X.XX increased Mark pleased quarter EBITDA to for over and As were billion, million. X.X% year Revenue

see growth and X.X%. grew Total We volume QX. discharges strong in continue same-store to X.X% discharges grew

the do starting previously, required tightening premium of the strategic continue demand IRF we've to to market staffing at rise, levels mentioned the labor in even XXXX appropriate hospitals summer when accommodate so. began and to to from contract As when and increasing shift decision patients, we sufficient cost labor labor clinical the our bonuses made it

patients, allowing persisted payers. our and to our hospitals have to approach in this value We provide referral sources thereby

share. As value are continues in our we and a result, to proposition resonate, experiencing gains market

costs improvement in noted, Mark in QX. As significant year-over-year labor made we

Our million XX% labor in million in bonuses shift and labor and declined and million QX sequentially. sign-on was of contract shift in bonuses. XXXX. sign-on $XX.X $XX.X year-over-year Agency labor $XX approximately declined of Contract of million from $XX.X and QX rates comprised QX plus contract or

rate of $XXX,XXX, from XXXX, down was XXXX and in of QX agency QX Our in per XXXX. $XXX,XXX $XXX,XXX FTE QX

rates once sign favorable the QX improving. is and past labor moderate The holiday got the we is premium reduction a with to indicates for associated rates contract overall from expected pay We in market shifts.

of with We hospitals into are public COVID indicated market. optimistic the end will month of the next We discipline care it, and cessation of emergency further the inject acute at the the contract patients health and increase business our to a FTEs capacity experienced. sequential in QX what hospitals labor in lead bed via 'XX growth that could and new we seasonality expansion previously is of and

XXX to was Our contract in to and from This seasonality. volume increased labor FTEs in XXX March. attributable December growth

and against contract that contract the experienced managing of in in our the we or expense of approximate labor we of on we does labor an We in maintain quarterly XXX QX the year, our than from our XXXX $X.X March not average increased evidence increase of level contract This QX bonuses run fewer believe of represents balance reducing rate FTEs As progress decreased modestly had further labor XXX of of in census. this of focus an shift and million our daily XXXX March sequentially. in height will XXXX. and expense. XX% FTEs and for contract represent labor, Sign-on aspirations,

reasonable We believe for also of rest that bonus run a shift and XXXX. the expense quarterly QX expectation rate sign-on represents

quarter. pre- to points to and percent related debt basis the of as increased increased activity XX during Revenue experienced X.X% post-payment we a reserves claim review revenue as bad

supplemental initiated an or CMS addition contractors to review using audit TPE, SMRCs. program In recently medical

claims locations, through of record of claims. have the conduct initial approved reviews already Under these the in and the by program, XX covered of approximately results on thus been received approximately have date, service million of this results, the subject of XX at received program, To been of to level in dates favorable. XX% totaling XXXX XXXX. without Of March $X.X CMS claims being locations far SMRC these widespread we million X,XXX with another we to from December results have $XX post-payment has IRF have SMRCs appeal. approximately authorized audit Under approximately requests

the While still favorable, the public and basis as period medical initial this have are necessity denied to the interpretations the so review, the to phase for been serving claims. we of emergency of of time health results criteria far the objecting

of the as into supporting As audits, remain patients well thoroughness case has in of hospitals and our as the the prior been documentation. confident judgment the with veracity clinical admission required we with

was in is to X.XX%, EPOB for an from increase XXXX. in lower of quarter first volumes. higher due QX EPOB quarter typically the the X.XX

year. we for continue and guidance Our X.XX QX QX this $XX for of million, net through expect approximately the novo de preopening $X.X to to QX be these EPOB to year. $XX assumes costs totaled costs of million ramp-up and million full

end Finally, that, leverage for QX with down X.Xx of the XXXX. we'll we the of net And with at lines X.Xx, Q&A. ended from ratio open a

from a Bank [Operator question Fischbeck Kevin Instructions]. of America. We'll of take

Well, Kevin?

of kind bonuses to just wanted and you because comments of you're raised looking contracts sign-on for some here from I to seem labor the dig of the obviously, guidance, like on. the your the in rest way year companies It into your as improvement similar and metrics modest outlook to talking the So of seems be about be other goes in year. through these most

I to hear way So little that. about -- why on got and why bit expecting you're little not a worse it love the a just improvement

peers. point Kevin, exhibiting perhaps adding couple of base. higher of also things. basis volume progress our think And capacity to is we think I than I and relative our had more a think we'd some a more been on to One made I growth we've

the which I made expectations our of height is want a aspirations. comments things in. represent comment those factor prepared do I So to not reiterate there, my those do in

So in made though, a that focus level opportunities we Maybe brighter on a we're year-over-year to going QX. of bit continue levels. just shine to make basis on the of those in to to a improvement on improvement light

at our that of look you QX of comprised contract average an labor 'XX FTEs. X.X% If XXX with FTEs, total of

that compare had of that for our the an you ago, year of was average we to quarter. X.X% a XXX QX FTEs where total FTEs, If

XXX,XXX. the have back or XXXX. dropped can the we recent The is to kind rate to all normalized of from And XXX,XXX comparison most accurate way

we XXXX, contract year X.X% about workforce. if so had we our look were labor FTE full that of total at of FTEs the And

sure progress the get way yet, we we're and not to all over last substantial the that have So there. But back year. that we'll we're not level made

the for a are to focus our pay obviously bonuses in having great shift they teams, operating express employees. extra managing the and amount that wanted we new existing disappoint are extra right I or that of shift a sign-on those to focus of have now on And for exhibiting bonuses of they the deal staff. of terms retention huge also It's and

can. the it want costs we but and staffing we we on, nurses do make So, them on contract the orient staff, that sure as the on that takes we of on or other where new low focusing labor details as bring making down an it not amount a on we get the only aspects once retention are to reducing are that on very focused contract and labor, to bring premium equal have focus them and we sure

saw And quarter we dropping the therapy the nursing always which below turnover, evidence XX% low, with in our that has X%. been and first of our below turnover

any Okay. it That's easy really somewhat was actually comps Or I color Any a on helpful. the then therefore trusted you quarter? about kind year-over-year? a of Do much last about debate and And of bit Was about is the a stronger of how have are, of progressed outperformance? maybe how what year. QX drove how strong this volumes of color disruptive volumes volumes, strong guess you through some think throughout? of this volume year

in but it regions. we saw quarter, we throughout quarter, X the saw throughout of all and only our volume a geographic consistent was Kevin, the growth pretty nice not

So the I'm with there. we've pleased made progress very

consider the have what of to driving in any you are, that quality don't our you aspects if further think indicators. I look

done patients work our have with to the patients and payers as that ability the growth home, facility. our to based sent upon get get resonate that separating forward. is our skilled low it themselves value to in number I acute outcomes that think be as proposition go and back assisting as of to to going as continues the quality But do and our sources teams referral nursing keep well ability can a care Our back and hospitals those the

I quarter payers across patient geographically was for broad-based was was as encouraging about the us the growth really just think what spectrum and well how mix specifics some provide the across there.

major same-store payer quarter, two look was Advantage you a XX% our at and over on the Medicare up for basis. XX% categories If

what total growth nearly patient one more X% to that impacted health we saw us, category every We that's important up saw categories the on pricing throughout normalized X% And And is and are we that a basis for of it entire factors system. was a stroke one same-store of growth signal an quarter on flows see, neurological, that other and faster. major in the the grew and basis. patient care occurring but in was our of every Medicare did mix. And

take Andrew from We'll UBS. our Mok question next of

year-over-year. walk in quarter, pricing you the rates strong impacting Very Can us sequestration us the beyond volumes any was through flat impact? help but yield items understand or

Yes.

We last So in remarks, $X.X XX of $X way a other of items. was million went there my QX one. bad basis Sequestration to for that adjustment million net factor. adjustment QX this called about -- I number negative up were a and million year year. significant points. in SSI out reasons were the expense of The discussed certainly there a was positive $X.X debt prepared It related is in the

was which But a just the is in mix. the change one pointing I to, patient was bigger factor that

there. on going things two had really you so And

stipend, we for able to COVID. directed payment. as care comorbidity, to extra recall First code were which patients that coded enters that XX% and patient led is, were you a acute coding who same didn't with get get the an hospitals to We may a although

And XX% quarter a we who coding were drop comorbidity. had with in of COVID patients the

And was patient resulted mix pointed acuity acuity. about replacement somewhat I growth faster the that We, highest areas. that the did growth specific talked decreased areas and joint in stroke cardiac But broadening which like have but lower in as then two again, lower neurological reimbursement well. our in extremity it in categories, and so are two was that just

follow-up. That's it. And as then Got helpful. a just

this You already year. opened novos four de

you in the And did quarter? XQ, that I de start-up latest you based expect to year novo how the cost April, much which throughout track how do on presumably plan? incur your opening think impact your

Yes.

the the basically, dates look $XX million opening to most track months one are the any $XX have $X facilities. leading have facilities. expect -- We in can to range a million And over of you quarter, those year. And to for be in opening those new little to be of for up the the there to million we continue it's costs going that going to the in born at full of

Ann We'll take of from Securities. question Mizuho our next Hynes

guidance, current that services And low would you conservative? secondly, you're the to And like any the the So have when that in-sourcing, Tableau think then time? you maybe to at you're look can I on is what end? in-source happen where most do other you Tableau get EBITDA to there over

Yes.

revised the patient got impact more related some think the when Perhaps So always we top from the around volume. anticipating. to guidance, volatility in line, than on I And we the in year-over-year COVID you've look comorbidity. did underestimated the potential obviously, the first at we we see quarter mix pricing of the change change were a

remains some But been over then there's We're to with continue volume line factor regard variability there. what expense. we So the to to labor trade-off is have single make going the biggest on expense. that the labor trend making

from more towards the the mid- end. higher is away -- to think definitely guidance end the towards the lower range, I bias the that current more and

dialysis that services. say to become Mark. providers was shortages coming became back and had care difficulty an provide providers starting into existing when our particularly the area XXXX, started nursing about more are would Tableau, your Ann, that this efficient would ways say for outstanding I always in obvious, I looking to we that question effect. XXXX is the with really improve to and And our Relative we

we to in-house highlighted to our it needed do to it. reduce need our reliance provide go agencies that provide outside and out what to and services on So do

for a So care. us the look particularly may opportunities real other that there. to continue provision from has good we'll exist, been of I think our clinical that And solution at Tableau

Rice A.J. Suisse. take our next Credit of from We'll question

that's of First, got JV-ing? the in done seeing Is I as discussions ask on Obviously, about finalizes? a any XX a there, to JVs. start just what more big an deals frame you you've there. development. the Are on way backlog type you get the you're group you when because seeing that changing? terms update changing the might out time something compressing from of when these Just or give the that of in Is us economics

a XXXX. have under de we'll a Yes. and A.J., just had announced development do been opening said in dates Only JVs. subsection a are clarification. we XX that beyond those of novos We way with of

the that's now, I XX%. and the of is XX% think opportunity between right somewhere percentage portfolio inclusive of JV

time The doing with venture approach a economics that to to who's changed and first accustomed those a we going with take bit the on really those partner, you're some has very be of partner a probably us, categories gestation a both little much the JVs longer. regard it, if experience other around much. to it's go haven't With providers with those on the doing period joint ventures it's going in and If faster. are joint for to perhaps

a JV partner years successfully made experience about wholly we might with just going novos, ago, front having our we the as it end. be a three a got conversations shift have thought on strategy, about on basis preferable subsequent we potential as kind Beginning coming a market comfortable then it JV-ing in subtle we announcing of that on we opening to where were and into and to more develop de partners opposed owned wiring more

to in years the previously, our cost, now over of elevated. those prefabrication. biggest helps we've contain experienced anything the days two cost. that's the mentioned and haven't of costs is and we'll utilization construction challenge timing construction just the ahead in more negotiations impacting talking really have be facilities. we about So elevation The Again, last the right we but That certainly are

post-acute of Does lot that on opportunities focus you? the We change are other coordination, more MA aspects ask Maybe what broadly, any the plans follow-up you a for to your challenges create MA to Any seeing And it? your more with that. about MA recontracting? or talking putting value-based in Okay. contracting. care hear on about

of Really speaking, payer arising progress category. on haven't we Generally seen value-based that continue way from a Medicare lot in initiatives make Advantage. great the to

If say, aggregate. X% as the it the you look of recently XXXX. for payer was at first quarter, to, XX% the That compares as mix

even that of spite XX% to business under patients that within was quarter the real I the MA acuity at for our be XX%, progress previously with So on growth mentioned of steady is favorable of very tremendous of the MA made broadening continued in X%. growth the a the at over payment what differential for and basis. book there remains referral exists admission Advantage, on for Medicare. opportunity rates to it that The same-store that half traditional Medicare is we of

So at about XX% it's for and referral run to for traditional Medicare, XX% Medicare Advantage. a we admission

just the reasons. that plans. us And are MA benefit the MA in it's And for so CMS receiving have from that's guidance an IRF that Medicare also for who opportunity an and really the for would provided us not who patients some that points fact recent IRF, It's to opportunity coverage highlighted eligible there and Advantage specific various in that are who coverage treatment something update. around

from Barclays. next Valiquette We'll question our Steven take of

kind really year relates of question also my So to the full outlook.

operations momentum guidance the the have maybe given was also year the perhaps consistent pretty raised could strength pointing in more. in to Just second quarter, quarter signs all bit full the I first little the been that a in and thought

really to now to to high the try bias specific to key were confirm I that. the here about is metrics that year on end? get you're you a bias whether that wanted there to question comment confirmation with just that high coming the comment alluding a the your Q&A related to guidance previously? guidance results full of with that there's was the that the essentially the provided Or all metrics end, But for at during now comment guess Just

Yes.

First, don't think I a said clarification. end. high I

said I to time, that financial the low for guidance. to think annual in from less the we Steve, I know, in from key internal we time metrics. is issue diverge more had the see we that what consensus quarterly expectations establishing estimates that our high. as on end and mid- And you guidance

We performing. raised after we done. good guidance of very And about Now as quarter. good result, the business quarter is we a a how really feel being X just had year our

And so I think you as should is. interpret it that

of move we'll Bank. next Deutsche to Chickering And Pito

to on going question the Great just way. quarter. different ask of job I'm volume a the sort

think models. my I highest X.X%, [indiscernible] in have it's occupancy Your the I

one, how Number requirements bring do capacity to So the max due on threefold. be what versus is online you -- coming this consider beds in rate a for room? of sort to you rooms do fast taking my Or we enough question sort any increasing? occupancy beds can should or of to occupancy two, Number constraints? fast are number you sharing view, occupancy the X Like person multiyear foresee the of keep level? three, sort

was yes. that, There a right. But All lot in Pito.

peak we theoretical towards versus the or to private So with rooms, requiring the isolation the or is time, rooms gender work max over of occupancy change of more our rising have semi-private, the occupancy us that composition rate around allows skewing which compatibility

expansions legacy hospitals hospitals. private the still We're without rooms. we bed with ways. that, long new capacity right almost private that all in additions two our all the to And important now. our particularly are and go way over XX% little in three or is all address to a exception One a rooms of We're issue on continuing got

When is convert look into it rooms going renovation rooms private to in in efforts second max you -- do to the the and facilities, of at undertaking our but right? then occupancy it be we're it And hospital range, all is take room of can lot hospital, the private increasing. a some XXX% those those XX% semi-private is

didn't your probably to the and patient And that to based mix, to just room more than on be semi-private it on we it's a to know missed? In more questions, the of would get increase which all range. I and time. depending Pito, flows going I expect that discharge it's patient anything XX% really But I XX% timing in configuration over ones else.

is additions, is, demand, sort significant question online how here. is bed of versus coming your So as fairly look which you fast at I guess far. another

any And of on can to of enough capacity do foresee so growth you bring Or you view, hyper fast multiyear do constraints? almost taking guys you this beds a demand? -- meet sort

Pito, the in which we additions increasing for bed and I our to terms in demand for of going and plan hospitals think we're shape good be how the accommodate services.

terms growth opportunity widespread the diminishing We've anticipate for been in I additions, which our So disciplined challenge growth. facilities capacity very and not the so in a number to bed can of those accommodate to make careful about very but of sure out don't need only thinking private significant there, have we we a that's that room minimize hospitals that the also complement hire of that complements. semi-private increase

capability final them can my provide They semi-private is but then semi-private, that And weighted still provide single patients comment rooms a that may be for still that heavily hospitals the some room. for on that looking are are those private a but we occupied. have bed the have on have room second to not

forward. the we've going that able foresee and demand accommodate to So been

headwalls, unless or again, even just it's the shorten of of time. the most a And can allow construction, there's in non-CON instances fettered is all a to we're on level the expansion. providing constraint provision physical in construction you if quickly. bed the Obviously, level, almost exterior states, allows on cycle an CON of on maintained panels justifying us level facility. expansion at occupancy even pretty in the can for Pito, move a for some situations We a period typically that occupancy in states, those. certain utilization And there's prefabricated

Tanquilut to We'll Instructions] Brian of next Jefferies. move [Operator

temp of staffing, obviously so the how I administration year? you're of -- about as guess, or for thinking are think for I the rest same staff. labor you rates Doug, going about build But forward expecting at the least level

fact per is rate geographic there of across about labor disparity the talk we markets. significant to there's -- And matter continues be When the contract the average FTE.

markets able So me, as level required we're there improves, that me, in of is certain rate we still contract our little see those pull is labor could somewhat the sticky. may it's markets, bring could be to which across but of be to the bit entire there FTEs, market down labor a push the be where likely a network,

offset this because with market So north. at I where point. in But that we more And somewhat conditions see would more I subtle rate is is markets, would harder expect additions. regard existing see in you, markets concentration the improvement trip some or labor may we a FTEs in additional capacity improvement complete to by a of little tell speculation

And a observation so point. day every new is

Brian, our say, it's operators will mean, the earlier, is part which to various price mentioned sensitivity the the relative Mark. marketplaces this. to well. in of as I the I But of that discipline in market applying I are testing

necessary. marketplaces the what at the And we much just think very done forward. where maybe to certainly, aggressive don't we've rates have we certain on whether than so that [indiscernible] historically. is standpoint trying have they're sign-on on And bonuses in we is a bonuses, pretty put more been on we bonuses contract as push sign-on down or go that Whether from less offering shift

of next And to Capital Hendrix Ben go RBC we'll Markets.

the should hires balance you're You from the last the discharge EPOB through mind that EBITDA a phasing assume growth and think of year, of decline we there's to EPOB And given as about rest the how about apologies sequential quarter the X.X I there? need it, keep talked the But length I flow-through the the pace guidance for versus do XQ? reaffirming what to from now a we if else at the but of in changes year. the missed for component.

patient through and new and also impacted ramp-up three they're the progression most the hospitals. I by think quarters next of of are significant then two opening factors the volumes

factor as schedule as year. And normally in with regarding just our again, in we volumes. supplemental so addition regard obviously, the this you're third the of going in novos de patient to the open do to have indicated and some we'll the seasonality second to And then, that the in timing, slides quarters

call session. Mark our conclude to for comments. Miller does question-and-answer the to I'm This return closing any happy

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

today's conclude does conference. This

great may have everyone, lines, and your now day. You a disconnect