Encompass Health Q2 Earnings Call Highlights

Strong second-quarter performance prompted higher 2026 guidance: Revenue rose 9.6%, adjusted EBITDA increased 9.2% to $348 million, and adjusted EPS grew 10.7%, supported by higher discharges and patient acuity. Encompass now expects $6.41 billion–$6.49 billion in revenue and adjusted EPS of $6.02–$6.25.

Encompass is accelerating capacity expansion amid strong demand. The company opened two hospitals and added beds in the second quarter, with five more hospitals and 100–150 additional beds planned for the rest of 2026; occupancy reached 77.4%, up 290 basis points year over year.

Encompass repurchased $74.2 million of stock, raised its quarterly dividend to $0.21 per share, and increased authorization to $1 billion. North Carolina’s repeal of inpatient rehabilitation certificate-of-need rules could support six to 10 new facilities annually beginning in 2029.

Encompass Health NYSE: EHC reported second-quarter 2026 results marked by revenue, earnings and discharge growth, prompting the inpatient rehabilitation provider to raise its full-year outlook. Revenue increased 9.6% from the prior-year quarter, while adjusted EBITDA rose 9.2% to $348 million and adjusted earnings per share increased 10.7%, President and Chief Executive Officer Mark Tarr said on the company’s earnings call. The revenue increase reflected 5.6% discharge growth and a 3.9% increase in net revenue per discharge, according to Executive Vice President and Chief Financial Officer Doug Coltharp.

Coltharp said the increase in net revenue per discharge was driven by higher patient acuity, including growth in medically complex categories such as stroke and brain injury. Same-store stroke volume rose 5.5%, while same-store brain injury volume increased 3.9%. Total growth in those categories was 7.9% and 8.0%, respectively. Knee and hip replacement volume increased about 1% during the quarter.

The company raised its full-year 2026 outlook and now expects net operating revenue of $6.41 billion to $6.49 billion, adjusted EBITDA of $1.365 billion to $1.395 billion, and adjusted EPS of $6.02 to $6.25. The updated outlook incorporates an estimated 2.3% increase in net revenue per Medicare discharge beginning Oct. 1, based on the 2027 inpatient rehabilitation facility final rule issued by the Centers for Medicare & Medicaid Services on July 30. The company expects the rule’s Medicare pricing impact in the fourth quarter to be approximately 2.3%.

Encompass also revised its assumptions for salaries, wages and benefits per full-time equivalent employee, now expecting growth of 3.5% to 4.0% for 2026. Coltharp said the increase reflects greater participation in nursing and therapy career ladder programs, although the company expects the investments to support retention, quality and lower reliance on premium labor. Premium labor costs declined $2.6 million year over year to $25 million in the quarter. Contract labor represented 1.1% of total FTEs, improving 20 basis points from the second quarter of 2025. The company has recorded 11 consecutive quarters of year-over-year declines in premium labor costs, Coltharp said.

However, Encompass reduced its expected 2026 net provider-tax benefit to adjusted EBITDA to approximately $10 million, from a prior expectation of roughly $21 million. The change stemmed primarily from retroactive adjustments related to the 2025...