Encompass Health Corporation

Q2 revenue increased 9.6% versus Q2 2025, driven by 5.6% discharge growth and a 3.9% increase in net revenue per discharge. Adjusted EBITDA rose 9.2% to $348 million, and adjusted EPS increased 10.7%. Bad debt expense was 2.3%, and Q2 occupancy was 77.4%, up 290 basis points year over year. For 2026, the company raised guidance to 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. Management said Medicare pricing for Q4 is assumed at approximately 2.3% and full-year SWB per FTE growth is now expected at 3.5% to 4%; net provider tax impact to adjusted EBITDA is now expected to be about a $10 million benefit in 2026. Net preopening and ramp-up costs are still expected to be $18 million to $22 million for the full year.

Mark Tarr emphasized that patient outcomes remained strong, with discharge community rate of 84.7%, discharge to acute of 8.4% and discharge to skilled nursing facilities of 6.1%, all above industry averages. He framed the quarter as validation of the company’s workforce-development strategy, saying career ladders and certification programs are supporting retention, reducing premium labor, and helping the company handle more medically complex patients. He also highlighted continued capacity expansion, including two new hospitals in Q2, and laid out a long runway from North Carolina CON repeal and the company’s small-format hospital strategy.

Douglas Coltharp focused on the bridge between volume, pricing and cost trends. He said Q2 revenue growth reflected 5.6% discharge growth and 3.9% pricing growth, adjusted EBITDA reached $348 million despite an $11.5 million year-over-year decrease in net provider tax impact, and premium labor declined to $25 million from Q2 2025. He cited share repurchases of about 704,000 shares for $74.2 million in Q2, year-to-date repurchases of about 1,412,000 shares for $145.8 million, net leverage of 1.9x, a new $500 million 5.875% note issuance used largely to redeem $400 million of 4.5% notes, a dividend increase to $0.21 per share for October, and a higher buyback authorization of $1 billion.

Analysts pressed management on why 2026 guidance was raised despite a lower Medicare pricing assumption and higher expected wage inflation; management pointed to second-quarter pricing upside from acuity, further benefits from EPOB, and lower turnover from career ladders. Questions also focused on North Carolina, where management said the company has prioritized 15 markets and sees a path that could push de novo growth toward the high end of the 6 to 10 annual range, with small-format hospitals potentially adding more runway. On payer denials, management said Medicare Advantage preauthorization remains a challenge, but the admit-and-appeal pilot has seen 298 patients admitted through July, with 144 fully adjudicated and 128 wins, an 89% success rate; they said parts of the program may be scaled in coming quarters.