• Revenue: Increased 12.7% to $1.4 billion.
• Adjusted EBITDA: Increased 13.6% to $289.6 million.
• Adjusted EPS: Increased 23.2%.
• Adjusted Free Cash Flow: Increased 103.7% to $190.5 million for Q4, totaling approximately $690 million for the full year, a 31.3% increase from 2023.
• Total Discharge Growth: 7.8% for the quarter.
• Same-Store Discharge Growth: 5.8%.
• Net Revenue per Discharge: Increased 4.2%.
• Medicare Discharge Growth: Increased 6.8%.
• Medicare Advantage Discharge Growth: Increased 14.7%.
• Managed Care Discharge Growth: Increased 8.9%.
• Stroke Discharges: Increased 12.6%.
• Neurological Disorders Discharges: Increased 7.7%.
• Bad Debt Expense: Decreased by 200 basis points to 2.1%.
• Salaries and Wages per FTE: Increased 4.8%.
• Benefits Expense per FTE: Increased 30.6% for Q4 and 12.4% for the full year.
• Premium Labor Costs: $29.7 million in Q4, a decrease from $30.9 million in Q4 '23.
• Net Leverage: Reduced to 2.2 times at year-end 2024.
• 2025 Guidance - Net Operating Revenue: $5.8 billion to $5.9 billion.
• 2025 Guidance - Adjusted EBITDA: $1.16 billion to $1.20 billion.
• 2025 Guidance - Adjusted EPS: $4.67 to $4.96.

• Warning! GuruFocus has detected 6 Warning Signs with RGA.

Release Date: February 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Revenue increased by 12.7% to $1.4 billion, with adjusted EBITDA up 13.6% to $289.6 million.
• Adjusted EPS rose by 23.2%, and adjusted free cash flow increased by 103.7%.
• Total discharge growth for the quarter was 7.8%, with strong performance across patient mix, payers, and geographies.
• Encompass Health Corp (NYSE:EHC) opened 36 new hospitals and added 474 beds from 2020 to 2024, increasing total bed supply by approximately 20%.
• The company plans to open seven new hospitals and add approximately 100 beds to existing hospitals in 2025, with significant expansion in Florida.

Negative Points

• Group medical and prescription drug costs are expected to remain elevated through the first half of 2025.
• The company faces challenges with pre-authorization requirements by Medicare Advantage plans, impacting access to care.
• There is a potential risk of increased construction costs and tariffs affecting future expansion plans.
• The 2025 guidance includes anticipated startup and ramp-up costs, which may impact EBITDA margins.
• Provider tax benefits in 2024 may not recur in 2025, adding uncertainty to financial projections.

Q & A Highlights

Q: My question first just on the MA growth. Is the growth you're seeing more apparent in certain states or certain markets versus others? A: (Douglas Coltharp, CFO) It's a bit of both. We see same-store growth in Medicare Advantage, assisted by our movement into new markets. There's significant upside due to enrollment trends and our admissions to referral rate being lower than fee-for-service. Medicare Advantage discharge growth was 14.7% for the quarter and 12% year-to-date.

Q: Just my follow-up on free cash flow and priorities here. Any views on buybacks as a larger priority going forward? A: (Douglas Coltharp, CFO) CapEx will be up by about $100 million, mostly for growth-related expansions. We expect consistent utilization of the share repurchase program with excess free cash flow, alongside cash dividends, given our favorable leverage position.

Q: I wanted to ask about the pace of the bed additions in '25. Is this more just a timing issue, or is there anything more to discuss in terms of your ability to move projects forward? A: (Mark Tarr, CEO) We're adding one more hospital in 2025 than last year, with seven de novos and one satellite. The pace is slightly higher, but we've done well in meeting growth targets. Florida's market density aids staffing and start-up processes.

Q: How has the overall market in Florida looked now with the lifting of CON laws? Is there any risk of being overbedded? A: (Mark Tarr, CEO) We feel good about our growth in Florida, having taken the lead in adding beds. The state's demographics support our business, and we see additional opportunities for new hospitals or bed additions.

Q: Can you give us a bit more detail on the trends you're seeing in group medical prescription drug costs? A: (Douglas Coltharp, CFO) The increase is driven by GLP-1 drugs, enhanced cancer-related drugs, and a specific eye health drug. We expect to anniversary the stepped-up usage in the second half of the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.