Encompass Health : First Quarter 2026 Supplemental Information

Published: 2026-04-30 20:09:05 ET EHC

Published on 04/30/2026 at 08:09 pm EDT

2026 First Quarter Earnings Call

May 1, 2026

Supplemental information

Summary 4

Revenue 5

Adjusted EBITDA 6

Earnings per share 7-8

Adjusted free cash flow 9

2026 Guidance and guidance considerations 10-11

Adjusted free cash flow assumptions 12

Uses of free cash flow 13

Appendix

Map of locations 15

Growth targets, fundamentals and value drivers 16

Multiple modalities for capacity expansion 17

Development activity 18

RCD and TEAM 19

Debt maturity profile and schedule 20-21

New-store/same-store growth 22

Payment sources 23

Operational metrics 24

Share information 25

Reconciliations to GAAP 26-31

End notes 32-33

($ in millions, except per share data) 2026 2025 % △

Encompass Health

Net operating revenue

$ 1,586.6

$ 1,455.4

9.0 %

Adjusted EBITDA

$ 348.8

$ 313.6

11.2 %

Adjusted EPS

$ 1.60

$ 1.37

16.8 %

Adjusted free cash flow

$ 193.8

$ 222.4

(12.9)%

Key takeaways

▶ Capacity additions

Opened 49-bed hospital in Irmo, SC

Added 44 beds to existing hospitals

Net pre-opening and ramp-up costs of $4.0 million

▶ Balance sheet

Amended and restated credit agreement, extending maturity date to March 2031

Net leverage of 1.9x

▶ Shareholder distributions

Paid quarterly dividend of $0.19 per share in January

Repurchased 707,965 shares of common stock for $71.6 million

Q1 Q1 % Change*

($ in millions) 2026 2025

Net operating revenue:

Inpatient

$ 1,533.7

$ 1,417.7

8.2%

Other(1)

52.9

37.7

40.3%

Total revenue

$ 1,586.6

$ 1,455.4

9.0%

(Actual Amounts)

Discharges

67,763

64,985

4.3%

New-store discharge growth

2.7%

Same-store discharge growth

1.6%

Net patient revenue per discharge

$ 22,633

$ 21,816

3.7%

Revenue reserves related to bad debt as a percent of revenue

2.2 %

2.0 %

20 bps

▶ Other revenue includes a $15.3 million increase in Medicaid supplemental payments(2) ($4.9 million attributable to prior periods).

Encompass Health

*Except for Revenue reserves related to bad debt as a percent of revenue, which is increase (decrease)

Refer to pages 32-33 for end notes.

Q1 % of

($ in millions)

2026 R

evenue 2025 Revenue

Net operating revenue

$ 1,586.6

$ 1,455.4

Operating expenses:

Salaries and benefits

(818.1)

51.6 %

(762.3)

52.4 %

Other operating expenses(a)

(241.6)

15.2 %

(217.3)

14.9 %

Supplies

(64.3)

4.1 %

(62.2)

4.3 %

Occupancy costs

(15.2)

1.0 %

(14.9)

1.0 %

Hospital operating expenses

(321.1)

20.2 %

(294.4)

20.2 %

General and administrative expenses(b)

(47.5)

3.0 %

(43.3)

3.0 %

Other income(c)(d)

2.2

2.3

Equity in nonconsolidated affiliates

0.4

0.9

Noncontrolling interests in continuing operations

(53.7)

(45.0)

Adjusted EBITDA

$ 348.8

$ 313.6

▶ Other operating expenses includes a $9.7 million increase in provider tax expenses(2) ($0.7 million attributable to prior periods).

($ in millions)

Q1 2026

Q1 2025

In arriving at Adjusted EBITDA, the following were excluded:

(a) Loss on disposal or impairment of assets

$ 0.3

$ 0.2

(b) Stock-based compensation and the change in fair market value of the non-qualified deferred comp plan

$ 10.7

$ 9.0

deferred comp plan

$ 1.0

$ (0.2)

(d) Gain on sale(4)

$ (17.5)

$ -

Encompass Health

Reconciliations to GAAP provided on pages 26-31.

Refer to pages 32-33 for end notes.

($ in millions, except per share data)

2026

2025

Adjusted EBITDA

$ 348.8

$ 313.6

Depreciation and amortization

(87.3)

(79.2)

Interest expense and amortization of debt discounts and fees

(31.8)

Stock-based compensation

(11.5)

(9.5)

Loss on disposal or impairment of assets

(0.3)

(0.2)

217.9

192.9

Items not indicative of ongoing operating performance:

Loss on early extinguishment of debt

(0.2)

Change in fair market value of marketable securities

(0.2)

0.7

Gain on sale(4)

17.5

Pre-tax income

235.0

193.6

Income tax expense

(56.4)

(41.6)

Income from continuing operations*

$ 178.6

$ 152.0

Diluted shares (see page 25)

100.6

102.1

Diluted earnings per share*

$ 1.77

$ 1.48

Encompass Health

* Earnings per share are determined using income from continuing operations attributable to Encompass Health.

Reconciliations to GAAP provided on pages 26-31. Refer to pages 32-33 for end notes.

Q1 2026 2025

Diluted earnings per share, as reported

$ 1.77

$ 1.48

Adjustments, net of tax:

Income tax adjustments(6)

(0.05)

(0.12)

Gain on sale(4)

(0.13)

Adjusted earnings per share*

$ 1.60

$ 1.37

▶ Adjusted earnings per share removes from GAAP earnings per share the impact of items the Company believes are not indicative of its ongoing operating performance.

* Adjusted EPS may not sum due to rounding. See complete calculations of adjusted earnings per share on pages 29-31.

Encompass Health

Refer to pages 32-33 for end notes.

($ in millions)

$35.2

$(31.2)

$(22.8)

$(9.8)

$222.4

$193.8

Adjusted free cash flow 3

mos. 2025

Adjusted

EBITDA

Working capital

and other

Cash tax payments, net of

refunds

Maintenance capital

expenditures

Adjusted free cash flow 3

mos. 2026

Net Operating Revenue

Adjusted EBITDA(3)

Adjusted earnings per share from continuing operations attributable to Encompass Health(5)

$6,365 to $6,465

Previous Guidance

$5.81 to $6.10

$1,340 to $1,380

$6,375 to $6,470

Updated Guidance

$5.89 to $6.11

$1,350 to $1,380

($ in millions, except per share data)

▶ Pricing

Medicare pricing increase of approximately 3.0% for Q1-Q3; approximately 2.4% for Q4

Managed Care pricing increase of 2.0% to 3.0%

Bad debt reserves of 2.0% to 2.5% of revenue

▶ Labor

SWB per FTE increase of 3.0% to 3.5%

▶ Capacity additions

8 new hospitals with a total of 389 beds

Net pre-opening and ramp-up costs of $18 million to $22 million (inclusive of costs associated with 2027 openings incurred in 2026)

150 to 200 beds to existing hospitals

▶ Corporate

Tax rate of approximately 26%

Encompass Health 11

Diluted share count of approximately 101 million shares

Encompass Health

Encompass Health 12

Certain cash flow items

($ in millions)

3 Months

2026

Actuals

2025

Actuals

2026

Assumptions

Cash interest payments

(net of amortization of debt discounts and fees)

$29.4

$113.6

$110 to $120

Cash payments for income taxes, net of refunds(8)

$23.3

$124.0

$160 to $190

Working capital and other

$58.5

$2.9

$10 to $40

Maintenance CAPEX

$43.8

$209.5

$225 to $240

Adjusted free cash flow

$193.8

$817.9

$760 to $875

Encompass Health

Reconciliations to GAAP provided on pages 26-31.

Refer to pages 32-33 for end notes.

Encompass Health 13

($ in millions)

3 Months

2026

Actuals

2025

Actuals

2026

Assumptions

Capacity expansions

$117.5

$526.4

$675 to $725

Growth

Replacement IRFs

1.1

0.5

20 to 30

$118.6

$526.9

$695 to $755

Debt reduction

Reduction (increase) in total debt(9)

($83.0)

$7.0

TBD

Shareholder

Dividends on common stock

$20.3

$71.1

~ $77

distributions

Common stock repurchases

$71.6

$158.0

TBD

Approximately $261 million remaining under current authorization as of March 31, 2026(10)

Encompass Health

Refer to pages 32-33 for end notes.

Largest owner and operator of rehabilitation hospitals

Rehabilitation hospitals "IRFs" De novos under development*

patient discharges

Key statistics - trailing four quarters

Billion in revenue

Company profile as of 03/31/26

Rehabilitation hospitals "IRFs"

66 are joint ventures

IRFs under development**

States and Puerto Rico

employees

Encompass Health

*De novos under development - previously announced de novo hospitals under development as of April 30, 2026.

**IRFs under development as of April 30, 2026, include de novo and remote and satellite locations.(11) 15

Refer to pages 32-33 for end notes.

▶ 2023 - 2027 Growth targets

6 to 10 de novos per year • 80 to 120 bed additions per year • 6% to 8% discharge CAGR

▶ Large, under penetrated, and growing inpatient rehabilitation market

Large addressable market indicated by low conversion rate of presumptively eligible inpatient rehabilitation patients

Favorable demographics driving increased demand for rehabilitation services

Unparalleled clinical expertise for treating inpatient rehabilitation conditions with consistent delivery of high-quality, cost-effective care

Capacity addition strategy delivers attractive financial returns

Cash flow and capital availability to fund capacity additions

Fragmented sector presents unit acquisition and joint venture opportunities

Significant barriers to entry and economies of scale

Resilient business model with focus on non-discretionary conditions occurring predominantly in an aging population

▶ Shareholder distributions

Cash dividend (currently $0.19 per share per quarter)

Approximately $261 million remaining under current stock repurchase authorization as of March 31, 2026(10)

De novos

(6-10 hospitals per year)

Bed additions

(150-200 beds per year)

Small format hospitals

(1-4 hospitals per year)

Freestanding hospitals (inclusive of remote and satellite locations(11)) with greater than 30 beds

4-8 acres of real estate

Two primary prototypes

- one and two story - to best fit available real estate

Typically can accommodate future expansion

Addresses high occupancy levels at existing hospitals

Project size can vary depending on market demand, available land, CON requirements, etc.

Leverages existing market demand, established referral sources and payor contracts, and elements of fixed infrastructure and management team

First opening to occur in 2027

Freestanding hospital with 20-30 beds

Facilitates a hub and spoke strategy in large and growing markets

2-3 acres of real estate within 35 miles of an existing hospital to operate as a remote location

Leverages management of existing Encompass Health hospital

Non-expandable

Inpatient Rehabilitation Hospitals opened or under development

Joint Expected Number of beds

venture open date

2026 2027

De novos

Irmo, SC

49 -

Concordville, PA

2Q26 50 -

Loganville, GA

2Q26 40 -

Norristown, PA

3Q26 50 -

Bangor, ME

4Q26 50 -

San Antonio, TX

4Q26 50 -

Avondale, AZ

4Q26 60 -

Wesley Chapel, FL

- 50

Apollo Beach, FL

- 50

St. George, UT

- 50

Fishers, IN

- 50

Haslet, TX

- 50

Flowood, MS

- 50

Cookeville, TN

- 40

Remote and satellite(11)

Cleveland, TN

4Q26 40 -

Other bed additions

150 to 200 150 to 200

Total capacity expansion*

539 to 589 490 to 540

IRF development projects announced and underway**

1Q 2026

Development activity highlights

De novos opened

# of beds

Irmo, SC

Beds added to existing hospitals

De novo announcements

Flowood, MS

Bear, DE

Encompass Health

*All dates are tentative and subject to change

**IRFs under development as of April 30, 2026, include de novo and remote and satellite locations.(11) Refer to pages 32-33 for end notes.

Review Choice Demonstration ("RCD")

RCD is a five-year demonstration project initiated by the Centers for Medicare & Medicaid Services ("CMS") providing either pre-claim or post-payment claim review to demonstrate compliance with Medicare IRF rules. This demonstration is only applicable to Medicare fee-for-service claims.

Status of RCD rollout

State

MAC

# of EHC hospitals impacted

Start Date

Alabama

Palmetto

August 2023

Pennsylvania

Novitas

June 2024

Texas

Novitas

24*

March 2026

California

Noridian

May 2026

*Inclusive of hospitals in Texas (1) and Pennsylvania (2) opening later in 2026.

Transforming Episode Accountability Model ("TEAM")

A CMS 30-day bundled payment initiative for certain acute care hospitals ("ACHs") covering five surgical episode groups.

Potential impact factors:

Medicare FFS population only for 189 of 935 CBSAs (700+ ACHs)

5-year period from Jan. 2026 to Dec. 2030

Surgical episode groups included: Lower extremity joint replacement (LEJR); surgical hip and femur fracture treatment (SHFFT); coronary artery bypass graft (CABG); spinal fusion; major bowel procedure

ACHs may not restrict Medicare beneficiaries' choice of post-acute provider.

Medicare beneficiaries eligible for Medicare on the basis of having end stage renal disease are excluded from TEAM.

89 EHC hospitals are in TEAM markets; 41 are joint ventures

~2% of EHC total discharges were within TEAM geographic, condition (procedure) and payor parameters in 2024.

No downside risk in year 1 for ACHs

Quality of outcomes impacts ACHs' bonus amounts.

As of March 31, 2026*

2031 2031

($ in millions)

$800

Senior Notes 4.5%

$800

Senior Notes 4.75%

$400

Senior Notes 4.625%

2026

2027

2028

2029

2030

2031

Revolver capacity

Callable beginning April 2026

Callable at 101.583

Callable at par

$220 Drawn +

$54 reserved for LCs

$726

Available

▶ Amended and restated credit agreement, extending maturity date to March 2031

March 31,

December 31,

Change in Debt vs.

($ in millions)

2026

2025

YE 2025

Advances under $1 billion revolving credit facility

$ 220.0

$ 130.0

$ 90.0

Bonds Payable:

4.50% Senior Notes due 2028

792.9

792.0

0.9

4.75% Senior Notes due 2030

787.7

787.0

0.7

4.625% Senior Notes due 2031

393.8

393.6

0.2

Other notes payable

91.2

93.6

(2.4)

Finance lease obligations

288.2

294.6

(6.4)

Long-term debt

$ 2,573.8

$ 2,490.8

$ 83.0

Debt to Adjusted EBITDA

2.0x

Leverage net of cash and cash equivalents

1.9x

The leverage ratio for 1Q26 stated in terms of the most comparable GAAP measurement would be Debt to Net cash provided by operating activities: 2.1x The leverage ratio for 2025 stated in terms of the most comparable GAAP measurement would be Debt to Net cash provided by operating activities: 2.1x

Kissimmee, FL (50 beds) Atlanta, GA (40 beds) Louisville, KY (40 beds)

Clermont, FL (50 beds) Bowie, MD (60 beds)

Prosper, TX (40 beds) Fitchburg, WI (56 beds)

Columbus, GA (40 beds)

Houston, TX (61 beds)

Johnston, RI (50 beds) Fort Mill, SC (39 beds)

St. Petersburg, FL (50 beds) Amarillo, TX (50 beds)

Lake Worth, FL (50 beds)

Fort Myers, FL (60 beds)

10.0%

7.5%

Athens, GA (40 beds)

Daytona Beach, FL (50 beds) Danbury, CT (40 beds)

Irmo, SC (49 beds)

5.0%

2.5%

0.0%

Discharges

Q2 2023

Q3 2023

Q4 2023

Q1 2024

Q2 2024

Q3 2024

Q4 2024

Q1 2025

Q2 2025

Q3 2025

Q4 2025

Q1 2026

New store

3.6%

3.0%

3.3%

1.9%

2.0%

1.9%

2.5%

2.1%

2.7%

Same store(12)

6.2%

4.3%

5.3%

6.7%

4.8%

6.8%

5.8%

4.4%

4.7%

2.9%

3.2%

1.6%

Total by quarter

9.8%

7.3%

8.3%

10.0%

6.7%

8.8%

7.8%

6.3%

7.2%

5.0%

5.3%

4.3%

Total by year

8.7%

8.3%

6.0%

Same store by year(12)

4.8%

5.6%

3.4%

Q1 Full Year

2026 2025 2025

Medicare

65.5 %

67.0 %

65.4 %

Medicare Advantage

16.2 %

16.5 %

16.4 %

Managed care

10.6 %

10.0 %

10.7 %

Medicaid

2.9 %

3.1 %

Other third-party payors

0.7 %

0.6 %

0.7 %

Workers' compensation

0.5 %

0.4 %

0.5 %

Patients

0.4 %

0.2 %

0.3 %

Other income

3.2 %

2.4 %

2.9 %

Total

100.0 %

2026

2025

Full Year

2025

Net operating revenues:

(In Millions)

Inpatient

$ 1,533.7

$ 1,497.6

$ 1,427.3 $ 1,413.7

$ 1,417.7

$ 5,756.3

Other

52.9

47.0

50.2

44.0

37.7

178.9

Net operating revenues

$ 1,586.6

$ 1,544.6 $ 1,477.5 $ 1,457.7 $ 1,455.4

$ 5,935.2

(Actual Amounts)

Discharges(13)

67,763

67,238

65,839

65,237

64,985

263,299

Net patient revenue per discharge

$ 22,633

$ 22,273

$ 21,679

$ 21,670

$ 21,816

$ 21,862

Outpatient visits

21,935

22,325

22,361

21,597

19,955

86,238

Average length of stay

12.1

12.0

12.1

12.0

12.2

12.1

Occupancy %

78.7 %

76.3 %

76.2 %

76.6 %

78.8 %

75.9 %

# of licensed beds

11,541

11,465

11,352

11,233

11,159

11,465

Occupied beds

9,083

8,748

8,650

8,604

8,793

8,702

Full-time equivalents (FTEs) - internal

29,599

29,236

29,198

28,784

28,572

28,948

Contract labor FTEs

345

313

354

379

375

355

Total FTEs(14)

29,944

29,549

29,552

29,163

28,947

29,303

EPOB(15)

3.30

3.38

3.42

3.39

3.29

3.37

Weighted Average for the Period

Q1 Full Year

(in millions)

2026

2025

2024

2023

Basic shares outstanding

99.2

100.5

99.9

99.5

Restricted stock awards, dilutive stock options, and

restricted stock units

1.4

1.6

1.7

2.3

1.8

Diluted shares outstanding

100.6

102.1

102.2

101.3

End of Period

Q1 Full Year

(in millions)

2026

2025

2024 2023

Basic shares outstanding

99.4

100.9

100.0

100.8 100.3

Q1 Full Year

($ in millions)

2026

2025

Net cash provided by operating activities

$ 313.1

$ 288.6

$ 1,175.6

Interest expense and amortization of debt discounts and fees

31.8

123.2

Gain (loss) on investments, excluding impairments

16.2

(0.1)

5.9

Equity in net income of nonconsolidated affiliates

0.4

0.9

4.3

Net income attributable to noncontrolling interests in continuing operations

(53.7)

(45.0)

(192.9)

Amortization of debt-related items

(2.4)

(9.6)

Distributions from nonconsolidated affiliates

(0.1)

(0.5)

(4.1)

Current portion of income tax expense

47.9

32.8

170.6

Change in assets and liabilities

33.8

7.5

(4.3)

Cash (provided by) used in operating activities of discontinued operations

(21.2)

0.7

1.4

Change in fair market value of marketable securities

0.2

(0.7)

(2.5)

Gain on sale(4)

(17.5)

Other

0.3

Adjusted EBITDA

$ 348.8

$ 313.6

$ 1,267.9

Q1 Full Year

($ in millions)

2026

2025

Net income

$ 248.2

$ 196.5

$ 759.1

(Income) loss from discontinued operations, net of tax, attributable to Encompass Health

(15.9)

0.5

1.0

Net income attributable to noncontrolling interests included in continuing operations

(53.7)

(45.0)

(192.9)

Provision for income tax expense

56.4

41.6

192.9

Interest expense and amortization of debt discounts and fees

31.8

123.2

Depreciation and amortization

87.3

79.2

327.9

Loss on early extinguishment of debt

0.2

Loss on disposal or impairment of assets

0.3

0.2

2.7

Stock-based compensation

11.5

9.5

56.5

Change in fair market value of marketable securities

0.2

(0.7)

(2.5)

Gain on sale(4)

(17.5)

Adjusted EBITDA $ 348.8 $ 313.6 $ 1,267.9

Q1 Full Year

($ in millions)

2026

2025

Net cash provided by operating activities

$ 313.1

$ 288.6

$ 1,175.6

Impact of discontinued operations

(21.2)

0.7

1.4

Net cash provided by operating activities of continuing operations

291.9

289.3

1,177.0

Capital expenditures for maintenance

(43.8)

(34.0)

(209.5)

Distributions paid to noncontrolling interests of consolidated affiliates

(57.8)

(32.9)

(152.1)

Items not indicative of ongoing operating performance:

Transaction costs and related liabilities

3.5

2.5

Adjusted free cash flow

$ 193.8

$ 222.4

$ 817.9

Cash dividends on common stock $ 20.3 $ 18.0 $ 71.1

For the Three Months Ended March 31, 2026 Adjustments

As Reported

Loss on Early Exting. of Debt

Income Tax Adjustments(6)

Change in Fair Market Value of Marketable Securities

Gain on Sale(4)

As Adjusted

($ in millions, except per share amounts)

Adjusted EBITDA

$ 348.8

$ -

$ 348.8

Depreciation and amortization

(87.3)

Interest expense and amortization of debt discounts and fees

(31.8)

Stock-based compensation

(11.5)

Loss on disposal or impairment of assets

(0.3)

Loss on early extinguishment of debt

(0.2)

0.2

Change in fair market value of marketable securities

(0.2)

0.2

Gain on sale(4)

17.5

(17.5)

Income from continuing operations before income tax expense

235.0

0.2

(17.5)

217.9

Provision for income tax expense

(56.4)

(0.1)

(4.7)

4.5

(56.7)

Income from continuing operations

attributable to Encompass Health $ 178.6 $ 0.1 $ (4.7) $ 0.2 $ (13.0) $ 161.2

Diluted earnings per share from continuing operations*

Diluted shares used in calculation

$ 1.77 $ - $ (0.05) $ - $ (0.13) $ 1.60

100.6

For the Three Months Ended March 31, 2025 Adjustments

Change in Fair Market Value of

As Reported

Income Tax Adjustments(6)

Marketable Securities

As Adjusted

($ in millions, except per share amounts)

Adjusted EBITDA

$ 313.6

$ -

$ 313.6

Depreciation and amortization

(79.2)

Interest expense and amortization of debt discounts and fees

(31.8)

Stock-based compensation

(9.5)

Loss on disposal or impairment of assets

(0.2)

Change in fair market value of marketable securities

0.7

(0.7)

Income from continuing operations before income tax expense

193.6

(0.7)

192.9

Provision for income tax expense

(41.6)

(12.0)

0.2

(53.4)

Income from continuing operations attributable to Encompass Health

$ 152.0 $

(12.0) $

(0.5)

$ 139.5

Diluted earnings per share from continuing operations*

$ 1.48 $

(0.12) $

$ 1.37

Diluted shares used in calculation

102.1

For the Year Ended December 31, 2025 Adjustments

Change in Fair Market Value of

As Reported

Income Tax Adjustments(6)

Marketable Securities

As Adjusted

($ in millions, except per share amounts)

Adjusted EBITDA

$1,267.9

$ -

$1,267.9

Depreciation and amortization

(327.9)

Interest expense and amortization of debt discounts and fees

(123.2)

Stock-based compensation

(56.5)

Loss on disposal or impairment of assets

(2.7)

Change in fair market value of marketable securities

2.5

(2.5)

Income from continuing operations before income tax expense

760.1

(2.5)

757.6

Provision for income tax expense

(192.9)

(7.9)

0.6

(200.2)

Income from continuing operations attributable to Encompass Health

$ 567.2 $

(7.9) $

(1.9)

$ 557.4

Diluted earnings per share from continuing operations*

$ 5.55 $

(0.08) $

(0.02)

$ 5.45

Diluted shares used in calculation

102.2

Historically, we used the term "Outpatient and other" revenue to report revenue related to our outpatient business and other revenue sources. As we have decreased our outpatient business, the associated revenues do not represent the primary source of "Outpatient and other" revenue. As of December 31, 2025, this category of revenue is referred to as "Other" revenue.

Historically, we have used the term "provider tax revenues" to refer to "Medicaid supplemental payments," both of which represent amounts received in connection with state Medicaid programs that are not included in the specific Medicaid claim reimbursements we receive. These amounts include state directed and supplemental payment programs associated with Medicaid. Provider taxes are amounts paid by us to fund, in part, state Medicaid programs. We have used the term "net provider tax revenues" to represent the difference between provider taxes paid and the Medicaid supplemental payments received.

Adjusted EBITDA is a non-GAAP financial measure. The Company's leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a financial measure and the leverage ratio as a liquidity measure on an ongoing basis. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity. In evaluating Adjusted EBITDA, the reader should be aware that in the future the Company may incur expenses similar to the adjustments set forth.

On December 31, 2025, we entered into an agreement to sell our 50% membership interest in Gamma Knife Center at Barnes-Jewish Hospital, LLC ("Gamma Knife") to our existing joint venture partner, Barnes-Jewish Hospital, LLC, for $17.9 million effective January 1, 2026. We accounted for Gamma Knife as an equity method investment. As a result of this transaction, we recorded a $17.5 million pre-tax gain during the three months ended March 31, 2026.

The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health ("adjusted earnings per share"), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to investors because it provides better comparability of ongoing operating performance to prior periods given that it excludes the impact of government, class action, and related settlements, professional fees - accounting, tax, and legal, mark-to-market adjustments for stock appreciation rights, gains or losses related to hedging and equity instruments, loss on early extinguishment of debt, adjustments to its income tax provision (such as valuation allowance adjustments, settlements of income tax claims, windfall tax benefits and executive compensation disallowance), items related to corporate and facility restructurings, and certain other items deemed to be non-indicative of ongoing operating performance. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company's ongoing operating performance. Accordingly, they can complicate comparisons of the Company's results of operations across periods and comparisons of the Company's results to those of other healthcare companies. Adjusted earnings per share should not be considered as a measure of financial performance under generally accepted accounting principles in the United States as the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted earnings per share is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies.

Income tax adjustments primarily relate to windfall tax benefits and executive compensation disallowance.

The definition of adjusted free cash flow, which is a non-GAAP measure, is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, distributions to noncontrolling interests, and certain items deemed to be non-indicative of ongoing operating performance. Common stock dividends are not included in the calculation of adjusted free cash flow. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies.

The increase in our assumption for cash taxes compared to our prior assumption (provided February 5, 2026) is primarily driven by (i) gains recognized on the sale of our 50% membership interest in the Gamma Knife Center at Barnes-Jewish Hospital, LLC to our existing joint venture partner for $17.9 million, and (ii) the recovery of approximately $22 million of attorneys' fees and other expenses in Enhabit, Inc. et al. v. Nautic Partners IX, L.P., et al., C.A. No. 2022-0837-LWW (Del. Ch.). The cash associated with these gains is not included in free cash flow.

Cash used for net debt borrowings were $81.1 million during the three months ended March 31, 2026. Cash used for net debt redemptions were

$29.0 million during the twelve months ended December 31, 2025.

On October 28, 2013, the Company announced its board of directors authorized the repurchase of up to $200 million of its common stock. On February 14, 2014, the Company's board approved an increase in this common stock repurchase authorization from $200 million to $250 million. As of June 30, 2018, the remaining repurchase authorization was approximately $58 million. On July 24, 2018, the Company's board approved resetting the aggregate common stock repurchase authorization to $250 million. As of June 30, 2024, the remaining repurchase authorization was approximately $181 million. On July 24, 2024, the Company's board approved resetting the aggregate common stock repurchase authorization to $500 million. As of March 31, 2026, the remaining repurchase authorization was approximately $261 million.

Our inpatient rehabilitation hospitals ("IRFs") may operate one or more satellite and/or remote locations. Satellite and remote locations are located within 35 miles to one of our existing IRFs but do not have a separate Medicare provider number. As such, they are considered a bed addition, are included in same store results from the day of opening, and are not included in our count of total open hospitals. As of

March 31, 2026, we operated 9 remote locations.

Same-store comparisons are calculated based on hospitals open throughout both the full current periods and prior periods presented. These comparisons include the financial results of market consolidation transactions and capacity expansions (including the addition of satellite and remote hospitals) in existing markets.

Represents discharges from 174 consolidated hospitals in Q1 2026; 173 consolidated hospitals in Q4 2025; 170 consolidated hospitals in Q3 2025;

168 consolidated hospitals in Q2 2025 and 167 consolidated hospitals in Q1 2025.

Total full-time equivalents included in the table represent Encompass Health employees who participate in or support the operations of our hospitals and include full-time equivalents related to contract labor.

Employees per occupied bed, or "EPOB," is calculated by dividing the number of total full-time equivalents, including full-time equivalents from the utilization of contract labor, by the number of occupied beds during each period.

Disclaimer

Encompass Health Corporation published this content on April 30, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 30, 2026 at 23:49 UTC.