Q3 2021 Earnings Key Takeaways

Innovation Sustainability
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Q3 2021 earnings rerport
Encompass Health continues to expand its national footprint by opening new hospitals. It opened four in the third quarter for a total of eight so far in 2021.

We are enthusiastic for the long-term prospects of the business and our competitive position in the industry.

Oct. 27, we released our Q3 earnings report. When we last released our earnings in July, we reported accelerated momentum in both our inpatient rehabilitation and home health and hospice segments. Based on that performance, we increased our guidance for the second time this year. However, it became clear in late August that COVID-19 cases were surging again. This surge was particularly challenging for our home health and hospice segment. While we believe the surge has reached its peak and is on a downward trend, these challenges will remain to some degree for the near future, so we are decreasing our 2021 guidance.

Again, this does not dampen our enthusiasm for the long-term prospects of our business model. To the contrary, it underscores the growing demand for our services and the level of care we provide.

Watch President and CEO Mark Tarr’s Quarterly Connection update.

Home Health and Hospice Strategic Review Update

We expect an either partial or full separation of our home health and hospice business into an independent public company via a carve-out IPO, spin-off or split-off. We expect this to occur in the first half of 2022 and will announce more precise timing and details in our fourth quarter earnings release. While there can be no assurance that a transaction of this nature will be consummated, we have made significant progress on the various tasks necessary to complete a separation transaction. We have transitioned our home health and hospice segment under new leadership and have the utmost confidence in this team.

As previously noted, we believe a full or partial separation of the home health and hospice business will enhance the long-term success and value of the business.

Ongoing COVID-19 Challenges

The COVID-19 surge and industry-wide labor pressures led to staffing challenges throughout the company, but our home health and hospice segment was impacted the greatest. Home health admissions dropped by .9% compared to this time last year. Staffing constraints, a reduction in elective procedures and reduced occupancy levels and restricted access to senior living facilities all contributed to the decrease in admissions.

Despite the decreased admissions, the demand for home care remains strong. During the third quarter, we estimate that we lost about 2,500 admissions due to staffing constraints. The constraints are resulting from a combination of quarantined employees due to COVID-19 exposure and industry wide staffing shortages.

We are responding to staffing constraints by increasing the use of higher-cost labor and paying higher salaries and wages to existing staff and new hires.

Though much of our staffing challenges were in the home health and hospice segment, our rehabilitation hospitals were not immune. We also utilized higher levels of contract labor, signing bonuses and shift bonuses to offset staffing constraints.

Continued Growth

We are continuing to expand our national footprint and meet the rising demand for our services by opening new hospitals and adding beds to existing facilities. We opened four new 40-bed inpatient rehabilitation hospitals in the third quarter, and earlier this week, we opened our eighth hospital of 2021, a 50-bed facility in Henry County, Georgia. We have also added 89 beds to existing facilities. Our pipeline remains strong, with an anticipated 10 to 12 new hospitals opening in each of the next two years.

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