Enhabit, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Hospice Segment: Average daily census continued sequential growth since January 2024, increasing 6.9% year-over-year in Q3. Transition of branches to centralized admission departments improved referral conversion rate from 74.2% to 77.4%. Business development teams' local strategies helped increase admissions. Visits in the last days of life were 53.2% higher than national average.
• Home Health Segment: Use of Pulse tool to manage just right care plan reduced Medicare visits per episode from 14.9 to 14.4, increasing revenue per visit. Predictive analytics improved efficiency. Admission growth of 5.6% in the quarter, with 5.5% growth on a same-store basis. Focus on growing Medicare fee for service, with half of branches showing sequential improvement in Q3.
• Operational Initiatives: Restructured care management department and regional leadership structure to achieve annual savings of ~$3 million. Piloted outsourcing coding functions and plan to move all branches to outside resource by end of Q1 2025 for additional annual savings of ~$2 million. Actively evaluating consolidation/closure of underperforming branches.

Segment Performance

• Home Health: Consolidated net revenue for home health decreased $9.9 million or 4.7% year-over-year, primarily due to a decline in recertifications. Home health adjusted EBITDA decreased $5.3 million or 12.7% year-over-year. Non-Medicare admissions grew 20.1%, driving total admissions growth of 5.6% year-over-year. Use of Pulse tool improved efficiency with Medicare visits per episode declining from 14.9 to 14.4. Medicare fee for service stabilized at 44% of home health admissions over the past three quarters.
• Hospice: Revenue increased $5.2 million or 11% year-over-year due to an increase in patient days and higher Medicare reimbursement rates. Average daily census increased 6.9% year-over-year in Q3. Hospice adjusted EBITDA increased $2.3 million or 29.9% year-over-year, with cost per day flat year-over-year as increased volumes provided operating leverage.

Guidance

• Revised full year 2024 net service revenue outlook to $1,031,000,000 to $1,046,000,000 and adjusted EBITDA outlook to $98 million to $102 million.
• Hurricanes are expected to negatively impact fourth quarter revenue and adjusted EBITDA by approximately $2 million.
• Expect hospice volumes and revenues to grow at mid- to high-single digits in 2025. Anticipate home health admissions to grow at mid- to high-single digits and revenues to grow by low- to mid-single digits in 2025 due to admissions/census growth, Medicare pricing, and shift to better paying Medicare advantage plans.

Risks

• CMS Reimbursement Cuts: Continued cuts to home health reimbursement destabilize the landscape and hinder revenue growth.
• Hurricane Impact: Hurricanes Helene and Milton negatively impacted admissions and will affect fourth quarter results.
• United Healthcare Negotiations: Uncertainty regarding the outcome of negotiations with United Healthcare and its impact on patient census.
• Branch Performance: Underperforming branches may require consolidation or closure, with potential impact on revenue and profitability.

Question and Answer

• Q: Brian Tanquilut from Jefferies on United situation and 2025 outlook A: Barb Jacobsmeyer stated that while no signed agreement with United, progress is being made, and the team is shifting capacity to payor innovation contracts. For 2025, hospice pricing increase and home health pricing improvement, along with G&A savings, are expected to drive EBITDA growth, with merit increases being a key headwind to offset.
• Q: A.J. Rice from UBS on branch closures and cost per visit A: Barb Jacobsmeyer mentioned details on branch closures will be provided in the fourth quarter call. Crissy Carlisle noted labor costs are a key component of cost of services, with a 3% wage increase expected and operating leverage from volume growth to help manage costs.
• Q: Ryan Langston from TD Cowen on Hospice business development and UNH A: Barb Jacobsmeyer said Hospice business development involves increasing business development team members, using Trella data, and diversifying referral relationships. On UNH, progress is being made in negotiations, and if an agreement is reached, capacity to retake volume can be managed, but it would be a slower process to turn back on.