Q3 2025 Enhabit Inc Earnings Call
Speaker #3: Thank you for standing by . My name is Kathleen , and I will be your conference operator today . At this time , I would like to welcome everyone to the Enhabit Inc incorporated third quarter 2020 Earnings call .
Speaker #3: All lines have been placed on mute to prevent any background noise . After the speakers remarks , there will be a question and answer session .
Speaker #3: If you would like to ask a question during this time , simply press star , followed by the number one on your telephone keypad .
Speaker #3: And if you would like to withdraw your question , please press the star one again . I would now like to turn the call over to Bob Okunski , Vice President of Investor Relations .
Speaker #3: Please go ahead .
Speaker #4: Thank you . Operator . And good morning , everyone . Thank you for joining our call today . With me on the call this morning is Barbara Jacobsmeyer President and Chief Executive Officer .
Speaker #4: And Ryan Chief Financial Officer . Before we begin , I want to let you know that our third quarter earnings release and supplemental information are available on our website at investors .
Speaker #4: Additionally , we have filed a related 8-K with the SEC and that is also available in the same location on page two of the Supplemental information , you will find the Safe Harbor statements , which are also set forth in the last page of our earnings release .
Speaker #4: During the call , we will make forward looking statements which are subject to various risks and uncertainties . Many of which are beyond our control .
Speaker #4: Certain risks and uncertainties that could cause actual results to differ materially from our projections , estimates and expectations are discussed in our SEC filings , including our annual Report on Form 10-K , which is available on our website .
Speaker #4: We encourage you to read these documents . You are also cautioned not to place undue reliance on the estimates , projections , guidance and other forward looking information presented which are based on current estimates of future events and speak only as of today .
Speaker #4: We do not undertake a duty to update these forward looking statements . Our Supplemental information and discussion on this call will include certain non-GAAP financial measures .
Speaker #4: For such measures . Reconciliation to the most directly comparable GAAP measure is available at the end of the Supplemental information , as well as our earnings release .
Speaker #4: With that , I'd like to turn the call over to Barb . Barb .
Speaker #5: Good morning , and thanks for joining us . Let me start by recognizing the exceptional Enhabit Inc team . We're proud to share that inhabit has been named as one of Fortune's Best Places to Work in healthcare .
Speaker #5: This recognition is a powerful testament to our commitment to a culture of excellence , strong leadership , and an outstanding employee experience . It's that same team that has delivered another quarter of strong performance for our patients , partners and shareholders .
Speaker #5: I will address the 2026 CMS Home Health Rule before Q&A , but first , Ryan and I will review the quarter results . Home health total admissions were up 3.6% year over year , with census increasing 3.7% .
Speaker #5: Normalized for closed branches . Our admission growth was 4.3% year over year . Fee for service Medicare census continues to stabilize , with census down 1.4% year over year versus the 14.1% year over year decline experienced in quarter three 2020 .
Speaker #5: For our Non-medicare , admissions were up 10.4% and an managed payer mix resulted in a 2.8% increase in Non-medicare revenue per visit . Year over year , as mentioned on our last earnings call , we experienced disruption at the end of the second quarter , early third quarter in both admissions and census from the impact of renegotiations with the national payer that ultimately resulted in .
Speaker #5: Achieving a low double digit increase in our per visit rate effective August 15th , 2025 . By late September , we had recovered our census with this payer and recent admissions are now at 120% of our weekly average .
Speaker #5: Our total patient census grew sequentially each month of the third quarter , and that sequential growth persisted into October . Our scale drives meaningful access to payer members , and that access , coupled with our high quality outcomes , continues to position us well for progress within our payer strategy .
Speaker #5: This was evidenced by another renegotiated national payer contract during the third quarter. This was the renegotiation of one of our first payer innovation agreements.
Speaker #5: And this one did not require disruption to patient access or to our senses , and resulted in achieving a successful update in our rates , effective in November .
Speaker #5: The positive impact of payer Innovation team is ongoing as we continue to work with new and current payers on pricing that appropriately values our timely access to care as they scale provider with strong outcomes .
Speaker #5: Our quality of care and our timely access are also part of our hospital strategy , and these strategies continue to drive strong results .
Speaker #5: We have now experienced seven straight quarters of sequential census growth . Total admissions grew 1.4% year over year , normalized for closed branches .
Speaker #5: Admissions were up 3% , census grew 12.6% . We have added 21 or 11% additional direct sales team members year over year to continue to broaden our reach to additional referral sources .
Speaker #5: We have the clinical capacity for growth and will increase our reach to diversify our referral sources . The complement our organic growth strategy , our de novo strategy is positively impacting total growth in quarter three .
Speaker #5: We opened two de novos for a total year to date of six . We opened our seventh location in October and continue to be on pace for a total of ten de novos in 2025 , as evidenced by our organic and de novo focus , our admissions and census growth are a big part of our strategy .
Speaker #5: However , whether it is CMS pricing or continued shift to Medicare Advantage , we must be as efficient as possible to have necessary resources to strategically invest in people and technology .
Speaker #5: Therefore , our cost structure is critical to future success . As mentioned before , we believe advanced visit per episode management is a promising lever to mitigate uncontrollable and unanticipated rate disruptions like these .
Speaker #5: Our advanced visit per episode management pilot was initiated in mid-August . In 11 branches . However , because a pilot case must start with a new start of care , the branch is full .
Speaker #5: Census was not impacted until the end of October . Early results are promising , with a decline in total visits per episode in these locations from approximately 15 prior to the onset of the pilot to approximately 13 .
Speaker #5: Currently , 83 additional branches were rolled out throughout the month of October , and the rest are expected by the end of November .
Speaker #5: We anticipate adding ten resources between our authorization team and our virtual clinical team to support the full company rollout . We will provide an additional update on our fourth quarter earnings call as we navigate a dynamic operating environment .
Speaker #5: We remain confident that inhabit is best positioned in the industry with our experienced leaders , high performing teams and innovative technology to manage through challenges and continue growing market share .
Speaker #5: And now I will turn it over to Ryan , who will cover the financial results of quarter three and additional updates on our G&A cost management focused efforts .
Speaker #5: Thank you . Barb .
Speaker #4: Continued strong execution .
Speaker #5: In the quarter on our broader strategy . Delivered strong consolidated financial performance with both top line and bottom line EBITDA growth to the prior year in Q3 , all while continuing to generate consistent free cash flow that we've used to improve our net leverage to levels not seen since late 2022 .
Speaker #5: Just following our spend . Our ability to deliver growth in profitability for the third straight quarter in what remains a challenging operating environment , highlights the consistency in our operational execution and flexibility in our model , even as payer disruptions created headwinds early in the quarter .
Speaker #5: Our teams navigated the challenges effectively , ensuring that we built momentum throughout the quarter to deliver growth and position us well . As we entered Q4 to finish the year strong .
Speaker #5: Before reviewing consolidated and segment detailed performance , a .
Speaker #6: Few Q3 highlights that demonstrate clear execution on our strategy include the following . Returning to business to consistent growth in 2025 was a strategic priority , and we are well on our way with Q3 results .
Speaker #6: We have now delivered several quarters of year over year growth in both revenues and adjusted EBITDA , improving the financial health of the business has been a focus in 2025 as well , with a return to consistent adjusted EBITDA growth .
Speaker #6: We have used the improved adjusted free cash flow to reduce our net debt to adjusted EBITDA leverage amount to 3.9 times in Q3 2025 , lower by over 1.5 turns compared to Q4 2023 , when leverage was 5.4 times the improved leverage lowers our Q3 2025 annualized cash interest expense by approximately 19 million , compared to Q4 2023 , improving the financial health of the business provides us with improved liquidity and an overall balance sheet flexibility for innovation and potential M&A .
Speaker #6: Hospice segment momentum continues to be very strong , delivering record revenues and profitability in the quarter with year over year segment adjusted EBITDA growth of over 70% .
Speaker #6: With substantial margin expansion on double digit volume growth of over 12% , driving overall revenue growth of 20% in Q3 . Home Health successfully launched the Business Episode pilot in Q3 while delivering census growth of 3.7% to the prior year .
Speaker #6: Despite payer disruption early in the quarter , along with continued execution on stabilizing Medicare volumes and improving home health care , patient day , unit cost economics , which were lower by 2.1% in Q3 versus the prior year .
Speaker #6: Home office expenses improved 2.3 million sequentially , coming in at 9.1% of revenues in Q3 versus 9.9% of revenues in the prior quarter .
Speaker #6: As we focused on cost management initiatives , which lowered Q3 and run rate costs . As we implement mitigation strategies in front of any potential CMS , final rate rule headwind .
Speaker #6: Now , shifting to the Q3 consolidated result details , consolidated net revenue totaled 263.6 million , an increase versus prior year of 10 million , or 3.9% .
Speaker #6: Consolidated revenue growth prior year was driven primarily by outsized growth in our hospice segment , with revenue growth of 20% on both census and unit revenue growth .
Speaker #6: Home health revenue was relatively flat to prior year on census growth , offset by lower unit revenues related primarily to mix consolidated revenue growth in the quarter .
Speaker #6: Translated to improved profitability both to prior year and sequentially , with consolidated adjusted EBITDA of 27 million in the quarter . An increase sequentially of 0.1 million , or 0.4% , while growing to the prior year by 2.5 million , or 10.2% , with overall adjusted EBITDA margin as a percent of revenue expanding to 10.2% .
Speaker #6: An increase of 50 basis points to the prior year . Now , shifting to Home health performance , revenue was 200.5 million lower than prior year by 0.5 million , or 0.2% .
Speaker #6: We estimate that without the payer renegotiation , disruption experienced early in Q3 and the loss of revenue from branch closures that home health total revenues for the quarter would have been approximately 3 million higher , which would have resulted in growth to the prior year of approximately 1% in the quarter to prior year .
Speaker #6: Average daily census for the quarter totaled 41,000 451 . Growth to the prior year of 3.7% , while lower sequentially , 1.6% , primarily related to the payer renegotiation .
Speaker #6: Disruption early in the quarter , while we were successful in replacing disrupted payer volumes early in the quarter and then building back volumes throughout Q3 , host renegotiation , this did put incremental pressure on our unit revenue per patient day in the quarter , which was lower sequentially , 2% and versus prior year by 3.7% .
Speaker #6: The lower unit revenues were partially offset by improved unit cost for patient day to the prior year of 2.1% . As we maintain staffing productivity improvements in the quarter to offset typical incremental wage inflation costs .
Speaker #6: Home health adjusted EBITDA totaled $33.9 million in Q3, reflecting a decrease of $2.6 million, or 7.1%, compared to the prior year, and a decrease of $5.4 million, or 13.7%, sequentially. The lower adjusted EBITDA sequentially reflects margin compression, as unit revenues were lower by 2%, and unit costs were marginally higher by 0.7% on lower average daily volumes of 1.6%, which created gross margin compression of 160 basis points.
Speaker #6: We saw this margin compression normalize late in the quarter as we built back volumes following the payer disruption . Two key items to highlight in home health outside of the broader revenue and adjusted EBITDA performance include the following .
Speaker #6: As Barb touched on , we continue to have success in slowing the rate of decline in our Medicare patient volumes . With Medicare revenue mix totaling 56.5% of total home health segment revenues improvement sequentially of 20 basis points .
Speaker #6: In regards to continued visits per episode optimization , our total visits per episode for Q3 of 13.4 is lower , 0.3 visits sequentially , and 0.7 visits versus prior year .
Speaker #6: A host of efforts in the quarter focused on providing the clinically appropriate number of visits to our patients , combined with successfully launching our pilot .
Speaker #6: As previously previously outlined on our two two call in a small subset of branches with early results being promising , gives us confidence in our ability to use visits per episode as a key lever to continue to optimize while balancing quality to meaningfully offset potential rate reimbursement headwinds from CMS 2026 .
Speaker #6: Proposed home Health Rule . Now shifting to our hospice segment performance for Q3 , we're continued execution by our hospice leaders delivered a record performance for the quarter , with revenue totaling 63.1 million , reflecting sequential growth of 2.9 million , or 4.8% , and exceptionally strong growth to the prior year of 10.5 million , or 20% .
Speaker #6: Revenue growth was supported by continued strong momentum in census growth in the quarter of 3.2% sequentially and 12.6% to the prior year . Hospice adjusted EBITDA totaled 17.2 million in Q3 , reflecting an increase to the prior year of 7.2 million , or 72% , on a double digit volume increase .
Speaker #6: Combined with margin expansion as adjusted EBITDA margin as a percent of revenue improved 830 basis points to the prior year . Totaling 27.3% .
Speaker #6: As our operational leaders continue to create operating leverage on the increased volumes , two key items to highlight in hospice outside of broader revenue and adjusted EBITDA performance include the following .
Speaker #6: All of our 2024 hospice de novos are profitable and collectively generated 0.8 million of revenue and 0.3 million of EBITDA in Q3 , demonstrating the ability to quickly ramp our de novo sites to profitability .
Speaker #6: Average discharge length of stay continues to remain relatively flat , with Q3 coming in at 101 days versus the prior year of 100 days , shifting briefly to our home Office general and administrative expenses for the quarter , which totaled 24.1 million , or 9.1% of revenues in Q3 , compared to 26.4 million , or 9.9% of revenues in the prior quarter , delivering a sequential improvement of 2.3 million .
Speaker #6: This improvement , primarily reflects the results of a focused cost review completed in the quarter to generated savings in Q3 , we saw an increase to prior year , primarily related to incentive accrual release .
Speaker #6: In the prior year , not replicated in Q3 and broader inflation , somewhat offset by cost initiative actions in 2025 . Transitioning now to the balance sheet and cash flow as outlined earlier , a key strategic priority in 2025 is using free cash flow to continue to deliver our balance sheet .
Speaker #6: Adjusted free cash flow year to date totaled 64.8 million , which , when normalized for one less payroll period in the quarter that we will see in Q4 , with total approximately 45 million or an approximate 56% adjusted free cash flow conversion rate , which compares favorably to the full year 2024 by over 200 basis points .
Speaker #6: During the quarter , we reduced overall bank debt by 15.5 million , including amortization and prepayments . We ended the quarter with approximately 57 million in cash and available liquidity of 143.3 million , compared to available liquidity in the Q3 period of the prior year of 94.1 million , an improvement of 49.2 million .
Speaker #6: Improved profitability , coupled with continued balance sheet improvements , result in a net net debt to adjusted EBITDA leverage ratio of 3.9 times compared to Q3 of the prior year of 4.8 times .
Speaker #6: Progress on reducing our overall bank debt continues in Q4 , with us having already made an additional 10 million of debt free payments quarter to date through October , which brings our total debt reduction to 100 million since Q4 of 2023 .
Speaker #6: As summarized on our supplemental slides , we remain committed to strengthening our balance sheet and improving profitability . Let's conclude with briefly discussing updated guidance based on our consolidated year to date 2025 results and the momentum in the business , we remain confident in our strategy in full year outlook .
Speaker #6: We've updated our full year guidance as follows . We now expect full year revenue to be in the range of 1.058 billion to 1.63 billion .
Speaker #6: We are increasing our full year adjusted EBITDA guidance to be in a range of 106 million to 109 million . We are also increasing our full year adjusted free cash flow to be in the range of 53 million to 61 million .
Speaker #6: Thank you for your time today. I'll hand it back over to Barb for a few closing comments on the CMS rate rule before we open up for questions.
Speaker #5: Thanks , Ryan . As you're aware , the CMS 2026 Home Health Final Rule has not yet been published . We remain focused on our strategies to mitigate as much of the pricing headwind as possible in 2026 and are well on our way with the various strategies we have already deployed .
Speaker #5: More details will be forthcoming when we report full year 2025 earnings and 2026 guidance during Q1 of next year . As we noted in our comment letter , the proposed cuts , if finalized , will worsen the existing trend of reduced patient access to home health care .
Speaker #5: Home health is the patient preferred and most cost-effective post-acute care option, and thus saves Medicare money. We urge CMS to reverse the temporary and permanent adjustments contained in the proposed rule to ensure adequate access to home health is restored.
Speaker #5: Operator we can now open the lines for questions .
Speaker #3: Thank you . We will now begin the question and answer session . If you have dialed in and would like to ask a question , please press star One on your telephone keypad .
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Speaker #3: When asking your question again , please press star one to join the queue . And your first question comes from the line of Brian Tranquillo of Jefferies .
Speaker #3: Please go ahead .
Speaker #7: Good morning . This is Megan Holten for Brian Tanquilut . It's nice to hear some you guys had some additional payer negotiations that came out favorable for you guys .
Speaker #7: So, can you kind of provide some color on the rate increase you received from that new one in November? And then the pipeline of any additional payer innovation contracts that you have upcoming for renewal?
Speaker #5: Sure . So as I mentioned , this was our first payer innovation contract , a national one that came up for renewal . So we were pleased with the update because it's already a payer innovation .
Speaker #5: We really won't disclose the update that we received , but I will say that , you know , we continue to work with those that we had negotiated more of the regional type agreements will be coming up in the next year .
Speaker #5: The future national agreements , it'll be more towards the end of next year , early 2027 , before the additional national agreements will come up .
Speaker #7: Okay . Thank you . And then just a quick follow up . You guys had nice improvement in the gas line . Can you provide some color where that expense reduction is coming from .
Speaker #7: And then how much more runway do you have to reduce and remove some costs in that line .
Speaker #6: Good morning . Thanks , Megan . Yeah . So as we think about gas , you know , when we think about home office , more traditional , you know , back office capabilities in the context of both internal and external related expenses .
Speaker #6: So a combination of some headcount reductions as well as some efficiencies that we're able to to really in-source capabilities from third party vendors , while not impacting any of our capability .
Speaker #6: When you think about in the quarter , you know , you know , roughly 1 million to 1 million and a half of that overall kind of DNA improvement sequentially , we think is durable and kind of how we think about things prospectively going forward .
Speaker #7: Thank you .
Speaker #3: And your next question comes from the line of Ryan Langston of TD Cowan . Please go ahead .
Speaker #8: Hey, good morning. This is Christian Borgmeier on for Ryan Langston. Last year, we saw a pretty big jump in hospice average length of stay, sequentially from 3 to 4.
Speaker #8: Q should we expect a similar tailwind sequentially this year ? Just as a product of seasonality ? I'm just curious what what seasonal factors drive that as we get to the end of the year ?
Speaker #8: Thanks .
Speaker #5: Yeah , it's difficult because obviously last year when you look , we're going to have some pretty big comps here , both in Q3 and Q4 .
Speaker #5: And so, as you mentioned, there usually is some seasonality. It's why we added some additional resources to make sure we can extend the outreach that we have.
Speaker #5: I would say that the holiday times tend to be a little bumpy within this segment . You know , you do have folks that , you know , tend to want to wait to elect until after the holidays .
Speaker #5: So, I would say it tends to be more one of our more unpredictable times of year, especially as we go into the two upcoming holidays.
Speaker #8: Got it . Thank you . And then just one quick one on the on the payer innovation contract renegotiation . How long is Recontracting cycle typically is it is it annually or is it more contract by contract ?
Speaker #5: Yeah , it's by contract by contract . I would say the majority of our contracts are three year . We do have some that are two year .
Speaker #5: But I would say the majority tend to be around a three year time frame .
Speaker #8: Okay . Got it . Thank you .
Speaker #3: Again, if you would like to ask a question, please press Star One to join the queue. We will pause for just a moment to compile the Q&A roster.
Speaker #3: And we have a follow up question from Brian Tranquility of Jefferies . Please go ahead .
Speaker #7: Thanks . As long as there's no other cues , I'll ask another follow up . Can you guys just kind of speak to labor in the quarter specifically ?
Speaker #7: If you guys continue to benefit from some of the peers that you saw , changing pay structure and you're able to capture some labor , there , and then how are you thinking about wage inflation in 26 ?
Speaker #7: If you could give some preliminary color there ?
Speaker #5: Sure . So I would say , you know , we've seen a nice uptick continued in our in our applicant pool for nursing and for therapy .
Speaker #5: And so that has been nice to see . We've continued to see an uptick also in our headcount on the clinical capacity for for home health and for hospice .
Speaker #5: So are pleased with the results that we're seeing there . And then as it relates to wage , I would say , you know , we're kind of I would say back to that normal , you know , merit around that , you know , 3% is what we're experiencing .
Speaker #5: There are markets that will pop up occasionally that are more challenging . We do handle those more to market level . I would say we're seeing a little bit more of that right now in the therapy side of things .
Speaker #5: But we monitor that at a market level.
Speaker #3: And there are no further questions . I will now turn the conference back over to Bob Okunski for closing remarks .
Speaker #4: Thank you , everyone , for joining today's call . Please feel free to reach out if you have any additional questions . And thank you for your time .