Enhabit(EHAB) - 2025 Q2 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that the report contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially - The report contains forward-looking statements that are subject to known and unknown risks and uncertainties, and actual results may differ materially[9] - Factors that could cause actual results to differ include regulatory developments, changes in reimbursement rates, general economic conditions, ability to attract and retain personnel, and potential disruptions to information systems[9] PART I - FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents Enhabit, Inc.'s unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, equity, and cash flows Condensed Consolidated Statements of Income This section provides the unaudited condensed consolidated statements of income, detailing net service revenue, operating income, and net income Condensed Consolidated Statements of Income (in millions, except per share data) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net service revenue | $266.1 | $260.6 | $526.0 | $523.0 | | Operating income | $16.7 | $11.2 | $32.6 | $24.1 | | Net income | $5.7 | $0.4 | $24.1 | $1.3 | | Net income (loss) attributable to Enhabit, Inc. | $5.2 | $(0.2) | $23.0 | $— | | Basic earnings per share attributable to Enhabit, Inc. common stockholders | $0.10 | $— | $0.45 | $— | | Diluted earnings per share attributable to Enhabit, Inc. common stockholders | $0.10 | $— | $0.45 | $— | - Net income attributable to Enhabit, Inc. significantly increased to $5.2 million for the three months ended June 30, 2025, from a loss of $(0.2) million in the prior year, and to $23.0 million for the six months ended June 30, 2025, from $0 million in the prior year[13] Condensed Consolidated Statements of Comprehensive Income This section presents the unaudited condensed consolidated statements of comprehensive income, showing net income and other comprehensive income Condensed Consolidated Statements of Comprehensive Income (in millions) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $5.7 | $0.4 | $24.1 | $1.3 | | Total other comprehensive income | $0.2 | $0.1 | $0.2 | $1.4 | | Comprehensive income (loss) attributable to Enhabit, Inc. | $5.4 | $(0.1) | $23.2 | $1.4 | - Comprehensive income attributable to Enhabit, Inc. improved from a loss of $(0.1) million to a gain of $5.4 million for the three months ended June 30, 2025, and from $1.4 million to $23.2 million for the six months ended June 30, 2025[15] Condensed Consolidated Balance Sheets This section details the unaudited condensed consolidated balance sheets, including assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :-------------------------- | :----------- | :----------- | | Total assets | $1,225.4 | $1,226.0 | | Total liabilities | $642.5 | $672.1 | | Total stockholders' equity | $577.9 | $548.9 | | Cash and cash equivalents | $37.1 | $28.4 | | Long-term debt, net of current portion | $456.9 | $492.6 | - Cash and cash equivalents increased to $37.1 million at June 30, 2025, from $28.4 million at December 31, 2024[17] - Long-term debt, net of current portion, decreased to $456.9 million at June 30, 2025, from $492.6 million at December 31, 2024[17] Condensed Consolidated Statements of Stockholders' Equity This section outlines the unaudited condensed consolidated statements of stockholders' equity, showing changes from net income and stock-based compensation Condensed Consolidated Statements of Stockholders' Equity (in millions) | Metric | Balance at Dec 31, 2024 | Net income (6 months) | Stock-based compensation expense (6 months) | Balance at Jun 30, 2025 | | :---------------------- | :---------------------- | :-------------------- | :------------------------------------------ | :---------------------- | | Total stockholders' equity | $548.9 | $24.1 | $7.0 | $577.9 | - Net income contributed $24.1 million to stockholders' equity for the six months ended June 30, 2025[20] - Stock-based compensation expense added $7.0 million to stockholders' equity for the six months ended June 30, 2025[20] Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in millions) | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $28.5 | $26.9 | | Net cash provided by (used in) investing activities | $19.0 | $(1.7) | | Net cash used in financing activities | $(38.9) | $(24.8) | | Increase in cash, cash equivalents, and restricted cash | $8.6 | $0.4 | | Cash, cash equivalents, and restricted cash at end of period | $38.9 | $30.3 | - Net cash provided by investing activities significantly improved to $19.0 million in 2025 from a use of $(1.7) million in 2024, driven by proceeds from the sale of an investment[23][130] 1. Summary of Significant Accounting Policies This section details Enhabit's significant accounting policies, including its business segments and the impact of its separation from Encompass Health - Enhabit provides Medicare-certified skilled home health and hospice services in 34 states, managed through two reportable segments: Home Health and Hospice[26] - The company became an independent public company on July 1, 2022, after separating from Encompass Health Corporation[27] Net Service Revenue by Payer Source and Segment (Three Months Ended June 30, in millions) | Payer Source | Home Health 2025 | Home Health 2024 | Hospice 2025 | Hospice 2024 | Consolidated 2025 | Consolidated 2024 | | :----------- | :--------------- | :--------------- | :----------- | :----------- | :---------------- | :---------------- | | Medicare | $116.0 | $121.7 | $59.7 | $49.5 | $175.7 | $171.2 | | Medicare Advantage | $63.7 | $61.3 | — | — | $63.7 | $61.3 | | Managed Care | $23.1 | $24.2 | $0.5 | $0.9 | $23.6 | $25.1 | | Medicaid | $1.9 | $2.4 | — | — | $1.9 | $2.4 | | Other | $1.2 | $0.6 | — | — | $1.2 | $0.6 | | Total | $205.9 | $210.2 | $60.2 | $50.4 | $266.1 | $260.6 | 2. Variable Interest Entities ("VIEs") This section discusses Enhabit's consolidation of joint venture Variable Interest Entities (VIEs) and its role as primary beneficiary - Enhabit consolidates two joint venture VIEs, with ownership ranging from 60% to 90%, and acts as the primary beneficiary by managing operations and making key economic decisions[41] - The terms of the agreements governing the VIEs prohibit the Company from using the assets of the VIEs to satisfy the obligations of other entities[41] Consolidated VIEs' Assets and Liabilities (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :-------------------------- | :----------- | :----------- | | Total assets | $16.7 | $16.7 | | Total liabilities | $1.0 | $1.3 | 3. Long‑Term Debt This section details Enhabit's long-term debt, including term loan facilities, revolving credit, and compliance with financial covenants Long-Term Debt Outstanding (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :------------------------------------ | :----------- | :----------- | | Term loan A facility | $338.3 | $348.0 | | Advances under revolving credit facility | $135.0 | $160.0 | | Finance lease obligations | $6.0 | $7.4 | | Total debt | $479.3 | $515.4 | | Long-term debt, net of current portion | $456.9 | $492.6 | - The Covenant Adjustment Period ended on May 9, 2025, leading to a maximum permitted Total Net Leverage Ratio of 4.5 to 1.0 and a minimum Interest Coverage Ratio of 2.5 to 1.0[53] - As of June 30, 2025, Enhabit was in compliance with all financial covenants under the Credit Facilities, with amounts drawn under the Term Loan A Facility and Revolving Credit Facility having an interest rate of 6.7%[55][56] 4. Income Taxes This section provides information on Enhabit's effective income tax rates and the anticipated impact of new tax legislation Effective Income Tax Rates | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 28.8% | (33.3)% | | Six Months Ended June 30 | 28.7% | 38.1% | - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is expected to affect current and deferred tax balances, with the company currently evaluating its impact[60] 5. Derivative Instrument This section describes Enhabit's interest rate swap, used to hedge interest rate exposure on its Term Loan A Facility - An interest rate swap with a $200.0 million notional value and October 20, 2025, maturity is used to hedge interest rate exposure on the Term Loan A Facility, where the company receives one-month SOFR and pays a fixed rate of 4.3%[56][61] Cash Flow Hedge Activities (in millions) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $(0.2) | $0.8 | $(0.2) | $(0.5) | | Unrealized gain recognized in other comprehensive income, net of tax | $0.2 | $0.5 | $0.2 | $2.1 | | Reclassified to interest expense, net of tax | — | $(0.4) | — | $(0.7) | | Balance at end of period | $— | $0.9 | $— | $0.9 | 6. Contingencies and Other Commitments This section addresses Enhabit's exposure to litigation, claims, regulatory proceedings, and outlines minimum amounts due under service contracts - The company is routinely subject to litigation, claims, and regulatory proceedings in the highly regulated healthcare industry, which could materially and adversely affect its financial position[64] - No claims were deemed probable of loss and reasonably estimable as liabilities as of June 30, 2025, or December 31, 2024[65] - Minimum amounts due under service and other contracts are $16.3 million in 2025, $8.0 million in 2026, and $3.7 million thereafter[66] 7. Segment Reporting This section details Enhabit's two reportable segments, Home Health and Hospice, and the primary measure used to evaluate their performance - Enhabit operates two reportable segments: Home Health (249 agencies in 33 states) and Hospice (114 locations in 24 states), both concentrated in the southern U.S[67] - Segment Adjusted EBITDA is the primary measure used by the Chief Operating Decision Maker to evaluate performance and allocate resources[67] Segment Adjusted EBITDA (in millions) | Segment | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Home Health | $39.3 | $44.2 | $77.6 | $87.4 | | Hospice | $14.0 | $9.1 | $29.0 | $18.2 | | Total Segment Adjusted EBITDA | $53.3 | $53.3 | $106.6 | $105.6 | 8. Related Party Transactions This section covers Enhabit's related party transactions, including the expiration of the Transition Services Agreement and a recent investment sale - The Transition Services Agreement (TSA) with Encompass Health, which provided certain services, expired on March 31, 2024[73] - On March 19, 2025, Enhabit sold its investment interest in TVG Holdings, LLC, for approximately $21 million, resulting in a $19.3 million gain on sale of investment[76] - $20.0 million of the proceeds from the investment sale were used to reduce debt under the Credit Agreement[76] 9. Supplemental Cash Flow Information This section provides supplemental cash flow disclosures, including cash paid for income taxes and interest, and non-cash investing and financing activities Supplemental Cash Flow Disclosures (in millions) | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Cash paid for income taxes, net | $0.6 | $(0.3) | | Cash paid for interest | $17.4 | $22.4 | Non-Cash Investing and Financing Activities (in millions) | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Property and equipment additions through finance leases | $0.1 | $4.5 | | Operating lease additions | $6.6 | $5.3 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Enhabit's financial condition, operational results, liquidity, capital resources, and critical accounting estimates Overview This section provides an overview of Enhabit's business as a leading provider of home health and hospice services across the U.S - Enhabit is a leading provider of home health and hospice services in the U.S., operating 249 home health and 114 hospice locations across 34 states as of June 30, 2025[80] - The company's operations are principally managed through two operating segments: Home Health and Hospice[81] Recent Developments This section highlights recent developments, including the end of the Covenant Adjustment Period and branch closures or consolidations - The Covenant Adjustment Period for the Credit Agreement ended on May 9, 2025, providing improved pricing and operational flexibility, including for acquisitions[82] - Seven Home Health and four Hospice branches were closed or consolidated in the first half of 2025 due to performance[83] Factors Affecting Our Performance This section discusses key factors influencing Enhabit's performance, primarily focusing on Medicare reimbursement rates and regulatory changes - Medicare reimbursement rates significantly impact net service revenue and are subject to annual changes[84] - CMS proposed a 6.4% estimated decrease in home health payments for fiscal year 2026, which Enhabit is actively advocating against[86][88] - CMS finalized a 2.6% net increase to hospice payments for fiscal year 2026, effective October 1, 2025[85] Results of Operations This section provides a detailed analysis of Enhabit's consolidated results of operations, including net service revenue, operating income, and net income Consolidated Results of Operations (in millions, except percentages) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | % Change | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | % Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net service revenue | $266.1 | $260.6 | 2.1% | $526.0 | $523.0 | 0.6% | | Operating income | $16.7 | $11.2 | 49.1% | $32.6 | $24.1 | 35.3% | | Net income | $5.7 | $0.4 | 1,325.0% | $24.1 | $1.3 | 1,753.8% | | Net income (loss) attributable to Enhabit, Inc. | $5.2 | $(0.2) | 2,700.0% | $23.0 | $— | N/A | - Net service revenue growth was driven by a 19.4% increase in the Hospice segment for the three months, partially offset by a 2.0% decrease in Home Health[94] - Adjusted EBITDA increased to $26.9 million (YoY 6.7%) for the three months and $53.5 million (YoY 5.9%) for the six months ended June 30, 2025[105] Segment Results of Operations This section analyzes the financial performance of Enhabit's Home Health and Hospice segments, detailing revenue changes and contributing factors Segment Net Service Revenue (in millions) | Segment | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :---------- | :--------------- | :--------------- | :--------------- | :--------------- | | Home Health | $205.9 | $210.2 | $406.5 | $423.4 | | Hospice | $60.2 | $50.4 | $119.5 | $99.6 | - Home Health net service revenue decreased by 2.0% (3 months) and 4.0% (6 months) due to a decrease in unit revenue per patient day, primarily from growth in non-Medicare patients[114][115] - Hospice net service revenue increased by 19.4% (3 months) and 20.0% (6 months), driven by a 12.3% increase in average daily census and improved unit revenue per patient day[120][121][122] Liquidity and Capital Resources This section discusses Enhabit's liquidity position, including cash, credit facility availability, and cash flows from operating and investing activities - As of June 30, 2025, Enhabit had $37.1 million in cash and cash equivalents and $76.4 million available under its Revolving Credit Facility[126] - Net cash provided by operating activities was $28.5 million for the six months ended June 30, 2025, an increase from the prior year[128][129] - Net cash provided by investing activities was $19.0 million, primarily from the $21 million sale of an investment[128][130] Contractual Obligations This section details Enhabit's consolidated contractual obligations, including long-term debt, interest, lease obligations, and purchase commitments Consolidated Contractual Obligations as of June 30, 2025 (in millions) | Obligation Type | Total | Current (Jul 1 - Dec 31, 2025) | Long-Term (2026 and thereafter) | | :---------------------------------------------------------------- | :---- | :----------------------------- | :------------------------------ | | Long-term debt, excluding revolving credit facility, finance lease obligations and unamortized debt issuance costs | $339.9 | $11.2 | $328.7 | | Revolving credit facility | $135.0 | $— | $135.0 | | Interest on long-term debt | $91.2 | $30.4 | $60.8 | | Finance lease obligations | $6.4 | $2.7 | $3.7 | | Operating lease obligations | $64.8 | $16.0 | $48.8 | | Purchase obligations | $28.0 | $22.3 | $5.7 | | Total | $665.3 | $91.4 | $573.9 | - Expected capital expenditures for maintenance in 2025 are between $4 million and $5 million[135] Critical Accounting Estimates This section confirms that there have been no material changes to Enhabit's critical accounting estimates since the last annual report - There have been no material changes to critical accounting estimates from those disclosed in the Annual Report on Form 10-K for the period ended December 31, 2024[136] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Enhabit's primary market risk is interest rate exposure on variable rate debt, partially mitigated by an interest rate swap, with a 1% rate change impacting cash flow by $2.8 million - Primary market risk is exposure to interest rate changes on variable rate debt ($135.0 million Revolving Credit Facility, $340.0 million Term Loan A Facility)[138] - An interest rate swap with a $200.0 million notional value helps manage interest rate exposure[139] - A 1% increase in interest rates would result in an incremental negative cash flow of $2.8 million over the next 12 months, while a 1% decrease would result in an incremental positive cash flow of $2.8 million[140] ITEM 4. CONTROLS AND PROCEDURES Enhabit's management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2025[143] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[144] PART II - OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, other information, and a list of exhibits ITEM 1. LEGAL PROCEEDINGS Enhabit is routinely involved in legal actions and regulatory proceedings, though no pending cases are currently deemed material, with potential for undisclosed "qui tam" lawsuits - Enhabit is routinely subject to legal actions, claims, and regulatory proceedings in the highly regulated healthcare industry[146] - The company does not believe any pending legal proceedings are currently material, but this assessment could change[146] - The company may be party to undisclosed "qui tam" lawsuits under the False Claims Act[147] ITEM 1A. RISK FACTORS This section confirms that there have been no material changes to the risk factors previously disclosed in Enhabit's Annual Report on Form 10-K - No material changes to risk factors were reported since the December 31, 2024 Form 10-K[148] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred[149] ITEM 5. OTHER INFORMATION This section states that no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter[150] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Form 10-Q, including various agreements, corporate documents, and certifications - The exhibit index includes the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and Bylaws, the 2025 Equity and Incentive Plan, and various certifications[154] SIGNATURE This section confirms the official signing of the report on behalf of Enhabit, Inc. by its Chief Financial Officer - The report was signed on behalf of Enhabit, Inc. by Ryan Solomon, Chief Financial Officer, on August 7, 2025[157]