Enhabit(EHAB) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2025, consolidated net revenue was $259.9 million, reflecting a sequential increase of $1.7 million or 0.7% quarter over quarter, but a decrease of $2.5 million or 1% year over year [15] - Consolidated adjusted EBITDA was $26.6 million, an increase of $1.5 million or 6% sequentially, and up $1.3 million or 5.1% year over year, with an overall EBITDA margin of 10.2%, an increase of 60 basis points from the prior year [16] - The leverage ratio improved to 4.4 times, below the covenant of 4.5 times, allowing for better pricing under existing agreements and additional flexibility for acquisitions [22][23] Business Line Data and Key Metrics Changes - Home Health revenue was $200.6 million, a slight increase of $200,000 or 0.1%, with a 3.7% increase in average daily census [16][18] - Hospice revenue reached $59.3 million, reflecting a sequential increase of $1.5 million or 2.6% and a year-over-year increase of $10.1 million or 20.5% [19] - Home Health adjusted EBITDA totaled $38.3 million, reflecting a sequential increase of $2.8 million or 7.9% [18] Market Data and Key Metrics Changes - Non-Medicare admissions increased by 7.4% year over year, driven by payer innovation contracts, with 44% of non-Medicare visits in payer innovation contracts in Q1 2025 [8][9] - Hospice segment admissions grew 8% year over year, with same-store growth of 5.2% [10] - Average daily census in hospice reached 38.09, an improvement of 2.1% sequentially and 12.3% year over year [20] Company Strategy and Development Direction - The company is focusing on payer contract initiatives to drive growth, with a goal to balance admissions and maintain a healthy payer mix [6][26] - A de novo strategy is being implemented, with one new hospice location opened and 13 projects underway [11] - The company is piloting two internally developed apps aimed at improving efficiency and communication [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to build capacity and improve average daily census, with expectations of continued growth through the year [29][42] - The company is monitoring labor market conditions and anticipates a return to normal salary inflation rates of 2% to 3% [28] - Management reaffirmed 2025 guidance based on strong Q1 results and business momentum [23] Other Important Information - The company completed the transition to outsourced coding resources, expected to deliver $1.5 million in cost savings for the remainder of 2025 [12] - Free cash flow generated in Q1 was approximately $17 million, with a 63.5% conversion rate [21] Q&A Session Summary Question: Thoughts on volume growth within the non-Medicare book of business - Management noted that payer innovation contracts contributed significantly to positive growth, with a focus on hiring to improve average daily census and admissions [26] Question: Labor market inflation expectations - Management indicated a return to normal inflation rates of 2% to 3%, with some markets experiencing tighter conditions [28] Question: Hospice ADC growth initiatives - Management highlighted the combination of increased referrals and the establishment of regional admissions departments as key drivers of growth [31] Question: Dynamics behind business per episode trends - The use of the Metalogics Pulse tool has been critical in optimizing visits per episode, focusing on higher acuity patients [33] Question: Capacity and productivity in hospice - Management confirmed that they are monitoring capacity at the branch level and do not anticipate changes in growth trajectory [42] Question: Rate increases and inflation protection in payer contracts - Most contracts are 2-3 years in length, with some having escalators tied to quality metrics, and management is actively renegotiating contracts [46] Question: Research recertification rates - Management acknowledged challenges in research due to the growth of Medicare Advantage and emphasized the focus on growing census as a primary driver [49]