Company History and Overview

Enhabit, Inc. (EHAB) is a leading national provider of home health and hospice services, serving patients across 34 states with a concentration in the southern half of the United States. The company's comprehensive range of Medicare-certified skilled home health and hospice services cater to a growing elderly population, positioning Enhabit for long-term success in an industry supported by favorable demographic trends.

Enhabit was founded in 1998 and has established an extensive record of providing high-quality care over the past 25 years. The company has demonstrated a consistent ability to innovate and adapt during varying economic and regulatory climates. Between December 31, 2014 and July 1, 2022, Enhabit operated as a reporting segment of Encompass Health Corporation (Encompass). On July 1, 2022, Encompass completed the separation of Enhabit through the distribution of all outstanding Enhabit shares to Encompass shareholders, making Enhabit an independent public company. As a result, Enhabit's common stock is now listed on the New York Stock Exchange under the symbol "EHAB".

Throughout its history, Enhabit has faced various challenges, including legal and regulatory changes that have impacted reimbursement rates, as well as the onset of the COVID-19 pandemic in 2020. The company has successfully navigated these challenges by leveraging its scale, density, technology capabilities, and award-winning culture to deliver high-quality, cost-effective care.

As of December 31, 2024, Enhabit's footprint comprised 255 home health and 115 hospice locations across 34 states, making it one of the largest providers of Medicare-certified home health and hospice services in the United States. The company operates two reportable segments: Home Health and Hospice. The Home Health segment provides a comprehensive range of Medicare-certified skilled home health services, including skilled nursing, physical, occupational and speech therapy, medical social work, and home health aide services. The Hospice segment offers high-quality hospice services to terminally ill patients and their families, focusing on quality of life and treating the symptoms of the disease.

Financial Performance and Metrics

For the fiscal year ended December 31, 2024, Enhabit reported net service revenue of $1.03 billion, a decrease of 1.1% compared to the prior year. This decline was primarily due to a 3.0% decrease in Home Health segment revenues, partially offset by a 7.0% increase in Hospice segment revenues.

The company's Home Health segment generated $824.8 million in net service revenue, or 79.7% of Enhabit's total net service revenue. The Hospice segment contributed $210.0 million, or 20.3% of the total. In the Home Health segment, the company experienced a 2.1% decrease in average daily census and a 1.3% decline in unit revenue per patient day, primarily related to an unfavorable mix shift towards non-Medicare patients. Conversely, the Hospice segment saw a 3.6% increase in average daily census and a 3.0% improvement in unit revenue per patient day, driven by improved Medicare reimbursement rates and strong admissions growth.

Enhabit's consolidated adjusted EBITDA for the year ended December 31, 2024, was $100.1 million, an increase of 2.6% compared to the prior year. The Home Health segment's adjusted EBITDA decreased by 5.8% to $159.4 million, while the Hospice segment's adjusted EBITDA increased by 15.0% to $41.5 million.

Financials

As of December 31, 2024, Enhabit had $28.4 million in cash and cash equivalents, $1.9 million in restricted cash, and $492.6 million in long-term debt, net of current portion. The company's net debt position was $487.0 million, and its total debt to capitalization ratio was 0.128.

Enhabit reported a net loss of $156.2 million for the fiscal year ended December 31, 2024, primarily due to a $161.7 million impairment charge related to the goodwill of the Home Health reporting unit. This charge was driven by a decrease in the unit's fair value, which was impacted by a decline in share price and market capitalization, as well as the Home Health reporting unit's performance compared to the 2024 forecast.

For the most recent fiscal year (2024), Enhabit reported annual revenue of $1.03 billion, annual net income of -$154 million, annual operating cash flow of $51.2 million, and annual free cash flow of $47.4 million.

In the most recent quarter (Q4 2024), the company reported revenue of $258.2 million, net income of -$46 million. Revenue decreased 0.9% year-over-year, primarily due to a decrease in Home Health segment revenues with average daily census lower by 2.1% and unit revenue per patient day lower by 1.3% related to an unfavorable mix shift to more non-Medicare patients. This decrease was partially offset by a 7% increase in Hospice segment revenue associated with improved unit revenue per patient day and growth in average daily census.

Liquidity

The company's liquidity position remained stable, with $28.4 million in cash and cash equivalents as of December 31, 2024. Additionally, Enhabit had $1.9 million in restricted cash, which is primarily used to collateralize outstanding letters of credit.

Enhabit's debt-to-equity ratio was 0.15 as of December 31, 2024. The company had $51.4 million available under its $220 million Revolving Credit Facility. Enhabit's current ratio and quick ratio were both 1.53 as of December 31, 2024.

Operational Highlights and Strategies

In 2024, Enhabit executed on several key strategies to position the company for future growth and improved profitability. In the Home Health segment, the company focused on stabilizing its Medicare fee-for-service admissions, growing the percentage of home health visits in its payer innovation contracts, and leveraging visit efficiency to increase clinical capacity.

The company's efforts in the Home Health segment led to a 4.8% increase in total admissions for the year, despite the impact of hurricane activity and the loss of UnitedHealthcare volumes for much of the fourth quarter. Enhabit's teams were able to regain full-service provider status with UnitedHealthcare and its other two national payer contracts, positioning the company for continued census growth in 2025.

In the Hospice segment, Enhabit remained dedicated to executing the strategies established in 2023, which allowed the company to admit patients in a timely manner, provide high-quality care, and grow the business. The Hospice segment saw its average daily census increase 8.6% year-over-year, with same-store growth of 7%. Total admissions grew 6.5%, with same-store admissions up 4.4%. Enhabit also gained operating leverage against the fixed cost structure associated with its case management staffing model, with the 2024 full-year cost per day increasing only 2.6%, less than inflationary cost increases.

Looking ahead, Enhabit remains focused on its organic growth strategies, including expanding its de novo footprint, growing its payer innovation contracts, and leveraging its expertise in care transitions. The company is also exploring strategic acquisitions to further enhance its market position, although its existing credit facility currently restricts such activity.

Segment Performance

Home Health Segment: Enhabit's Home Health segment operates 255 home health agencies across 34 states. In 2024, this segment generated $824.8 million in net service revenue, accounting for 79.7% of Enhabit's total consolidated net service revenue. The segment's revenue mix consisted of 58.8% from Medicare, 28.8% from Medicare Advantage, 11.1% from managed care, 1.1% from Medicaid, and 0.2% from other payers.

The Home Health segment reported 162,760 completed episodes in 2024, with an average daily census of 40,990 patients. Medicare admissions were 96,500, while non-Medicare admissions totaled 120,850. Home Health segment Adjusted EBITDA was $159.4 million for the year.

In Q4 2024, the Home Health segment saw a 0.5% sequential decrease in average daily census, primarily due to hurricane-related impacts early in the quarter. However, this was partially offset by a 0.1% sequential increase in unit revenue per patient day. The company managed to keep the cost per patient day increase to 1% year-over-year in Q4 2024.

Hospice Segment:

Enhabit's Hospice segment operates 115 hospice provider locations across 25 states. In 2024, this segment generated $210.0 million in net service revenue, representing 20.3% of Enhabit's total consolidated net service revenue. The segment's revenue was comprised of 98.3% from Medicare and 1.7% from managed care.

The Hospice segment cared for an average daily census of 3,560 patients in 2024 and recorded 12,030 total admissions. Hospice Segment Adjusted EBITDA was $41.5 million for the year.

In Q4 2024, the Hospice segment saw a 3% sequential increase in average daily census and a 6.9% sequential increase in unit revenue. The segment's adjusted EBITDA margin as a percentage of revenue reached 23% in Q4 2024, the highest post-spin.

Guidance and Outlook

For the fiscal year 2025, Enhabit provided guidance for net service revenue in the range of $1.05 billion to $1.08 billion and adjusted EBITDA between $101 million and $107 million. This guidance reflects growth of approximately 7% at the widest end of the range.

The company expects Home Health segment volume growth of 4% to 5% for the full year 2025, with a focus on slowing the rate of decline in Medicare volumes. Revenue per patient day is expected to decrease 0.5% to remain flat, reflecting improvements in CMS Medicare pricing offset by unfavorable payer mix.

In the Hospice segment, Enhabit anticipates ADC growth of 7% to 8.5%, building on the strong exit rate from 2024. Hospice unit revenue per patient day is expected to improve in the 4% to 5% range.

Enhabit expects inflationary pressures, particularly in the form of wage inflation, to continue in 2025. The company believes it can partially offset these cost increases through productivity and optimization improvements, targeting unit cost increases of 2% to 3% in both the Home Health and Hospice segments.

The company expects the quarterly cadence of its 2025 adjusted EBITDA guidance to reflect incremental sequential improvement each quarter, with 23% to 24% of the full-year adjusted EBITDA coming in Q1.

Risks and Challenges

Enhabit operates in a highly regulated industry, and changes in government reimbursement rates, policies, and regulations could have a material adverse effect on the company's financial performance. The shift towards Medicare Advantage plans, which generally reimburse at lower rates than traditional Medicare, also presents a challenge that Enhabit must navigate.

The company faces intense competition from other healthcare providers, including large insurance companies and private home health and hospice companies. Enhabit's ability to attract and retain qualified personnel, such as nurses and therapists, is crucial to its success, and staffing shortages could impact the company's operations and profitability.

Enhabit is also exposed to risks related to potential data breaches, cyber-attacks, and other information technology-related incidents, which could disrupt its operations and result in significant financial and reputational damages.

Human Capital Management

As of December 31, 2024, Enhabit employed over 10,700 individuals, none of whom are represented by a labor union. The company focuses on competitive compensation and benefits, employee development and engagement, and the use of technology to enhance its competitive position.

Technology

Enhabit utilizes an electronic medical records system and a predictive analytics platform to improve patient care and achieve operational efficiencies. The company has devoted substantial resources to leveraging technology to create solutions that enhance patient care and achieve operational efficiencies.

Conclusion

Enhabit, Inc. is a leading national provider of home health and hospice services, positioned to capitalize on favorable demographic trends and industry dynamics. The company's strategic focus on organic growth, payer innovation, and de novo expansion, combined with its strong operational execution, positions Enhabit for continued success in the years ahead. However, the company must navigate the challenges of a highly regulated industry, intense competition, and ongoing inflationary pressures to maintain its competitive edge and deliver value to shareholders.