Enhabit Inc at Goldman Sachs Global Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay, great. Well, thank you for that helpful overview. There is a number of things going on with the company. I'm going to focus mostly on fundamentals, but maybe one kind of corporate question to start. You sent a letter to shareholders last night. You've just come through this strategic review. I guess I'd ask it in this way. Having gone through these processes and still very much in it, has anything changed in terms of your assessment on what you need to do to create shareholder value are key priorities? I mean, you just laid out the 2024. But beyond that, more broadly, key priorities, too. Address some of the concerns out there and create shareholder value?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay, great. I guess one of the biggest challenges you guys have faced has been just this mix shift from Medicare fee-for-service to Medicare Advantage and the lower payments that come with that. At a high level, I mean, you guys have characterized it as once you get to industry average mix, that'll stabilize, and you're now at the industry average mix. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Goldman Sachs Global Healthcare Conference I guess my question is, I've never really understood beyond the IRF Encompass headwind, why you'd be losing Medicare volume at the level of the referral source. So you've been adding incremental MA payers. Presumably, that increases your partnership, the value you can offer to your referral sources. Why is it that Medicare volumes at the referral source level have been kind of under pressure?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : And I guess just at the level of the sales force and how they're approaching these referral sources, and again, that process of competing for referrals, has anything changed in the incentive structure for your team in terms of targeting Medicare patients or being accommodative trying to build volume with some of your payers. And anything that has changed on that front?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst :

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And I think we're looking for signs of stabilization. You've got some maybe early data points that the fee-for-service businesses has stabilized. You talked about the 3% sequential increase. I think looking back, and this is not apples to apples because this is episodic and non-episodic. But two of the four prior years were up 4Q to 1Q. I'm just trying to get a sense of what normal seasonality looks like? And if this 3% sequential admissions increase and fee for services, how much confidence that gives you in stabilization and the outlook from here?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. Let's go to the payer innovation side of things. You guys have assigned a little bit over 60 new contracts, a couple of them, the national agreements that have really shifted the value proposition to the referral sources. I guess first, it seems like the first contract was probably the hardest. And it got easier from there as you -- first, you're negotiating now from a relatively better position. And two, you've built this muscle. You've been through the process and amortized. So talk to us about how the dynamics in the negotiating process with payers has changed and if that's leading to kind of better outcomes and more recent contracts yet to come.

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : In terms of getting to a point where you can offer kind of -- you can cover all the patients that these referral sources may have about another roughly 60 targets, some of them are renewals. Some of those are new contracts that you add. How close are we to getting to a point where you feel like you can compete for the majority of the business market?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : And in terms of the cadence of getting these remaining contracts in place, any color, I recognize the nationals will be on a slightly different timeline, but there's a lot more of the regional plans. So any thoughts on just how we should think about getting through this [61]?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And obviously, you've had pressure in the fee-for-service side. The MA side has had tremendous growth in volume. You just presented mid- to high single digit volume growth outlook for admissions. I guess first, just a clarification, is that -- is the base 2023, so it includes 2024? And just why is that the right number? Why do you have confidence in that outlook?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : And you said it's a CAGR-ed, are you saying you can be mid to high single digits each of the three years or in three years looking back retrospectively?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. So sort of an accelerator?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. Maybe moving to hospice, you've stabilized sort of the labor piece there, case management model. I guess what has that done for you over the last (technical difficulty) or so? What do you expect going forward? You gave a few data points on April and May and the progress you're seeing month over month. But what's your confidence level in that continuing as a function of the labor you've put in place?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : And I guess this touches on both businesses, but you've talked about clinical efficiency and trying to get your teams to operate at the top of their life, right? It's a data point on that. I think there's room to grow there. Just give us a sense of where you are in some of the other key labor initiatives as well as hiring just the environment, you're upfront across both businesses?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And similar question on the outlook you provided on the hospice side, mid- to high single digits. I guess, what's the timing in terms of getting there sustainably? I assume it's also a CAGR of 2023, and it will ramp. But I guess what data points can we look at externally as a leading indicator? Is it all about the labor growth and adding clinical capacity just give confidence there?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. I guess going to -- you've just come off all the TSAs with Encompass. I guess just on the P&L, can you talk about the cadence for the balance of the year, in particular, the cost of that piece as you've rolled off those TSAs? What efficiencies can you drive from that perspective? And what's the change from 1Q to kind of fully roll off the TSA?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And your margin outlook for the year, the implied midpoint is consistent with 1Q. I guess just talk us through puts and takes relative to that. What are some of the headwinds that you're offsetting? What are the opportunities to kind of improve margins longer term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Goldman Sachs Global Healthcare Conference

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And on the cost per day or cost per visit, these have come down to 3% type of range, and some of that contract labor coming out. But how should we think about the next one to two years? Are those levels may be adjusted for contract labor? Just give us [a sense of] how to think about that.

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Okay. And I think the claim that you guys are presenting is you're pretty close to stabilization of these pieces in place. And here, we should start to see more consistent elevation in volumes and in that guidance. How should we think about that translating revenue growth and longer-term margin potential? I think back to the IPO and as you said mid-teens-ish type of EBITDA margins. A lot's changed since then in terms of the mix profile of the business, but how should we think about the next phase? And if you are able to execute on these objectives, what that means in terms of growth outlook and margins over the next --?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : And I guess closing with one last one, just on the capital position. You presented 70%-ish free cash flow conversion. I guess, one, is that a sustainable right way to think about free cash flow conversion? And then two, just the cadence to improving the balance sheet position average and some of that's just a math exercise. But I guess what else can you do to kind of accelerate and prioritize getting back to a full capital position?

Question: Jamie Perse - Goldman Sachs Group Inc - Analyst : Great. Well, I think with that, we're out of time. Thank you, Barb and Crissy, for joining.