Enhabit Inc Q4 2023 Earnings Call Transcript

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

Question: Brian Tanquilut - Jefferies - Analyst : A good morning and congrats on the quarter. I guess maybe, Barb, my first question, you announced that national episodic contract and sounds like you're gaining traction with expanding or shifting, that's the contracting strategy a little bit here. So just curious, number one, how are you thinking about the remaining opportunity there and what it would take to ramp that business up or that relationship up? And then maybe broadly speaking, how are you thinking about how the pressures on Medicare Advantage plans are translating to you guys? And how does that impact your ability to negotiate or renegotiate your biggest Medicare Advantage relationship? Thank you.

Question: Brian Tanquilut - Jefferies - Analyst : And then maybe Crissy, my follow-up, just as I think about guidance, right. So just curious what your assumptions are in terms of I know you said you're still expecting the payer mix shifting there, but how should we be thinking about the moving pieces on payer mix shift, maybe a little bit on wage inflation? I Know, you talked a little bit of cost per visit, but what are you seeing there? And then the other area would be like what does the recruitment pipeline look like for both nurses and therapists. Thanks.

Question: Brian Tanquilut - Jefferies - Analyst : Awesome. Thank you.

Question: Jason Cassorla - Citigroup Inc. - Analyst : Great. Thanks. Good morning and maybe just a follow up on Brian's question, just any other color or consideration for us as we think about earnings cadence, right? You discussed our fee-for-service kind of volumes kind of returning closer to industry norms. But I guess, are you out of the position REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 07, 2024 / 3:00PM, EHAB.N - Q4 2023 Enhabit Inc Earnings Call kind of exiting '23 into '24 that should and developed kind of in line with that expectation? Or do you think that you're going to still see outsized kind of moderation in that context? Yeah, just so anything else on the earnings cadence would be helpful to start. Thanks.

Question: Jason Cassorla - Citigroup Inc. - Analyst : Okay. Great. Thank you. That's all that's helpful. And I guess thinking about the 59 on agreements you signed right in the 25% of your non-episodic visits. Do you think your maybe just building on your comments, Barb, but just do you think perhaps you are in a strong position to really bulk against taking volumes from these lower-paying contracts kind of without sacrificing the volume density within your markets or how should we think about that balance between generating volume density against kind of the reimbursement dynamics within your overall book? And then just really quickly on a follow up on the hospice cost per day. Can you give us a sense on what that would have been on otherwise that it wasn't for this DME issue just for us to get a sense. Thanks.

Question: Jason Cassorla - Citigroup Inc. - Analyst : Okay, great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 07, 2024 / 3:00PM, EHAB.N - Q4 2023 Enhabit Inc Earnings Call

Question: Joanna Gajuk - BofA Securities - Analyst : Hi, good morning. Thank you for taking the questions. So I guess first, the follow up when it comes to and the episodic, so you said you expect that sort of admissions to stabilize going forward since the mix is similar to peers, but still, you know, when I look at the payer mix, in terms of the revenues and then the mix shift and you're growing on the MA that you did not have. But then so the Medicare revenues was down 14% for the year and I guess 16% in this quarter, year over year and down 7% sequentially. And what I look at the peers, you notice the show either a small, much smaller clients or even some show growth year-over-year. So I guess the question is why and how that is losing market share?

Question: Joanna Gajuk - BofA Securities - Analyst : Okay. And I guess another follow-up or maybe that's a new topic, but related to this on payer mix situation here when I look at the average revenue per visit for the non-episodic visits, right, versus the revenue per visit for the episodic portion, which that includes, obviously Medicare and MA but still that average is like 43% below. So like the non-episodic average points at 42% below. So, like the non-episodic volumes. So how should you think about that metric? I mean, sounds like maybe you're going to change some disclosures and we will be able to clinically they see Medicare and then some other episodic separately if that's what you're trying to do kind of give us more visibility by I'm still surprised at that average is still that much lower. So I guess, you know how should it should we think about those going forward?

Question: Joanna Gajuk - BofA Securities - Analyst : And if I may squeeze in just on that national agreement. Any way to help us quantify like incremental, I guess revenue volumes from the contract? It sounds like some of these markets you already been surveying. So you kind of give the volumes, but betas higher. But then it sounds like you also added more markets. So kind of any way to help us give us some size of that incremental? Thank you.

Question: Joanna Gajuk - BofA Securities - Analyst : Thank you.

Question: AJ Rice - UBS Equities - Analyst : Hi, good morning. This is [Andrea] on for AJ, good morning. So in Q4, the company got to around 25% of visits as a percentage of total non-episodic visits and these payer innovation contracts. I mean, just [monitoring] that, there will be a degree of a tailwind for next year. Does the company expect the fast pace to continue in '24 as well? Just kind of size the momentum of getting more visits into these higher paying contracts?

Question: AJ Rice - UBS Equities - Analyst : Got it. I guess a follow-up on that would be in these MA episodic contracts versus the non-episodic contracts. How much of a rate increase would that create for the company in '24, I guess?

Question: AJ Rice - UBS Equities - Analyst : Got it. Thanks. And maybe one more just to clarify. On the hospice side, there seem to be a estimated recoverability of net service revenue in the quarter. Is that a one-time benefit? And how much of the revenue and EBITDA effect did that have? Thanks.

Question: AJ Rice - UBS Equities - Analyst : Great. Thanks a lot.

Question: Ryan Langston - TD Cowen - Analyst : Hi, thank you. Just two quick ones for me, maybe I'll take the payer innovation question a little differently. Obviously, it's jumped from, I think, 5% to 25% a year, which is pretty good success. Maybe just more broadly, what do we think about that percentage maybe into '24 and '25, given maybe where your staggered contracts are up for renewal or you can go for may be outside of normal renewal schedules? And then can you maybe give us a little sense, I mean, you've already had two months of experience now this year, just maybe more generally where the mix shift has moved from, fee-for-service to MA between 4Q and 1Q just to maybe give us a little help with the modeling. Thanks.

Question: Ryan Langston - TD Cowen - Analyst : Got it. And then I don't know if you can give us a sense on just the first two months of this year, just in terms of the mix, sounds like you're obviously expecting that to moderate, and I would expect that to. But any sense on where that's actually gone into the first part of the first quarter?

Question: Ryan Langston - TD Cowen - Analyst : Okay. Thank you very much.

Question: Jason Cassorla - Citigroup Inc. - Analyst : Great. Thanks for the follow-up. I just wanted to hone in on capital deployment priorities, more specifically around your leverage. I guess, how should we be thinking about the uses of your free cash flow for '24? Do you anticipate using the bulk of it for debt, our paydown of your revolver? Or are you're anticipating leverage would just naturally kind of improve as EBITDA grows? Just any color around priorities and debt repayment?

Question: Jason Cassorla - Citigroup Inc. - Analyst : Okay, great. Thanks. If I could follow up with one more just on the de novo side. The eight that you opened up in '23 just curious on how the ramp has progressed across those locations so far. And in the past, you've mentioned a focus on hospice build out and just in context of building your co-location strategy. 2023 the de novo are about evenly split between home health and hospice. I guess for the 10 that you're planning on for '24, how should we think about those locations again, either evenly split between home health and hospice? Or just any color there would be helpful the de novo front. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 07, 2024 / 3:00PM, EHAB.N - Q4 2023 Enhabit Inc Earnings Call

Question: Ryan Langston - TD Cowen - Analyst : Okay. Thank you.

Question: Joanna Gajuk - BofA Securities - Analyst : Hi. Thank you for taking follow up here. So I guess I have two. One is on this payer sources, slide 31 or you have the fourth quarter hospice and managed care is 6.5%. So, can you explain acquired why there's such a big number because it also talks about, I guess, an increase in the non-Medicare patient revenue, but it also, again, talks about this recoverability of estimated recoverability of the revenues. So can you help us understand like what is the 6.5% really represents?

Question: Joanna Gajuk - BofA Securities - Analyst : Okay. Thank you. And my other question, I guess when it comes to regulations. So what do you expect to see in 2025 home-health proposal that is going to be coming out soon? I guess, some couple of months. But any initial thoughts around, productivity adjustments and recoupment? And also, I guess, first, we're going to get a hospice proposal for 2025, so hospice around what do you expect to see in that one? Thank you.

Question: Joanna Gajuk - BofA Securities - Analyst : Thank you.