Good morning, everyone and welcome to Enhabit’s Home Health and Hospice’s Third Quarter, 2024 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Jobie Williams, Enhabit’s Senior Vice President and Treasurer.

Thank you, operator. And good morning everyone. Thank you for joining our call today. With me on the call is Barb Jacobsmeyer, President and Chief Executive Officer and Crissy Carlisle, Chief Financial Officer. Before we begin, if you do not already have a copy, the third quarter earnings release, supplemental information, and related Form 8-K filed with the SEC are available on our website at investors.ehab.com. On Page 2 of the supplemental information, you will find the Safe Harbor Statements, which are also set forth on the last page of the earnings release. During the call, we will make forward-looking statements, which are subject to risk and uncertainties many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates, and expectations are discussed in our SEC filings including our annual report on form 10-K, which are available on our website. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance, and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures for such measures reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information and the earnings release. With that, I’ll turn the call over to Barb.

Thanks, Jobie. Good morning and thanks for joining us. Quarter three, 2024 marks our fourth sequential quarter demonstrating the success of our volume growth strategies. At the start of this year, we laid out our 2024 priorities and I want to provide an update on the status of those and the ongoing and new initiatives to return our business to revenue growth and improve our profitability and margins. We are pleased with the continued progress of our Hospice segment and anticipate continued growth. Our priority has been on growing census and gaining operating leverage against the fixed cost structure associated with the case management staffing model. Our average daily census continues its sequential growth each month since January 2024. In the third quarter, our average daily census increased 6.9% year-over-year. Completing the transition of all branches to our centralized admission departments this year with the focus on timely responses to our referral sources has been successful as evident with both our increased admissions and an increase in our referral conversion rate from 74.2% last year to 77.4% this year. The flat cost per day year-over-year is the outcome we expected as our increased census offset the fixed costs that were added in 2023 to implement our case management model. The build out of our business development teams and their local strategies are finding the right balance of referral sources to increase admissions to Enhabit and grow our average daily census. Our case management model and our use of technology ensures we are there throughout the patient’s length of hospice stay and present when they need us most as evidenced by our visits in the last days of life, which are 53.2% higher than the national average. For our home health segment, we are pleased with the progress of our team’s…

Thanks, Barb. Consolidated net revenue was $253.6 million for the third quarter down $4.7 million or 1.8% year-over-year. Consolidated adjusted EBITDA was $24.5 million up $1.3 million or 5.6% year-over-year. In our home health segment, our payor innovation strategy continues to foster non-Medicare growth. Non-Medicare admissions grew 20.1% driving total admissions growth of 5.6% year-over-year with 5.5% growth on a same-store basis. 45% of non-Medicare visits are now in payor innovation contracts at improved rates. As Barb discussed, while our emissions are growing, our recertifications are declining. This decline in recertifications was the primary driver of the $9.9 million or 4.7% decrease in home health revenue year-over-year. As Barb mentioned, we have taken steps to remediate this issue. We also had a modest $1 million net increase to our home health revenue reserves during the quarter, which negatively impacted revenue and adjusted EBITDA. We are pleased with the progress we’ve made with our revenue cycle management and while no assurances can be provided, we expect our cash collection trend to continue to improve and result in a decrease in our reserve rate over time. Home health adjusted EBITDA decreased $5.3 million or 12.7% year-over-year. Primarily due to the decrease in revenue. Cost per visit increased a modest 1.1% on a year-to-date basis, our cost per visit is flat compared to the prior year. In our Hospice segment, revenue increased $5.2 million or 11% year-over-year due to an increase in patient days and increased Medicare reimbursement rates. We have grown our census every month since January 2024 with our average daily census increasing 6.9% in Q3 compared to the prior year with 5% growth on a same-store basis. Hospice suggested EBITDA increased $2.3 million or 29.9% year-over-year primarily due to the increased revenue. Cost per day was flat year-over-year as we gained operating leverage against our fixed cost structure with increased volumes. We continue to expect patient volumes to increase without the need to hire a significant number of additional staff. Our home office general and administrative expenses decreased $4.3 million year-over-year to 8.7% of consolidated revenue primarily due to lower incentive compensation and the cost control initiatives we undertook in the second half of 2023 and throughout 2024. Now, I’ll turn it over to Jobie to discuss the balance sheet.

We have focused this year on accelerating cash and paying down debt and our success can be seen in our results. Our leverage decreased for the third quarter in a row. We ended the third quarter with a leverage ratio of 4.8 times. Our cash balance at the end of September, a component of the ratio benefited by approximately $18 million from the timing of payroll. In September, we paid down $10 million of debt including a voluntary $5 million payment to reduce the outstanding balance of our revolving credit facility. And due to the continued strong cash flow, we made an additional $5 million voluntary payment on our revolving credit facility in October. To your end, our available liquidity has grown from approximately $61 million to approximately $94 million which we believe is adequate to support our operations including our de novo strategy. Our free cash flow remained strong. For the year-to-date through September, we generated approximately $59 million of free cash flow. A free cash flow conversion rate of 79%. Adjusted free cash flow in the year-to-date period of 2024 benefited from working capital changes primarily around accounts receivable and the timing of payroll. Our free cash flow conversion target for the full year remains at approximately 50%. I now turn it back to the Barb.

The devastation caused by Hurricane Helene began impacting our volumes the last week of September and continued impacting volumes well into October. We estimate we lost 125 to 150 admissions in the last week of September, which would have made our quarter three, 2024 admission growth 5.9% year-over-year. While the timing of these lost admissions had minimal impact on revenue in the third quarter, it resulted in a lower census entering October. The landfall of Hurricane Milton during the month of October put further pressure on our home health census through lost admissions. In October, we estimate we lost an additional 425 to 450 admissions from the impacts of both hurricanes. Our admission volumes are dependent on referral sources and patients returning to the impacted areas as well as doctors being able to reschedule procedures. All in, we estimate the hurricanes will negatively impact our fourth quarter revenue and adjusted EBITDA by approximately $2 million. Based on the impact of lower recertifications in the third quarter and the impact from the hurricanes, we revised our guidance ranges for full year 2024. Our outlook for net service revenue is now $1,031,000,000 to $1,046,000,000. And our outlook for adjusted EBITDA is now $98 million to $102 million. We expect to generate $47 million to $55 million of free cash flow in 2024 as the full year normalizes for the impact of working capital changes in the third quarter. I want to now turn to some of our plans to reignite revenue growth including some favorable trends in the environment. I will summarize actions either completed or in process that we expect will increase our profitability and margin profile going forward. Regarding revenue growth, we are seeing several positive trends within our space that should be tailwinds for revenue. Approximately 20% of our…

Thank you. And we will now begin the question-and-answer session [Operator Instructions] Brian Tanquilut, Jefferies. Your line is open

Hey good morning guys. Maybe Barb first question, I appreciate the comment here in the United situation. So, just to clarify. So, no sign agreement, but you sound more positive. So, as we think about that, I mean, right now, it sounds like you’re strategizing and operating as if that’s not signed yet, right? Like that’s not going to happen. So, maybe if you can share any qualitative commentary on what progress you’re making in terms of shifting capacity to these payor innovation contracts and the success you’re seeing there. And then maybe the flip is what is an acceptable agreement for you guys as it relates to United?

Sure. Well, I mean, as I mentioned, the good news is we watch census every day and as we have seen our census grow, that has not – the decline in the United Census of over 1,000 has not impacted the total census. We’ve seen that actually grow from August 1 when we gave notice through the end of October. So, we watch that every day to make sure that there’s not a negative impact to that. The team does continue to work in the field to move the business. But they are consistently being asked by our referral sources, if we’re making progress. We do right now tend to only take the patients that we anticipate, have a shorter length of stay. So, that there’s not the big list in January. Now that all being said, we do feel really good where we are with the negotiations with United. They know that we have to continue this effort because January 31 is not that far away, but I would say that both of us would say that we are very close to coming to terms.

Got it. And then maybe just in the comments in 2025 I mean, as I sit here and think about a mid-single digit home health volume outlook that you shared. Looking at the hospice rate, Barb, looking at home health with a 50 basis point improvement there from CMS and more patients going through parent innovation contracts, plus the success you’ve had with corporate overhead, I mean, so is it correct to think if we build all that up, that points to a decent level of EBITDA growth next year? I mean, maybe is that the right way to think about it? And then any headwinds you want to call out that maybe have not describe or called out yet.

Sure. So again, obviously, we’ll give a lot more detail on our fourth quarter call. But you’re right when we look at the hospice pricing now, having a positive while little home health pricing, both of those help us what I would say, the biggest headwind always right is keeping in line with our merit increases to try to remain competitive in our markets. And so that’s the biggest headwind that you – that we really like to focus on offsetting and we believe that we will be able to do that with those pricing improvements. And so then it really comes down to the G&A savings that I talked about. So between G&A savings and then the growth side of things. Yes, we’re confident we’ll be able to grow EBITDA in 2025.

Awesome, thanks Barb.

And your next question comes from the line of A. J. Rice with UBS. Your line is open.

Hi, everybody. On the branch closures, I think, you said you were looking at potentially eight to ten closures. I wondered if you could give us some parameters around how much revenue that might represent overall. And are those branch closures in areas where you would have another branch that might pick up some of that volume or with those closures. Would it pretty much all go away?

Yes, that’s we don’t have all the details and we will have those by the time we get to the fourth quarter call because there are some that we would be looking to consolidate versus close. And so looking at all of that and saying, well, what volume then do we believe we could pull to the consolidated versus the clothes are going to be important details to have as we talk about that impact on emissions revenues, that thing. So, we will have all of that by our fourth quarter call.

Okay. And my follow-up, I guess on the comments on 2025 on the revenue line, those are helpful and obviously that will impact somewhat your margin, how much leverage you can get from growing the top line. But you’ve done well, this year and your cost per visit, metrics on both sides of the business, home health and hospice. Do you have any early thoughts on what you can do on that metric going forward? Should we assume that it’s more of inflationary updates going into next year? Is there any reason to think you can hold the line as you’ve done this year again next year?

Yes. A. J., this is Criss. I think when you think about 2025 the biggest component of our cost of services is labor. And so I think we’re still feel comfortable with that 3% wage increase being in reasonable range to help us not only recruit additional staff but to retain our existing staff. And then of course, beyond that, as our volumes grow, you receive that operating leverage. So there would be some offsets there through continued improvements in productivity and optimization.

Okay. So, 30% would be the high end and then you’d be through leverage, you could potentially bring it down somewhat.

That’s right.

Okay, thanks.

[Operator Instructions] And your next question comes from the line of Ryan Langston, TD Cowen. Your line is open

Hi, great. First of all, just say thanks Crissy for everything, really appreciate it and enjoyed working with you. I guess on the business development side for hospice, obviously generating pretty positive momentum there through the months, I guess, what tactics are you employing that are driving that success? Is it just strengthening relationships, finding new referral sources? Anything else specifically you would point to?

I would say it is a combination. We certainly increased the count of our business development team members so that we can cover more territory. It has been really focusing on using our Trella data to develop the books of business on where our sales team members are spending their time. And as we’ve been talking for a couple of – for really about diversifying those referral relationships so that you can manage and have your shorter and longer length of stay and meet all the needs of the hospice patients in the community. So, I think the team has done a great job building out that book of business. One of the things that they had heard last year was just that it took us a while to get answers. And so, we rolled out the centralized admission departments in each of the regions so that we really had someone focused on only looking at that referral and getting an answer to the referral source. So that they weren’t being distracted at the branch level with all the other things that are happening. I think the teams would say that the quickness and response has really also helped their referral sources, see them as a good provider.

Got it. And then just real quick on UNH, I think to Brian’s earlier question sounds like you might be a little bit more positive. I guess, I think you said you were down about 1,000 on that particular payor. But if you, I guess come to an agreement that you’re satisfied with, do you have capacity to retake a bunch of that volume like back in the near term or is that just more of a slower turn that side back on. Thanks.

Yes, I think it’s a slower term mean if – when we, and if we come to an agreement and get an executed agreement, I think, the biggest thing that will happen is we will turn that back on, right. Right now, we are actively turning away the referrals. And so, I think just being able to turn it back on and get back to a cadence of accepting, I think, will be beneficial to United and to our referral sources. So, it really will be about managing it as part of the census of being able to be able to continue to accept them.

And ladies and gentlemen, with no further questions at this time, I would like to turn the call back over to Jobie Williams for closing remarks.

Thank you, Abby. If you have additional questions, please email InvestorRelations@ehab.com. Thank you again for joining today’s call.

And ladies and gentlemen, this concludes today’s call and we thank you for your participation. You may now disconnect.