Enhabit Inc. (NYSE: EHAB) is continuing to mull over a potential sale, with executives providing few details as the company determines its next steps.
The Dallas-based home health and hospice company has been digging into a strategic review process since August that could result in a possible sale or merger of some or all of its assets.
“As previously announced, we commenced a strategic review process,” Enhabit President and CEO Barb Jacobsmeyer said in Wednesday’s earnings call. “Our board is conducting a thorough process with the assistance of our advisors and discussions with interested parties are ongoing. We will not be commenting beyond that.”
A minority investor, AREX Capital Management, which owns about 4.7% of Enhabit’s shares, first urged a sale of the company’s assets in June in a letter to the company’s board.
AREX has been an Enhabit investor since it spun off from Encompass Health Corporation’s (NYSE: EHC) home health and hospice segments in July 2022. The hedge fund renewed its push for a potential transaction in an Oct. 2 filing with the Securities Exchange Commission (SEC).
Enhabit has since begun a strategic alternatives review process, which included a review of the company’s financial reports in assessing whether it has satisfied conditions of its Tax Matters Agreement (TMA) with Encompass following the spinoff. A TMA is an agreement between a parent company and a new spinoff, typically for financial reporting options. Enhabit satisfied TMA conditions in August, which cleared the company to consider its options.
In the past three months, the company has moved forward with other moves in its sale considerations, according to Crissy Carlisle, CFO at Enhabit. These moves have included assessing the company’s debt, revolving credit lines and revenues, among other factors in valuation determination, she stated.
“We regularly assess our financial performance and evaluate that performance against our obligations, including those in our credit agreement,” Carlisle said during the earnings call. “We continue to work with our advisors as part of our strategic review, and with uncertainty in the debt markets. Over the last few weeks, we continued to work with our bank group to amend our credit agreement to provide additional cushion to the financial covenants.”
The company’s credit revolving credit line hovers around $40 million, with an additional $30 million in available cash flow to fuel Enhabit’s current operations as well as its de novo strategy, Carlisle indicated.
Discussions of a potential sale or merger have been spurred in part by Enhabit’s uneven quarterly financial results.
Since the spinoff from Encompass, the company has made strides in hospice and home health growth, partially due to its plans to open 10 de novos annually. Enhabit built up steam around this strategy in Q3, opening a hospice de novo in Colorado in July.
All told, Enhabit has 255 home health and 109 hospice locations in 34 states.
But progress on the company’s goals has not been fast enough, Jacobsmeyer indicated in a previous Q2 earnings call.
The past quarter brought headwinds for Enhabit’s hospice segment as the company balanced growth in staffing volumes with dips in its patient census.
Enhabit’s hospice segment brought in $47.4 million of the company’s $258.3 million in overall revenue during the third quarter, representing a 4% decrease for the segment compared to the same period last year.
The company attributed the decline in hospice revenue primarily to a drop in hospice patient days. Average daily hospice census volumes reached 3,388, a 2.8% year-over-year decline. Enhabit had 2,882 hospice admissions in Q3, a 3.4% decrease from the previous year’s period.
The company projects a more “stabilized” hospice landscape heading into next year as a result of workforce gains and reduced labor costs, according to Jacobsmeyer.
Enhabit has roughly 11,000 employees, a number it anticipates growing as it eases reliance on contracted clinicians in both its hospice and home health sectors. High costs associated with greater utilization of contracted labor ate into the company’s revenues during the pandemic, with Enhabit seeing recent relief as it hired more full-time employees during the past few months.
Enhabit hired 166 new home health nurses in Q3 in addition to 200 more the previous quarter – with additional growth on the horizon, Jacobsmeyer said. The company has eliminated contracted workers in its hospice segment, seeking to do the same on its home health side, she indicated.
The company has also hired three new business development leaders with an aim towards future growth, Jacobsmeyer stated.
“We continue to hire for additional growth. With this success, we have eliminated all hospice nursing contract labor, and are on track to have substantially all home health nursing contract labor eliminated by the end of the year,” Jacobsmeyer said. “Being able to now get rid of that by the end of the year will also create an opportunity for us on that cost-per-visit in 2024. We are pleased to be able to turn our focus to growth versus managing capacity challenges and are optimistic as we head into 2024.”
Enhabit anticipates clinical capacity to improve alongside acclimating recent new hires, which will allow it to leverage its workforce against care delivery costs associated with its case management staffing model, according to Carlisle.
“It gets down to productivity and optimization. We really focus on the density and scale of our markets,” she stated.
Enhabit’s payer innovation team plays a role in the company’s growth trajectory as well. The team negotiated 11 new home health contracts with payers in Q3, bringing a total of 48 payer agreements since its inception last summer, according to Jacobsmeyer.
The company has an additional 40 payer contracts in its pipeline across the Medicare Advantage reimbursement realm, she said. The payer innovation team is key to building up Enhabit’s presence among payers and increasing access to its services amid growing demand, Jacobsmeyer stated.
““Our payer innovation team continued to succeed in demonstrating this value proposition to Medicare Advantage payers,” Jacobsmeyer said in the earnings call. “Other payer agreements would be helpful to be seen as a more full service provider. We are confident in our ability to make continued improvement and Medicare Advantage pricing and in the shift of our Medicare Advantage admissions to these improved payers. Some payers are now recognizing the variation of quality results within the industry and are willing to pay for access to high quality providers.”