Enhabit, Inc. (EHAB) Q1 2025 Earnings: Margin Expansion and Hospice Momentum Drive Recovery

Enhabit, Inc. (EHAB), a leading provider of home health and hospice services, delivered a resilient first-quarter 2025 performance, marked by margin improvements, operational efficiencies, and strong hospice segment growth. The earnings call transcript reveals a company leveraging strategic initiatives to stabilize its financial position and position itself for long-term growth. Here’s what investors need to know.

Financial Highlights: A Turnaround in Motion

Enhabit reported Q1 2025 net revenue of $259.9 million, a 0.7% sequential increase but a 1.0% year-over-year decline. While revenue fell slightly short of expectations, the company’s focus on cost discipline and margin expansion shone through. Adjusted EBITDA rose to $26.6 million, a 5.1% year-over-year increase, with the EBITDA margin improving to 10.2%, up 60 basis points from 2024. Free cash flow also strengthened to $17 million, while the company reduced bank debt by $25 million, signaling progress in deleveraging.

Segment Performance: Hospice Drives Growth, Home Health Stabilizes

• Home Health: Sequential admissions grew 8.1%, with non-Medicare admissions up 7.4% year-over-year. Revenue per visit for non-Medicare patients rose 7.6%, thanks to expanded payer innovation contracts, now covering 44% of non-Medicare visits. The Home Health EBITDA margin expanded to 19.1%, up 140 basis points year-over-year, driven by improved clinical productivity and cost savings.
• Hospice: The star performer, with census growth of 12.3% year-over-year and admissions up 8%. EBITDA surged 65% year-over-year to $15.0 million, with margins hitting 25.3%—the highest since the company’s spinoff. Hospice’s success stems from better referral conversion (up 310 basis points year-over-year) and streamlined operations, including a 79% referral-to-admission rate.

Cost Savings and Operational Leverage

Enhabit is aggressively cutting costs while maintaining service quality:
- Branch Closures: Seven branches were closed in Q1, with four more planned by Q2, reducing overhead.
- Outsourced Coding: Transitioning coding functions to external vendors saved $1.5 million annually.
- Tech Pilots: Internal apps for clinician-patient communication and referral management are being tested to boost efficiency further.

These moves are paying off: Home Health’s cost per patient day dropped 3.1% sequentially, while Hospice’s cost per day fell 0.8% year-over-year.

Balance Sheet Strengthening: Covenant Relief Exit

A key milestone was reducing the leverage ratio to 4.4x (below the 4.5x covenant threshold), enabling Enhabit to exit its credit agreement’s restrictive covenants a quarter early. This unlocks liquidity for acquisitions and organic growth, such as 13 de novo hospice locations in progress. The company ended Q1 with $40 million in cash and $111 million in total liquidity, positioning it to navigate economic uncertainties.

Outlook: Guidance Reaffirmed, Risks Manageable

Enhabit reaffirmed its full-year 2025 guidance, citing momentum in hospice admissions and payer contract execution. Risks, such as 2-3% labor inflation and Medicare Advantage recertification challenges, are tempered by operational improvements. The company also noted Medicare ADC growth in Home Health for two consecutive quarters, a positive sign after prior declines.

Conclusion: A Strong Foundation for Recovery

Enhabit’s Q1 results underscore its ability to execute on cost savings and capitalize on hospice’s high-growth potential. With margins expanding, leverage improving, and free cash flow turning positive, the company is moving beyond its post-spin struggles. The hospice segment’s 65% EBITDA growth and 25.3% margins are particularly compelling, suggesting this division could become a long-term profit engine.

Investors should note that while Home Health faces headwinds like payer contract renegotiations and Medicare cap risks, Enhabit’s focus on payer innovation contracts and clinical efficiency tools (e.g., Medalogix Pulse) positions it to mitigate these challenges. The deleveraging progress and liquidity improvements further reduce financial risk, making EHAB a value-oriented play in healthcare services.

With shares trading at [current price] and a forward P/E of [insert ratio], Enhabit’s stock could gain traction if operational momentum continues. The Q1 results are a clear step forward—a buy for investors willing to bet on margin expansion and hospice’s upward trajectory.