Enhabit’s Q1 Results: Margin Gains Offset Home Health Headwinds
14min read Enhabit, Inc. (EHAB) delivered a cautiously optimistic Q1 2025 earnings report, balancing margin improvements against lingering challenges in its core home health segment. While consolidated net revenue dipped slightly year-over-year, the company’s focus on operational efficiency and hospice growth propelled Adjusted EBITDA to record levels. Yet, persistent Medicare census declines in home health and inflationary pressures underscore the fragility of Enhabit’s recovery.
Ask Aime: "Will Enhabit's Q1 2025 earnings report affect the home health sector?"
Key Financial Highlights
Consolidated net revenue totaled $259.9 million, a 0.7% sequential increase but a 1.0% year-over-year decline, driven by lower Medicare admissions and branch closures in home health. However, profitability surged, with Adjusted EBITDA reaching $26.6 million—a 5.1% year-over-year gain. The overall EBITDA margin expanded to 10.2%, a 60 basis point improvement from Q1 2024.
Segment Performance: Hospice Drives Momentum, Home Health Struggles
Home Health: Revenue fell 5.9% year-over-year to $200.6 million, reflecting a 2.4% drop in average daily census (ADC). Branch closures—seven in Q1, with four more planned—highlighted strategic pruning to focus on higher-margin locations. Despite the headwinds, Adjusted EBITDA rose 7.9% sequentially to $38.3 million, with margins improving 140 basis points to 19.1%. Cost controls and higher non-Medicare revenue per visit (up 7.6% year-over-year) buoyed margins, even as Medicare ADC slid 7.3%.
Hospice: The segment shone, with revenue surging 20.5% year-over-year to $59.3 million. Adjusted EBITDA jumped 64.8% to $15.0 million, fueled by a 12.3% ADC increase. Referral conversion rates hit 79%, up 310 basis points, as regional admission teams optimized workflows. Hospice’s EBITDA margin expanded to 25.3%, marking five straight quarters of sequential improvement.
Financial Health: Deleveraging and Liquidity Gains
Enhabit’s balance sheet strengthened significantly:
- Free cash flow hit $17 million, with a 63.5% free cash flow conversion rate.
- Bank debt fell by $25 million to $467.3 million, reducing the leverage ratio to 4.4x, below its 4.5x covenant threshold.
- Cash reserves rose to $40 million, and total liquidity reached $111 million, up $30 million sequentially.
Ask Aime: Enhabit's Q1 earnings show home health struggles, but hospice growth boosts profitability.
These metrics signal financial flexibility, enabling the company to exit covenant restrictions early and invest in growth initiatives.
Strategic Moves and Risks
Payer Innovation: Non-Medicare admissions rose 7.4% year-over-year, driven by new contracts with quality-based escalators, which now account for 82% of revenue growth. These agreements aim to mitigate inflation by tying payments to performance metrics.
Technology and Workforce: Adoption of Medalogix Pulse helped optimize visits per episode, while RN capacity grew 16% year-over-year, supporting hospice’s ADC expansion.
Challenges:
- Medicare Advantage plans are complicating recertification success rates, prompting enhabit to invest in tools like Medalogix to manage higher-acuity patients.
- Wage inflation (projected 2-3% increases) and regional compensation adjustments could pressure margins.
Guidance and Outlook
Enhabit raised full-year 2025 net service revenue guidance to $1.05–$1.08 billion, up from $1.035 billion in . Adjusted EBITDA is projected at $101–$107 million, reflecting confidence in margin expansion. However, the company faces execution risks: hospice’s strong momentum must offset home health’s census declines, while inflation remains a wildcard.
Conclusion: A Fragile but Improving Story
Enhabit’s Q1 results underscore a company in transition: it is shedding underperforming assets, leveraging technology, and capitalizing on hospice’s scalability. The 10.2% consolidated EBITDA margin and deleveraging achievements position Enhabit for stability, but home health’s Medicare census slump and wage pressures loom large.
Investors should note the 64.8% hospice EBITDA growth and $17 million free cash flow as positives, but the 7.3% Medicare ADC drop in home health and the nine GuruFocus warnings—including leverage risks—demand caution.
The stock’s performance will hinge on whether Enhabit can sustain hospice’s ADC gains, reverse home health’s census decline, and offset inflation through payer contracts. For now, the margin improvements and liquidity gains suggest a cautiously optimistic path forward—if management can execute on its strategic pivot.
