Enhabit, Inc.

Good morning, everyone, and welcome to Inhabit Home Health and Hospice's third quarter 2022 earnings conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star 1 on your telephone keypad. You will be limited to one question and one follow-up. 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 Jennifer Hills, Inhabit Home Health and Hospice Chief Investor Relations Officer.

Thank you, Abby, and good morning, everyone. Thank you for joining Inhabit Home Health and Hospice third quarter 2021. 2022 earnings call. With me on the call today are Barb Jacobs-Meyer, President and Chief Executive Officer, and Chrissy 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.inhap.com. On page two 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 the company's SEC filings including the Form 10 registration statement dated June 14, 2022, and subsequent quarterly reports on Form 10-Q, each of which can be found on the company's website. We encourage you to read them. Your caution 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 those 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 earnings release. I would like to remind everyone that we will adhere to the one question and one follow-up question rule to allow everyone to ask a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to Barb.

Thank you, Jennifer. Good morning, everyone. Thanks for joining us. I'm proud of the progress we have made in the critical areas necessary to set us up for success in 2023. Quarter three was our first quarter as an independent company. This is a journey, and we appreciate the commitment of our leaders and our staff as we define and build Inhabit for the future. We remain confident in Inhabit's growth potential as more care is moving to where patients prefer it, in their homes. Let's start with the home health final rule, which was published Monday afternoon. We are extremely disappointed that the final rule included a permanent 7.85% cut to Medicare home health services, which is even higher than the proposed behavioral adjustment of 7.69%. In addition, the temporary adjustments still loom. CMS has not changed their methodology at all, which is very problematic for the industry. 2023 now has a slight reprieve with the provisions in this final rule resulting in an estimated net increase in home health payments of 0.7%. The industry does not view this as a win, and we will work with our industry partners to determine next steps. Our immediate attention turns to the Preserving Access to Home Health Act of 2022, introduced by Senators Debbie Stabenow and Susan Collins, and Representatives Terry Sewell and Vern Buchanan, which would prevent these massive cuts from taking effect in the Medicare home health program until 2026, allowing time for CMS to work with the home health sector to fix their flawed methodology and Medicare rate changes. In the meantime, our inhabit focus will remain on the things we can operationally do to improve access to patients that prefer their care in the home. As our labor constraints began to ease in the quarter, we were able to accept the increasing number of referrals. Our 31.5% non-episodic home health admission growth drove our 2.7% total admission growth year over year. Hurricane Ian did impact our home house operations in Florida and along the eastern seaboard before it made landfall on September 28th as our team prepared for its arrival. Our employees did an incredible job with our hurricane preparedness, ensuring we knew each patient's evacuation plan and reminding patients to have their medication and oxygen supplies. Some of our employees were personally impacted by the hurricane and received Inhabit Cares funds providing financial assistance for things such as temporary housing, generators, and food. Operationally, we estimate we lost approximately 200 home health admissions during the last week of September due to this hurricane. The strategic and operational changes in hospice are starting to make an impact as evidenced by sequential admission growth of 5.2% in quarter three. Our strongest opportunity is growth, and our focus on our people will drive our growth in both home health and hospice. Our team continues to deliver a better way to care to our patients and to each other as we support our staff through flexible schedules, competitive compensation and benefits, and opportunities for personal growth. Our people strategy focuses on recruitment and retention, and we are making progress in both areas. We continue to make good progress on our net new full-time nursing hires with 55 in quarter three. Our continued focus on retention is also yielding results with our full-time and part-time nursing terms 10% lower than quarter three of 2021. As we reviewed our data and exit surveys, we noted that a consistent theme was the lack of thorough and consistent onboarding for our new hires. Orienting new clinicians is time intensive, and with staffing constraints in some local branches, orientation was suffering, resulting in turnover. To solve for this, in April this year, we began piloting virtual clinical orientation. This virtual orientation allows for efficient use of clinical preceptors to virtually orient a larger group of clinicians on over half of our orientation materials. This takes a burden off the local branches and ensures consistent training. We started with 17 branches and have now expanded to 40 branches. To date, we have 123 clinicians that have completed or are currently in our virtual clinical orientation. We are pleased with the initial results will continue to measure the positive impact of this process. And based on our findings, we'll be prepared to roll out this process to the full company in 2023. Our improved retention is also being positively impacted by the optionality we incorporated into our clinical scheduling. As we have noted previously, to be competitive, we have allowed more flexible schedules than this company has historically offered. This strategic shift has resulted in an uptick in our percentage of PRN nurses year over year from 36% last year to approximately 41% this year. With this shift to more nurses wanting PRN status, we need to ensure our wage rates are competitive so that these nurses choose to work for us. As we examined our rates, we noted we were below market and adjusted those rates to be more competitive. Year over year, our PRN rates increased over 7% in the third quarter. While the number of visits conducted by PRN staff were down 5% year over year, they did increase almost 14% sequentially, which helped drive our volume growth in the third quarter. Our staff does a great job providing the high quality of care we commit to our patients. As of July, we are 15% above the national average for STAR rating, 5% above for patient satisfaction ratings, and 330 basis points better in our 30-day hospital readmission rate. This lower readmission rate is a high-value proposition to our referral sources and payers. This outcome-based measure is one of the driving factors in our ongoing discussions with Medicare Advantage payers. Our payer innovation team has been very busy. While we continue to have regular meetings with the national payers, we recognize that local and regional agreements are critical to the slow but steady progress we're making with our Medicare Advantage pricing, and they provide additional avenues for growth. Our team takes a very disciplined and strategic approach towards these discussions. We are focused on short-term rate enhancements and longer-term innovation via case rates, episodic agreements, and other value-based opportunities. In the third quarter, we agreed to terms with nine Medicare Advantage and commercial plans. Three are in effect now and six are in credentialing with estimated effective dates by the end of this year. All of these contracts are regional or multi-state plans. We have been successful in negotiating six of these contracts as episodic payment arrangements with four of the six being at full Medicare rates. Three are per visit arrangements with improved rates versus our current agreements. Each successful agreement creates access for these patients to our home health care, and in turn, the data we need to continue to reinforce our value proposition. In hospice, the strategic and operational changes previously made are starting to gain traction. From quarter two to quarter three, we saw growth in admissions and average daily census. Our increased admissions came from hospital settings. While this lowers our average length of stay, it is an important step in diversifying our referral sources. Hospice referrals increased 5.2% year over year and 1.6% sequentially. In addition to our focus on growth at our existing locations, We remain focused on our de novo strategy and pursuit of acquisitions. We have opened three de novos year to date and expect to open another three to four in the fourth quarter. The pipeline of our de novos remains full for early 2023 as well. We are experiencing delays with local licensing agencies and timing of location surveys. These delays are beyond our control and are impacting the timeliness in which we can open these new locations. Our acquisition pipeline is robust. In October, we acquired Caring Hearts Hospice in Northeast Texas, adding four locations to our hospice portfolio. Yesterday, we acquired the one location of Unity Hospice in Arizona. We evaluate the opportunities in our pipeline carefully, with our team's due diligence focused on ensuring we commit our capital to those with the highest growth potential. Our work in 2022 has been to develop the foundation that will drive our future success. Our priorities continue to include human capital resources to drive recruitment and retention, our payer innovation team, hospice strategic and operational change, and increasing sales headcount in markets with improved staffing. While we've made progress in each of these areas, this is a journey. We have yet to realize the full potential of each initiative. With less than two months remaining in 2022, we thought it was prudent to update our guidance. These updates shift guidance to revenues of 1.07 to 1.08 billion and adjusted EBITDA of 150 to 155 million. While we may experience some near-term choppiness, we continue our work to position Inhabit for long-term success. I will now turn it over to Chrissy to cover more details of the quarter's performance and our guidance.