Slide 1: Rehabilitate Enhabit
Rehabilitate Enhabit Prepared by AREX Capital Management June 2024
Slide 2: Disclaimer
Disclaimer The materials contained herein (the “Materials”) represent the opinions of AREX Capital Master Fund, LP and the other participants named in its proxy solicitation (collectively, “AREX” or “we”) and are based on publicly available information with respect to Enhabit Inc. (the “Company” or
Slide 3: Table of Contents
Table of Contents Executive Summary 4 The Case for Change 19 Stockholders Have Suffered As Enhabit Has Underperformed 20 The Board Lacks The Critical Industry Expertise Necessary for Management Oversight 31 Enhabit Has Demonstrated Poor Operational Execution Across All Areas of its Business 35 Our S
Slide 4: Executive Summary
Executive Summary
Slide 5: About AREX Capital
About AREX Capital AREX has been a stockholder of Enhabit, Inc. (NYSE: EHAB) since its spin-off on July 1, 2022. • AREX is a value-oriented investment management firm founded in 2017 with a long-term, opportunistic approach. AREX seeks to generate returns through intensive research, rigorous fundame
Slide 6: Why AREX is Seeking to Replace a Majority of Enhabit's Board
Why AREX is Seeking to Replace a Majority of Enhabit’s Board of Directors (the “Board”) We believe Enhabit has immense potential as a leader in the highly fragmented and secularly growing home health and hospice industries. The Board’s apparent inability to oversee and guide management through manag
Slide 7: Where Enhabit Stands Today: Chronic Underperformer Despite Immense Potential
Where Enhabit Stands Today: Chronic Underperformer Despite Immense Potential We believe the majority of the Board must be replaced to prevent further value destruction and to help Enhabit reach its potential as a leader in the home health and hospice industries. Enhabit Today Enhabit’s Potential Sto
Slide 8: Why Stockholders Deserve Change: Destruction of Stockholder Value
Why Stockholders Deserve Change: Destruction of Stockholder Value Enhabit has delivered negative returns over every relevant period, significantly underperforming its Proxy Peers and benchmark indices. Persistent Stock Price Underperformance Cherry Picking The five additions to Enhabit’s 2024 Proxy
Slide 9: Why Stockholders Deserve Change: Consistent Earnings Disappointments
Why Stockholders Deserve Change: Consistent Earnings Disappointments Enhabit has missed consensus expectations in almost every quarter of its existence. Its recent earnings “beats” are likely only due to massively reduced sell-side expectations. $42M $40M (40%) $34M $33M $32M $31M $30M $30M $25M $25
Slide 10: Why Stockholders Deserve Change: Inability to Handle Manageable Challenges
Why Stockholders Deserve Change: Inability to Handle Manageable Challenges Enhabit has shown no signs of improving on its staggering operational underperformance relative to peers, who we believe have navigated industry challenges far more effectively. Home Health Is Hemorrhaging Hospice Continues t
Slide 11: Why Stockholders Deserve Change: Ineffective Board Oversight
Why Stockholders Deserve Change: Ineffective Board Oversight We believe the Board has failed to effectively oversee management, largely due to its lack of industry-specific expertise. Lack of Relevant Industry Squandered Opportunities Lack of Accountability Poor Investor Experience Communication x E
Slide 12: Why Stockholders Deserve Change: Back-to-Back Covenant Amendments
Why Stockholders Deserve Change: Back-to-Back Covenant Amendments Enhabit amended its leverage covenants under its Credit Agreement dated as of June 1, 2022 (the “Credit Agreement”) twice in a five-month period due to its collapsing profitability. The Company was also forced to seek an intervening c
Slide 13: History of Constructive Engagement: AREX's Attempts to Work with Enhabit
History of Constructive Engagement: AREX’s Attempts to Work with Enhabit Despite relaying our reasonable concerns and recommendations to leadership numerous times since Enhabit’s spin-off, the Board has failed to meaningfully engage with us or to consider suggestions for improvement. May 5, 2023 Aug
Slide 14: Our Solution: Directors with Necessary Operational & Turnaround Expertise
Our Solution: Directors with Necessary Operational & Turnaround Expertise We believe the Board needs each of our nominees’ knowledge and expertise to rigorously evaluate management’s strategic and operational choices and to ultimately drive better operating results and stockholder value creation. Me
Slide 15: Our Solution: Directors Well-Suited to Tackle Enhabit's Challenges
Our Solution: Directors Well-Suited to Tackle Enhabit’s Challenges We believe the AREX Slate possesses the necessary operational experience, industry know-how, and corporate governance expertise to help address Enhabit’s most critical issues and create value for all stockholders. Enhabit’s Challenge
Slide 16: The AREX Slate's Plan: Rehabilitating Enhabit to Create Stockholder Value
The AREX Slate’s Plan: Rehabilitating Enhabit to Create Stockholder Value The AREX Slate has developed a comprehensive, five-point plan that it intends to help management implement. Create a dedicated Transformation Committee to help management correct Enhabit’s operational underperformance in an ur
Slide 17: The AREX Slate's Plan: Enhabit's EBITDA Can Quickly Grow by 50%
The AREX Slate’s Plan: Enhabit’s EBITDA Can Quickly Grow by 50% if Managed Properly The AREX Slate’s Plan conservatively reflects only 50% of the potential financial benefit from a successful rehabilitation of Enhabit. Illustrative Enhabit EBITDA $10M $147M $16M $23M $98M 2023 EBITDA FFS Market Shar
Slide 18: The AREX Slate's Plan: 100%+ Value Creation Potential
The AREX Slate’s Plan: 100%+ Value Creation Potential for Enhabit’s Stockholders We believe Enhabit’s stock price could more than double if the AREX Slate’s Plan is implemented. Valuation multiple expansion to match peer multiples would represent further upside. Illustrative Enhabit Stock Price $28
Slide 19: The Case for Change
The Case for Change
Slide 20: Stockholders Have Suffered as Enhabit Has Underperformed
Stockholders Have Suffered as Enhabit Has Underperformed
Slide 21: Enhabit's Stock Price Has Consistently Trailed Relevant Benchmarks
Enhabit’s Stock Price Has Consistently Trailed Relevant Benchmarks Enhabit’s stockholders have lost more than 60% of their investment since the Company’s spin-off on July 1, 2022. 150 Russell 2000 125 25% S&P Health Care Select Index 100 11% 75 50 (62%) 25 Jun 2022 Sep 2022 Dec 2022 Mar 2023 Jun 202
Slide 22: Enhabit's Stock Price Has Underperformed Each of its Direct Peers
Enhabit’s Stock Price Has Underperformed Each of its Direct Peers Not all of Enhabit’s challenges are unique, but the inexperience of its Board and senior management team is. 200 83% 175 150 34% 125 24% 100 75 (8%) 50 (62%) 25 Jun 2022 Sep 2022 Dec 2022 Mar 2023 Jun 2023 Sep 2023 Dec 2023 Mar 2024 S
Slide 23: Enhabit's Leadership Has Failed to Both Manage and Accurately Forecast its Business
Enhabit’s Leadership Has Failed to Both Manage and Accurately Forecast its Business Enhabit has cut its guidance in four of its eight quarters as a public company. Initial 2022 EBITDA Guidance 2022 EBITDA $165-185M Guidance 2022 EBITDA $180M $155-170M Guidance Revised August 1, 2022 $150-155M Revise
Slide 24: The Board Has Overseen Poor Investor Communications
The Board Has Overseen Poor Investor Communications Enhabit has already had three heads of investor relations in its brief time as a public company. August 9, 2023 October 4, 2023 May 8, 2024 Buries the announcement of Under the heading “Other Announces the its Strategic Review under Information,” b
Slide 25: The Board Has Not Held Management Accountable
The Board Has Not Held Management Accountable In addition to regularly falling short of investor expectations, Enhabit’s management has consistently failed to achieve the bare minimum EBITDA threshold the Board set in its Senior Management Bonus Plan. Senior Management Bonus Plan EBITDA Results $160
Slide 26: Enhabit's 2023 Guidance Cut Exemplifies its Operational Underperformance
Enhabit’s 2023 Guidance Cut Exemplifies its Operational Underperformance Despite facing the same industry dynamics as Enhabit, close peers Amedisys and Pennant both achieved or exceeded their initial 2023 guidance. Home Home Health Hospice Health Hospice Home 36% $230-240M $247M 32% 63% 36% Health 8
Slide 27: Enhabit's Challenges Have Led to Issues with its Lenders
Enhabit’s Challenges Have Led to Issues with its Lenders The collapsing profitability we attribute to Enhabit’s inability to navigate manageable business challenges has forced it to amend its bank covenants twice in five months. The Company has also been forced to seek an intervening covenant waiver
Slide 28: Enhabit's Challenges Have Led to Issues with its Lenders (Cont'd.)
Enhabit’s Challenges Have Led to Issues with its Lenders (Cont’d.) While the home health and hospice business models are inherently cash-generative, Enhabit’s collapsing profitability has materially increased its leverage levels, resulting in higher interest costs and significantly reduced liquidity
Slide 29: The Board is Attempting to Spin its Underperformance and Our Intentions
The Board is Attempting to Spin its Underperformance and Our Intentions Enhabit’s Misleading Assertions The Facts • AREX is not seeking control of Enhabit. Six of our seven nominees are independent of AREX. “If AREX takes control of the Company […]” • We are seeking to replace a majority of the exis
Slide 30: The Board is Attempting to Spin its Underperformance and Our Intentions (Cont'd.)
The Board is Attempting to Spin its Underperformance and Our Intentions (Cont’d.) Enhabit’s Misleading Assertions The Facts • Enhabit has significantly underperformed its peers in both home health and hospice on a same-store basis, and the assertion that its inability to make acquisitions is respons
Slide 31: The Board Lacks The Critical Industry Expertise Necessary for Management Oversight
The Board Lacks The Critical Industry Expertise Necessary for Management Oversight
Slide 32: Since its Inception, Enhabit Has Lacked Home Health & Hospice Operational Experience
Since its Inception, Enhabit Has Lacked Home Health & Hospice Operational Experience The legacy Encompass Directors unequivocally bear responsibility for replacing Enhabit’s long-serving founder and senior management team with executives who possessed no relevant operational experience prior to Enha
Slide 33: The Current Board Lacks Relevant Industry Expertise
The Current Board Lacks Relevant Industry Expertise Enhabit’s Board failed to recognize its urgent need for industry-specific expertise, which was exacerbated by management’s lack of relevant operational experience. Jeffrey W. Tina L. Charles M. Erin P. Barbara A. Susan A. Stuart M. Gregory S. Barry
Slide 34: The Board Has Squandered Opportunities to Add Relevant Expertise
The Board Has Squandered Opportunities to Add Relevant Expertise Despite Enhabit’s consistent operational challenges, the Board has inexplicably chosen not to add directors with relevant expertise several times over the past two years. March 2023 May 2023 May 2024 June 2024 As part of its March 2023
Slide 35: Enhabit Has Demonstrated Poor Operational Execution Across All Areas of its Business
Enhabit Has Demonstrated Poor Operational Execution Across All Areas of its Business
Slide 36: Poor Operational Execution: Home Health
Poor Operational Execution: Home Health
Slide 37: Manageable Industry Headwinds…
Home Health Manageable Industry Headwinds… The home health industry has been challenged in recent years by the decline in higher margin FFS beneficiaries, the pandemic-related decline in FFS home health utilization, and elevated clinician turnover. Decline in Most Profitable Growth in Less Profitabl
Slide 38: …Have Been Exacerbated By Enhabit's Poorly Executed Payor Innovation Strategy
Home Health …Have Been Exacerbated By Enhabit’s Poorly Executed Payor Innovation Strategy Rather than gradually normalizing Enhabit’s payor mix by growing MA volumes in a controlled manner while protecting its existing FFS market share, the Board and management oversaw a precipitous drop in the Comp
Slide 39: Peers Have Navigated Industry Headwinds More Effectively
Home Health Peers Have Navigated Industry Headwinds More Effectively Enhabit’s peers have successfully sustained their FFS revenue. FFS Revenue FFS Revenue Growth (3%) 1% 0% $221M $216M (1%) (1%) $174M (2%) (26%) (3%) (2%) (4%) (3%) $128M (5%) (8%) (10%) (10%) (11%) (12%) (14%) (15%) (16%) 1Q 22 2Q
Slide 40: Peers Have Navigated Industry Headwinds More Effectively (Cont'd.)
Peers Have Navigated Industry Headwinds More Effectively (Cont’d.) The Board lacks the industry-specific knowledge to dispute the specious mean-reversion arguments that management makes instead of acknowledging Enhabit’s loss of FFS market share. Home Health Revenue Mix Home Health Revenue Mix $364M
Slide 41: Enhabit's Issues Are Not Due to Industry Headwinds…
Home Health Enhabit’s Issues Are Not Due to Industry Headwinds… After initially dropping due to Enhabit’s bungled separation from Encompass, FFS admissions had stabilized by the end of 2022. Management then announced the signing of a new national MA payor contract on the Company’s 1Q 2023 earnings c
Slide 42: …But Are in Fact The Result of A Significant Loss of FFS Market Share…
Home Health …But Are in Fact The Result of A Significant Loss of FFS Market Share… We believe Enhabit has lost ~20% of its FFS market share in Home Health since its spin-off due to its bungled separation from Encompass and the Company’s subsequent poor execution in navigating shifts in payor mix. FF
Slide 43: …Which Has Decimated The Profitability of its Home Health Business
Home Health …Which Has Decimated The Profitability of its Home Health Business Enhabit’s financial results in Home Health have been severely challenged due to its loss of FFS market share. Revenue Adjusted EBITDA Adjusted EBITDA Margin (5%) $897M $877M $850M 25.6% 23.1% (570bps) 19.9% (26%) $230M $2
Slide 44: I don't think we're losing market share.
I don’t think we’re losing market share. Crissy Carlisle Enhabit CFO 4Q 2023 Earnings Call, March 7, 2024
Slide 45: The Board Must Accept Responsibility: Management's Shifting Explanations
Home Health The Board Must Accept Responsibility: Management’s Shifting Explanations Management initially attributed lost Encompass referrals to Enhabit’s inability to accept lower-paying MA patients, which would improve upon signing new MA contracts. Management subsequently shifted their explanatio
Slide 46: The Board Must Accept Responsibility: Management's Incoherent Explanations
Home Health The Board Must Accept Responsibility: Management’s Incoherent Explanations In explaining the “Enhabit cliff” (their term), leadership provided tired platitudes such as referral frustration and Enhabit’s above-average FFS revenue share in Home Health but struggled to clearly explain the s
Slide 47: AREX's Conclusion
Home Health AREX’s Conclusion Self-Inflicted Sales Is Part of Inexperienced “Enhabit Cliff” the Problem Management Oversight Failure × The speed and severity of × A salesforce reorganization in × The past two years have clearly × The Board has not held Enhabit’s FFS admissions January 2023 appears t
Slide 48: Poor Operational Execution: Hospice
Poor Operational Execution: Hospice
Slide 49: Manageable Industry Headwinds…
Hospice Manageable Industry Headwinds… The hospice industry has recently been challenged by the “pull-forward” of deaths during the pandemic, as well as reduced senior housing occupancy and clinician availability. Reduced Occupancy at Most Pandemic “Excess Deaths” Profitable Referral Source Staffing
Slide 50: …Have Been More Effectively Navigated By Peers
Hospice …Have Been More Effectively Navigated By Peers Amedisys has shrunk its branch footprint over the past three years but has grown revenue modestly. In contrast, Enhabit has grown its branch footprint by more than 35% over the same period, but its revenue is still lower than it was in 2021. Hos
Slide 51: Enhabit's Issues Are Not Due to Industry Headwinds
Hospice Enhabit’s Issues Are Not Due to Industry Headwinds When clinician turnover surged, Enhabit’s peers used travel nurses to maintain clinical capacity in order to accept patients. Conversely, Enhabit’s inexperienced new management team did not, which left its hospice branches understaffed, resu
Slide 52: It Wasn't Always This Way
Hospice It Wasn’t Always This Way Under prior leadership, Enhabit’s Hospice business generally grew faster than its public peers. 37% 35% Enhabit CEO and Same-Branch Admission Growth CFO Start 21% 16% 16% 14% 14% 13% 15% 12% 11% 7% 10% 10% 9% 11% 8% 9% 9% 8% 7% 5% 6% 6% 7% 5% 5% 1% 5% 5% 5% 4% 3% 2%
Slide 53: The Board Must Accept Responsibility: Enhabit's Hospice Underperformance
Hospice The Board Must Accept Responsibility: Enhabit’s Hospice Underperformance Despite Enhabit’s perennial assurances that its Hospice business is turning around, same-branch admissions are still declining, even though it now has excess clinical capacity and a sales force that should be fully ramp
Slide 54: The Board Must Accept Responsibility: Enhabit's Lack of Progress in its Hospice Business
Hospice The Board Must Accept Responsibility: Enhabit’s Lack of Progress in its Hospice Business In 3Q 2022, Enhabit finally began using travel nurses and aggressively hiring full-time nurses, and it had restored its clinical capacity by 1Q 2023. Enhabit also restructured its depleted sales organiza
Slide 55: Poor Execution Has Yielded Poor Financial Results
Hospice Poor Execution Has Yielded Poor Financial Results In our view, Enhabit’s financial results in its Hospice business have been challenged due to its inability to convert excess clinical capacity into admissions. Revenue Adjusted EBITDA Adjusted EBITDA Margin (6%) $209M $194M $196M 26.9% 19.9%
Slide 56: AREX's Conclusion
Hospice AREX’s Conclusion Enhabit’s Challenges Enhabit Has Sales Organization Ineffective De Novo Are Not Unique Significant Advantages Needs Rehabilitation Strategy × Clinical and sales personnel × Enhabit provides a high quality × The hiring of three VPs of × 10 de novo branches have turnover has
Slide 57: Poor Operational Execution: Corporate Overhead
Poor Operational Execution: Corporate Overhead
Slide 58: Enhabit Has Been Ineffective in Controlling its Corporate Overhead
Corporate Overhead Enhabit Has Been Ineffective in Controlling its Corporate Overhead Management has allowed corporate overhead to grow despite the Company’s falling revenue outlook. Corporate Overhead Costs Corporate Overhead Cost Ratio (Corporate Overhead Costs as % of Revenue) $28M $27M $26M $27M
Slide 59: Underperformance vs. Peers
Underperformance vs. Peers Enhabit’s Corporate Overhead Cost Ratio is now ~200 basis points higher than the ratios of its closest peers. Peer Corporate Overhead Cost Ratios Last Twelve Months as of March 31, 2024 10.3% 8.3% 7.8% 6.0% +$24M Impact of Having an 8.0% Corporate Overhead Cost Ratio on En
Slide 60: The Board Must Accept Responsibility: No Expense Discipline
Corporate Overhead The Board Must Accept Responsibility: No Expense Discipline Management has promised expense vigilance, but costs have remained above 2H 2022 levels. As we head into the 2023 budget cycle, we are certainly challenging our teams. New people that we've brought on, for example, buildi
Slide 61: AREX's Conclusion
Corporate Overhead AREX’s Conclusion Overhead Must No Explanation Overwhelmed Be Prioritized for Cost Spike Management Oversight Failure × In a largely fixed-rate × The 1Q 2023 spike in corporate × Management has demonstrated × We are shocked that no reimbursement environment, overhead costs was att
Slide 62: Our Solution: The AREX Slate Has the Necessary Experience
Our Solution: The AREX Slate Has the Necessary Experience to Help Management Implement a Superior Plan
Slide 63: Megan Ambers
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Megan Ambers Megan Ambers brings a deep understanding of home health and hospice labor strategies, operations, payor models, utilization, and organizational optimization from her tenure at Enhabit’s closest public peer, Amedisys
Slide 64: James T. Corcoran
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs James T. Corcoran James T. Corcoran brings extensive knowledge of capital markets and corporate governance practices. Mr. Corcoran possesses a stockholder’s perspective and is highly familiar with Enhabit’s business, performan
Slide 65: Maxine Hochhauser
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Maxine Hochhauser Maxine Hochhauser brings more than 30 years of experience as a healthcare industry executive focused on home health and home care operations, and a history of successfully navigating challenging financial, regu
Slide 66: Mark W. Ohlendorf
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Mark W. Ohlendorf Mark W. Ohlendorf brings 30 years of diverse experience in senior-related healthcare, including in the home health, hospice, and senior housing industries, in addition to financial and accounting expertise. F
Slide 67: Anna-Gene O'Neal
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Anna-Gene O’Neal Anna-Gene O’Neal brings 35 years of healthcare experience, including leadership positions in home health and hospice operations, and a strong track record of driving business growth, turning around operations, a
Slide 68: Dr. Gregory S. Sheff
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Dr. Gregory S. Sheff Dr. Gregory S. Sheff brings a comprehensive understanding of home health and hospice operations and insight into large payors along with more than 20 years of healthcare experience, both as a practicing phys
Slide 69: Juan Vallarino
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs Juan Vallarino Juan Vallarino brings more than 40 years of experience in the healthcare industry and extensive knowledge of multifaceted home health and post-acute experience, as well as a deep understanding of managed care payo
Slide 70: The AREX Slate Possesses the Right Mix of Skills to Help Rehabilitate Enhabit
The AREX Slate Has the Skills and Experience That Enhabit’s Board Needs The AREX Slate Possesses the Right Mix of Skills to Help Rehabilitate Enhabit Our nominees possess significant hands-on home health and hospice industry experience. Megan James T. Maxine Mark W. Anna-Gene Dr. Gregory S. Juan Nom
Slide 71: The AREX Slate's Plan: Rehabilitating Enhabit to Create Stockholder Value
The AREX Slate’s Plan: Rehabilitating Enhabit to Create Stockholder Value The AREX Slate has developed a comprehensive, five-point plan that it intends to help management implement. Create a dedicated Transformation Committee to help management correct Enhabit’s operational underperformance in an ur
Slide 72: If Elected, Our Nominees Intend to Create a Dedicated Transformation Committee
If Elected, Our Nominees Intend to Create a Dedicated Transformation Committee Given the myriad operational issues Enhabit is facing, AREX has nominated individuals with deep operational experience in the home health and hospice industries. These nominees intend to form a dedicated Transformation Co
Slide 73: The AREX Slate Intends to Follow the Successful Amedisys Playbook
The AREX Slate Intends to Follow the Successful Amedisys Playbook Enhabit’s closest public peer was rehabilitated nearly a decade ago when Paul Kusserow became CEO in December 2014. We intend to follow a similar playbook. Recaptured Explosive Amedisys Playbook: FFS Market Share Hospice Growth Driv
Slide 74: Amedisys' Turnaround Supports the Feasibility of the AREX Slate's Plan
Amedisys’ Turnaround Supports the Feasibility of the AREX Slate’s Plan Amedisys’ share price followed its EBITDA growth. Adjusted EBITDA AMED Share Price $70 $142M $60 Paul Kusserow becomes CEO $112M $110M $50 $40 $74M $30 $20 $10 $ - 2014 2015 2016 2017 2014 2015 2016 2017 Source: SEC filings. Sour
Slide 75: We Are Committed to Transparency
We Are Committed to Transparency Amedisys provided investors with regular updates as to its turnaround progress. We intend to do the same. Source: SEC filings. AREX Capital 75
Slide 76: The AREX Slate's Plan: Enhabit's EBITDA Can Quickly Grow by 50%
The AREX Slate’s Plan: Enhabit’s EBITDA Can Quickly Grow by 50% if Managed Properly The AREX Slate’s Plan conservatively reflects only 50% of the potential financial benefit from a successful rehabilitation of Enhabit. Illustrative Enhabit EBITDA $10M $147M $16M $23M $98M 2023 EBITDA FFS Market Shar
Slide 77: The AREX Slate's Plan: Value Creation Potential
The AREX Slate’s Plan: Value Creation Potential We believe Enhabit’s stock price could more than double if the AREX Slate’s Plan is implemented. Valuation multiple expansion to match peer multiples would represent further upside. Illustrative Enhabit Stock Price $28 >100% $9 $18 AREX Slate’s Plan $9
Slide 78: The AREX Slate's Plan: Home Health
The AREX Slate’s Plan: Home Health
Slide 79: The AREX Slate's Plan
Home Health The AREX Slate’s Plan The Transformation Committee intends to work closely with senior management to help them implement the AREX Slate’s Plan. FFS market share Review branch analytics and interview senior leaders. recapture Conduct field interviews in underperforming markets to determin
Slide 80: Detailed Action Plan
Home Health Detailed Action Plan The action plan for Enhabit’s Home Health business will be focused on regaining FFS market share and driving profitable admissions growth. Adjust incentive plans to ensure alignment between sales, clinical, and operations personnel to optimally manage the payor mix.
Slide 81: Why the AREX Slate's Plan is Achievable
Home Health Why the AREX Slate’s Plan is Achievable We do not believe that Enhabit’s FFS market share loss is permanent. In fact, we see no reason why Enhabit should not be able to gain market share given its scale and quality. Advanced DNA of Clinical Superior Quality Analytics Scale Advantages MA
Slide 82: The AREX Slate's Plan Objectives
Home Health The AREX Slate’s Plan Objectives We believe that Enhabit should be able to recapture all of the market share it has lost since 2021. To be conservative, the AREX Slate’s Plan only reflects achieving 50% of that objective. ~4.2% 2021 FFS Market Share Upside $230M ~3.9% Potential ~$215M AR
Slide 83: The AREX Slate's Plan: Hospice
The AREX Slate’s Plan: Hospice
Slide 84: The AREX Slate's Plan
Hospice The AREX Slate’s Plan The Transformation Committee intends to work closely with senior management to help them implement the AREX Slate’s Plan to rehabilitate Enhabit’s Hospice sales organization. Review branch analytics and Branch-level diagnoses interview senior leaders. Conduct field inte
Slide 85: Why the AREX Slate's Plan is Achievable
Hospice Why the AREX Slate’s Plan is Achievable Enhabit has failed to convert excess clinical capacity into admissions. Enhabit’s Hospice business has attractive characteristics, and we believe the AREX Slate has the requisite experience to help management rehabilitate its sales force and drive admi
Slide 86: The AREX Slate's Plan Objectives
Hospice The AREX Slate’s Plan Objectives We believe that Enhabit can fully restore its per-branch ADC to 1Q 2021 levels through a sales force rehabilitation. To be conservative, the AREX Slate’s Plan only reflects achieving 50% of that objective. ~45 ~$68M 1Q 2021 ADC Per Branch Upside Upside $56M P
Slide 87: The AREX Slate's Plan: Corporate Overhead
The AREX Slate’s Plan: Corporate Overhead
Slide 88: The AREX Slate's Plan
Corporate Overhead The AREX Slate’s Plan The Transformation Committee intends to work closely with senior management to help them implement the AREX Slate’s Plan for corporate overhead efficiency improvements, with a goal of closing the gap to peers by 100 basis points. We believe revenue growth in
Slide 89: Why the AREX Slate's Plan is Achievable
Corporate Overhead Why the AREX Slate’s Plan is Achievable Enhabit has failed to maintain cost discipline. We believe that the AREX Slate has the requisite experience to help management properly align Enhabit’s corporate overhead with its revenue base. Industry Standard Enhabit’s History Never Optim
Slide 90: The AREX Slate's Plan Objectives
Corporate Overhead The AREX Slate’s Plan Objectives The AREX Slate’s Plan targets a 100-basis-point reduction in Enhabit’s corporate overhead cost ratio. $108M $98M ($10M) 100 bps Improvement in Corporate Overhead Cost Ratio 2023 Corporate Overhead Efficiency Initiatives 2023 Pro Forma Corporate Ove
Slide 91: Vote FOR the AREX Slate to Rehabilitate Enhabit
Vote FOR the AREX Slate to Re h a b ilit a t e En h a b it We believe that voting to replace a majority of the Board with our highly qualified director candidates is the only way to turn around Enhabit and ensure the Company reaches its full potential. VOTE USING THE WHITE PROXY CARD FOR ALL SEVEN O
Slide 92: Appendix
Appendix
Slide 93: Enhabit's Potential
Enhabit’s Potential
Slide 94: Enhabit is An Attractive Asset
Enhabit is An Attractive Asset We believe Enhabit is a high-quality asset that has been chronically mismanaged. Attractive Competitive Position Secular Tailwinds Transitory Headwinds The home health and hospice industries The aging U.S. population will increase the 2022 was the home health industry’
Slide 95: Attractive Competitive Landscape
Secular Tailwinds Attractive Competitive Landscape The highly fragmented home health and hospice industries should continue to consolidate. Home Health Hospice ~11,350 Agencies in U.S. ~5,900 Agencies in U.S. 4% 6% 7% 5% 4% 78% 81% 3% All Others 5% All Others 2% 2% 2% 1% Source: Amedisys January 202
Slide 96: Enhabit Has Significant Market Share in Most of its Home Health Markets
Secular Tailwinds Enhabit Has Significant Market Share in Most of its Home Health Markets Leading market share in a highly fragmented industry provides tremendous scale advantages. Enhabit FFS Home Health Market Share (2021-2022) 255 3.5★ QoPC Rating Branches (3.0★ National Average) ~4% 16% 3.7★ HHC
Slide 97: Enhabit's Hospice Business Has Solid Market Share in its Core Markets
Secular Tailwinds Enhabit’s Hospice Business Has Solid Market Share in its Core Markets Hospice Market Share (2020) 112 73.4% Branches 107 Patient Visits in Last Days of Life 18% (47.9% National Average) 12% 10% Branches Co-Located With Home Health 4% 3% 5% 5% ~1% 13% Hospice Market Share (2020) 3%
Slide 98: Enhabit Should Be Taking FFS Market Share
Enhabit Should Be Taking FFS Market Share After Amedisys is acquired by Optum, we believe that Enhabit will be the largest independent home health provider, with double the market share of its next closest competitor. 3.5★ QoPC Rating (3.0★ National Average) Capacity Diversion Quality Advantages Sca
Slide 99: Secularly Aging Population
Secularly Aging Population The population using home health and hospice services is projected to grow significantly over the next decade. Projected U.S. 75+ Population 37M 25M +4% Annual Growth in 75+ Population 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Source: U.S. Census Bureau.
Slide 100: Robust Medicare Spending Growth
Secular Tailwinds Robust Medicare Spending Growth Projected Medicare Reimbursements Home Health Hospice $54B $34B $26B $17B 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Source: 2023 Medicare Trustees Report. Source: 2023 Medicare Trustees Report
Slide 101: Home Health and Hospice Care Unlock Vast Savings
Secular Tailwinds Home Health and Hospice Care Unlock Vast Savings We believe that the home is the most cost-effective and patient-preferred site of care, while also producing the best patient outcomes. Most Cost-Efficient Sites of Care Reduces Costly Readmissions Lowers Systemwide Costs Post-Acute
Slide 102: Transitory Headwinds: Labor Pressures Are Normalizing
Transitory Headwinds: Labor Pressures Are Normalizing Since peaking in 2022, clinician labor pressures such as decreased availability, elevated turnover, and severe wage increases have eased. Employment Above Pre- Elevated Turnover Wage Pressure Pandemic Levels Receding Normalizing Home Health Care
Slide 103: Transitory Headwinds: Payor Mix Shift is Slowing
Transitory Headwinds: Payor “Mix Shift” is Slowing Despite a steadily increasing elderly population, the number of FFS beneficiaries has declined due to rapid membership growth in MA plans. This growth (and the associated decline in FFS beneficiaries) has been decelerating and is expected to slow fu
Slide 104: Regulators Are Demonstrating Moderation
Regulators Are Demonstrating Moderation We are also finalizing a -3.925% permanent payment adjustment for CY 2023 (half CMS appears to recognize the risk of large single-year reimbursement cuts. of the proposed -7.85% adjustment), as we recognize the potential hardship of implementing the proposed f
Slide 105: Phased Temporary Adjustment Looks Most Likely
Transitory Headwinds Phased Temporary Adjustment Looks Most Likely A constant 2-3% negative adjustment offsetting annual market basket increases over four years would be expected to result in full recoupment of the estimated $4.7B of CMS “overpayments.” Projected Medicare Reimbursement Path 2026-202
Slide 106: Unit Economics
Unit Economics
Slide 107: Illustrative Home Health Unit Economics
Illustrative Home Health Unit Economics Enhabit’s Home Health business EBITDA can increase dramatically if it can recapture some of its lost FFS market share. $3,006 ($250) 1 =1.7 ($1,333) $1,423 = $2,425 EBITDA / Admission +$23M Admission Episodes (1) Impact of ~9,500 FFS admissions targeted (2) (3
Slide 108: Illustrative Hospice Marginal Unit Economics
Illustrative Hospice Marginal Unit Economics Enhabit’s Hospice business EBITDA can increase dramatically if it can grow its admissions. $16,880 ($750) 1= ($8,316) $7,814 3.4 = 1 (4) +$16M Admission Admissions Average Daily Census Impact of ~2,000 admissions targeted Revenue per (1) Commission (2) Co
Slide 109: Miscellaneous
Miscellaneous
Slide 110: Home Health Overview
Home Health Overview What is Home Health? Patient Demographics Terminology Home health agencies (HHAs) provide services to To be eligible for Medicare’s home health benefit, Episode: A 60-day unit of home health care. After beneficiaries who are homebound and need beneficiaries must need part-time (
Slide 111: Hospice Overview
Hospice Overview What is Hospice? Patient Demographics Terminology To be eligible for hospice care, a patient must be In 2022, more than 1.7 million Medicare Census: The total number of patients on hospice diagnosed with a terminal illness with a prognosis beneficiaries received hospice services, an
Slide 112: Enhabit's Peers
Enhabit’s Peers Enhabit’s 2023 Compensation Peer Group as disclosed in the Company’s definitive proxy statement comprises the following: Addus HomeCare Corporation; Amedisys, Inc.; AMN Healthcare Services, Inc.; Aveanna Healthcare Holdings, Inc.; Chemed Corporation; Cross Country Healthcare, Inc.; I
Slide 113: Peer Corporate Overhead Cost Ratio Analysis
Peer Corporate Overhead Cost Ratio Analysis Corporate G&A (1) $139M $256M $107M $43M (-) Unusual & Non-Recurring Items (23M) (63M) (7M) (3M) (-) Stock-Based Compensation (9M) (15M) (10M) (6M) (-) Other Adjustments (2) 1M (2M) – 1M Adjusted Corporate Overhead $107M $175M $90M $34M Revenues $1.0B $2.3