Addresses Misleading Claims Made by AREX
AREX’s Attempt to Take Control of Enhabit’s
Board Threatens Stabilization of Business
Recommends Stockholders Vote FOR Enhabit’s
Director Nominees on the YELLOW Proxy Card
Enhabit, Inc. (NYSE: EHAB), (“Enhabit” or the “Company”), a
leading home health and hospice provider, today sent a letter to
stockholders in connection with its upcoming 2024 Annual Meeting of
Stockholders (the “2024 Annual Meeting”) scheduled for July 25,
2024. Stockholders of record as of the close of business on June 5,
2024 are entitled to vote at the 2024 Annual Meeting.
The Company issued the following letter to Enhabit Stockholders
to address misstatements made by AREX Capital Management, LP
(together with its affiliates, “AREX”). The full text of the letter
follows and can be found at
investors.ehab.com/2024-annual-meeting/, along with Enhabit’s
definitive proxy materials and other materials regarding the Board
of Directors’ recommendations for the 2024 Annual Meeting.
Dear Fellow Stockholders,
Enhabit is approaching its two-year anniversary as a public
company following its separation from Encompass Health Corporation
(“Encompass”). During that period, in the face of substantial
industry and company-specific headwinds, our Board of Directors
(the “Board”) and management team worked hard to stabilize
Enhabit’s business and build the necessary infrastructure to enable
stockholder value creation as a separate public company. However,
rather than focus on the business as it currently stands, AREX
continues to criticize past actions, including in many cases those
that were made prior to Enhabit’s separation. To be clear, seven
of the proposed eight Enhabit independent directors were not even
on the Board at that time, having joined the Company on the date of
the spin-off or thereafter.
We understand that neither our financial results nor our stock
performance has satisfied your expectations – results over the
first five quarters certainly did not meet the standard the Board
has set for Enhabit. We recognized the issues that we faced and
have made demonstrable progress in addressing these issues. Our
performance over the last two quarters indicates that the business
has stabilized and is positioned for profitable growth moving
forward.
While we believe Enhabit has turned a corner, there is still
more work to do. We must continue to execute on our initiatives and
improve performance. Enhabit has the right Board in place to
oversee our value creation initiatives, with a thoughtful balance
of experience, diversity and industry knowledge. The Board has been
almost wholly refreshed since the separation, with nearly all
independent director nominees having a tenure of less than two
years. The refreshed Board is engaged and focused on driving our
strategy and enhancing value for all stockholders.
AREX, which just five weeks ago was focused entirely on a sale
of the Company as the only viable path, is now running a proxy
contest to replace seven of the eight independent directors and
take control of the Board. AREX is pursuing its contest at
exactly the wrong time and with the wrong candidates, and it
threatens the recent stabilization of the business.
AREX’s nominees are demonstrably inferior to the Company’s
nominees in terms of relevant industry experience, public company
board experience, complementary skill sets and career
accomplishments. Furthermore, while it appears AREX has attempted
to field a slate with the sole purpose of claiming they have Home
Health and Hospice experience (to the exclusion of other relevant
skills), the industry experience their candidates do possess is
largely inapplicable to the specific issues facing Enhabit in
today’s industry climate.
AREX has made three primary
critiques of the Company’s performance.
1. AREX Assertion: Enhabit is hemorrhaging Medicare
Fee-for-Service home health market share.
AREX frames this issue in the present tense; however, AREX’s
critique focuses on Enhabit’s performance going back to the first
quarter of 2021, nearly six quarters before Enhabit became a
separate, standalone company from Encompass, and when nearly all of
our proposed director candidates were not on the Encompass
Board.
What’s more, AREX’s assertion illustrates that it does not
understand past and present market dynamics. For example:
- Following the separation, it became clear that patients were
trending from traditional fee-for-service Medicare, the more
profitable payor, to Medicare Advantage plans more quickly than the
industry as a whole anticipated. At that time, traditional Medicare
made up approximately 75% of Enhabit’s total Home Health
revenue.
- Furthermore, referral sources needing to service a mix of
Medicare and Medicare Advantage patients were seeking providers
that would take all patients.
- As a result, not only were we not growing, but we were also
losing Medicare fee-for-service business we had because we were not
seen as “full service”.
- Conversely, our peers’ mix of Medicare was declining over a
slower and longer period because they had been slowly growing
Medicare Advantage. Our existing payor contracts negotiated prior
to the separation by a different management team or inherited as
part of acquisitions prior to the separation, did not allow us to
keep pace.
While AREX claims that the Board did not identify these issues
and develop a timely remediation strategy, in fact, the root causes
were identified, and change was implemented, as quickly as
possible. We are working aggressively to regain an advantaged
position, and those efforts are bearing fruit:
- Beginning around the time of the separation, Enhabit
implemented its payor innovation strategy, which centered around
negotiating Medicare Advantage contracts with existing and new
payors at better rates. We have negotiated 64 new contracts since
the time of the spin-off and have a strong pipeline of additional
opportunities.
- The discount of these contracts to Medicare is now 0% to 25%
(vs. 35% to 40% at the time of separation). This success has driven
an improving Medicare Advantage rate and steady increases in our
non-Medicare revenue per visit. We expect future contracts will
continue to enhance the profitability of the business.
- We have been successful with this part of our strategy and have
stabilized the decline of Medicare admissions. Today our Home
Health Medicare revenue mix is 61%, which is in-line with Amedisys,
our only public peer with a similar business and payor mix.
- With the appropriate contracts in place, we have implemented
additional strategies to regain Medicare market share. Our actions
include, but are not limited to:
- Evaluating each sales team member for their “book of business”
to ensure that the business maintains an effective payor mix;
- Training and retraining business development representatives to
ensure they are appropriately messaging Medicare vs. Medicare
Advantage;
- Piloting changes in sales compensation plans with the primary
focus on driving our traditional Medicare business with Medicare
Advantage growth; and
- Developing new payor relationships with an appropriate patient
mix.
2. AREX Assertion: Enhabit’s Hospice Business Continues to
Lag
- We have been intensely focused on increasing hospice admissions
and census. In Q3 2023, we completed implementation of a new
staffing model, which enhanced our staffing capacity and improved
our recruitment and retention capabilities.
- Once the staffing model was implemented, we could enhance our
business development. This includes building sales headcount
(currently a year-over-year increase) and enhancing our ability to
further diversify referral sources. We are also using data from
loss loyalty reports to strengthen referral source
relationships.
- In addition, we reallocated certain hospice resources to form
centralized admissions departments and are building efficiencies in
the referral to admission process.
Together, these initiatives have led to tangible results.
Enhabit's hospice revenue grew by 2.9% from Q2 2022 to Q1 2024,
while Amedisys' revenue grew by 1.3% during the same period.
Similarly, Enhabit's hospice admissions grew by 6.9% from Q2 2022
to Q1 2024, while Amedisys' admissions declined by 5.3% during the
same period. Enhabit's monthly hospice census has continued to
increase sequentially in Q2 2024.
3. AREX Assertion: Enhabit’s Overhead is Not
Optimized
AREX asserts that Enhabit’s home office costs are unacceptably
high relative to what they were at the time of the spin-off.
However, this is exactly what Encompass publicly communicated prior
to Enhabit being a public company.
Enhabit needed to build out certain public company functions,
such as IT systems and the finance organization. In fact, Enhabit
outperformed the estimated standalone cost plan for 2023 by 15%, a
point which was acknowledged by AREX.
AREX also incorrectly asserts that there are “significant cost
savings opportunities” based on a crude comparison of our overhead
costs to “public peers”, which inherently ignores differences in
the size, business models and cost allocation methodologies and
doesn’t account for the lack of true public peers for Enhabit.
Furthermore, Enhabit’s home office G&A as a percentage of
revenue is at approximately 10%, which is ahead of our closest
public peer, Amedisys, at approximately 11%. Notably, Enhabit
achieved this level of efficiency while also being less than half
the size of Amedisys.
Enhabit continues to seek out and evaluate opportunities to
reduce overhead costs while maintaining the appropriate
infrastructure to support operations.
In addition to these critiques, AREX also criticizes our recent
strategic review, with AREX stating that its “analysis and
diligence have left us profoundly skeptical of the integrity and
effectiveness of the Company’s strategic review process.”
We have previously made public highly detailed disclosures about
our strategic review process to put to rest any doubt that the
Company did not run a comprehensive and exhaustive process. In
addition to searching broadly for potential bidders, the Company
publicly announced the review process, ensuring that any
unidentified bidders had an opportunity to contact Enhabit and
become part of the process. AREX’s claims that its distrust of the
process is rooted in its “analysis and diligence” is simply not
credible.
Prior to the termination of our strategic review on May 8, 2024,
AREX indicated to us that its nomination of seven directors was a
“placeholder” and that they did not intend to run a contest if the
Company announced a sale. Since May 8, 2024, AREX has pivoted its
approach to justify its attempt to take control of the Board. AREX
stated it will publish a likely hastily drafted yet-to-be-disclosed
“plan”, despite not having provided any operational suggestions to
the Company over the past year. Until that time, they were
singularly focused on achieving a sale of the Company, stating that
“it seems manifestly clear that the appropriate path for the
Company is a sale”,1 which is “the only acceptable outcome for this
[strategic review] process.”2
We have the right strategy and right set of directors to oversee
our strategy and the management of Enhabit. We have stabilized the
business over the past two quarters and positioned the Company for
success going forward. We urge you to protect the value of your
investment and vote for Enhabit’s superior Board via the YELLOW
proxy card today.
Thank you for your continued support of and investment in
Enhabit.
Sincerely,
The Enhabit Board of Directors
If you have questions or need assistance voting
your shares, please contact:
MacKenzie Partners, Inc.
Toll-Free: 1-800-322-2885
Or
Email: Enhabit@MacKenziePartners.com
About Enhabit Home Health & Hospice
Enhabit Home Health & Hospice (Enhabit, Inc.) is a leading
national home health and hospice provider working to expand what’s
possible for patient care in the home. Enhabit's team of clinicians
supports patients and their families where they are most
comfortable, with a nationwide footprint spanning 255 home health
locations and 112 hospice locations across 34 states. Enhabit
leverages advanced technology and compassionate teams to deliver
extraordinary patient care. For more information, visit
ehab.com.
Forward-Looking
Statements
Statements contained in this press release which are not
historical facts are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All
forward-looking information speaks only as of the date hereof, and
Enhabit undertakes no duty to publicly update or revise such
forward-looking information, whether as a result of new
information, future events, or otherwise. Such forward-looking
statements are based upon current information and involve a number
of risks and uncertainties, many of which are beyond our control.
Actual events or results may differ materially from those
anticipated in these forward-looking statements as a result of a
variety of factors. While it is impossible to identify all such
factors, factors which could cause actual events or results to
differ materially from our present expectations include, but are
not limited to, our ability to execute on our strategic plans,
regulatory and other developments impacting the markets for our
services, changes in reimbursement rates, general economic
conditions, changes in the episodic versus non-episodic mix of our
payors, the case mix of our patients, and payment methodologies,
our ability to attract and retain key management personnel and
health care professionals, potential disruptions or breaches of our
or our vendors’, payors’, and other contract counterparties’
information systems, the outcome of litigation, our ability to
successfully complete and integrate de novo locations,
acquisitions, investments, and joint ventures, our ability to
successfully integrate technology in our operations, our ability to
control costs, particularly labor and employee benefit costs, and
impacts resulting from the announcement of the conclusion of the
strategic review process. Additional information regarding risks
and factors that could cause actual results to differ materially
from those expressed or implied by any forward-looking statement in
this press release are described in reports filed with the SEC,
including our Annual Report on Form 10-K and subsequent Quarterly
Reports on Form 10-Q, copies of which are available on the
Company’s website at http://investors.ehab.com and free of charge
through the website maintained by the SEC at www.sec.gov. We urge
you to consider all of the risks, uncertainties and factors
identified above or discussed in such reports carefully in
evaluating the forward-looking statements in this press
release.
Important Additional Information and
Where to Find It
The Company has filed a definitive proxy statement on Schedule
14A and other documents with the SEC in connection with its
solicitation of proxies from the Company’s stockholders for the
Company’s 2024 annual meeting of stockholders. THE COMPANY’S
STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE COMPANY’S
DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO), THE ACCOMPANYING YELLOW PROXY CARD, AND ALL OTHER
DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors
and stockholders may obtain a copy of the definitive proxy
statement, an accompanying YELLOW proxy card, any amendments or
supplements to the definitive proxy statement and other documents
filed by the Company with the SEC at no charge at the SEC’s website
at www.sec.gov. Copies will also be available at no charge by
clicking the “SEC Filings” link in the “Investors” section of the
Company’s website, http://investors.ehab.com, or by contacting
InvestorRelations@ehab.com as soon as reasonably practicable after
such materials are electronically filed with, or furnished to, the
SEC.
__________________________ 1 AREX Letter August 14, 2023 2 AREX
Letter October 5, 2023
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240623715218/en/
Investor relations Crissy Carlisle
investorrelations@ehab.com 469-860-6061
Media Erin Volbeda media@ehab.com 972-338-5141
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