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Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2023
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies: Organization and Description of Business— Enhabit, Inc. (“Enhabit,” “we,” “us,” “our,” and the “Company”), incorporated in Delaware in 2014, provides a comprehensive range of Medicare-certified skilled home health and hospice services in 34 states, with a concentration in the southern half of the United States. We manage our operations and disclose financial information using two reportable segments: (1) home health and (2) hospice. See Note 9, Segment Reporting. Prior to July 1, 2022, the Company operated as a reporting segment of Encompass Health Corporation (“Encompass”). On December 9, 2020, Encompass announced a formal process to explore strategic alternatives for its home health and hospice business. On January 19, 2022, Encompass announced its home health and hospice business would be rebranded and operate under the name Enhabit Home Health & Hospice. In March 2022, we changed our name from Encompass Health Home Health Holdings, Inc. to Enhabit, Inc. Separation from Encompass— On July 1, 2022, Encompass completed the previously announced separation of the Company through the distribution of all of the outstanding shares of common stock, par value $0.01 per share, of Enhabit to the stockholders of record of Encompass (the “Distribution”) as of the close of business on June 24, 2022 (the “Record Date”). The Distribution was effective at 12:01 a.m., Eastern Time, on July 1, 2022. The Distribution was structured as a pro rata distribution of one share of Enhabit common stock for every two shares of Encompass common stock held of record as of the Record Date. No fractional shares were distributed. A cash payment was made in lieu of any fractional shares. As a result of the Distribution, Enhabit is now an independent public company and its common stock is listed under the symbol “EHAB” on the New York Stock Exchange (the “Separation”). The Separation was completed pursuant to a separation and distribution agreement (the “Separation and Distribution Agreement”) and other agreements with Encompass related to the Separation, including, but not limited to, a tax matters agreement (the “Tax Matters Agreement”), an employee matters agreement (the “Employee Matters Agreement”), and a transition services agreement (the “Transition Services Agreement” or “TSA”). Following the Separation, certain functions continue to be provided by Encompass under the TSA or are being performed using the Company’s own resources or third‑party providers. The Company incurred certain costs in its establishment as an independent, publicly traded company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company. In anticipation of the Distribution, we transferred the “Encompass” trade name with a book value of $135.2 million and the related deferred tax liabilities with a book value of $31.0 million to Encompass as they will continue to operate under the Encompass brand. All June 30, 2022 share and earnings per share information has been retroactively adjusted for all periods presented to reflect the Distribution. See also Note 4, Long-term Debt. Basis of Presentation and Consolidation— The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries should be read in conjunction with the audited consolidated financial statements and accompanying notes contained in the Company’s Annual Report for the year ended December 31, 2022 on Form 10-K (the “Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on April 14, 2023. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC applicable to interim financial information. Certain information and note disclosures included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been omitted in these interim statements, as allowed by such SEC rules and regulations. The condensed consolidated balance sheet as of December 31, 2022 has been derived from audited financial statements, but it does not include all disclosures required by GAAP. However, we believe the disclosures are adequate to make the information presented not misleading. The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire year. In our opinion, the accompanying unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state the financial position, results of operations, and cash flows for each interim period presented. Prior to July 1, 2022, we existed and functioned as part of the consolidated business of Encompass. The results related to the three and six months ended June 30, 2022 included within the accompanying unaudited condensed consolidated financial statements have been derived from the unaudited condensed consolidated financial statements and accounting records of Encompass as if the Company had operated on a stand-alone basis during the periods presented and were prepared utilizing the legal entity approach, in accordance with GAAP, and pursuant to the rules and regulations of the SEC. Prior to July 1, 2022, the Company was reported as a single reportable segment within Encompass’s reportable segments and did not operate as a stand-alone company. Accordingly, Encompass historically reported the financial position and the related results of operations, cash flows and changes in equity of the Company as a component of Encompass’s unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include an allocation of expenses related to certain Encompass corporate functions as discussed in Note 10, Related Party Transactions, for periods prior to July 1, 2022. The unaudited condensed consolidated financial statements also include revenues and expenses directly attributable to the Company and assets and liabilities specifically attributable to the Company. Encompass’s third-party debt and related interest expense have not been attributed to the Company because the Company was not the primary legal obligor of the debt and the borrowings were not specifically identifiable to the Company. However, subsequent to April 23, 2020, the Company was a guarantor for Encompass’s credit agreement and senior debt. In connection with the Distribution, the Company was released from its guarantee of Encompass’s indebtedness. The Company maintains its own cash management system and did not participate in a centralized cash management arrangement with Encompass. The income tax amounts in these unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022 have been calculated based on a separate return methodology and are presented as if our income gave rise to separate federal and state consolidated income tax return filing obligations in the respective jurisdictions in which we operate. In addition to various separate state and local income tax filings, we joined with Encompass in various U.S. federal, state and local consolidated income tax filings prior to the Separation. See Note 6, Income Taxes, for information related to our Tax Sharing Agreement with Encompass. The unaudited condensed consolidated financial statements include the assets, liabilities, revenues, and expenses of all wholly owned subsidiaries, majority-owned subsidiaries over which we exercise control, and, when applicable, entities in which we have a controlling financial interest. We use the equity method to account for our investments in entities we do not control, but for which we have the ability to exercise significant influence over operating and financial policies. Consolidated Net (loss) income attributable to Enhabit, Inc. includes our share of the net earnings of these entities. We eliminate all intercompany accounts and transactions within the Company from our financial results. Transactions between the Company and Encompass have been included in these unaudited condensed consolidated financial statements. The transfers with Encompass that were not settled in cash are reflected in stockholders’ equity on the condensed consolidated balance sheets and within Capital in Excess of Par Value on the condensed consolidated statements of stockholders’ equity. Within the condensed consolidated statements of cash flows, these transfers were treated as an operating, financing or noncash activity determined by the nature of the transaction. For the three and six months ended June 30, 2022, transactions between the Company and Encompass were considered related party transactions. Refer to Note 10, Related Party Transactions, for more information. Net Service Revenue— Our Net service revenue disaggregated by payor source and segment are as follows (in millions):
| Home Health |  | Hospice |  | Consolidated
| Three Months Ended June 30, |  | Three Months Ended June 30, |  | Three Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
Medicare | $ | 139.4 |  |  | $ | 164.0 |  |  | $ | 46.2 |  |  | $ | 46.2 |  |  | $ | 185.6 |  |  | $ | 210.2 |
Medicare Advantage | 53.3 |  |  | 36.9 |  |  | — |  |  | — |  |  | 53.3 |  |  | 36.9 |
Managed care | 18.1 |  |  | 16.6 |  |  | 2.0 |  |  | 1.4 |  |  | 20.1 |  |  | 18.0 |
Medicaid | 2.9 |  |  | 2.6 |  |  | 0.2 |  |  | 0.2 |  |  | 3.1 |  |  | 2.8 |
Other | 0.1 |  |  | 0.1 |  |  | 0.1 |  |  | — |  |  | 0.2 |  |  | 0.1 |
Total | $ | 213.8 |  |  | $ | 220.2 |  |  | $ | 48.5 |  |  | $ | 47.8 |  |  | $ | 262.3 |  |  | $ | 268.0 |
| Home Health |  | Hospice |  | Consolidated
| Six Months Ended June 30, |  | Six Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
Medicare | $ | 285.5 |  |  | $ | 333.3 |  |  | $ | 93.8 |  |  | $ | 94.1 |  |  | $ | 379.3 |  |  | $ | 427.4 |
Medicare Advantage | 102.6 |  |  | 71.4 |  |  | — |  |  | — |  |  | 102.6 |  |  | 71.4 |
Managed care | 35.4 |  |  | 34.4 |  |  | 3.9 |  |  | 2.5 |  |  | 39.3 |  |  | 36.9 |
Medicaid | 5.8 |  |  | 5.7 |  |  | — |  |  | 0.6 |  |  | 5.8 |  |  | 6.3 |
Other | 0.4 |  |  | 0.3 |  |  | — |  |  | — |  |  | 0.4 |  |  | 0.3 |
Total | $ | 429.7 |  |  | $ | 445.1 |  |  | $ | 97.7 |  |  | $ | 97.2 |  |  | $ | 527.4 |  |  | $ | 542.3 |
For a discussion of our significant accounting policies, including our policy related to Net service revenue, see Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Form 10-K. Redeemable Noncontrolling Interests in Consolidated Affiliates— Certain of our joint venture agreements contain provisions that allow our partners to require us to purchase their interests in the joint venture at fair value at certain points in the future. These put rights include termination provisions, change in control provisions and breaches of the terms of the underlying operating agreements. Because these noncontrolling interests provide for redemption features that are not solely within our control, we classify them as Redeemable noncontrolling interests outside of permanent equity in our consolidated balance sheets. The following tables reconcile the net income attributable to nonredeemable Noncontrolling interests, as recorded in the shareholders’ equity section of the consolidated balance sheets, and the net income attributable to Redeemable noncontrolling interests, as recorded in the mezzanine section of the consolidated balance sheets, to the Net income attributable to noncontrolling interests presented in the consolidated statements of income (in millions):
| Six Months Ended June 30, |  |
| 2023 |  | 2022 |  |
Balance at beginning of period | $ | 5.2 |  |  | $ | 5.0 |  |  |
Net income attributable to redeemable noncontrolling interests | 0.1 |  |  | 0.2 |  |  |
Distributions to redeemable noncontrolling interests | (0.2) |  |  | — |  |  |
Balance at end of period | $ | 5.1 |  |  | $ | 5.2 |  |  |
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Net income attributable to nonredeemable noncontrolling interests | $ | 0.3 |  |  | $ | 0.7 |  |  | $ | 0.7 |  |  | $ | 1.1 |  |  |
Net income attributable to redeemable noncontrolling interests | — |  |  | — |  |  | 0.1 |  |  | 0.2 |  |  |
Net income attributable to noncontrolling interests | $ | 0.3 |  |  | $ | 0.7 |  |  | $ | 0.8 |  |  | $ | 1.3 |  |  |
(Loss) Earnings Per Common Share— The following table sets forth the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2023 and 2022 (in millions):
| Three Months Ended June 30, |  | Six Months Ended June 30, |  |  |
| 2023 |  | 2022 |  | 2023 |  | 2022 |  |  |  |  |
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic | 49.8 |  | 49.6 |  | 49.8 |  | 49.6 |  |  |  |  |
Diluted | 49.8 |  | 49.6 |  | 49.8 |  | 49.6 |  |  |  |  |
A total of 0.3 million options to purchase Enhabit’s shares and 1.4 million shares of restricted stock awards, performance units and restricted stock units were excluded from the diluted weighted average common shares outstanding for the three and six months ended June 30, 2023 because their effects were anti-dilutive. There were no dilutive or anti-dilutive shares for the three and six months ended June 30, 2022. See Note 10, Stock-Based Payments, to the consolidated financial statements included in the Form 10-K for additional information. Recent Accounting Pronouncements— We do not believe any recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial position, results of operations, or cash flows.

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