Benjamin Mayo • Leerink Partners

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Executive Heather Dixon highlighted two areas of outperformance: continued favorable labor trends with lower premium pay, and startup losses coming in a few million dollars better than expected due to timing. Regarding CTCs, she explained that the decline in average revenue is due to the acquisition of smaller, subscale facilities that are still in their ramp-up phase, which temporarily lowers the overall average until they mature.

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CFO Heather Dixon confirmed a recent refinancing that includes an upsized $1 billion revolver. She projected a return to positive free cash flow by the end of 2026, driven by maturing new bed investments and moderating CapEx, which she estimated could decline by approximately $100 million in 2026. For the guidance bridge, Dixon explained that Q1 and Q2 2025 will be disproportionately impacted by front-loaded start-up costs of around $20 million in Q1 and the timing of supplemental payments, which are expected to be down year-over-year in the first half before increasing for the full year.

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CFO Heather Dixon outlined a framework for 2025, anticipating volume recovery and a net benefit from the Tennessee DPP. She confirmed a 'new step-up' in start-up costs for 2025 due to the timing of 2024 bed additions but stated it was too early to provide a specific financial range.

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CFO Alfred Lumsdaine explained that the sequential performance is within normal seasonal patterns, as a strong flu season drives volume but also lower acuity and higher costs. He confirmed that elevated payer denials are a continuation of trends from mid-2024, creating a year-over-year headwind rather than a new sequential issue, and also noted a slowdown in payment times for clean claims.

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CFO Alfred Lumsdaine confirmed the general math for the quarterly DPP impact. CEO Marty Bonick and CFO Alfred Lumsdaine attributed strong 2024 volumes to broad-based market strength and operational execution. They noted that after adjusting for a ~140-150 basis point benefit from the Two-Midnight Rule in 2024, underlying growth was closer to the 2-3% guided range for 2025, which may contain some conservatism.

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CEO Steven Sell highlighted that the new financial data pipeline, which went live in Q1, improves visibility and would have helped identify this issue sooner. CFO Jeffrey Schwaneke detailed the $22 million PYD, attributing $10 million to 2023 dates of service with one specific payer and $7 million to exited markets. He stated the 2024 claims completion factor is now approximately 90%.

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CEO Steven Sell expressed increased optimism for a post-2026 full-risk government program, whether it's an extension of REACH or a new model. He anticipates active discussions on the topic this year and expects clarity by early 2025, which would align with the enrollment timelines for any new or modified programs.

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CEO Jon Rousseau attributed the strong gross profit per script to a favorable mix of drugs, including brands versus generics, and proactive internal procurement efforts. Regarding the IRA, he stated that BrightSpring's view has not changed in the last 6-9 months, they do not see any change to the pharmacy's growth rate for the rest of the year, and they are confident in sustaining their long-term EBITDA growth track record regardless of the environment.

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Executive Jon Rousseau explained that over 100 ongoing efficiency projects across procurement, automation, and process optimization contributed a significant '8-figure' benefit to EBITDA last year. He noted that while some savings drop to the bottom line, much is reinvested into the business for future growth. Regarding Home Health and Hospice, Rousseau expressed strong commitment, highlighting a goal to double the business's $600 million revenue in five years, supported by an improving reimbursement environment and significant gains in quality metrics, which now see 85% of branches with 4+ star ratings.

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CEO Jon Rousseau and CFO Jim Mattingly attributed the strong Q4 outlook to seasonality and specific drivers like the SPRYCEL generic launch, lower start-up costs, and new hospice rates, all while leveraging a flat corporate overhead. Rousseau stated that capital deployment will prioritize deleveraging alongside a consistent M&A strategy focused on small, accretive tuck-ins in core areas like LTC pharmacy, infusion, rehab, and home health, supplemented by de novo expansion.

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Saumya Sutaria, Chairman and CEO, stated that the impact of opening capacity is reflected in the robust same-store hospital growth numbers but did not provide a specific number of beds. For USPI, he explained that gross physician activity is similar to the past, but 'resyndication' now often involves strategic specialty shifts toward higher acuity, which requires more work than simply replacing physicians within the same specialty.

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CFO Mike Marks stated that there were no material changes in Medicare Advantage behavior and that denial and underpayment activities did not have a material impact on Q1 results. Regarding tariffs, he described the situation as fluid but manageable for 2025, noting that 70% of finished goods supply expense is under fixed pricing for the year and 75% of total supply expense is sourced from North America or from tariff-exempt categories like pharmaceuticals.

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CFO Mike Marks highlighted ongoing initiatives in case management to improve post-acute care placement, especially with Medicare Advantage payers. CEO Sam Hazen added details on network development, ER and OR optimization programs, and a successful labor agenda that has improved employee engagement and reduced turnover.

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CFO Douglas Coltharp stated that Encompass Health does not anticipate a significant near-term impact from tariffs in 2025 due to procured materials and existing contracts. He did not provide a specific range for 2026 start-up costs but expects them to be similar to 2025 levels. He also emphasized that Medicaid supplemental payments are not a material factor for the company, providing historical figures and noting a $3 million EBITDA impact in Q1 2025.

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Douglas Coltharp, CFO, explained that MA growth is broad-based, occurring in both same-store and new markets, and highlighted a five-year CAGR of 11.6%. He noted that 2025 CapEx will increase by approximately $100 million for capacity expansion and that the company expects more consistent use of its share repurchase program. CEO Mark Tarr added that their strong clinical outcomes are a key driver in negotiations with MA plans.

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CEO Parth Mehrotra explained the flat shared savings assumption is a prudent approach given market uncertainties, similar to the strategy last year which resulted in outperformance. Regarding ACO REACH, he believes a convergence with the MSSP program would validate Privia's successful focus on MSSP and could lead to capturing additional provider volume.

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CFO Kasandra Rossi quantified the payer mix benefit as contributing about one-third of the Q4 pricing growth. CEO Mark Ordan identified two key areas of opportunity and focus for 2025: systematically strengthening hospital relationships and enhancing clinician recruiting and retention, a function he will now personally oversee.

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George Renaudin, President of the Insurance Segment, stated that Humana is pricing its PDP product for margin and expects member growth, with early data supporting their assumptions. CFO Celeste Mellet elaborated on overall earnings seasonality, projecting 60-65% of EPS in Q1, driven by IRA changes that shift plan liability to later in the year, as well as other benefit design changes and investment timing.

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Steve Filton reported that 25-30 behavioral facilities will be live on the new EMR by early next year, which is improving efficiency and quality of care. He also highlighted a new technological initiative for patient observation, using wearable devices and tablets to enhance patient safety and risk management, which he sees as a significant future development.

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