CHEMED CORP Q3 FY2024 earnings call

• VITAS Highlights: Continued strong admission and census growth, with admissions up 6.3% y-o-y and ADC up 15.5% y-o-y. Covenant Health acquisition is meeting internal financial projections. Entered Pasco County, Florida, with first patient admitted in October. Handled impact of hurricanes Helene and Milton with emergency response protocols, though admissions were negatively impacted.
• Roto-Rooter Highlights: Disappointing revenue results due to lower residential demand, intense competition in Internet marketing, and transition to new SEM. Commercial revenue showed sequential improvement but overall results remained soft. Management believes new SEM will provide better results going forward, and is focused on improving commercial revenue through various initiatives.

VITAS Healthcare

• Net revenue in the third quarter of 2024 was $391.4 million, an increase of 17.3% compared to the prior year period. Admissions totaled 16,775, a 6.3% improvement from the same period in 2023. Average daily census (ADC) expanded to 2,926, a 15.5% increase year-over-year. The $85 million acquisition of Covenant Health contributed $10 million to $11 million of revenue in Q3 2024, translating to net income of approximately $1.8 million to $2 million and adjusted EBITDA between $2.4 million and $2.6 million.
• Revenue increase was primarily from a 15.5% increase in days of care and a ~2.6% increase in geographically weighted average Medicare reimbursement rate, offset by a 144 basis point negative impact from acuity mix shift and a 64 basis point positive impact from Medicare Cap and other contra revenue changes. Average revenue per patient day was $199.16, 139 basis points above the prior year period.

Roto-Rooter

• Quarterly revenue was $214.8 million, a decrease of 6.9% compared to the prior year quarter. Residential revenue declined 6.3% and commercial revenue declined 5.9%. Adjusted EBITDA totaled $56.4 million, a decrease of 15.8% compared to the prior year quarter, with an adjusted EBITDA margin of 26.3%, a 275 basis point decline from Q3 2023. The transition to a new search engine marketing firm in early July contributed to softness in residential revenue, but commercial revenue showed a 5% sequential improvement over the second quarter of 2024.

• Reduced full-year 2024 earnings per diluted share, excluding certain items, to a range of $23 to $23.15 from the prior range of $23.55 to $23.80 due to Roto-Rooter's performance. VITAS' guidance remains largely unchanged. Expect Roto-Rooter revenue in Q4 to be similar to Q3 on a year-over-year basis, with margins expected to improve as the marketing transition settles. VITAS anticipates high single to low double-digit day of care growth and margin expansion in the future, with above-average historical growth expected both organically and through potential acquisitions.

• Roto-Rooter Risks: Lower demand across the industry leading to intense competition for Internet marketing positions and job leads. Google algorithm changes affecting paid search performance, leading to margin pressure. Transition to new search engine marketing firm with ramp-up costs impacting results.
• VITAS Risks: Impact of hurricanes on admissions and referral volume in Florida and Southeastern regions.

Q: Ben Hendrix asked about VITAS' long-term growth expectations for census and regional considerations, and Roto-Rooter's marketing milestones and near-term improvement measures.

A: Nick Westfall responded that VITAS expects long-term growth above pre-pandemic historical levels, with detailed guidance for 2025 to come. Kevin McNamara and Mike Witzeman discussed Roto-Rooter's tough marketing situation, noting no immediate big breakthroughs but seeing potential improvement in commercial side.

Q: Joanna Gajuk inquired about Roto-Rooter's EPS guidance reduction, Q4 revenue and margin assumptions, 2025 top-line and margin growth for both businesses.

A: Mike Witzeman stated the EPS reduction is due to Roto-Rooter, expecting Q4 revenue similar to Q3 year-over-year and margins to improve as marketing transition settles. For 2025, Roto-Rooter is cautious with hopes for commercial momentum, while VITAS expects high single to low double-digit day of care growth and margin expansion.