Chemed Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• VITAS: Admissions at VITAS totaled 17,545, a 1.2% improvement from 2024 (excluding transfers, up 4.9%). ADC expanded to 22,318, up 6.1%. Florida Medicare cap projected to end 2025 with $19 million billing limitation, but 2026 not expected to have significant cap. Management is reviewing expenses to offset lower EBITDA margin.
• Roto-Rooter: Revenue growth fell short of expectations in Q2 2025. Weakness in April and May due to consumer confidence, but June and July rebounded. Issues included labor inefficiencies, higher insurance costs, and paid search leads affecting margins. Management is reviewing expenses to improve EBITDA margins.

Segment Performance

• VITAS: Net revenue in Q2 2025 was $396.2 million, a 5.8% increase from prior year. Driven by 6.1% increase in days of care and 4.2% rise in geographically weighted average Medicare reimbursement rate. However, acuity mix shift and Medicare Cap negatively impacted revenue. Admissions totaled 17,545, a 1.2% improvement from 2024 (excluding transfers, up 4.9%). Average daily census (ADC) was 22,318, up 6.1%. Hospital-directed admissions rose 9.1%, while home-based, nursing home, and assisted living facilities admissions declined. Estimated $19 million billing limitation for Florida Medicare cap year 2025. Adjusted EBITDA excluding Medicare Cap was $66.8 million, flat with prior year, margin 16.2% (163 basis points below prior year).
• Roto-Rooter: Revenue increased 0.6% in Q2 2025. Branch residential revenue was $156.4 million, up 0.9%. Commercial revenue was $53.2 million, up 4.4%. Independent contractors' revenue declined 4.4%. Adjusted EBITDA was $48.6 million, down 18.7% from prior year. Margin was 21.8%, 517 basis points below prior year. Weakness in April and May due to consumer confidence issues, but June and July rebounded. Issues included labor inefficiencies, higher casualty/workers' comp costs, and paid search leads increasing costs.

Guidance

• VITAS: Full-year 2025 revenue prior to Medicare Cap estimated to increase 7.5%-8.5% vs 2024. Adjusted EBITDA margin prior to Medicare Cap estimated 18.2%-18.7%. Estimated $28.2 million Medicare Cap billing limitations in 2025, with no Medicare cap billing limitation in Q4 for Florida combined program.
• Roto-Rooter: Forecasted 1.25%-1.75% revenue increase in 2025 vs 2024. Adjusted EBITDA margin expected 23.5%-24.5%. Full-year 2025 earnings per diluted share excluding certain items estimated $22-$22.30, down from prior guidance.

Risks

• VITAS: Florida Medicare cap billing limitation risk, with admissions in April and May weaker than anticipated. Acuity mix shift negatively impacting revenue growth.
• Roto-Rooter: Consumer confidence issues affecting residential revenue in April and May. Labor inefficiencies, higher casualty/workers' comp costs, and changes in paid search leads affecting margins.

Question and Answer

• Q: Walk us through levers to ensure no cap impact after Q3 and thoughts on 2026 margins and VITAS revenues A: Emphasizing hospital admissions, shorter-stay patients over long-stay. Community access program created a bubble of long-stay patients that will attrit. EBITDA margins likely below 2024 levels, around 17.5%-18.5% in 2026.
• Q: Commentary on post-COVID demographic factors and wage index rate spread assumption A: Post-COVID demographic factors lead to more stable cap environment. Wage index rate spread assumption is that Florida rate will be higher than national average, but managed as though national average, reserving any excess.
• Q: Linkage between local management issues and Roto-Rooter recovery in June/July A: Past local management issues related to private equity poaching managers, but abated. Current issues include insurance costs and lower call volume, but efforts to improve conversion rates and safety.
• Q: Tax rate favorability in Q2 A: Due to fewer stock option exercises, resulting in lower effective tax rate as accounting for stock option exercises affects the rate.
• Q: Confidence in higher mix of short-stay patients in VITAS and ramp-up in new Florida counties A: Confidence from refined efforts in emphasizing short-stay admissions and results showing improvement in June/July. New counties in Florida are expected to contribute but not the basis for 2026 projections.
• Q: Capital deployment and acquisition strategy A: No change in strategy; monitoring acquisitions at right valuation. Balance sheet allows for share buybacks and acquisitions. Expecting share buyback activity in third quarter.