CHEMED CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• VITAS:
  • Continued strong operating performance with 7.3% admission growth and 13.1% ADC increase. Covington Health acquisition meets internal projections. Focus on hospital-based admissions to mitigate Medicare cap, with new programs in Florida counties. Consistently hired and retained licensed healthcare professionals for 11 quarters of sequential net growth and 10 quarters of sequential ADC growth.
• Roto Rooter:
  • Revenue growth driven by initiatives like focused commercial sales, lead maximization, and quicker response times. Commercial revenue up 7.3% but adjusted EBITDA margin down due to pricing adjustments for large commercial excavation jobs. Intends to refine excavation pricing model in Q2 to balance revenue and margin.

Segment Performance

• VITAS Healthcare:
  • Net revenue in the first quarter of 2025 was $407.4 million, a 15.1% increase compared to the prior year period. Admissions totaled 18,139, a 7.3% improvement, and average daily census (ADC) expanded to 22,244, a 13.1% increase. Adjusted EBITDA excluding Medicare cap was $70.3 million, up 15.9%. The $85 million acquisition of Covington Health positively impacted results by 3 to 4%. Revenue contribution: Substantial, driven by admissions growth and acquisition effects.
  • Admissions from hospitals increased 12%, making up 49% of overall admissions, providing Medicare cap cushion. New programs in Pasco and Marion counties in Florida are part of growth strategy.
• Roto Rooter:
  • Gross branch revenue increased 3.1% in Q1 2025. Branch residential revenue was $167.2 million, up 1.7% (driven by 3% excavation and 12.5% water restoration growth). Branch commercial revenue was $57.7 million, up 7.3% (driven by 38% excavation and 14% water restoration growth). Adjusted EBITDA was $59.2 million, down 2.4%, with margin declining 108 basis points. Revenue contribution: Branch growth offset by 6.4% decline in independent contractor revenue, as contractors lack capacity for add-on business.

Guidance

• Anticipate providing updated earnings guidance as part of the June 30, 2025, earnings press release. 2025 results for VITAS and Roto Rooter are within initial expectations, with guidance maintained based on current performance.

Risks

• Medicare cap: Impact on revenue and margin growth in VITAS, with hospital-based admissions affecting margin but providing cap cushion.
• Pricing sensitivity: In Roto Rooter, commercial excavation pricing adjustments affected EBITDA margin in Q1.
• Cash flow timing: Receivables and PIP payment timing affected cash flow in Q1, but not indicative of collection issues.

Question and Answer

• Q: Ben Hendrix asks about longer-term cap management strategy and how it evolves over rate cycles. A: Kevin McNamara and Nick Westfall discuss that Medicare cap management involves focusing on hospital-based admissions for cap cushion, with median length of stay at 16 days, and it's a normal part of the industry, with minimal near-term P&L impact. Mike Witzeman adds that 2023-2024 growth was unsustainable mid to long term due to Medicare cap, and 2025 guidance reflects more sustainable trajectory.
• Q: Ben Hendrix asks about cash flow dynamics, particularly working capital with accounts receivable step-up. A: Mike Witzeman explains that cash flow was affected by a $48 million refund moving from long-term to short-term receivable and timing of PIP payments, both being timing issues not indicating collection problems.