Chemed Corporation Price & Performance (CHE)

Good morning. Our conference call this morning will review the financial results for the fourth quarter of twenty twenty four ended December 31, 2024. Before we begin, let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations predictions, plans and prospects that constitute forward looking statements. Actual results may differ materially from the those projected by these forward looking statements as a result of a variety of factors including those identified in the company's news release of February 26, and in various other filings You're cautioned that any forward looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non GAAP operating performance results during today's call including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non GAAP results is provided in the company's February 26, which is available on the Chemed's website at chemed.com Chemed. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation Mike Richmond, Chief Financial Officer of Temed and Nick Westfall, Chairman and Chief Executive Officer of Temed's BTAS Healthcare Corporation's I will now turn the call over to Kevin McNamara.

Thank you, Holly. Good morning. Welcome to Chemed Corporation's fourth quarter twenty twenty four conference call.

I will begin with highlights for the quarter, then Mike and Nick will follow-up with additional details. I will then open the call for questions. PTAS continued its strong operating performance during the fourth quarter of twenty twenty four. Admissions during the quarter totaled 16,427 which equates to a 3.5% improvement for the same period of 2023. Our average daily census or ADC expanded 2,827 increase of 14.6% when compared with the prior year quarter.

These historically good metrics were positively impact by the $85,000,000 acquisition of Covenant Health. Which was closed on April 17, 2024. [indiscernible] Through the end of the fourth quarter, the Covenant Health acquisition is meeting all of our internal financial projections that were developed at the time of the acquisition.

We in the fourth quarter of twenty twenty four, our new program in Pasco County Florida accepted its first patient. During the quarter, VITAS had slightly more than 40 admissions, to the PASCO program. We believe this program offers an exciting growth path for VITAS in 2025 and beyond. We're also very pleased that in December BTAS was awarded a certificate of need in Marion County, Florida. Marion County includes Bucalla as well as the significant part of the village's retirement community. VITAS is currently working on a timeframe for opening the new location. But we believe this is another significant opportunity for growth in the coming years. As Mike will discuss in more detail, our 2025 VITAS guidance assumes continued above historical average growth by all measures. However, that growth will be slightly tempered by headwinds associated with working to mitigate potential Medicare cap limitations in certain of our programs. Now let's turn to Rotoburger. 20. A decrease of 2.9% when compared with the prior year quarter. We're never satisfied with the decline in revenue, or adjusted net income, The fourth quarter performance did exceed Roto Rooter's internal estimates for both metrics by between 45%. Residential revenue at Roto Root declined 2% while commercial revenue increased 0.4%.

Overall, our call volume was down 8%. When compared to the prior year quarter. Conversion rates from calls to paying jobs continue to be at or near all time highest levels. For our residential business, conversion rates continue to improve for our add on services. Particularly water restoration. During the fourth quarter, Roto Rooter Management identified eight branches, that had lagging conversion rates at residential water restoration. Improvement in conversion rates for those specific branches was a major cause in the fourth quarter. The commercial business initiatives that we've discussed during the course of 2024 have begun to gain momentum in many of our branches.

We are winning business from key accounts, each branch. Our initiative to review the root cause of e sewer drain cleaning issues through the use of cameras has resulted in an increase in excavation work related to commercial customers. The commercial business ended 2024 with positive momentum. Are optimistic this gives Rotoruba business a nice springboard into 2025. Our 2025 guidance assumes that momentum accelerates with the Roto Rooter's commercial business. It also assumes that the deterioration seen in the 2024 residential business does not continue into 2025.

To summarize, the strong results at BTAS are continuing. VTAS management has consistently demonstrated ability to hire and retain licensed healthcare professionals at an appropriate pace.

This is translated over an extended period of time of strong growth. Two new locations in the state of Florida provide a nice growth opportunity for the next few years.

We are cautiously optimistic that Roto Rooter has turned the corner despite some continued difficult operating conditions. We're confident that Roadway maintains its core competitive advantages in terms of excellent brand awareness, customer response time, 20 fourseven call centers, and aggressive Internet presence. With that, I would like to turn this teleconference over to Mike.

Thank you, Kevin. VITAS net revenue was $411,000,000 in the fourth quarter of twenty twenty four which is an increase of 17.4% when compared to the prior year period.

This revenue increase is comprised primarily of a 14.6% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 3.5%. The acuity mix shift negatively impacted revenue growth 119 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare cap and other contra revenue changes increased revenue growth by approximately 44 basis points. Average revenue per patient day in the fourth quarter of twenty twenty four was $206.23 is two forty four basis points above the prior year period. Reimbursement for routine home care and high acuity care averaged $182.94 and $1,125.61 respectively. During the quarter, high acuity days of care were 2.5% of total days of care a decline of 22 basis points compared to the prior year quarter. Adjusted EBITDA excluding Medicare cap totaled $93,200,000 in the quarter an increase of 11.8%. Adjusted EBITDA margin in the quarter excluding Medicare cap, was 22.5% is 112 basis points below the prior year period. The fourth quarter of twenty twenty three EBITDA margin was positively impacted by a one time change in VITAS vacation rollover policy. This change positively impacted the 2023 EBITDA margin by 135 basis points and did not recur in 2024.

The financial results just discussed include the impact of the Covenant Health acquisition in April. Covenant Health contributed $11,000,000 to $12,000,000 of revenue in the fourth quarter of twenty twenty four This revenue translated to net income of approximately $2,100,000 to $2,300,000 Adjusted EBITDA in the quarter attributed to Cohen Health is between $2,800,000 and $3,000,000 Turning to Roto Rooter, Roto Rooter branch residential revenue in the quarter totaled 100 and a decrease of 2% from the prior year period. Rotorado branch commercial revenue in the quarter totaled $54,300,000 an increase of 0.4% from the prior year. Adjusted EBITDA at Roto Rooter the fourth quarter of twenty twenty four totaled $60,300,000 a decrease of 7.2% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 26.3%, The fourth quarter adjusted EBITDA margin represents a 120 basis point decline from the fourth quarter of twenty twenty three. Now let's discuss the 2025 guidance. VITAS revenue prior to Medicare cap is estimated to increase 10.5% to 11.3% when compared to 2024. ADC is estimated to increase 8.5% to 9% Full year adjusted EBITDA margin prior to Medicare cap is estimated to be 18.4% to 18.9%.

This compares to the 2024 adjusted EBITDA margin prior to Medicare cap of 19.1%. We are currently estimating cap billing limitation of $9,500,000 in 2025. 2024 represented an all time high watermark for VITAS in terms of ADC growth, revenue growth EBITDA growth and EBITDA margin. The 2025 guidance assumes a slight moderation to those levels of growth while still maintaining increases that are significantly above average historical growth.

VITAS' weighted average Medicare reimbursement rate increase received on October 1, was 3.5%. The per admission Medicare which is the overall national average reimbursement rate increase. This 60 basis point average differential between the reimbursement rate increase and the Medicare cap increase has reduced Medicare cap cushion in our programs for both the trailing twelve months and our projected fiscal year 2025. [indiscernible] The actual basis point differential in certain of our programs including the Florida program exceeds the overall 60 basis point average. VITAS management is taking the necessary step in 2025 to ensure a significant Medicare cap issue does not arise. These steps are expected to have the effect of slightly moderating the all time high level of growth seen in 2024.

Roto Rooter is forecasted to achieve revenue growth of 2.4% to 3%.

Kevin mentioned, Roto Rooter management expects to achieve this revenue growth by continuing the momentum in the commercial business sector, while stopping further deterioration in the residential sector. Road orders EBITDA margin for 2025 is expected to be in the range of 25.7% to 26.3% This compares to Roto Rooter's EBITDA margin in 2024 of twenty six point three percent. Full year 2025 earnings per diluted share excluding non cash expense for stock options, tax benefits from stock option exercises, costs related to litigation and other discrete items is estimated to be in the range of $24.95 to $25.45 This compares to full year 2024 adjusted EBITDA of of $23.13 The 2025 earnings trajectory is weighted towards second half of the year. Roto Rooter's revenue and associated income is expected to accelerate during the year as Roto Rooter Management's business improvement initiatives continue to accelerate. Additionally, the first quarter of twenty twenty four was Roto Rooter's strongest quarter making for difficult comparisons at the beginning of the year. VITAS' revenue growth and EBITDA margin prior to Medicare cap in the second and third quarters will be adversely impacted by the initiatives required to moderate the impact of the Medicare cap rate differential previously discussed.

The impact on the first quarter for VITAS will be mostly offset the results of the covenant acquisition, which occurred in April of twenty twenty four. The 2025 guidance assumes an effective corporate tax rate on adjusted earnings of 24% a diluted share count of 14,800,000.0 shares. I will now turn this call over to Nick.

Thanks, Mike. I continue to be very pleased with our overall operating performance over the past few years.

In the fourth quarter of twenty twenty four, we our average daily census was twenty two thousand one hundred and seventy nine patients an increase of 14.6% compared to the prior year period. VITAS has generated quarterly sequential ADC growth over the last nine quarters. The fourth quarter of twenty twenty four, total VITAS emissions were 16,427, This is a 3.5% increase when compared to the fourth quarter of twenty twenty three.

This overall performance was slightly below our internal expectations in the quarter.

This was partially due to the disruptions caused by the hurricanes in the early However, I was very encouraged with the sequential acceleration of admissions within the quarter across all regions. In the quarter, admissions increased in three of the top four pre admit location types. Nursing home admissions increased 7.3% hospital directed admissions increased 9.8% and our home based patient admissions expanded 3.6% compared to the prior year period. Admissions for assisted living facilities declined by 5%. [indiscernible] Our average length of stay in the quarter was one hundred and five point five days This compares to one hundred and five point nine days in the fourth quarter of twenty twenty.

Our median length of stay was eighteen days in the quarter, in Our median length of stay was eighteen days in the quarter and compares to seventeen days in the fourth quarter of twenty twenty three. As Kevin mentioned, we are excited today to be providing services in Pasco County in Marion County, Florida. Believe our entering into these two territories is a win for both the people we will serve and for the future growth potential of VITAS.

Florida and our Southeastern locations Slowdown in referral volume very proud to say our collective team enacted our emergency response protocols in and successfully supported one another while providing exceptional care to our patients in the impacted communities. Have implemented strategies that we began preparing in 2024 to successfully manage exposure to Medicare cap 2025. Knowing the average reimbursement increase for our locations was going to be 60 basis points above the national average only helped to reinforce the proactive approach needed to manage this industry factor. Primary component of this strategy is to increase our emphasis on hospital based admissions in select programs. Generally, hospital based referrals come later in a patient's disease trajectory and therefore result in shorter lengths of stay. This has the overall effect of moderating both revenue growth and margin growth but also provides additional cap cushion in those key locations. This is the right thing to do for the company to ensure long term sustainable growth. To quickly recap what our team has accomplished, we have now generated ten quarters of sequential net growth in licensed healthcare workers and nine quarters of sequential growth in ADC. In 2024, we also demonstrated the ability to partner with and successfully integrate other providers through acquisitions to ensure communities continue to receive the best possible patient care.

As a result of these efforts, VITAS achieved all time highs in ADC growth revenue growth, EBITDA growth While we briefly celebrated these accomplishments, Our team is focused on continuing our forty seven plus year commitment to fulfilling our mission of positively impacting patients and families across the country, delivering solid financial performance. As you can see from our 2025 guidance, we are optimistic about the ability of VITAS to maintain above average historical growth both organically and through accretive acquisitions over the next few years. That, I'd like to turn this call back over to Kevin. Thank you, Nick. I will now open this teleconference to questions. Thank you. And our first question comes from the line of Ben Hendrick with RBC Capital Markets. Hi, this is Michael Murray on for Ben. Thanks for taking my question. Well, 4Q Roto Rooter revenue came in better than our expectations. It still declined 2.9% year over year. You're guiding the revenue growth of 2.4% to 3% I just wanted to hear what gives you confidence in the road to road to turnaround and how much of this improvement do you attribute to switching to a new marketing agency? Well, first, let me say that obviously when we give guidance, we in the year [indiscernible] That is [indiscernible] obviously, it's we're in the midst of it.

Very strong support for the growth in Roadrunner. December and January are usually the strongest months for Roto Rooter that can mask some issues from time to time. But it seems like where Rotor is showing strong growth That's just not that's when I say core business, not down with sewer and drain cleaning, but with pretty much everything else. So I guess the first answer to your question is no, I don't think it's aggressive. I do not think Roto Root's guidance is aggressive. We initially expected to start a little behind the eight ball because the first quarter last year was the strongest and we thought we fall a little behind the eight ball and make it up. The rest of the year Just generally speaking, it doesn't look like that's going to be necessary. Looks like hitting pretty much hitting on most of the cylinders at this point, not all. Now let me go to your second part of your question, which was how much do I attribute to the new marketing firm I'd say, not a lot. It's early. I mean, it's a the issues with Google not going away. I mean, pandemic period drew a lot of private equity money into the sector It's still very competitive with Google.

I don't want to I could talk for an hour on this call about the issues and initiatives with Google and We're a very good partner of Google and whatnot, but it's still tough But I can't say it's not as though we're maybe a little smarter in that regard and I attribute that largely to the new firm but there's a long way to go. Mike, anything else on that?

No, I think you, Kurt, the only thing maybe I would add is even during the fourth quarter, we saw some accelerating metrics, some improvements even intra quarter as the quarter went along.

So say December was better than November and November was better than October. So as Kevin mentioned '25 has got off to a good start.

We also saw improvement sequentially intra quarter And so I think we feel pretty comfortable that the commercial business, which is a little more repeatable, on a year to year basis than maybe the residential business is has really created a strong foundation for 2025. And I think we feel very comfortable with this this guidance. Thank you. Just switching to VITAS, you expect another strong year census growth even accounting for the covenant acquisition year over year comps there. I wanted to hear your thoughts on the competitive environment you believe you're capturing share does your guidance contemplate any census in, Marion County? Let me answer the last part of the question first. The guidance does not incorporate any census in Marion County.

For 2025. It's still being worked through in terms of the exact time in which we're going to be able to enter enter that market.

As it relates to stealing share and how much of that is driving overall growth, I definitely is contributing to it. But at the end of the day, it's stealing share through two facets of differentiated offering in the marketplace, not only for patients and families, but for all of our healthcare partners out there. And part of that differentiated offering is the ability to continue to attract and retain high quality clinicians So that game plan that we've been executing on for a while, well north of two years now, continues to offer great opportunity for us in each of the markets in which we operate. And we're able to identify new opportunities where other providers maybe haven't met expectations of longstanding partners in the community and our teams off trying to capitalize the next as you might imagine.

The only thing I would add is, that to understand at least from my perspective, what's going on is the state of Florida is very important to VITAS. Obviously, it's a the best hospice state. It's great demographics. VITAS has always been preeminent in Florida. As you just can pick up over the last couple of years, continue to get new CONs were growing we're adding staff. I mean, it's a powerhouse in the best state. And the effect of that tends to be have good things on your reported results. And it's almost like we look at it as two businesses, Florida and everywhere else. But Florida is doing very well, right? The good news to complement Kevin's comments is everywhere else is as well. So we see good strong growth throughout almost every market in the country. And it's what gives us the optimism we've been discussing and now have formally put into our guidance for 2025 and beyond.

Okay, that's helpful. If I could just sneak one more in on just on capital allocation. How are you thinking about share repurchases moving forward? And are any share repurchases built into your guidance?

No share repurchases are built into the guidance. We don't try to forecast that. [indiscernible] we don't build in things like acquisitions either. It's sort of We're not sure how 25 is going to play out on those fronts and so we don't build any of that.

Right, we never have.

Way we think about share purchase in general isn't going to change, I don't believe. We are intending on a quarterly basis to do some level of programmatic share repurchases. We think it's with our free cash flow I think that and the dividend we think is a good good opportunity to return cash to shareholders while still maintaining zero leverage. And then as you might have seen with our fourth quarter, when there's an opportunity with the stock price and maybe with the interest that we get on the cash on the balance sheet, We will take a bigger swing, but the overall philosophy has not changed and don't see It's changing anytime in the near term.

All right. Thanks so much. Thank you. And our next question comes from the line of Joanna Gajuk with Bank of America.

Hi. This is Christian Porter on for Joanna. Thank you guys for taking our question. My first question was about VITAS margins. So margins were solid, but they were below our model. And the 2025 guidance calls for margins to decline year over year. So I was just wondering what is causing the margin pressure when the top line is growing double digit?

Yes. Christian, just as a reminder, and I think it's talked about for the last few quarters and included in our prepared remarks '24 at 19.1% adjusted EBITDA margin CAP was an all time record high for the history of the company. Our new range of 18.4% to 18.9%, we had been discussing on a preliminary basis, just as you're managing all the factor such as Medicare cap management in this year, [indiscernible] force us to think about heavier emphasis admissions in select markets that tend to have shorter lengths of stay that provide pressure to both top line growth as well as marginal growth but it doesn't change the overall effect of outsized performance compared to any historical norm, both from a top line volume growth standpoint as well as from a predictable marginal range that led to our collective guidance. So it really is just the moderation as we move into next Medicare year of looking at on a market by market basis and ensuring we have sustainable business on a go forward basis. And let me say this is summarizing and reiterating, but to the extent that we got even more of these admits or the Medicare cap limitation was changed. [indiscernible] VITAS would have stronger growth and higher margin We're just threading the needle on that.

And and doing the best under the existing legal constraints. And our goal is as Nick says, if we can get enough hospital based admissions, we won't make as much money. Our margin will be in the short term negatively impacted, but by less of a percentile or less of 1% And from that, that really gives us our growth in Florida. So it's a threading the needle exercise. Is the best way to do it. But there's nothing in the business itself, the underlying business itself that would constrain growth. In VITAS. Thank you guys. I just wanted to follow-up on the Medicare cap, because it seems like that would be a significant headwind for the year.

That will force you guys to change your mix. So was wondering if we should assume that this headwind would continue beyond twenty twenty five?

I think it'd be a fair I don't know if I'd categorize it as a headwind. As it is just part of normal hospice business operations. So it's always on a market by market basis. The overall price increase compared to what it correlates on a market by market is a year by year phenomenon And just as a reminder, the Medicare cap limitation of which we're forecasting in our guidance at $9,500,000 is effectively the equivalent we came in with last year. So there is no anticipated substantial differential in 2025 as it relates to Medicare cap liability as compared to where 2024 ultimately came in. And that in 2024, it was all California.

All driven, not by patient mix, but by the very high reimbursement rates. That's right. That's right. I mean, Kristen, at an overall level, it is a philosophical level that comes along with it. But the Medicare cap formula put into place in the early 80s as in a way to overall growth for what was an experiment at the time for the Medicare Trust Fund If you just look at the current Medicare reimbursement rate, and divide it by our avenue average revenue per day, that means that you're able to recognize revenue for one hundred and sixty seven days of patient's day. When you combine that with something like the NORC study, that illustrates any patient that outlives their original prognosis of greater than six months irrespective of disease saves on average 11% or greater total cost of care to the Medicare trust fund it sort of becomes counterintuitive as to what we're trying to accomplish across the country, which is well productive. In terms of earlier access early awareness, greater quality for patients and families and a total cost of care reduction for the Medicare Trust Fund. [indiscernible] That's neither here nor there as are the rules of the road and us and every other hospice provider inside of the country will continue to manage accordingly unless there was ever a change in the future. [indiscernible] We've been managing the Medicare cap since we purchased VITAS in 02/2004.

So this is a new I would tell you that maybe the 2024 growth rate is probably not a long term sustainable growth rate. What we're projecting for 25% is a little more sustainable for the long term. Nick and his team looked at the Medicare cap cushion that we had two years ago implemented the Community Access Program to maximize maximize our performance, but we knew that that wasn't something that could be on forever. [indiscernible] this has been on our radar It's just we now need to make sure we moderate 2024 where we took an opportunity to grow probably higher more quickly than then is a long term sustainable path. So we wouldn't categorize it as a headwind. It's part of normal business that's incorporated in '25 I was just going to say, it alleviates when you think about long term and you're looking out beyond the just like the next year was what your question, [indiscernible] new CONs in populated great demographic [indiscernible] Florida is helpful.

It's wonderful. If I could sneak one question about 2% to 3% sorry, 2% to 3% revenue growth, which is better than prior comments. So I was just wondering what gives you guys the confidence that Rev revenues are going to grow to that level? And also if you could remind us of the seasonality that you're assuming in 2025?

Right. Let me just start by saying, what gives us confidence is what we saw second part of the fourth quarter. And clearly, as we start the first quarter of twenty twenty five. Our guidance we don't we're not willfully blind to what what we see going on in the weekly sales. Numbers. So very confident of that. With regard to seasonality, what we project is what we see every time. I mean, there's some weather conditions that are better for a company like Roto Rooter that is cold weather [indiscernible] the whole city is not shut down. But that tends to lead to frozen pipes and a lot more emergency work than a normal plumbing issue. And so what we're projecting basically is First quarter will probably be a very strong quarter At that point, we'll start comparing against was in 2024, we much weaker results. We don't anticipate in the second quarter being maybe quite as busy as the first quarter, but with no reason to think it won't be a nice improvement over the second quarter of Troy, Troy, Troy, and they're on. And then you get to the fourth quarter again you get the return of the the colder weather and there's a seasonality factor also in the fourth quarter.

But I guess what you'd say is even though with our good start, what we anticipate is still what we said in our Chemed. So that is a building positive comparison as we go through the year. So I guess one of the things we don't want our analysts just to take the fourth quarter, multiply the first quarter multiplied by four, But we do see growing positive comparisons to the second, third and fourth quarter for Roadwood.

Historically, always the second and third quarter revenue just absolute dollars are lower than the first and fourth quarter for the reasons Kevin talked about. So there is definite lease some seasonality built in [indiscernible] But what we've projected is pretty normal seasonality. It's just the comparatives 24 Easier comparisons let's say, even the first quarter based on what we're seeing is that, again, it's not a negative comparison really as we're looking at it. So we see much easier comparisons as we go through the year.

All right. Thank you guys so much.

Thank you.

I'm showing no further questions at this time. So with that, hand the call back over to CEO, Kevin McNamara for any closing remarks.

Thank you. I have no substantive closing remarks other than to say We're pleased with the results of both companies. I mean, it's West couple of years, we've gone through the seesaw of what we're doing great during the pandemic and VITAS for good reasons suffering. And then we saw the switch and now we're getting back to what I think is a a normalized operating situation for both companies. And I think we'll go back to our historic growth rates, which which have been very solid. I mean over a twenty year period, Chemed is net income has grown over 20% per annum on a CAGR basis. So mean, it's good to return to a period of normalcy. But with that, we'll just say we'll we'll reconvene in about three months and thank you for your attention.

Ladies and gentlemen, thank you for participating. This does conclude today's program.