Earnings call transcript: Chemed Q1 2025 beats forecasts, stock drops 5.15%

Chemed Corporation (CHE) reported its first-quarter 2025 financial results, surpassing analysts’ expectations with an earnings per share (EPS) of $5.63, compared to the forecasted $5.51. Revenue reached $646.9 million, exceeding the anticipated $636.8 million. Despite these positive results, Chemed’s stock fell by 5.15% in after-hours trading, closing at $555.29, down from the previous close of $585.46. According to InvestingPro analysis, Chemed maintains a GREAT financial health score of 3.12/5, with particularly strong profitability metrics. The stock currently appears slightly undervalued based on InvestingPro’s Fair Value model. This decline comes amid broader market volatility and sector-specific challenges.

Key Takeaways

• Chemed’s Q1 2025 EPS of $5.63 exceeded forecasts of $5.51.
• Revenue for Q1 2025 was $646.9 million, surpassing the $636.8 million forecast.
• Stock price dropped 5.15% in after-hours trading.
• VITAS Healthcare and Roto Rooter segments showed mixed performance.
• Guidance update expected in June 2025.

Company Performance

Chemed’s performance in the first quarter of 2025 was driven by strong results from its VITAS Healthcare segment, which saw a 15.1% increase in net revenue year-over-year. The Roto Rooter division experienced a modest 3.1% growth in gross branch revenue but faced challenges with a 2.4% decline in adjusted EBITDA. The company’s strategic focus on expanding services and refining pricing models contributed to these results.

Financial Highlights

• Revenue: $646.9 million, up from the forecasted $636.8 million.
• Earnings per share: $5.63, exceeding the forecast of $5.51.
• VITAS net revenue: $407.4 million, up 15.1% YoY.
• Roto Rooter adjusted EBITDA: $59.2 million, down 2.4%.

Earnings vs. Forecast

Chemed’s Q1 2025 EPS of $5.63 represented a 2.2% surprise over the forecasted $5.51. The revenue beat by $10.06 million, marking a positive deviation from expectations. This performance is consistent with Chemed’s historical trend of exceeding earnings forecasts, although the magnitude of the beat is modest compared to previous quarters.

Market Reaction

Despite the earnings beat, Chemed’s stock fell by 5.15% in after-hours trading, closing at $555.29. The stock’s decline may reflect investor concerns over broader market conditions and specific challenges within the Roto Rooter segment. Notably, InvestingPro data shows Chemed typically trades with low volatility (Beta: 0.49), and analysts maintain an optimistic outlook with price targets suggesting up to 14% upside potential. The stock remains below its 52-week high of $623.61 but above the 52-week low of $512.12.

Outlook & Guidance

Chemed executives anticipate providing updated earnings guidance in June 2025. The company expects sustainable growth in 2026, driven by continued expansion in Florida markets and strategic pricing adjustments in the Roto Rooter division. Analysts will be watching for further developments in these areas.

Executive Commentary

Nick Westfall, VITAS CEO, expressed optimism about maintaining above-average growth through organic expansion and acquisitions. Chemed CEO Kevin McNamara highlighted the strategic management of Medicare caps, while CFO Mike Witzman indicated that updated earnings guidance would be released in the upcoming June report.

Risks and Challenges

• Medicare cap challenges in the hospice market.
• Decline in Roto Rooter leads, impacting revenue potential.
• Broader market volatility affecting investor sentiment.
• Potential supply chain disruptions.
• Regulatory changes impacting healthcare operations.

Q&A

During the earnings call, analysts inquired about Chemed’s Medicare cap management strategy and the timing-related changes in cash flow. Executives clarified their long-term approach to hospice patient admissions and addressed concerns about the decline in Roto Rooter leads.

Full transcript - Chemed Corp (CHE) Q1 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Chemed Corporation First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you’ll need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Holly Schmitt, Assistant Controller. Please go ahead.

Holly Schmitt, Assistant Controller, Chemed Corporation: Good morning. Our conference call this morning will review the financial results for the first quarter of twenty twenty five ended 03/31/2025. 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 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 April 23 and in various other filings with the SEC.

You are 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 press release dated April 23, which is available on the company’s website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation Mike Witzman, Chief Financial Officer of Chemed and Nick Westfall, Chairman and Chief Executive Officer of Chemed’s VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: Thank you, Holly. Good morning. Welcome to Chemed Corporation’s first quarter twenty twenty five conference call. I will begin with highlights for the quarter, then Mike and Nick will follow-up with additional details. I will then open up the call for questions.

VITAS continued its strong operating performance during the first quarter of twenty twenty five. Admissions during the quarter totaled 18,139, which equates to a 7.3% improvement from the same period of 2024. Our average daily census or ADC expanded to 22,244, an increase of 13.1% when compared to the prior year quarter. Through the end of the first quarter, the Covenant Health acquisition is meeting all of our internal financial projections developed at the time of the acquisition. As Nick will discuss further, VITAS management continues to successfully execute the strategies required to navigate the Medicare cap at certain of our locations.

A major part of that strategy is to increase our hospital based admissions. Admissions from hospitals generally come to us later in their disease trajectory. These short stay patients put a limiting factor on our ability to grow revenue and EBITDA margin, but do provide additional Medicare cap cushion. Despite this headwind, VITAS continues to achieve above average growth in revenue and EBITDA. Our new programs in the Florida counties of Pasco and Marion Counties are also a key part of mitigating Medicare cap issues in 2025 and beyond.

We continue to grow admissions in Pasco County. We anticipate taking our first admission in Marion County in mid May. Now let’s turn to Roto Rooter. We are happy to report that Roto Rooter generated a total revenue increase of 1.8% in the first quarter of twenty twenty five when compared to the prior year quarter. Gross branch revenue increased 3.1% consisting of branch residential revenue increasing 1.7 and branch commercial revenue increasing 7.3%.

Total leads were down 7.8% in the first quarter of twenty twenty five compared to the same period of 2024. The revenue improvements during the first quarter of twenty twenty five are the consequence of the variety of initiatives undertaken during 2024. As we discussed throughout the course of 2024, those initiatives include a more focused sales approach for our commercial business, maximizing opportunities from the leads we do receive and an emphasis on quicker response times to residences with possible water restoration opportunities. To summarize, the strong results at VITAS continue. VITAS management has consistently demonstrated the ability to hire and retain licensed healthcare professionals at an appropriate pace.

This has translated into an extended period of strong growth. Two new locations in the State of Florida provide a nice growth opportunity for the next few years. We continue to work diligently to expand our operating scope within Florida as well as the other states that have some form of certificate of need restrictions. We are pleased with Roto Rooter’s turn towards a revenue growth trajectory. We are confident that Roto Rooter 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.

Mike Witzman, Chief Financial Officer, Chemed Corporation: Thanks, Kevin. VITAS net revenue was $407,400,000 in the first quarter of twenty twenty five, which is an increase of 15.1% when compared to the prior year period. This revenue increase is comprised primarily of 11.9% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 3.2%. The acuity mix shift negatively impacted revenue growth 112 basis points in the quarter. The combination of Medicare Cap and other contra revenue changes increased revenue growth by approximately 112 basis points.

Average revenue per patient day in the first quarter of twenty twenty five was $207.58 which is two twenty one basis points above the prior year period. During the quarter, high acuity days of care were 2.6% of total days of care, a decline of 22 basis points when compared to the prior year quarter. Adjusted EBITDA, quarter. Excluding Medicare Cap, totaled $70,300,000 in the quarter, an increase of 15.9%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 17.2%, which is 13 basis points above the prior year period.

The financial results just discussed include the impact of the Covenant Health acquisition, which positively impacted revenue, adjusted net income and EBITDA by three to 4%. Now let’s turn to

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: Roto Rooter.

Mike Witzman, Chief Financial Officer, Chemed Corporation: Gross branch revenue increased 3.1% in the first quarter of twenty twenty five versus the first quarter of twenty twenty four. Roto Rooter branch residential revenue in the quarter totaled $167,200,000 an increase of 1.7% from the prior year period. The residential revenue increase was driven by a 3% increase in excavation revenue and a 12.5% increase in water restoration. Roto Rooter branch commercial revenue in the quarter totaled $57,700,000 an increase of 7.3% from the prior year. The commercial revenue increase was driven by a 38% increase in excavation and a 14% increase in water restoration.

Offsetting the 3.1% gross branch revenue increase, revenue from our independent contractors declined 6.4% in the first quarter of twenty twenty five as compared to the same period of 2024. Our independent contractors are generally smaller operations in middle market cities. In most instances, they do not have the capability to perform the add on business that is currently the primary driver of revenue growth at Roto Rooter branches. Adjusted EBITDA at Roto Rooter in the fourth quarter first quarter of ’20 ’20 ’5 totaled $59,200,000 a decrease of 2.4% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 24.7%.

The first quarter adjusted EBITDA margin represents a 108 basis point decline from the first quarter of twenty twenty four. The 7.3% increase in commercial revenue and the slight decline in EBITDA margin during the first quarter of twenty twenty five were driven by the same factors. Overall, commercial business has generally performed at a slightly lower margin than residential business. Additionally, Roto Rooter management received feedback from our commercial sales force that we could potentially drive additional excavation work if we priced that work less aggressively. Commercial excavation is one of the most price sensitive aspects of our business as they are some of our largest jobs frequently exceeding $50,000 per job.

Due to the size of the job, it is more likely that a commercial customer will get quotes from multiple vendors. In the first quarter, Roto Rooter management reduced the price structure for selected large commercial excavation jobs. This is a key factor that led to the 38% increase in commercial excavation revenue. However, due to the reduced pricing, those jobs were done at a slightly lower margin than our other business. Roto Rooter Management intends to refine its excavation pricing model during the second quarter until a balance between revenue growth and EBITDA margin is achieved.

The financial results in the first quarter of twenty twenty five are well within our expectations and related guidance for both VITAS and Roto Rooter. We anticipate providing updated earnings guidance as a part of the 06/30/2025 earnings press release. I will now turn this call over to Nick.

Nick Westfall, Chairman and CEO, VITAS Healthcare Corporation: Thanks, Mike. I’m pleased with our start to 2025, which is in line with our guidance and on the heels of the strong operating performance of the past few years. In the first quarter of twenty twenty five, our average daily census was 22,244 patients, an increase of 13.1%, when compared to the prior year period. VITAS has generated quarterly sequential ADC growth over the last ten quarters. In the first quarter of twenty twenty five, total VITAS admissions were 18,139.

This is a 7.3% increase when compared to the first quarter of twenty twenty four. In the quarter, admissions increased in all four of our pre admit location types. Our nursing home admissions increased 3.9, hospital directed admissions increased 12%, home based patient admissions expanded 4.2% and the assisted living facilities admissions increased 5.2% when compared to the prior year period. Our average length of stay in the quarter was one hundred and eighteen point seven days. This compares to one hundred and three point nine days in the first quarter of twenty twenty four.

It’s important to remember that length of stay statistics for the industry are calculated based on discharge patients, not active patients. The increase in average length of stay between quarters represents the effect of the patients admitted during our community access initiative, which was designed to identify appropriate patients earlier in their disease trajectory being discharged. I believe we continue to successfully manage our exposure to Medicare cap in 2025. Our median length of stay was sixteen days in the first quarter of both twenty twenty five and 2024. Additionally, our median length of stay in the quarter decreased sequentially from sixteen days from eighteen days in the fourth quarter of twenty twenty four, which illustrates the intended impact of increased hospital admissions.

As Kevin mentioned, the primary Medicare cap management strategy is to increase hospital based admissions in select locations. Hospital referrals traditionally 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. In the first quarter of twenty twenty five, hospital based admissions represented 49% of our overall admissions, which is our highest level since the pandemic. Hospital based admissions increased 12% compared to the first quarter of twenty twenty four.

With current Medicare cap rules, this is the right thing to do for the company to ensure long term sustainable growth. As Kevin also mentioned, we’re excited to be providing services in Pasco County and soon in Marion County, Florida. We believe our entry into these two territories is a win both for the people we will serve and for the future growth potential of VITAS. These new locations also provide Medicare Cap cushion in the near term. To quickly recap what our team has accomplished, we’ve now generated 11 quarters of sequential net growth in licensed health care workers and 10 quarters of sequential growth in ADC.

Last year, we demonstrated the ability to partner with and successfully integrate other providers through acquisitions to ensure communities continue to receive the best possible care. As a result of these efforts, VITAS continues to achieve higher than historical averages in ADC growth, revenue growth, EBITDA growth and EBITDA margin. We are optimistic about the ability for VITAS to maintain above average growth both organically and through accretive acquisitions in 2025 and beyond. With that, I’d like to turn the call back over to Kevin.

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: Thank you, Nick. I will now open this teleconference to questions.

Conference Operator: Our first question comes from Ben Hendrix with RBC Capital Markets.

Ben Hendrix, Analyst, RBC Capital Markets: Hey, thank you very much. Just wanted to ask a

Mike Witzman, Chief Financial Officer, Chemed Corporation: little bit more, go into a

Ben Hendrix, Analyst, RBC Capital Markets: little more detail about the longer term cap management strategy. I know that you have rate updates under wage index, the cap is not, and makes sense that you’re focusing selectively on the shorter stay patients. Just wondering how that plays out over time and how we would expect that to evolve as we kind of go in through different rate setting cycles and how that resets every year, and if this is something that’s just going to continue to accelerate and we’re going to see continued cap pressure for the intermediate term or if we’re going to see a reset in the near term? Thanks.

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: I’m going to have Nick answer this question, but let me just start by giving you very generally. I mean, ideally, you would like cap cushion to be zero. You want to take advantage of all the opportunities available by your level of admits. And there are a couple of things we’re going to talk about that keep in mind. During the pandemic when our staff was short, our emphasis from hospital admissions was necessarily changed a little bit, just because of the acuity levels that a lot of the hospital based admissions, the acuity levels that the patients come with.

And it had the effect of increasing our real average length of stay. Was just out of necessity, just based on the staffing levels we were able to maintain. Nick knew that was going to be it was going to cause some mid course corrections as we expanded it into the coming years. And these are the court who has been doing that, okay? The second thing is if you look at the reimbursement that you made reference to for Florida for this year or for this government plan year.

In Florida, it was a little bit higher than we anticipated, okay. So that used that’s good, that’s more profitability, use a little bit more of our cushion. We’re talking about it a little bit more. But, I’m just saying very generally speaking, it’s a good thing. If you ask me what is, it’s a good thing to have no cushion at the end of the year.

It’s a bit of a high wire act, but that’s how you take best advantage of the opportunities provided to the business. But Nick, why don’t you talk I just want to give that overview and just say, in a sense, we meant to do this. But Nick, why don’t you just talk about the kind of programs that things you are doing and we will be talking about over the next six to twelve months?

Nick Westfall, Chairman and CEO, VITAS Healthcare Corporation: Yes. I mean, think, Ben, the most important piece is that this is all part of normal business and has been for the last decade plus of running and operating VITAS in any hospice provider. So yes, from a year to year basis with five, six years ago, a regulatory change that dislocated the annualized rate impact compared to the individual market rate adjustments, you may see an acceleration or a reduction over a twelve year window based on the differential between that national wage rate and the local market components. But all it ultimately means at the end of the day is a mature hospice provider that’s looking at it, evaluating it and monitoring it on a month to month basis, has a fiduciary responsibility just to manage and think about think out about the future trend. So it’s not anything that materially changes anything in the near term or the long term.

And quite frankly, one of the reasons I think we’ve been talking about a little bit more over the last six to nine months is answering some of the questions when we have outsized top line and bottom line growth as to why our guidance, which was above historical average, didn’t have marginal expansion necessarily inside of it. And it really that’s sort of the underlying factor. And while you have a huge queue of active existing patients and constantly admitting new patients with the median length of stay at sixteen days, there’s a long tail to all these things. And I think we just try to be more proactive of talking about those different factors, all of which should have minimal to no P and L impact in the near term as you can see from 2025 guidance or in the mid and long term. It’s just a it’s a function of the industry from a rule that got put in place, when the benefit was enacted in 1983, when almost every patient was a cancer patient with a very predictable prognostication and outlook.

Ben, the

Mike Witzman, Chief Financial Officer, Chemed Corporation: only thing this is Mike. The only thing I would add is, sort of as Kevin mentioned, we knew that the growth path at 2023 and 2024 looked like was probably higher than what was sustainable for the midterm and long term only because of the Medicare cap. So I think that if you’re looking 2026 and beyond, the operating metrics that we’re showing in the first quarter and have sort of guided to for 2025 is probably the more sustainable growth trajectory versus what we saw in 2023 and 2024, again, because of the Medicare cap.

Ben Hendrix, Analyst, RBC Capital Markets: Great. That makes perfect sense. Thank you for that color. And I guess, Mike, staying with you for a second. Just wondered, Derek, if we could get a little bit more color, any details you can offer on cash flow dynamics, particularly working capital, looks like we had a step up in AR.

I just wanted to get your thoughts there. Thanks.

Mike Witzman, Chief Financial Officer, Chemed Corporation: Sure. There’s two things that really affected cash flow and working capital at the end of the first quarter twenty twenty five. First ’1 is, and Nick can talk in great detail about it if you want, but we’ve disclosed in the past, we had a strange case with the OAS where they did an audit of a very select few patients, extrapolated it across some crazy three year window and said that we needed to refund $48,000,000 We had refunded the $48,000,000 I think two years ago. We found out at the in the first quarter of this year, we were getting it all back

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: Except $8

Mike Witzman, Chief Financial Officer, Chemed Corporation: Yes, except for $8 that we had to pay. But otherwise, we were getting it all back. So over the last two years, that $48,000,000 has been sitting as a long term receivable because we actually got the cash back, I believe, on April 1. It got moved to a short term receivable in the first quarter. And so receivables are $48,000,000 higher because of that.

The other thing is always that affects our cash flow is the timing of the PIP. And so we got a PIP three days into the quarter this year or into the second quarter. So the PIP payment that we got at the end of the first quarter in ’20 ’20 ’4 didn’t come to the beginning of the second quarter in ’20 ’20 ’5. And that’s $57,000,000 And so those are the two things that are affecting both the receivable balance as well as the cash flow during the quarter.

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: But we have the cash now.

Mike Witzman, Chief Financial Officer, Chemed Corporation: We have the cash now, and neither of those are any indication of cash flow collection problems or anything like that. It’s just timing.

Ben Hendrix, Analyst, RBC Capital Markets: Great. Thank you very much guys.

Conference Operator: Our next question comes from R. Prakesh with Bloomberg. Bloomberg, your line may be on mute. I’m showing no further questions in queue at this time. I’d like to turn the call back to Kevin McNamara for closing remarks.

Kevin McNamara, President and Chief Executive Officer, Chemed Corporation: Thank you. Thank you for your attention. I thought I just want to congratulate both our operating units for exceeding our internal projections from which we provided guidance. We maintain that guidance. And again, looking at the stock price, it seems to be a bit of a dislocation in the market for our stock for some reason.

But in any event, I want to thank everyone for their attention and we will renew these discussions three months hence. Thank you.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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