Core Thesis - Chemed Corporation (CHE) is viewed positively due to its strong market position in hospice care and plumbing services, with significant growth potential in the hospice market [1][2][5] Business Overview - Chemed operates two main businesses: VITAS, the largest hospice provider in the U.S., contributing 58% of revenue and growing around 9%, and Roto-Rooter, a plumbing service provider, contributing 42% of revenue and growing approximately 1.7% [2] - The U.S. hospice market is projected to grow from $29.9 billion to $39.1 billion by 2030, indicating a strong growth trajectory for VITAS [2] Financial Performance - Chemed generates annual free cash flow between $250 million and $367 million, has no debt beyond leases, and holds $249 million in cash, allowing for opportunistic share repurchases [4] - The stock is currently trading near multi-year lows on P/E and EV/EBITDA metrics, suggesting potential for re-rating as market focus shifts to 2026 earnings [4] Challenges and Mitigation Strategies - Recent stock price decline was attributed to a Medicare cap issue in Florida, which limited revenue recognition for VITAS due to higher state reimbursement rates [3] - Management has strategies in place to address these challenges, including increasing admissions and optimizing patient mix, which are expected to mitigate cap risks and create a $30 million cushion for 2026 [3][4] Market Outlook - The stock is seen as having a compelling risk/reward profile, with a potential upside of 26% as earnings improve, while downside risk is limited to approximately 12% [4] - The operational resilience and financial strength of Chemed support a bullish outlook despite recent short-term headwinds [5]

Financial Data and Key Metrics Changes - VITAS net revenue was $396.2 million in Q2 2025, representing a 5.8% increase compared to the prior year period, driven by a 6.1% increase in days of care and a 4.2% increase in Medicare reimbursement rates [13][14] - Adjusted EBITDA excluding Medicare Cap totaled $66.8 million in the quarter, essentially flat with 2024, with an adjusted EBITDA margin of 16.2%, down 163 basis points from the prior year [16][17] - Roto Rooter revenue increased 6% in 2025 compared to the same period in 2024, falling short of internal expectations [8][9] Business Line Data and Key Metrics Changes - DITAS admissions totaled 17,545, a 1.2% improvement from the same period in 2024, with a 4.9% increase when excluding patient transfers to VITAS [5][6] - Roto Rooter branch residential revenue was $156.4 million, a 9% increase from the prior year, driven by a 16.9% increase in water restoration [20] - Roto Rooter adjusted EBITDA decreased by 18.7% to $48.6 million, with an adjusted EBITDA margin of 21.8%, reflecting inefficiencies in the labor force due to lower residential revenues [21][22] Market Data and Key Metrics Changes - Hospital-directed admissions increased by 9.1%, while home-based patient admissions declined by 6.2%, nursing home admissions declined by 2.9%, and assisted living facilities admissions declined by 1.4% compared to the prior year [6][10] - The consolidated Florida program is projected to end the 2025 Medicare cap year with a $19 million billing limitation, with management expecting no significant Medicare cap billing limitation for the 2026 cap year [6][7] Company Strategy and Development Direction - The company remains confident in the growth potential and strategic direction of both businesses despite underperformance in Q2 2025 [5][11] - VITAS is adjusting its patient mix in Florida to mitigate Medicare cap issues, which may cause some disruption in operating metrics but positions the company for long-term growth [11][12] - Roto Rooter is focusing on improving its competitive advantages and is optimistic about returning to a steadier growth trajectory [11][12] Management's Comments on Operating Environment and Future Outlook - Management noted that the weak admissions in April and May were influenced by external factors affecting consumer confidence and spending [10][11] - The company is optimistic about the overall prospects for both businesses, with VITAS management actively reviewing expenses to offset lower EBITDA margins [17][21] - Management expects to update assumptions regarding rates and the overall outlook for the 2026 Medicare cap year in the third quarter earnings release [7][26] Other Important Information - The company estimates $28.2 million in Medicare cap billing limitations for calendar 2025, with no limitations expected in the fourth quarter related to the Florida combined program [26] - Roto Rooter is forecasted to have a revenue increase of 1.25% to 1.75% in 2025 compared to 2024, with an adjusted EBITDA margin expected to be 23.5% to 24.5% [27] Q&A Session Summary Question: What measures are being taken to avoid Medicare cap issues in 2026? - Management emphasized hospital admissions and the moderation of the patient mix bubble created by the Community Access Program as key levers to avoid cap issues [31][32] Question: What is the outlook for admissions and revenue growth? - Management indicated that while admissions were slightly below expectations, they are confident in achieving a higher mix of short-stay patients moving forward [70][72] Question: How are local management issues affecting Roto Rooter's recovery? - Management stated that past local management issues have been resolved, and the focus is now on improving conversion rates and addressing market challenges [51][56] Question: What is the impact of the recent tax rate changes? - The effective tax rate decline was attributed to accounting factors related to stock option exercises, which are not expected to persist [67][68] Question: Is there a change in the company's acquisition strategy? - The company remains open to acquisitions at the right valuation and location, with no change in overall strategy despite current challenges [100][102]

Financial Data and Key Metrics Changes - VITAS net revenue was $407.4 million in Q1 2025, an increase of 15.1% compared to the prior year period [18] - Adjusted EBITDA, excluding Medicare cap, totaled $70.3 million in Q1 2025, an increase of 15.9% [20] - Adjusted EBITDA margin in Q1 2025, excluding Medicare cap, was 17.2%, which is 13 basis points above the prior year period [20] - Roto Rooter generated total revenue increase of 1.8% in Q1 2025 compared to the prior year quarter [13] - Adjusted EBITDA at Roto Rooter in Q1 2025 totaled $59.2 million, a decrease of 2.4% compared to the prior year quarter [25] Business Line Data and Key Metrics Changes - VITAS admissions totaled 18,139 in Q1 2025, a 7.3% improvement compared to the same period of 2024 [8] - Average daily census (ADC) for VITAS expanded to 22,244, an increase of 13.1% compared to the prior year quarter [8] - Roto Rooter branch residential revenue increased by 1.7% to $167.2 million, driven by a 3% increase in excavation revenue and a 12.5% increase in water restoration [21][22] - Roto Rooter branch commercial revenue increased by 7.3% to $57.7 million, driven by a 38% increase in excavation and a 14% increase in water restoration [23] Market Data and Key Metrics Changes - Hospital-based admissions represented 49% of overall admissions for VITAS, the highest level since the pandemic [36] - Hospital-directed admissions increased by 12% compared to Q1 2024 [32] - The average revenue per patient day for VITAS in Q1 2025 was $207.58, which is 221 basis points above the prior year period [19] Company Strategy and Development Direction - VITAS management is focusing on increasing hospital-based admissions to navigate Medicare cap issues [11][34] - The company is expanding its operating scope within Florida and other states with certificate of need restrictions [16] - Roto Rooter management is refining its excavation pricing model to balance revenue growth and EBITDA margin [28] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in VITAS's ability to maintain above-average growth both organically and through acquisitions in 2025 and beyond [39] - The company anticipates providing updated earnings guidance as part of the June 30, 2025 earnings press release [29] - Management acknowledged that the growth path seen in 2023 and 2024 was likely higher than what is sustainable due to the Medicare cap [53] Other Important Information - The Covington Health acquisition positively impacted revenue, adjusted net income, and EBITDA by 3 to 4% [21] - The company experienced a $48 million increase in receivables due to the return of funds from a previous audit [56][58] Q&A Session Summary Question: Details on long-term cap management strategy - Management discussed the importance of managing cap cushion and the impact of hospital admissions on average length of stay [44][45] - The focus is on ensuring long-term sustainable growth while navigating regulatory changes [50][51] Question: Cash flow dynamics and working capital - Management explained that cash flow was affected by the timing of receivables and a PIP payment [55][58] - They clarified that the increase in receivables was not indicative of cash flow collection problems [60]