Chemed(US:CHE)2025-07-30 15:00Financial 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]