Chemed(US:CHE)2025-07-30 15:02Financial Data and Key Metrics Changes - VITAS net revenue was $396.2 million in 2025, an increase of 5.8% 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 [12] - 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 [15][16] - Roto Rooter revenue increased by 6% in 2025 compared to the same period in 2024, falling short of internal expectations [8] Business Line Data and Key Metrics Changes - Admissions at DITAS totaled 17,545, a 1.2% improvement from the same period in 2024, with a 4.9% increase when excluding patient transfers from VITAS [5] - Roto Rooter branch residential revenue totaled $156.4 million, a 9% increase from the prior year, driven by a 16.9% increase in water restoration [17] - Roto Rooter branch commercial revenue totaled $53.2 million, a 4.4% increase from the prior year, with a 24.4% increase in excavation revenue [17] 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] - The consolidated Florida program is estimated 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 2025 [5] - VITAS is adjusting its patient mix in Florida to mitigate Medicare cap issues, which may cause some disruption in operating metrics but is expected to lead to higher growth rates in the long term [10] - Roto Rooter is focusing on improving its competitive advantages to return to a steadier growth trajectory [11] Management's Comments on Operating Environment and Future Outlook - Management commented on the impact of the Liberation Day tariff announcement on consumer confidence and spending, which affected Roto Rooter's performance in April and May [9] - The company is optimistic about the overall prospects for both businesses, with VITAS working on initiatives to improve admissions and Roto Rooter focusing on enhancing its service offerings [10][11] Other Important Information - The company estimates $28.2 million in Medicare cap billing limitations for calendar 2025, with $19 million related to the Florida combined program [23] - Roto Rooter's adjusted EBITDA totaled $48.6 million, a decrease of 18.7% compared to the prior year quarter, with a margin of 21.8% [18] Q&A Session Summary Question: Impact of Medicare cap and future margins - Management discussed the levers being pulled to ensure no carryover impact from the Medicare cap after Q3, emphasizing hospital admissions and the moderation of the patient mix bubble created by the Community Access Program [28][29] Question: Factors driving underperformance in admissions - Management noted that the increase in admissions was intentionally moderated to avoid providing services without reimbursement, focusing on hospital admissions instead [38][40] Question: Roto Rooter management issues and recovery - Management indicated that local management issues have been resolved, and the recovery seen in June and July is attributed to improved operational performance rather than management changes [49][50] Question: Tax rate favorability in Q2 - The decline in the effective tax rate was attributed to accounting factors related to stock option exercises, with fewer exercises in the quarter leading to a larger tax deduction [65][66] Question: Confidence in short stay patient mix - Management expressed confidence in achieving a higher mix of short stay patients through improved operational emphasis and reputation [70][71] Question: Capital deployment and acquisition strategy - The company remains open to acquisitions at the right valuation and location, with no change in strategy despite current business challenges [98]