Chemed Reports Fourth-Quarter 2024 Results

Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), one of the nation's largest providers of end-of-life care, and Roto-Rooter, the nation's largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its fourth quarter ended December 31, 2024, versus the comparable prior-year period.

Changes to Non-GAAP Metrics

Chemed uses certain non-GAAP metrics such as EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, to provide additional context and perspective to reported operational results.

Chemed's previously reported non-GAAP metrics during the four sequential quarters from September 30, 2022 through June 30, 2023 excluded the 12-month pandemic-related licensed healthcare professional retention bonus (Retention Program). Starting with the quarter-ended September 30, 2023, the Company no longer excludes the cost of the Retention Program when presenting non-GAAP operating metrics in current or prior periods.

For the twelve-months ended December 31, 2023, the pretax and after-tax Retention Program expense was $20.8 million and $15.8 million, respectively. There was no material impact on financial results for the twelve months-ended December 31, 2024, as a result of the Retention Program. There was no material financial impact on the fourth quarter of either 2024 or 2023 as a result of the Retention Program.

Results for Quarter Ended December 31, 2024

Consolidated operating results:

• Revenue increased 9.2% to $640.0 million
• GAAP Diluted Earnings-per-Share (EPS) of $6.02, an increase of 2.0%
• Adjusted Diluted EPS of $6.83, an increase of 3.5%

VITAS segment operating results:

• Net Patient Revenue of $411.0 million, an increase of 17.4%
• Average Daily Census (ADC) of 22,179, an increase of 14.6%
• Admissions of 16,427, an increase of 3.5%
• Net Income, excluding certain discrete items, of $70.0 million, an increase of 10.5%
• Adjusted EBITDA, excluding Medicare Cap, of $93.2 million, an increase of 11.8%
• Adjusted EBITDA margin, excluding Medicare Cap, of 22.5%, a decline of 112-basis points

Roto-Rooter segment operating results:

• Revenue of $229.0 million, a decrease of 2.9%
• Net Income, excluding certain discrete items, of $42.5 million, a decrease of 10.8%
• Adjusted EBITDA of $60.3 million, a decline of 7.2%
• Adjusted EBITDA margin of 26.3%, a decline of 120-basis points

VITAS

As previously announced, VITAS completed its acquisition of the hospice assets and an assisted living facility of Covenant Health and Community Services, Inc. (Covenant Health) on April 17, 2024 for $85.0 million in cash. Before presenting VITAS' overall results, it is important to disclose the methodology used in determining the impact of Covenant Health's acquisition on VITAS' overall results. VITAS had significant operations in two of the three Florida locations we acquired from Covenant Health. Those locations require that we estimate the Covenant Health impact, as once the operations are integrated, there are not separate results. For instance, there are no VITAS-specific referral sources versus Covenant Health-specific referral sources in these locations. It is very likely that referral sources in the area have historically referred to both VITAS and Covenant Health. We have used historical operating trends in these locations to determine what is "legacy" VITAS activity. All activity above those historical operating trends have been attributed as the Covenant Health impact. We have included the specifically determined impact as it relates to new operating territories acquired. Based on the above, we discuss the range of impact that Covenant had on the overall VITAS operating metrics.

Covenant Health contributed approximately $11 million to $12 million of revenue in the fourth quarter of 2024. This revenue translated to net income of approximately $2.1 million to $2.3 million. Adjusted EBITDA in the quarter attributed to Covenant Health is between $2.8 million and $3.0 million.

VITAS net revenue was $411.0 million in the fourth quarter of 2024, 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%. Acuity mix shift negatively impacted revenue growth 119-basis points in the quarter when compared to the prior-year period's revenue and level-of-care mix. The combination of Medicare Cap and other contra revenue changes increased revenue growth by approximately 44-basis points.

In the fourth quarter of 2024, VITAS accrued $2.4 million in Medicare Cap billing limitation, essentially flat with the fourth quarter of 2023.

Of VITAS' 34 Medicare provider numbers, 25 provider numbers have a trailing 12-month Medicare Cap cushion of 10% or greater, five provider numbers have a cushion between 0% and 10%, and four provider numbers have a trailing 12-month Medicare Cap billing limitation totaling $9.6 million. As noted above, VITAS' weighted average Medicare reimbursement rate increase during the quarter was 3.5%. The per-admission Medicare Cap protection for the period beginning October 1, 2024 increased 2.9%, 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 cushion in our programs for both the trailing 12-months and our projected fiscal year 2025. The actual basis point differential in certain of our programs, including the Florida program, exceeds the overall 60-basis point average.

Average revenue per patient per day in the fourth quarter of 2024 was $206.23 which is 244-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 when compared to the prior-year quarter.

The fourth quarter 2024 gross margin, excluding Medicare Cap, was 28.8%. This compares to the prior year quarter's gross margin of 29.9%, excluding Medicare Cap. The fourth quarter 2023 gross margin was positively impacted by 135-basis points due to a one-time change in their vacation roll-over policy. Selling, general and administrative expenses were $25.6 million in the fourth quarter of 2024 compared to $22.0 million in the prior-year quarter.

Adjusted EBITDA, excluding Medicare Cap, totaled $93.2 million in the quarter, an increase of 11.8% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 22.5%, which is 112-basis points below the prior-year period due mainly to the one-time vacation adjustment in 2023.

Hurricanes Helene and Milton, which impacted the panhandle of Florida and other parts of the southeastern United States in late September and early October, did not result in any significant property loss or damage to VITAS. However, as with other similar events, we did experience a slowdown in admission activity while health systems prepared for the hurricane and then dealt with the aftermath. We estimate that admissions were negatively impacted during the fourth quarter by approximately 150-175 patients.

In October 2024, VITAS admitted its first patient in Pasco County, Florida. Additionally, in December 2024, VITAS was awarded a certificate of need in Marion County, Florida.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $229.0 million in the fourth quarter of 2024, a decrease of 2.9%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $54.3 million, an increase of 0.4% from the prior-year period. This aggregate commercial revenue change consisted of drain cleaning revenue increasing 0.2%, plumbing declining 9.6%, excavation increasing 7.6%, and water restoration increasing 19.8%.

Roto-Rooter branch residential revenue in the quarter totaled $160.5 million, a decrease of 2.0%, over the prior-year period. This aggregate residential revenue change consisted of drain cleaning declining 2.8%, plumbing declining 9.6%, excavation declining 1.9%, and water restoration increasing 2.8%.

Roto-Rooter's fourth quarter 2024 gross margin was 51.3%. This compares to the prior year quarter's gross margin of 52.9%. Roto-Rooter's selling, general and administrative expenses were $57.2 million in the quarter, which is a decrease of 4.1% compared to the fourth quarter of 2023. The decline in selling, general and administrative expenses was caused mainly by lower internet marketing costs in the fourth quarter of 2024 compared to 2023.

Adjusted EBITDA in the fourth quarter of 2024 totaled $60.3 million, a decrease of 7.2% when compared to the fourth quarter of 2023. The Adjusted EBITDA margin in the quarter was 26.3% which represents a 120-basis point decline from the fourth quarter of 2023.

Chemed Consolidated

As of December 31, 2024, Chemed had total cash and cash equivalents of $178.4 million and no current or long-term debt.

In June 2022, Chemed entered into a five-year $550 million Amended and Restated Credit Agreement (Credit Agreement). This Credit Agreement consisted of a $100 million amortizable term loan and a $450 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently SOFR plus 100-basis points. There is approximately $404.5 million of undrawn borrowing capacity under the Credit Agreement after excluding $45.5 million for Letters of Credit.

During the quarter, the Company repurchased 388,235 shares of Chemed stock for $212.8 million which equates to a cost per share of $548.13. As of December 31, 2024, there was approximately $255.3 million of remaining share repurchase authorization under its plan.

Guidance for 2025

VITAS 2025 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 9.0%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 18.4% to 18.9%. Medicare Cap billing limitations are estimated to be $9.5 million in calendar year 2025.

Roto-Rooter is forecasted to achieve full-year 2025 revenue growth of 2.4% to 3.0%. Roto-Rooter's adjusted EBITDA margin for 2025 is expected to be 25.7% to 26.3%.

Based upon the above, 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 earnings per diluted share of $23.13.

The 2025 earnings trajectory is weighted towards the 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 build momentum. Additionally, the first quarter of 2024 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 discussed above. The impact to the first quarter for VITAS will be mostly offset by the results of the Covenant acquisition which occurred in April 2024.

The 2025 guidance assumes an effective corporate tax rate on adjusted earnings of 24.0% and a diluted share count of 14.8 million shares.

Conference Call

As previously disclosed, Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday February 27, 2025, to discuss the company's quarterly results and to provide an update on its business. Participants may access a live webcast of the conference call through the investor relations section of Chemed's website, Investor Relations Home | Chemed Corporation or the hosting website https://edge.media-server.com/mmc/p/pxs2dghv/.

Participants may also register via teleconference at:

https://register.vevent.com/register/BIa60a1e9fbd7b47dab63b5406c1e907a2.

Once registration is completed, participants will be provided with a dial-in number containing a personalized conference code to access the call. All participants are instructed to dial-in 15 minutes prior to the start time.

A taped replay of the conference call will be available beginning approximately two hours after the call's conclusion. You may access the replay via webcast through the investor relations section of Chemed's website.

Chemed operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing, drain cleaning, and water cleanup services through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in the republics of Indonesia and Singapore, and the Philippines.

This press release contains information about Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed's financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company's operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed's management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed's management to estimate the resources required to meet Chemed's future financial obligations and expenditures. Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed's net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements.

These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed's dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed's most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.