8-K: Chemed Corporation Reports Mixed Q3 2024 Results: VITAS Growth Offsets Roto-Rooter Decline

Chemed Corporation's third-quarter results show strong growth in its VITAS hospice segment, which was partially offset by a decline in Roto-Rooter's plumbing and drain cleaning business.

Summary

• Chemed Corporation reported its financial results for the third quarter ended September 30, 2024.
• Consolidated revenue increased by 7.4% to $606.2 million.
• GAAP diluted earnings per share (EPS) rose by 1.4% to $5.00, while adjusted diluted EPS increased by 6.0% to $5.64.
• The VITAS segment saw a 17.3% increase in net patient revenue to $391.4 million, with a 15.5% increase in average daily census (ADC) to 21,785.
• VITAS's adjusted EBITDA, excluding Medicare Cap, increased by 33.1% to $73.1 million, with a margin of 18.6%, a 212-basis point increase.
• The Roto-Rooter segment experienced a 6.9% decrease in revenue to $214.8 million.
• Roto-Rooter's adjusted EBITDA declined by 15.8% to $56.4 million, with a margin of 26.3%, a 275-basis point decrease.
• Chemed repurchased 100,000 shares of its stock for $57.8 million during the quarter.
• Full-year 2024 adjusted earnings per diluted share are estimated to be in the range of $23.00 to $23.15, a 13.3% to 14.0% increase from 2023.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong performance in the VITAS segment, but tempered by the weaker results in Roto-Rooter and the downward revision in guidance. The company's overall financial health is good with no debt, but the mixed performance creates some uncertainty.

Positives

• VITAS experienced strong revenue growth of 17.3% and a 15.5% increase in average daily census.
• VITAS's adjusted EBITDA, excluding Medicare Cap, saw a significant increase of 33.1%.
• Chemed's consolidated revenue increased by 7.4%.
• The company has no current or long-term debt and $238.5 million in cash and cash equivalents.
• Chemed has $404.8 million of undrawn borrowing capacity under its credit agreement.
• Full-year 2024 adjusted EPS is estimated to increase by 13.3% to 14.0% compared to 2023.

Negatives

• Roto-Rooter's revenue decreased by 6.9% compared to the prior-year quarter.
• Roto-Rooter's adjusted EBITDA declined by 15.8% and its adjusted EBITDA margin decreased by 275 basis points.
• Roto-Rooter's commercial and residential revenue both declined.
• VITAS experienced a negative impact on revenue growth of 144 basis points due to acuity mix shift.
• VITAS accrued $2.2 million in Medicare Cap billing limitations, compared to $125,000 in the prior year.
• Hurricane Helene negatively impacted VITAS admissions by an estimated 60-100 patients.

Risks

• Changes in regulations governing the hospice care or plumbing and drain cleaning industries could impact results.
• Periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs pose a risk.
• Difficulties in predicting patient length of stay and estimating potential Medicare reimbursement obligations could affect financial performance.
• The current shortage of qualified nurses, other healthcare professionals, and licensed plumbing and drain cleaning technicians could impact operations.
• Chemed's dependence on patient referral sources is a potential risk.
• The impact of Hurricanes Helene and Milton on VITAS admissions is expected to be more significant in the fourth quarter.

Future Outlook

Full-year 2024 adjusted earnings per diluted share are estimated to be in the range of $23.00 to $23.15, representing a 13.3% to 14.0% increase from 2023. VITAS continues to perform as anticipated, while Roto-Rooter's revenue and resulting adjusted EBITDA and adjusted net income were softer than anticipated.

Management Comments

• 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.
• VITAS continues to perform as anticipated.
• Roto-Rooter's revenue and resulting adjusted EBITDA and adjusted net income was softer than anticipated during the third quarter of 2024.

Industry Context

The results reflect the ongoing trends in the healthcare and home services industries. The growth in VITAS highlights the increasing demand for end-of-life care, while the decline in Roto-Rooter's revenue may indicate a slowdown in the home services sector or increased competition. The acquisition of Covenant Health's hospice assets is a strategic move to expand VITAS's market presence.

Comparison to Industry Standards

• VITAS's 17.3% revenue growth and 15.5% ADC increase are strong compared to industry averages for hospice care providers, which typically see single-digit growth.
• Competitors like Amedisys and LHC Group, while not directly comparable due to different service mixes, have shown similar trends in hospice growth, but VITAS's growth appears to be at the higher end.
• Roto-Rooter's 6.9% revenue decline contrasts with some home service companies that have seen growth, suggesting potential challenges specific to Roto-Rooter's market or operations.
• Companies like ServiceMaster and Terminix, while in different sub-sectors of home services, have shown more stable revenue trends, indicating Roto-Rooter's performance is below par.
• The adjusted EBITDA margin for VITAS at 18.6% is competitive within the hospice industry, while Roto-Rooter's 26.3% margin is lower than some of its peers in the home services sector.

Stakeholder Impact

• Shareholders may experience mixed reactions due to the strong VITAS performance but weaker Roto-Rooter results.
• Employees at VITAS may see positive implications due to the segment's growth, while Roto-Rooter employees may face uncertainty.
• Customers of VITAS will continue to receive end-of-life care services, while Roto-Rooter customers may experience changes in service quality or availability.
• Suppliers to VITAS may see increased demand, while suppliers to Roto-Rooter may experience a decrease in orders.
• Creditors are not impacted as the company has no debt.

Next Steps

• Chemed will host a conference call and webcast on October 30, 2024, to discuss the quarterly results and provide an update on its business.

Key Dates

Keywords

Chemed, VITAS, Roto-Rooter, hospice, plumbing, drain cleaning, healthcare, EBITDA, revenue, earnings, Medicare, acquisitions