Chemed Corporation (NYSE:CHE) Q1 2024 Earnings Call Transcript

Chemed Corporation (NYSE:CHE) Q1 2024 Earnings Call Transcript April 25, 2024

Chemed Corporation  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Chemed Corporation First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker for today, Holley Schmidt. Please go ahead Holley.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the first quarter of 2024 ended March 31st, 2024. Before we begin, let me remind you that the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management’s expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company’s news release of April 24th and in various other filings with the SEC.

You are cautioned that any forward-looking statements reflect management’s current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition management may also discuss non-GAAP operating performance results during today’s call including earnings before interest taxes depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company’s press release dated April 24th, which is available on the company’s website at chemed.com. I would now like to introduce our speakers for today; Kevin McNamara President and Chief Executive Officer of Chemed Corporation; Mike Witzeman, Chief Financial Officer of Chemed; and Nick Westfall, Chairman and Chief Executive Officer of Chemed’s VITAS Healthcare Corporation subsidiary.

I will now turn the call over to Kevin McNamara.

Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation’s first quarter 2024 conference call. I will begin with highlights for the quarter and Mike and Nick will follow-up with additional operating details. I will then open up the call for questions. We are very pleased with the strong operating metrics at VITAS in the first quarter of 2024. In the quarter, our admissions increased 4.5% over the prior year period. These strong admissions continue to drive higher patient census. In the first quarter of 2024, our average daily census or ADC expanded 1,835, an increase of 10.3% when compared to the prior year quarter and 1.6% when compared with the fourth quarter of 2023. VITAS’ continued improvement in operating metrics as a result of our continued strength in hiring and retaining licensed staff.

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Q&A Session

In the quarter, net bedside headcount increased 173 licensed professionals. This exceeded our internal projections for the quarter, which more than offset the slight weakness we experienced in the fourth quarter of 2023. Now, let’s turn to Roto-Rooter. As we discussed during our first fourth quarter earnings call we knew the first quarter was going to be a tough comparison for Roto-Rooter. The nationwide deep freeze at the beginning of 2023 resulted in six consecutive weeks of record revenue for Roto-Rooter. Not surprisingly this phenomenon did not recur in 2024. Overall, our call volume was down 9.1% when compared to the prior year quarter. Close rates at the call center at the time of dispatch and when our technician reaches the customer location remained consistently strong compared to historical levels.

Residential revenue at Roto-Rooter declined 3.5% while we’re still seeing demand headwinds related to consumer sentiment and concerns about macroeconomic environment. The residential revenue decline was within our range of expectations for the first quarter. As a result of changes made with various aspects of Google search algorithms, Roto-Rooter temporarily increased spending on paid advertising in late 2023 and early 2024. This additional market expense is the major cause of Roto-Rooter’s lower margins in the first quarter of 2024. Commercial revenue declined 10.5% during the quarter, which was a disappointment to us. Some of the same issues we discussed related to residential revenue including difficult comparisons macroeconomic concerns and Internet marketing disruption also impacted commercial revenue.

As Mike will discuss in further detail, we also had more demand than we could service during the pandemic. As a result, our branch personnel did not spend as much time cultivating commercial relationships as we historically have dedicated to that part of the business. We have analyzed the causes of the decline and are executing strategies to improve commercial revenue performance. To summarize, we are pleased with the continued strong results at VITAS. Our growth in licensed health care professionals strong admissions and corresponding growth in patient census have returned VITAS to normalized operating conditions. As Nick will discuss further, we’re also excited about the recently closed acquisition of Covenant Health and Community Services.

We believe this will be a big win for us both on an operational and financial perspective for 2024 and beyond. We believe Roto-Rooter is still well-positioned, despite the difficult operating conditions that it faces. Roto-Rooter maintains its core competitive advantages in terms of excellent brand awareness customer response time 24/7 call centers and aggressive Internet presence. With that I would like to turn this conference over to Mike.

Mike Witzeman: Thanks, Kevin. VITAS’ net revenue was $354 million in the first quarter of 2024, which is an increase of 14% when compared to the prior year period. This revenue increase is comprised primarily of an 11.5% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. The acuity mix shift negatively impacted revenue growth 60 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare Cap and other contra revenue changes increased revenue growth by approximately 50 basis points. Average revenue per patient day in the first quarter of 2024 was $203.8 which is 212 basis points above the prior year period.

Reimbursement for routine home care and high acuity care averaged $177.67 and $1074.78, respectively. During the quarter high acuity days of care were 2.8% of total days of care a decline of 10 basis points when compared to the prior year quarter. Adjusted EBITDA excluding Medicare Cap totaled $60.7 million in the quarter, an increase of 67.2%. Adjusted EBITDA margin in the quarter excluding Medicare Cap was 17.0% which is 544 basis points above the prior year period. The expense attributable to the retention bonus program in 2023 resulted in a 370 basis point improvement in the 2024 margin. Now let’s turn to Roto-Rooter. Roto-Rooter generated quarterly revenue of $235.2 million in the first quarter of 2024, a decrease of 5.8% when compared to the prior year quarter.

Roto-Rooter branch residential revenue in the quarter totaled $162.9 million a decrease of 3.5% from the prior year period. Roto-Rooter branch commercial revenue in the quarter totaled $53.7 million, a decrease of 10.5% from the prior year. As Kevin mentioned, this was below our expectations for the first quarter. The commercial business is experiencing some of the same issues we have seen with residential revenue in the first quarter including a difficult comparison with prior year and continued Internet marketing challenges. We also continue to face some of the issues related to certain of our retail customers. In addition to those factors, during the pandemic we had more demand than we could service. As a result, our branch personnel did not maintain as much focus on cultivating commercial accounts as we historically have maintained.

Accordingly, Roto-Rooter has embarked upon a company-wide push to reemphasize the behaviors that are necessary to develop and retain commercial customers. We are increasing the number of touch points with key accounts both through our national call centers and locally in each branch. We have also implemented strategies to maximize revenue for the leads we do currently receive by training our commercial technicians to be acutely aware of upselling opportunities at every job they perform. We believe that some of these strategies should provide short-term help while other efforts will take longer to show results. Adjusted EBITDA at Roto-Rooter in the fourth quarter – in the first quarter of 2024 totaled $60.7 million, a decrease of 15.6% compared to the prior year quarter.

The adjusted EBITDA margin in the quarter was 25.8%, which is 299 basis points below the prior year period. As Kevin mentioned, the decrease in margins was driven mainly by higher Internet marketing costs. Before the end of the first quarter, we reduced our overall marketing spend back to more historical levels and as a result we anticipate an improvement in operating margins starting in the second quarter. I will now turn this call over to Nick.

Nick Westfall: Thanks, Mike. I’m very pleased with our continued sustainable expansion of our workforce and patient capacity through the first quarter of 2024. As Kevin mentioned, we expanded our bedside headcount by 173 licensed professionals during the quarter. The first quarter of 2024 marked our seventh consecutive quarter of expanding our clinical workforce capacity. In the first quarter of 2024, our average daily census was 19,665 patients, an increase of 10.3% when compared to the prior year and an increase of 313 or 1.6% sequentially. VITAS has generated quarterly sequential ADC growth over the last six quarters. On the last day of the quarter March 31, we had over 20,000 live patients on service which was an exciting milestone for VITAS.

In the first quarter of 2024, total VITAS admissions were 16,911. This represents a 4.5% increase when compared to the first quarter of 2023 and represents an increase across all four of our reported pre-admit segments. In the quarter, our nursing home admissions increased 4%, assisted facility admissions expanded 2.1%, hospital-directed admissions increased 3.2% and our home-based patient admissions expanded 12% when compared to the prior year period. Our average length of stay in the quarter was 103.9 days. This compares to 99.9 days in the first quarter of 2023 and 105.9 days in the fourth quarter of 2023. Our median length of stay was 16 days in the quarter and compares to 15 days in the first quarter of 2023 and 17 days in the fourth quarter of 2023.