Chemed Corporation (NYSE:CHE) Q3 2023 Earnings Call Transcript

Ben Hendrix: Great. Thank you. Just one last question. Can you just talk about any changes and thoughts around your capital deployment priorities kind of amid the current interest rate environment and expectations for rates to stay higher for longer? Thanks.

Kevin McNamara: Good day, I was just — obviously, there is a — Dave is going to talk about a little bit of a change given the overnight rate that we get on our money, but we’re still going to be buying stock. Dave, why don’t you give…

Dave Williams: Yeah, no, before — I mean in past years, when we were getting, what, it was only 18 months ago, we were getting 20 basis points on overnight money. Kevin and I certainly felt a strong urge to put that to work quickly, and that was share repurchase primarily on dollar averaging. Now that we actually can get a good rate of 5.2%, which on an after-tax basis about equals our free cash flow yield per share, there isn’t an economic cost if we try to time things. So, from that standpoint, that’s why you’re seeing our interest income increasing as we put that cash to work on an overnight basis. And then, we’ll be opportunistic when the stock corrects jumping on share repurchase. But that clearly will be a continued part of our way to return capital to shareholders until we can find some nice juicy acquisitions or other ways to risk adjust and increase our returns.

Ben Hendrix: Thank you.

Operator: All right. Thank you. One moment for our next question. Our next question comes from the line of Joanna Gajuk of Bank of America. Your line is open.

Joanna Gajuk: Thank you. Good morning. Thanks for taking the question. So, I guess, if I can first follow up on the discussion around VITAS margins. So you alluded that Q4 guidance implies a pretty high margin of 21%, that’s not a good assumption for next year, obviously, because of the seasonality and how the Medicare rate update flows through. But is it fair to assume I guess full year margin guidance excluding the 180 basis points headwind from the retention program? So I guess when you do that math because you’re guiding now 15.4% to 15.7%, but excluding that headwind, I guess it’s 17.2% to 17.5% margin. So, is that a good starting point for next year? Because also the other way I guess to look at things would be maybe the second half, so combined Q4 and Q3, so that’s like a 19% margin. So, is it fair to kind of think about margins into next year in the kind of neighborhood?

Dave Williams: What I would say on margin, and you’re asking an interesting question, we’re going to be cagey, but not only because we — look, we don’t know how things are going to smooth out post-pandemic. So, before, as we’re getting tail end of the pandemic, say, even last year, I think Nick, Kevin, and I were talking about VITAS’ margins, there’s no retention program or anything else. We said we’ll return to that 17.5%, 18% adjusted EBITDA margin ex-Cap. That’s what we’ve been saying as we’re working our way through the pandemic. Now as we look at the overall mix, we look at the efficiencies Nick and his team out of necessity created during the pandemic, again doing probably more high acuity — less high acuity care on a go-forward basis than we were doing pre-pandemic, all of that leads to, I think, our margins are going to be higher than that 17.5% to 18% that we posted in calendar year 2019.