Chemed Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 7 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, and welcome to the Chemed Corporation Second 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 As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Holly Schmidt. Please go ahead, ma'am.

Speaker 2

Good morning. Our conference call this morning will review the financial results for the Q2 of 2024 ended June 30, 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 July 24 and in various other filings with the SEC.

Speaker 2

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 July 24, 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 Witzman, 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.

Speaker 3

Thank you, Holly. Good morning. Welcome to Chemed Corporation's 2nd quarter 2024 conference call. I will begin with highlights for the quarter, then Mike and Nick will follow-up with additional details. I will then open up the call for questions.

Speaker 3

We continue to be pleased with the excellent operating metrics at VITAS, coupled with a strong start for our Covenant Health acquisition. In the Q2 of 2024, admissions totaled 17,344, which equates to an 11% improvement from the same period of 2023. Our average daily census, or ADC, expanded 2,644, an increase of 14.4% when compared with the prior year quarter. These historically good metrics were positively impacted by the $85,000,000 acquisition of Covenant Health, which was closed on April 17, 2024. Nick will provide further insight on the positive impact of the acquisition on these metrics.

Speaker 3

These operating metric improvements and related financial impact would not be achievable without VITAS' continued strength in hiring and retaining clinical staff. We're also pleased that in the Q2 of 2024, VITAS was awarded the Certificate of B to provide hospice services in Pasco County, Florida. This represents an opportunity for VITAS to begin service in a vibrant and growing community in Florida. Now let's turn to Roto Rooter. Roto Rooter generated quarterly revenue of $221,300,000 in the Q2 of 2024, a decrease of 5% when compared with the prior year quarter.

Speaker 3

Overall, our call volume was down 6.1% when compared with the prior year quarter. Close rates at the call center at the time of dispatch and when our technician reaches the customer location remain consistently strong compared to historic levels. Residential revenue at Roto Root declined 1.6% and commercial revenue declined 8.2%. Residential demand is significantly impacted by consumer sentiment and consumer spending, which continues to be depressed, particularly as it relates to home services and home improvements. With lower demand across the entire industry, competition for Internet marketing position and related job leads continues to be fierce.

Speaker 3

However, the commercial sector of Roadrunner provides significant opportunity for improvement, both sequentially through 2024 and in 2025. As we mentioned in the Q1, the extraordinarily high demand we experienced during the pandemic led the commercial business to be de prioritized. The habits required in the field to make for a successful commercial business were not reestablished at the end of the pandemic in some locations. As Mike will discuss further, the company has implemented several initiatives, which I believe will have a significant positive impact on Rotorover's commercial sector. To summarize, we are excited about the continued strong results of VITAS.

Speaker 3

VITAS management has consistently demonstrated the ability to accelerate hiring and retention of licensed healthcare professionals. This has translated into continued strong admission and census growth. We're very bullish on the prospects of VITAS for the remainder of 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, 20 fourseven call centers and aggressive Internet presence.

Speaker 3

With that, I would like to turn this teleconference over to Mike.

Speaker 4

Thanks, Kevin. Before discussing VITAS results, it is important that we discuss the methodology used in determining the impact of Covenant Health's acquisition on VITAS overall results. As you may remember, we already had significant operations in 2 of the 3 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 not VITAS specific referral sources versus covenant specific referral sources in these locations.

Speaker 4

It is very likely that referral sources in the area have historically referred to both VITAS and Covenant. We have used historical operating trends in these locations to determine what is legacy VITAS activity. All activity above these historical operating trends have been attributed to the Covenant Health acquisition. Of course, we have included the specifically determined impact as it relates to new operating territories acquired. Based on the above, the following discusses the range of impact that Covenant had on the overall VITAS operating metrics.

Speaker 4

The Covenant Health acquisition contributed $8,200,000 to $8,700,000 of revenue in the Q2 of 2024. This revenue translated to net income of approximately $1,600,000 to 1,800,000 dollars Adjusted EBITDA in the quarter attributed to Covenant Health is between $2,200,000 $2,400,000 As we already had operations in 2 of the acquired programs, we did not need to add significant infrastructure to absorb the additional activity. This results in higher overall margins for these two programs and for the acquisition as a whole. VITAS net revenue was $374,600,000 in the Q2 of 2024, which is an increase of 16.7 percent when compared to the prior year period. This revenue increase is comprised primarily of a 14.4% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.5%.

Speaker 4

The acuity mix shift negatively impacted revenue growth 112 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 92 basis points. Average revenue per patient day in the Q2 of 2024 was $200.03 which is 153 basis points above the prior year period. Reimbursement for routine home care and high acuity care averaged $176.73 $10.71.65 respectively. During the quarter, high acuity days of care were 2.6% of total days of care, a decline of 21 basis points when compared to the prior year quarter.

Speaker 4

Adjusted EBITDA excluding Medicare cap totaled $67,000,000 in the quarter, an increase of 77%. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 17.8%, which is 6 13 basis points above the prior year period. The expense attributable to the retention bonus program in 2023 contributed 3.97 basis points to the year over year improvement in the 2024 margin. Now let's turn to Roto Rooter. Roto Rooter branch residential revenue in the quarter totaled 100 and $55,000,000 a decrease of 1.6% from the prior year period.

Speaker 4

Roto Rooter branch commercial revenue in the quarter totaled $50,900,000 a decrease of 8.2% from the prior year. As Kevin mentioned, this continues to lag our expectations for this segment of the business. The commercial business is experiencing some of the same overall demand issues we have seen with residential revenue in the second quarter. In general, small business owners behave very similarly to our residential customer base, and therefore consumer demand and increased competition are impacting this cohort of commercial customers. Roto Rooter has continued its company wide push to reemphasize the behaviors that are necessary to develop and retain commercial customers.

Speaker 4

Commercial sales staff have been added during the quarter and will continue to be added. Roto Rooter Management has implemented enhanced customer relationship management capabilities to improve the efficiency of the expanded sales staff. Each branch general manager was required to directly contact or have their sales staff contact every key commercial customer as determined by certain customer demographic metrics. Additionally, Roto Rooter Management has noted that a handful of branches have contributed to a large majority of the decline in commercial revenue. A deep dive analysis has been performed on these branches and specific targeted improvement programs have been implemented.

Speaker 4

As we noted in the Q1, many of the general managers of these programs are new to their position since the pandemic. Training the general managers to recognize issues on a timely basis is part of the ongoing remediation program in the field. Roto Rooter Management believes that the process of retraining managers and reemphasizing the commercial business will require multiple quarters to take full effect. Adjusted EBITDA at Roto Rooter in the Q2 of 2024 totaled $59,800,000 a decrease of 9.2% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 27%.

Speaker 4

The 2nd quarter adjusted EBITDA margin represents a 120 basis point sequential improvement from the Q1 of 2024 based mainly on lower Internet marketing costs. Now let's talk about our revised 2024 guidance. VITAS 2024 revenue prior to Medicare cap is estimated to increase 16.3% to 17.3% when compared to 2023. Average daily census is estimated to increase 13.3% to 14 0.4%. Full year adjusted EBITDA margin prior to Medicare cap is estimated to be 19.3% to 19.7%.

Speaker 4

We are currently estimating $8,500,000 in Medicare cap billing limitations in calendar 2024. The cost of the retention program negatively impacted VITAS 2023 full year adjusted EBITDA by 159 basis points. The Covenant Health acquisition is estimated to contribute approximately $30,000,000 to $32,000,000 to VITAS' full year revenue. There is no estimated Medicare cap billing limitation expected related to Covenant Health. This translates into adjusted net income attributable to Covenant Health of $5,500,000 to $6,000,000 and adjusted EBITDA of $8,000,000 to $8,500,000 Roto Rooter is forecasted to have a 4% to 5% revenue decline in 20 24 compared to 2023.

Speaker 4

Roto Rooter's adjusted EBITDA margin for 2024 is expected to be 26.5% to 27%. Based on the above, full year 2024 earnings per diluted share

Speaker 1

excluding

Speaker 4

non cash expenses 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 23.55 dollars to $23.80 This guidance assumes an effective corporate tax rate on adjusted earnings of 24.3 percent and a diluted share count of 15,250,000 shares. KEMET's previously issued 2024 guidance was $23.30 to $23.70 per share. KEMET's 2023 reported adjusted earnings per diluted share was $20.30 I will now turn this call over to Nick.

Speaker 5

Thanks Mike. I'm very pleased with the continued sustainable expansion of our workforce and patient capacity through the Q2 of 2024. As Kevin mentioned, excluding the personnel who transitioned over as part of the Covenant Health acquisition, we expanded our bedside headcount by 234 licensed professionals during the quarter. The Q2 of 2024 marked our 8th consecutive quarter of expanding our clinical workforce capacity in disciplines identified as part of the retention program. In the Q2 of 2024, our average daily census was 21,036 patients, an increase of 14.4%.

Speaker 5

VITAS has generated quarterly sequential ADC growth over the last 7 quarters. In the Q2 of 2024, total VITAS admissions were 17,334. This is an 11% increase when compared to Q2 of 2023. As previously announced, approximately 680 of those admissions as a result of the one time admission of Covenant Health patients at the time of the acquisition. In the quarter, admissions excluding the one time admissions related to the acquisition, increased in each of the top 4 pre admit location types.

Speaker 5

Our nursing home admissions increased 13.2%, assisted facility admissions expanded 15.7%, hospital directed admissions increased 6.3% and our home based patient admissions expanded 8.3% when compared to the prior year period. Our average length and stay in the quarter was 100.6 days. This compares to 99.5 days in the Q2 of 'twenty 3 103.9 days in the Q1 of 'twenty four. Our median length of stay was 18 days in the quarter and compares to 16 days the Q2 of 'twenty three and 16 days in the Q1 of 'twenty four. Our teams remain hard at work integrating the operations of Covenant.

Speaker 5

To date, the integration has gone better than expected. The Covenant transaction could not have been accomplished without the unwavering commitment, dedication and focus each VITAS team member shows towards fulfilling our mission in every community we serve. As I mentioned in the call last quarter, this transaction illustrates what's possible when 2 long standing mission focused organizations collaborate irrespective of tax status to ensure we collectively serve the evolving needs of our communities. I believe these types of opportunities should continue as the hospice and palliative care industry carries on its 45 plus year mission in this country of focusing on patients and families in the communities we serve without allowing for items like tax status to impede progress. As Kevin mentioned, we're very excited about the opportunity to begin providing service in Pasco County, Florida.

Speaker 5

While we have not forecast a significant impact in 2024 as a result of the newly received CON, we believe this provides significant growth opportunity for us in the future. To recap what our team has accomplished, we've now generated 8 quarters of sequential net growth in licensed healthcare workers and 7 quarters of sequential growth in ADC. With our targeted retention program having been completed over a year ago, we have demonstrated a sustainable and predictable approach to methodically building our clinical capacity and patient base that has taken us way past pre pandemic levels. We've also demonstrated the ability and interest in partnering with other providers through acquisitions to ensure communities continue to receive the best possible care. We are extremely optimistic about the ability of VITAS to maintain above average historical growth both organically and through potential acquisitions over the next few years.

Speaker 5

With that, I'd like to turn this call back over to Kevin. Thank you, Dick.

Speaker 3

I will now open this teleconference to questions. Certainly.

Speaker 1

And our first question comes from the line of Ben Hendricks from RBC Capital Markets. Your question please.

Operator

Great. Thank you very much. Maybe a question for Nick here on VITAS. Just curious if you could provide some more information on kind of that long term runway for census growth and how you're thinking about the capacity that you could open up over the intermediate term given the hiring activity, retention activity and what we're seeing across what seemed to be a lot of your community referral sources in terms of occupancy improvements in skilled nursing and senior housing. To the degree in which that could continue to open up Census opportunity, how you think where that growth could go over the next handful of years?

Operator

Thanks.

Speaker 5

Yes, absolutely. So just to reiterate, right, our revised full year census guidance for this year, which I realize is part of the question but not full part of the question is 13.3 to 14.3 on 2024 as compared to 23. When we think about the algorithm into 2025 beyond which of course we don't guide to but just from a commentary standpoint, We think the pace and cadence and all the factors that go into what we built as demonstrated thus far throughout twenty twenty four and into the latter half of twenty twenty three are sustainable. And so as we think about the markets in which we operate in as well as the markets in which we are targeting to also operate in, we think that this combination that's inferred in our 2024 guidance is something that could be achievable on a go forward basis. And as we point out, the underlying pinpoint is the demand in the market is not changing or waning.

Speaker 5

However as long as we continue our successful track record of retaining and attracting staff into all the locations in which we operate that would be the only limitation. But as we've tried to illustrate over a year plus now with the retention program being behind us, we think we have a really sustainable culture and approach towards methodically building that and we don't see any headwinds from a demand standpoint for hospice services across the country and in particular in the markets in which we operate.

Operator

Appreciate that. And just on the M and A front, can you any comments you can offer about the about your pipeline of opportunities to acquire more covenants out there, maybe opportunities where you don't already have a presence and could attain a certificate of need? Thanks.

Speaker 5

Yes. So I guess the comment we'd make is it is an active pipeline and a very targeted and focused one as we've commented on in the past in states as well as in counties particularly those that are restricted because we think they operate very efficiently and help to service the needs of all those communities. So we have a lot in active discussion but time will tell and depending on the provider obviously there's a bunch of different catalysts of things that would lead towards that strategic interest whether it's single site regional focused providers with the ongoing headwinds from a reimbursement or reform standpoint. And then there's other assets out in the market that are long in the tooth in their ownership cycle for some other private equity firms and others that may create interesting opportunities for us as well. So we're looking to put our balance sheet to work if it makes sense for our shareholders and as you guys can see in the covenant side of it also from a valuation standpoint in markets which we want to operate.

Speaker 5

So we think we're well positioned.

Speaker 3

And one thing I'd add is, we've seen in Florida a bit of a blurring in the line between acquisition and new start up through CON, I mean, that I'm speaking about in Florida. The pace of growth that VITAS has been able to achieve has sped up geometrically. In other words, it used to be we used to say it took 2 years to get to about 100 Census on a new program starting from scratch. And VITAS has blown that out of the water in the last several COF. So I'm just saying that you put your finger on one thing is, yes, there's geography in Florida that we are precluded from being in.

Speaker 3

VITAS has shown that once they have the legal right to be there, they've grown very fast. So whether we get there by CON or acquisition, as I say, that differentiation is bordering a little bit in our mind. But I think there are opportunities in both of those categories for expanding our footprint in Florida.

Operator

Yes.

Speaker 5

No, and that's a really excellent point by Kevin. Very happy and proud of the efforts our team has put into place to really accelerate impact in each of those markets that wouldn't have been the same years back. So taking a very intentional approach there so that everything is lined up whether it's through acquisition or whether it's through Newstart de novo to really penetrate make an impact and service as many patients as quickly as we can in the markets in which we operate. So that impacts that growth algorithm as well.

Operator

Thank you very much for that. And just last thing for me, I'm just getting a lot of questions about kind of the longer term kind of growth algorithm for Roto Rooter kind of given the headwinds that we've seen on the commercial side. I appreciate the commentary about the multi quarter retraining opportunity to turn around those locations. But anyway, we should think about kind of the longer term road trajectory for this business. Any thoughts at this point?

Operator

Thank you.

Speaker 3

Well, let me start by saying that we've owned Roto Rooter for 44 years. And during that period, of course, we always say it's recession resistant. It's been a very consistent strong but consistent, but grind it out type grower. We have had cyclical periods where it's been up

Speaker 5

a little more or down a

Speaker 3

little bit more. Clearly, we're in what I think is one of those cyclical periods. We're out a little bit on the calls are down 6% of the quarter. I mean, it's down. And when you're on that slope of the line, you kind of look at it and say, does this slope continue to go down forever?

Speaker 3

How quickly does it turn? Historically, it's turned pretty quickly. I would say that the way we look at it is there's nothing substantially changed in the business. I mean, other when I look at the what we call the macroeconomic trends, those could turn on 2 Fed rate cuts. I mean, that's not something we worry about on anything, but the short term.

Speaker 3

To the extent that the home services sector went through a period during the pandemic of just explosive growth, it attracted a lot of private equity money into the field. I think that's disrupted the market a little bit. What we always say is those competitors are they're running a sprint, we're running a marathon. Their number one priority is growing top line and building a brand. We have a brand and we're out to build net income first and foremost and then top line.

Speaker 3

But so it's a bit of a mismatch. But I guess to answer your question, we view it as just kind of the normal yin and yang, the cyclical period that we're on the question the negative side of that question. But Mike, anything to add there?

Speaker 4

Sure. Ben, on a longer term basis, I think your question, we view probably the long term potential for Roto Rooter to be in the 5% to 6% range top line growth. And the way you would build that up is we're always going to pass along a price increase at the beginning of the year based on inflation and hopefully a little bit higher than inflation. That's not only good for our top line, but because all of our technicians are generally commission based, we need to at least pass along price increases so that their commission stays up with the price of inflation and real rates. So we'll always have a price increase at the beginning of the year.

Speaker 4

We always talk about, and it's a very crude measure, but new home formation is sort of how the demand will increase over the years, just in the whole sector itself. So call that a couple percent. So if we pass through a 3% price increase, a couple percent demand increase, that's where you get to 5%, 6%. On top of that, if we were to start thinking about growing on a long term consistent basis higher than that, we would be adding acquisitions, which we think are a very, very good possibility over the next 18 to 24 months. And then we would start developing and looking at new lines of businesses that are within the plumbing sort of sector.

Speaker 4

And we're constantly looking and exploring those kind of different services. So 5% to 6% with some add on from acquisition and new potential lines of business.

Operator

Really appreciate it guys. Thank you.

Speaker 1

Thank you. And our next question comes from the line of Joanna Kojak from Bank of America. Your question please.

Speaker 6

Good morning. Thanks here for taking the question. So maybe since we finish on Reuters, I'll continue that topic first. So the business, I guess, sounds like it did worse than your internal expectations. I mean, clearly, it was than our model.

Speaker 6

And you made it sound like things are kind of when it comes to these headwinds similar to Q1. But the revenues did decline sequentially, but I assume there's some seasonality because Q1 tends to be a busy quarter there. But then when I look at the last few years, obviously, things are skewed by the pandemic. So is there any historical data you can share kind of organic basis like typical seasonality Q2 from Q1? And can you flag was there any new issue or kind of how would you describe the reasons for why it was a little bit worse than what you were initially expecting?

Speaker 4

Sure. On a sequential basis, the Q1 and the Q4 every year are rotator's best top line quarters. There's freezing, there's more precipitation. Those things help our demand. Generally, overall, I would tell you that Q1 to Q2 sequentially, the decline is roughly 4% to 5% of revenue.

Speaker 4

That's normal. We're going from a really cold period into a more mild period. And so that just that happens every year normally. From 2nd and third quarter then are generally comparable to each other. 4th quarter then generally goes up 5% to 7% based on weather as well as the idea that during the holidays, people are home more.

Speaker 4

They're doing more things around the house, they're getting their house ready for holiday festivities and things. So that helps pump up our demand. So there's a bit of a dip historically in the second and third quarter as it relates to revenue.

Speaker 6

Okay. And when I look at the different

Speaker 3

sorry. Just to answer one question about issuing why was kind of it's an overarching question, why were sales lower than we expected in the quarter? And again, I'm reiterating many things we've said in our press release and then our earlier presentation. But generally, I would say, it could be 2 things. I mean, commercial sales were lower than they really should have been.

Speaker 3

They were lower than we expected. There's no reason for in our view that for them to be quite that low. I mean, we expect those a couple of percentage point improvements of that just through blocking and tackling. The other aspect of the question is really relates more to the residential and that is go on Google and open up plumbing services. You'll see there is a cacophony of service offerings and much more so than past years.

Speaker 3

It's a very complex issue. All firms are fighting that. We're fighting that through not only our top locations, but all our contractor operations and our franchise, our hundreds of franchise operations. I mean, I have a feeling that of all the companies in that sector to figure it out, historically, it's always been road over to get on top of changes on the marketing side. So we're not there yet.

Speaker 3

But if you to answer your question as far as why is it lower, it's those two issues. It's getting the calls on the residential side and doing a better job dealing with the commercial market.

Speaker 6

Thank you. And I guess related question because I was trying to say the breakdown you gave in terms of the different elements inside the residential, commercial and the water restoration was down year over year, I guess more than more in commercial, but still residential, it was down like almost 5% year over year because I thought this would be sort of the most need based business, right? So because you obviously talk about residential being more like macro driven and consumer confidence and I guess, just economy broadly speaking. So I thought that will be the I don't know whether there was anything year over year or how would you describe kind of the need based sort of core business versus the sort of the more discretionary elements, how those are tracking?

Speaker 4

So the water restoration business is dependent on the severity of the issues that we find when we get to the job site. So it's difficult to say why or how it varies on a quarter to quarter sequentially or year over year. What I can say with some definition or some definition is that our conversion rate on calls that we received that we think had the water restoration possibility are at clear close to all time highs. So we are converting the calls that we get that we think have water restoration possibilities at a higher rate than we have in the past. But how those calls come in and why they may or may not come in is a hard question to answer really.

Speaker 4

It generally goes with our plumbing and sewer drain revenue though, as you point out. So we're converting the jobs we're getting. I can say that with certainty.

Speaker 6

All right. And I guess the last question, Rodel, around so your guidance assumes revenue declines 4% to 5%. But I guess it was a bigger decline in first half, so kind of implies 2nd half still down, but maybe less than second the first half. So can you talk about maybe the trends exiting the quarter and into early Q3, like how are things tracking in that business?

Speaker 4

We are projecting some sequential improvement, 3rd quarter and 4th quarter on a year over year comparison basis. So obviously, if we're down roughly 5.5% year to date and we're only guiding to 4% to 5% down, there's going to be some improvement in the second half of the year. The other thing I can say is and I don't want to make too big of a deal out of this, but sequential improvement intra quarter in the second quarter, particularly on commercial revenue on a monthly basis, our commercial revenue comps improved each month during the second quarter. I don't want to make too big of a deal out of that. That's just a couple of months of activity, but we think that there's some positive momentum for the second half of the year, going in the right direction.

Speaker 6

Okay. That's helpful. And if I may, so because to that end, you kind of said in your prepared remarks around the management team of Reuters kind of anticipates several quarters for kind of the actions to represent themselves in the results, I guess. So is this fair to assume like headed into 2025, there may be still like revenues declining, but I guess status quo or assuming economy doesn't change much either direction, you would think that 2025 could be a growth year. I mean, it sounds it's probably not growing as fast maybe your long term the 5% to 6% you described, but is it somewhere kind of approaching that into next year?

Speaker 4

We haven't done any real analysis for 2025 yet, Joanna. So I would hesitate to say that we're going to be at a to 6% growth rate in 2025. But I think we're moving in that direction.

Speaker 6

Okay. Thanks for that. And maybe switching gears to Vidaas. So you raised guidance there quite a bit, Obviously, the de audit, but just small fraction. And I guess the Medicare cap is lower, but sounds like your census is much higher, so that's where it is.

Speaker 6

But the last piece I want to ask and clarify your comments around Medicare rate, Abre. So we've seen the proposal. So what do you assume for Q4 for the Medicare rate update? And how much I guess it helped your guidance versus say your original expectations?

Speaker 5

Yes, sounds good. So let me provide what we haven't baked in and of course it's I believe it's an OMB getting finalized as we speak the construct of it is locked and loaded. So we believe the impact in the Q4 that's embedded in our estimate that should come to fruition when it's finalized is about 3.5% net across the entire company which is better we then do better of course than spite of our original estimate, I think I can't recall totally off the top of my head, but this is slightly better than our original estimate related to it. And it really comes down to as you point out some of the key markets in which we operate in saw higher price increases than we anticipated which is good. And then the other real underlying driving factor is the government continues to recognize in that wage rule that high acuity services particularly continuous care are an area of focus and so continuous care happen to have the largest price increase of all four levels, with GIP being the lowest, but it's really reflective of a continued decrease of providers in the hospice space providing continuous care and we continue to provide all four levels.

Speaker 5

And we think that's a differentiating offering not only for our partners, but more importantly for patients and families as we're able to provide services, keep them at home and help them through a period of crisis. So that's how it all weighs in.

Speaker 6

Right. And the bigger piece seems to be the census grow, right? And you mentioned you continue to hire which capacity, which doesn't address census. But so it sounds like you just essentially hire away these nurses or workers from others. So I guess, I think I know the answer, but we just would like to hear you talk about the competitive environment and you just know how long for how long I guess you can grow at rate and kind of I guess continue to take market?

Speaker 6

Sure.

Speaker 5

Yes. I mean we believe there is we feel real confident in what we've proven over the last effective 2 years, right? You have 7th quarters of ADC growth, 2 years of clinical capacity and we've been referencing just 5 disciplines associated with the retention program and those that trend is consistent with all the other clinical disciplines we need to provide full comprehensive care. As it relates to talent in the marketplace, that predictability and culture and ability to really provide comprehensive care to patients and families continues to resonate with clinicians. We believe that as a differentiating proposition for them to come to us and come to us with a fantastic cultural and local family that they're joining.

Speaker 5

So whether those individuals are coming from other healthcare settings whether it we're also seeing a combination of strength of people either coming back into the workforce or a much more reliable and predictable pattern of resources available out there. That's really encouraging. That's what we're experiencing and that's what gives us further confidence not only in this year's remaining growth rate at 13.3% to 14.3%. But as you point out all of our revised guidance is volume driven and we anticipate that to continue going forward and we'll provide those details once we get into the 2025 planning process.

Speaker 6

So I guess you're saying like you offer culture and better work environment. I guess it's must be some monetary, I guess, advantage that you guys have versus your competitors, right?

Speaker 5

Yes. We're going to continue to play Correct. Prevailing market rage, rich benefits, all the things that attract. But as we've spoken about over the last 2 years it's not just money that drives people to make a choice, 1 to come either into hospice. It is also the ability and confidence they have to fulfill that mission and calling that typically bring people into our industry.

Speaker 5

And we think we're obviously I have a slighted view but we think we're the best place in the market to do so and we're trying and have evolved our targeted marketing evaluation strategies. The pandemic forced us to elevate our game appropriately and we've done that. So that's what the last 2 years I think have helped illustrate and we're well past the year's worth anniversary of the retention program being behind us. We've completed the last payment. I mean we have a proven track record right now but year plus of being able to do this in the environment which we're operating right now.

Speaker 6

Okay. Thanks for that. And I guess if I may on the new CON, so it sounds like this is pretty close to Tampa. So can you remind us when was the last time you added new CUN? It sounds like those CUNs that you've added in Florida went much better than you had expected.

Speaker 6

So anyway to kind of size up opportunity in this new territory, maybe not this year, but like as we think about say next year?

Speaker 5

Yes, we'll provide some of the sizing embedded in our guidance in 2025 beyond. It's one of the things I want to hesitate doing right now. I'd have to go back, so I don't want to do it off the top of my head as to when the timing of a few of the last C0Ns went into place. But what Kevin was alluding to whether it's CON entry or whether it's acquisition entry, our teams we've refined our approach and have really found great performance and deploying resources immediately pre day 1 and on day 1 and being successful at penetrating the markets. And for the CON pieces, it just helps to further reinforce the underserved population which drove to the identification of need.

Speaker 5

And we found that demand to be substantial. And so it we basically threw away all of our other historical growth algorithms because they were grossly under we are outperforming all of that. And we anticipate that here in Pasco once we enter.

Speaker 3

Joanna, another big benefit of a new CN like that fast growing CN like that is the Medicare cap protection that it provides is in the early years almost more important than the contribution to the top or bottom line. But it's good to get them, I guess. We don't take them lightly.

Speaker 5

And our latest one, the performance of it is so substantially off the charts compared to anything else historically. That's why I'm hesitating to reference it right now. I don't think that's what we would attribute in the Pasco entry to be, but it was substantial.

Speaker 6

Okay. That's good to hear. I guess that it did so well. But the very last one and thank you for that. On the length of stay metrics, the median is higher 2018 versus 16 last year and I guess 16 last quarter.

Speaker 6

But then the average length of stay, I guess, has been declining. So I guess you kind of peaked almost at like 106 days, but now it's like a little bit about 100 days. So should we expect this average length of stay to continue to decline? Because I guess you had a pretty good growth in the hospital admission. So I assume that's where it's being reflected, but then the median is higher.

Speaker 6

So I'm trying to reconcile that too. Thank you.

Speaker 5

Yes. I wouldn't put too much credence in quarter over quarter movement of any of the average length of stay components. I think what you could anticipate is it will remain relatively consistent with where the first half of the year has been. The median length of stay at 18 days, I find very encouraging whether it was 2016, whether it's 2018, it may not sound substantial. But to me, it really becomes the accurate representation of how well we're doing out in the communities with our health care partners of educating them around earlier identification of hospice appropriateness and it begins to translate through that way.

Speaker 5

And so while one day of movement doesn't meaningfully drive a whole lot, it is something we look at because it becomes a good barometer of how good of a job we're doing with that education cycle and how every day matters in the patient and family's experience here. And that's what we always remind all of our team members and the quarter represents a positive trajectory. But whether it's 2016, 2017, 2018 or 2019 that's probably the range we'll operate in. We referenced in the pandemic when we hit an all time low of 11%, but that was more of the health care system being completely disrupted, patients coming to us at the real extreme end of life and we were trying to forecast at that time what it was going to mean over time for census. And so we're encouraged by 16% to 18% range.

Speaker 6

Great. Thank you so much. Thanks for taking the question.

Speaker 1

Absolutely. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Kevin McNamara, CEO, for any further remarks.

Speaker 3

Thank you, everyone, for your questions and your kind attention, and we'll reconvene about 3 months from today. Thank you.

Speaker 1

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good

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Earnings Conference Call
Chemed Q2 2024
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