Chemed Corp

Results for the fourth quarter of 2023 ended December 31, 2023. 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 February 27 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 February 27th, 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, Chief Executive Officer of ChemEd's VITAS Healthcare Corporation subsidiaries. I will now turn the call over to Kevin McNamara.

Thank you, Holly. Good morning. Welcome to ChemEd Corporation's fourth quarter 2023 conference call. I will begin with the highlights for the quarter, and Mike and Nick will follow up with additional operating details. I will then open up the call to questions. Our fourth quarter 2023 operating results, released last night, reflect continued improvement in our VTAS's operational metrics. In the quarter, our admissions increased 7% over the prior year period. These strengthening admissions continue to drive higher patient census. In the fourth quarter, our average daily census, or ADC, expanded 1,918, an increase of 11% when compared to the prior year quarter. and 2.6% when compared to the third quarter of 2023. During the fourth quarter, we surpassed our pre-pandemic ADC all-time high. VTAS's continued improvement in operating metrics is a result of our 12-month retention and hiring program launched in July of 2022. This program was designed to stabilize turnover in our tenured staff and expand clinical workforce capacity. This 12-month retention program generated an aggregate increase of 784 licensed healthcare professionals, the majority of which are licensed nurses. The retention bonus program ended in the second quarter of 2023. However, in the second half of 2023, we continued to expand our licensed staff and related patient service capacity. VTAS's net bedside headcount increased by 157 licensed professionals in the third quarter, and 84 in the fourth quarter. The fourth quarter increase was below our internal target, but the lower number was not wholly unexpected, as hiring around the holidays is more challenging due to individual schedules and vacation plans. Our 2024 VTAS guidance assumes strong ADC growth, driven by continued successful hiring and retention of licensed staff. Now let's turn to Rotorooter. As discussed over the past few quarters, Roto-Rooter continues to manage through what can only be described as ongoing headwinds in the consumer sentiment and consumer spending within our sector of the economy. Overall, our call volume is down 18.7% when compared to the prior year quarter. The last week in the fourth quarter of 2022 was significantly impacted by a nationwide deep freeze. Excluding that one week in 2022, call volume is down 13% during the fourth quarter of 2022. compared to the same period as 2022. This decline is comparable to the call volume declines we have been experiencing the second and third quarters of 2023. Roto-Rooter has offset a significant portion of this softening demand with improvements in close rates. Our call center's conversion rate, the rate at which a call is converted into a technician's scheduled ticket, has improved 5.4%. Our ticket void rate, which is the rate of canceled jobs before a technician can be dispatched, improved 1.8 percent. Our technician conversion rate, the percentage of time a tech arrives at home or business and converts the scheduled ticket into billable work, improved 1.3 percent. Commercial revenue at Road Route declined 7.9 percent in the fourth quarter of 2023, compared with the same period of 2022. We've noticed some of the same demand issues with our commercial business as we have experienced with our residential business. For example, As our large big box commercial customers have struggled with demand issues, we have been approached with requests for significant decreases in prices. We've walked away from this type of business. It is our belief that when demand issues abate, this type of customer will return to Rotary for its consistent, high-quality, reliable service. We continue to see overall stabilization of demand in our weekly revenue. Our guidance assumes improving demand trends starting in the second quarter of 2024. To summarize, I'm pleased with the accelerated improvement in VITAS post-pandemic. Our increased growth in licensed healthcare professionals, strong admissions, and corresponding growth in patient census have returned VITAS to normalized operating conditions. Rotary is well-positioned in spite of economic headwinds on the consumer spending in our sector. We anticipate continued expansion of market share by pressing Rotary's 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 the teleconference over to Mike.

Thanks, Kevin. VITAS net revenue was $350 million in the fourth quarter of 2023, which is an increase of 13.6% when compared to the prior year period. This revenue increase is comprised primarily of an 11.0% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.3%. The acuity mix shift negatively impacted revenue growth 38 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 61 basis points. Average revenue per patient day in the fourth quarter of 2023 was $201.33, which is 200 basis points above the prior year period. Reimbursement for routine home care and high-acuity care averaged $177.62 and $1,058.60, respectively. During the quarter, high-acuity days of care were 2.70% of total days of care a decline of six basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $83.3 million in the quarter, an increase of 61.6%. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 23.7%, which is 705 basis points above the prior year period. The fourth quarter adjusted EBITDA margin comparison was positively impacted by a number of items. The expense attributable to the retention bonus program in 2022 resulted in a 406 basis point improvement in the 2023 margin. As Nick will discuss further, VITAS reverted back to its pre-pandemic vacation policy, which resulted in an estimated 135 basis point improvement. The lower than anticipated hiring rate in the fourth quarter, previously discussed by Kevin, provided less drag on the adjusted EBITDA margin from onboarding and training costs. Now let's turn to Roto-Rooter. Roto-Rooter generated quarterly revenue of $235.9 million in the fourth quarter of 2023, a decrease of 1.1% when compared to the prior year quarter. Roto-Rooter Branch commercial revenue in the quarter totaled $56.8 million, a decrease of 7.9% over the prior year. Roto-Rooter Branch residential revenue in the quarter totaled $162.5 million, an increase of 2% over the prior year. Adjusted EBITDA in the fourth quarter of 2023 totaled $64.9 million, a decrease of 6.4% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 27.5%, which is 154 basis points below the prior year period, largely driven by an increase in internet marketing costs. Now let's discuss our 2024 guidance. VITAS's 2024 revenue prior to Medicare cap is estimated to increase 9% to 9.8% when compared to 2023. ADC is estimated to increase 6.5% to 7%. Full-year EBITDA margin prior to Medicare cap is estimated to be 17.8% to 18.3%. This compares to the 2019 full-year adjusted EBITDA margin prior to Medicare cap of 17.7%. As discussed previously, we believe that a return to pre-pandemic margin was likely once the industry stabilized. The 2024 guidance assumes we are able to successfully offset continued marginal compression headwinds caused by above average hiring and retention levels, along with wage increases outpacing our reimbursement in 2024. We are currently estimating $9.5 million for Medicare cap billing limitations in calendar year 2024. Roto-Rooter is forecasted to achieve full-year 2024 revenue growth of 3.5% to 4%. Roto-Rooter's adjusted EBITDA margin for 2024 is expected to be 28.7% to 29.1%. Due to the nationwide deep freeze in early 2023, we believe that the first quarter of 2024 will be a difficult comparison for Roto-Rooter, resulting in slight declines in revenue and profitability. Our guidance then anticipates modest demand growth for the remaining three quarters of 2024. The January 1st, 2024 price increase implemented by Roto-Rooter averaged approximately 3.5%. Based upon the above, full year 2024 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 $23.30 to $23.70. This 2024 guidance assumes an effective corporate tax rate on adjusted earnings of 24.2% and a diluted share count of 15.2 million shares. KEMED's 2023 adjusted earnings per diluted share was $20.30, including $1.04, per share for costs associated with the 2023 portion of the retention program. I will now turn this call over to Nick Westfall, Chief Executive Officer of our VITAS Healthcare Business segment.