Chemed 2026 Q3 Earnings Call

Our conference call this morning will review the financial results for the third quarter of 2026, ended September 30, 2026. 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 October 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 October 27, 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 Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Holly. Good morning. Welcome to Chemed Corporation's third quarter 2026 conference call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. VITAS continues to perform at a very high level. The combination of ADC growth and cost containment, particularly with respect to central support costs, drove significant revenue and income growth at VITAS during the third quarter of 2026. VITAS revenue increased 12.2% during the quarter compared with the third quarter of 2025, and adjusted net income increased 44.7% over the same period. Admissions at VITAS during the quarter totaled 18,995, which equates to a 7.2% improvement from the same period of 2025. Hospital admissions as a percent of total admissions for our Florida combined program were 42.3% during the third quarter of 2026.

As we've discussed previously, an appropriate balance for sustained long-term stability in the Florida patient base, given the current mix of referral sources, is that between 42% and 45% of total admissions that come from hospitals. Equally as important, as Joel Wherley will discuss in greater detail, admissions from all other pre-admission locations increased 11.1% compared to the third quarter of 2025 in our Florida combined program. We ended the 2026 Medicare Cap year with a cushion of more than $34 million in the Florida combined program. We do not anticipate any Medicare Cap billing limitation for the Florida combined program in the 2027 Medicare Cap year. Additionally, as a result of strong admissions, our Medicare Cap billing limitation relating to all non-Florida programs ended the 2026 year approximately $3 million below our original projection. Now let's turn to Roto-Rooter.

In the third quarter, we're very pleased with the revenue growth generated by Roto-Rooter. Total revenue grew 7.5% during the quarter compared to the third quarter of 2025. Revenue grew across all major service lines in both our residential and commercial businesses. Mike Witzeman will further provide information on the impact of our recent acquisitions. However, it is important to note that our same-store revenue increased 5.5% during the third quarter of 2026, which exceeded our internal expectations. Similar to the total revenue growth metrics, we saw strength in all service lines from same-store sales. Our commercial business manager program continues to perform at a high level. There were 36 productive commercial business managers in place for the entire quarter, contributing to a commercial revenue increase of approximately 10.9% in their respective branches. This compares to a commercial revenue increase of 4.8% in branches without a commercial business manager.

Centralization of the water restoration billing and collections function continues and has resulted in improved collections. Total write-offs improved by $2.9 million during the third quarter of 2026 compared to the third quarter of 2025. Equally as important, average price per job in the water restoration business increased 2.8% over the third quarter of 2025. This is a reversal of the multi-quarter downward trend in average water restoration price per job. Lead generation and the resulting cost of customer acquisition remained a challenge in the third quarter. Total leads during the third quarter of 2026 were essentially flat compared to the third quarter of 2025. Consistent with trends observed in prior quarters, free leads generated from internet searches declined 11.8%, while paid leads increased 5%. Of all leads generated during the quarter, approximately 60% were paid, compared to 56% in the third quarter of 2025.

This change resulted in increased marketing spending of $4.3 million in the quarter compared to the third quarter of 2025. Roto-Rooter is building revenue growth momentum through improved operations, supplemented by strategic acquisition activity. Roto-Rooter continues to explore every opportunity to contain and potentially moderate marketing costs. Roto-Rooter has demonstrated a long history of growing margins through cost containment, so long as revenue growth is stable. We fully anticipate Roto-Rooter to return to that historic pattern through 2027 and beyond. We are very happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond. The combination of the two business units drove an increase in total Chemed revenue of 10.6% and an increase in adjusted diluted earnings per share of 28.1% in the third quarter of 2026 as compared to the same period of 2025.

Additionally, over the first nine months of 2026, the consolidated business generated cash flow from operations of more than $229 million, which, along with minimal leverage, allows us the flexibility to pursue strategic acquisitions and meaningful share repurchases as the opportunities arise. With that, I would like to turn this teleconference over to Mike.

Thank you, Kevin. VITAS net revenue was $457.4 million in the third quarter of 2026, which is an increase of 12.2% when compared to the prior year period. This revenue increase was driven primarily by a 9.4% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.2%. The acuity mix shift negatively impacted revenue growth 25 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 positively impacted revenue growth by approximately 85 basis points. In the third quarter of 2026, VITAS accrued $828,000 in Medicare Cap billing limitation. This compares to a Medicare Cap billing limitation recorded in the third quarter of 2025 of $6.1 million.

Average revenue per patient day in the third quarter of 2026 was $209.11, which is 196 basis points above the prior year period. During the quarter, high-acuity days of care were 2.2% of total days of care, a decline of five basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $92.5 million in the quarter, an increase of 31.4% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 20.2%. Now, let's turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $59.9 million, an increase of 9% from the prior year period. All lines of business in the commercial sector had increasing revenues during the quarter. Roto-Rooter branch residential revenue in the quarter totaled $158.8 million, an increase of 5.2% over the prior year period.

Again, all lines of business in the residential sector had an increasing revenue during the quarter. Adjusted EBITDA in the third quarter of 2026 totaled $48.2 million, a decline of 2.5% when compared to the third quarter of 2025. Adjusted EBITDA margin in the quarter was 20.6%, which represents a 213 basis point decline from the third quarter of 2025. As Kevin mentioned, cost of customer acquisition continues to put pressure on Roto-Rooter's margin. Additionally, during the third quarter of 2026, fuel costs increased approximately $1.4 million compared to the third quarter of 2025. We anticipate both cost headwinds to persist in the fourth quarter. During the third quarter of 2026, Roto-Rooter reacquired multiple franchise territories in California for approximately $62.5 million. Collectively, these territories encompass a population of over 12 million people. Prior to the acquisition, this business had annual revenue of between $50 million and $55 million.

Slightly over half of the revenue associated with acquired territories will become part of our owned and operated branch locations. Two new branches will be established in Sacramento and San Diego, while other territories will be absorbed by existing branches. The remaining locations will become part of our independent contractor operating model. In 2026, the company has spent $96 million to reacquire Roto-Rooter franchises, primarily in Texas and California. It is important to note that these acquisitions do not have the same high margin profile as our owned and operated Roto-Rooter branches. The franchisees acquired operate at a much lower EBITDA margin, often in the single digits. While we see a rapid increase in revenue from acquisitions over the next several quarters, it is a 12-18 month process to implement the full Roto-Rooter operating model.

Rapidly increasing revenue from the acquisitions, coupled with lower EBITDA margins at these locations immediately post-acquisition, will result in lower overall margins at Roto-Rooter in the short term. However, acquiring territories with significant and growing population characteristics is the right thing to do for the long term at Roto-Rooter. Turning now to Chemed. During the quarter, the company repurchased 125,000 shares of stock for $66 million, which equates to a cost per share of $528.24. Over the trailing 12 months, the company has repurchased 1,235,000 shares of Chemed's stock at an average price of $427.62 per share. As of September 30th, there was approximately $73.7 million of remaining share repurchase authorization under the company's plan.