Chemed (CHE) Q4 FY25 earnings call: guidance and Q&A

What gives management confidence in 3-3.5% revenue growth for Roto-Rooter in 2026, given recent performance?

Management cited improved paid lead generation (10% increase in last 3 quarters), new SEO provider to improve natural leads, expansion of commercial business managers, and an expected $4M-$6M tailwind from improved water restoration billing/collections. They also noted the Q4 miss was due to specific issues (water restoration, short-stay VITAS admissions) that are being addressed.

“I would characterize our confidence in the 3% to 3.5% revenue growth in '26 based on 3 specific things. As Kevin mentioned, some things we've done to change the lead trajectory, hopefully, to provide some organic growth, but modest organic growth is built in. The increase in commercial sales force will also lead to some more modest organic growth. And then as we've talked about, the water restoration write-offs, we've estimated that of the $11 million that the increase of write-offs of $11 million, we're going to recover maybe half of that this year. So that's a $5.5 million tailwind.”

asked by Joanna Gajuk · answered by Michael Witzeman

Are the previously discussed long-term margin targets of 24-25% for Roto-Rooter still achievable, given current performance and 2026 guidance?

Management believes 24-25% margins are still achievable if Roto-Rooter can return to 5% or higher top-line revenue growth to offset increased marketing costs. They noted current margins are closer to pre-pandemic levels and the path is less clear due to marketing spend.

“If they get to somewhere 5% or north revenue growth, I think the 24% to 25% is still achievable. We -- I don't anticipate the marketing costs to improve dramatically. And so we need to really to drive top line and get some leverage based on that revenue growth to offset the marketing costs.”

asked by Joanna Gajuk · answered by Michael Witzeman

What is the delta between current VITAS guidance and previous expectations, and how will revenue and EBITDA progress throughout 2026?

The current patient mix is heavily weighted towards short-stay hospital admissions due to Medicare Cap mitigation, which temporarily lowers revenue and EBITDA. Refocusing admission patterns will lead to normalized growth (7-9% top line) but will build over the year, with Q1 being muted and growth accelerating in Q2-Q4 as more long-stay patients are admitted.

“We're sitting right now with a patient mix that has let us moderate, not moderate, eliminate the Florida Medicare Cap issue. So now we need to refocus the admission pattern. By doing that, we will get back to the normalized growth rate that we think is somewhere in the 7% to 9% top line area. We'll get there. It's just going to take -- it's going to build during the year...”

asked by Brian Tanquilut · answered by Michael Witzeman

Is the recent instability at Roto-Rooter indicative of a structural change or impairment in the business or the plumbing industry as a whole?

Kevin McNamara stated that the main issues were the disruption from private equity (now largely diminished) and the shift from free natural search leads to paid leads due to Google's algorithm changes. He believes there's no long-term impairment, and Roto-Rooter is adapting to the new lead generation environment, returning to pre-pandemic growth and margin levels.

“I consider the threat of private equity largely diminished at this point... Google, we can't kid ourselves. Google is -- we're dependent on Google. We deal with them. we hope we can keep just having slight improvements in it. But the thing that has changed is we've gone from a business where the leads were predominantly free, and now they're predominantly we're paying them out.”

asked by Brian Tanquilut · answered by Kevin McNamara

How should investors think about Medicare Cap risk more broadly, given trends in cushion reduction and liability buckets, and is there cap risk in other markets besides Florida?

Management stated that the $9.5 million estimated Medicare Cap for 2026 is consistent with historical levels prior to 2025, primarily driven by California. They are applying Florida's successful mitigation strategies to other potential cap markets. Small programs may temporarily dip into cap, but there are no additional concerns about major programs outside of Florida and California.

“In '26, we see again, $9.5 million, which is pretty consistent with where we've been for the 5 or so years before 2025. That's comprised of California, mainly, California is by far the largest. But because of some of the things we learned in Florida -- the cap liability in California, actually, Joel and his team did some of the same things to help improve California.”

asked by Ben Hendrix · answered by Michael Witzeman

How to model the margin impact of paid search, specifically the conversion-adjusted cost per lead for Roto-Rooter?

Roto-Rooter pays roughly $90 per lead. It takes 1.5 to 2 leads to convert to a paying job, resulting in a customer acquisition cost of $150 to $180 per paying job. Paid leads currently represent roughly 60% to 65% of total leads.

“we paid roughly $90 per lead, and that hasn't changed over the last few quarters historically and then continuing today, it takes between 1.5 to 2 leads to convert to a paying job. So you're looking at $150 to $180 customer acquisition cost for a paying job on the jobs we do from a pay-the-lead standpoint.”

asked by Ben Hendrix · answered by Kevin McNamara