Chemed Corporation (CHE) Earnings Call Transcript & Summary

Yes. Thank you for sharing all that information with us. Maybe, Joel, one of the things that we've always been fascinated with is just your ability to recruit because obviously, the growth in demand has to be supported by clinical labor supply. So how are you driving this? And what does the labor market look like today for hospice nurses and caregivers?

I'll go back to the pandemic. When we were in a circumstance in the country where clinical resources had a significant limitation given what was occurring specific to the pandemic. We, at that point, said this is not sustainable. We're losing every bit as much as we're gaining from a labor perspective. We didn't have an hiring problem. We had a retention problem during that particular environment with the pandemic. We rolled out a retention program that was overwhelmingly successful. We invested in our labor force a significant dollar amount, far above any rate increase we ever received, but it was the right thing to do. We came out of the pandemic with very strong clinical resources. No concerns whatsoever being able to meet capacity that we had then expanded because of our ability to retain our clinical team. As we fast forward to present day, I think we've done a number of considerable benefits for our field staff through clinical ladders, through being recognized as a top health care workplace in '25 and '26. And we continue to look at what that value add is to our clinical teams and ensuring that there is an appropriate balance of work-life and personal life. One of the things that hit us boldly in the face during the pandemic is the personal side of the concerns of those team members certainly took precedent over the professional side. We recognize that. And even though we have 4 key core values that were established almost 50 years ago now with the organization, and that #1 key core value being that we put patients and families first. Our second key core value is we take care of each other. And we recognize that we can't do one without #2. And so our teams are reminded of that on a daily basis that we've got to do everything we can to maintain an appropriate work-life and personal life balance for our team members to ensure that when they're in that patient's home, they walked through that door. Whatever frustration, whatever difficulty they may have going on personally, it pales in comparison to that patient laying in a bed and having a physician look them squarely in the eye and let them know that the life expectancy continues on its normal course, it's going to be less than 6 months. That's a significant responsibility. And we celebrate our team members to be able to impact the quality of that patient and their loved one's final journey every single day. So I think it's creating a culture in that overall environment that talks about hospice in a way that it's not whispered in the corner, that it's not about death, that it's about life, and it's infusing as much life as possible into whatever journey that patient and their loved one have left. And that's what we focus on every single day.

And also just to put some numbers on what Joel said is during the pandemic, unapplied -- we didn't apply for it, but we received $82 million from the federal government as pandemic relief. We used 100% of -- we took none of it in adjusted net income. We used every dollar to give additional vacation -- initially vacation pay for the -- during the heart of the pandemic for the workers. And then what was left, we put into the hiring and retention fund that was about $43 million additional. And as Joel jump-started the business on the back end of the pandemic and they're going great since then.

Awesome. Kevin, maybe we'll shift gears a little bit. Let's go to Roto-Rooter this time.

I prefer just talking about VITAS.

So I think your guidance assumes 21.5% to 22.5% margin for Roto-Rooter for the year. What gives you that confidence that Roto has stabilized and that you can hit these margin targets?

Well, let me be specific and say that, obviously, it depends -- I mean, the only real delta, the only real variant here on the negative side is marketing costs. And again, we -- it's a negative comparison that is it's just a question of we have to fill the bucket, okay? To the extent that we lose more free leads than we're projecting, we just go out and get them and that costs money. But we're pretty confident on the top line, the sales as far as our business activity, it's going to be at a very prescribed level. So a bit of an unknown as far as how much marketing expense will result. But on the positive side, you might say, what are the kind of things that we look for that will help our margin. Well, as we've said, it's not something we laid out in our earlier discussions when we came up with our guidance. We were looking to improve water restoration collections, okay? We had some problems in early 2025 that were self-induced. I mean, we had some rogue billers. But billing was decentralized. And we said, okay, that comes -- those kind of problems come from decentralization. And we made an effort. We said let's centralize the billing because it's an inexact science, billing for water restoration. And we wanted high quality, we wanted consistency. And in our guidance, we put that, and that's a good contributor to our expectations on margin. And I'll tell you, given now that we're 8.5 months through the year, I would say that it's a triple whammy on that. In other words, we -- by centralization, we have 33 fewer employees doing billing, okay? Our billing -- our average job size is up more than $300 per job. Our collection rate has improved a percentage point. So I mean that's the -- so let's say, internal metrics of Roto-Rooter on both the top line and some of those internal operating metrics have been positive with the one wildcard marketing. And that becomes -- we haven a trade sales force. We don't want business activity to fall below a level that we can't support that sales force. And even if we do, we're talking about a service provision at a margin that exceeds 20% for EBITDA margin, 20%. It's just -- it's a comparative issue. It's a new normal. But again, there are enough positive things to answer your question really is, okay, are you going to get 21 plus? And the answer is there's some things going on that are positive. I mean we have -- we've made acquisitions, okay, which Day 1 are accretive even at the -- but every one by definition is a fixer upper. In Roto-Rooter, when we make an acquisition, and this is true since our first acquisition in 1980, it's a fixer upper, okay? But we've -- they're accretive Day 1 using the cash that just we buy back a fewer shares. And I think we're also getting benefit from that as well.

Maybe Kevin, just to your point on the Google searches, Roto used to run at a mid-20s on margin. You're saying this is the new normal. So is it right to think that there's just a margin reset/step-down that has occurred, and this is the right run rate to be thinking about from a margin perspective?

As long as Google adopts these attitudes. I mean, in other words, we've fallen from 60% free leads to 39%, okay? And that's been tough to deal with. Now you might say, is this a permanent whatnot? As long as Google is in charge. I mean, with AI, Roto-Rooter does fantastic because it's the largest, puts out a lot of content, easy to scrape the information. That's free. At the current time, that's free. Is that going back with that -- as AI becomes adopted as the search du jour, I mean, that's what we're expecting. But in the meantime, we're kind of at the -- I mean, I hate to say this is a public company, but we're kind of at the mercy of Google. We just try and stay on top of them. And I think our efforts in that regard, you might say, well, how far is down? I mean -- but we have seen that it really comes down on the free search to something we call visibility. How often do we appear in, call it, the map section, some place where we can get a call from somebody who hasn't looked at an ad, but they're looking at the, call it, the free section. And our visibility historically, because it used to be done based on a number of positive reviews, and propinquity to the customer and years having provided the service. And so obviously, we did very well on that. Our visibility was in the 70-plus percentage rates, okay? They changed the rules of the game. We fell to the low 20s. We -- we put other efforts using some outside contractors. We got it up to the mid-30s. They made some other changes. We fell to the low 20s. We've gotten those back to the low 30s. And that's what -- that has yielded results, which I said have been a return to kind of a consistency and a new normal, a stable base to grow from.

So maybe shifting gears here. We've got 3 minutes. You have an activist investor involved in the stock. They've asked for some strategic moves and strategic reviews. You've been very active with the share buyback. How would you want investors to think of your approach to these requests and your perspective on share repurchases for the remainder of the year?

Well, the company is called Barington. I mean it's a small firm, a very small firm. They took a position when we were selling in under $400, a little under 0.5% of our shares. We've met with them several times, very good relationship. At the time, they specifically said, oh, boy, they would not recommend separating the 2 companies, for instance. They just -- I think everything is going great, but they wanted -- they mentioned at the time adding -- there's a person who they associate with who they have proposed for many boards. We said, we'll have him meet our nominating committee. And what happened? I -- now everything else after that point is speculation. At that point, for a variety of reasons, I thought the stock was too low to start with. The stock recovered to well over $500. I think that they got -- they weren't getting any credit. I mean nothing -- nobody was added to the Board. It was getting away from them. The entry point to other -- I mean, their obvious goal is to get other activist investors to kind of piggyback with them to give them a little more say. The entry point had changed so dramatically that I think they did not see that happening. And actually, we haven't heard a word from them since. So -- and I saw recently they announced a situation with Bed Bath & Beyond, but maybe they've gone to greener pastures. But no, we've never had any discussion that involved anything other than would we like to add a certain gentleman to the Board of Directors.

Got it. Kevin, last question for you. So as we think of what you think is underappreciated by investors in terms of the Chemed story, both in VITAS and Roto-Rooter, what would be the message?

Well, let me say this. Let me -- I don't know -- it's your guys' job to come up with what's something's worth. I would just say that if you go back to the beginning of last year, let's say, our stock was selling over $600. I think we're in a lot better position than we were then. I mean, VITAS has shown a lot of growth and the expectation for the future has never been higher. The risk associated with cap in Florida, as we come to the end of the government plan year, Joel is looking in excess of $35 million of cap cushion. So that's what's being generated under our current mix of business. So I mean that's it hasn't been that high in a long time, to put it that way. So that's better than recent events. So first thing I'd say is there's a lot to be said that Roto-Rooter has stabilized. And a year ago at $600, it was still in a downward slide. So I would just say the first thing is, I don't know about valuation, but it seems like we are better. I don't know why it's as low as it is other than still a hangover from the fact that we did have a big miss, get punished for that. But I think that the -- to the extent that we're going to -- the market will reward getting back to our growth of kind of a very consistent low-risk, high single-digit operating number, coupled with taking shares out of the market with stock repurchase. I think to the extent that, that gets back to being rewarded, I think then that's the outlook for the Chemed stock price.

Amazing. Thank you, guys. Appreciate your time today. Thank you so much.