Chemed - Q4 2023
February 28, 2024
Transcript
Holley Schmidt (VP and Assistant Controller)
The financial results for the fourth quarter of 2023, ended December 31st, 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 27th 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, 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 Nick Westfall, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiaries. I will now turn the call over to Kevin McNamara.
Kevin McNamara (President and CEO)
Thank you, Holley. 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 VITAS's operational metrics. In the quarter, our admissions increased 7% over the prior year period. These strengthening admissions continued 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.
VITAS'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. VITAS'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 VITAS guidance assumes strong ADC growth, driven by continued successful hiring and retention of licensed staff. Now let's turn to Roto-Rooter. 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 2023 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 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%. 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%. Commercial revenue at Roto-Rooter declined 7.9% in the fourth quarter of 2023 compared with the same period of 2022. We've noticed that so the same demand issues with our commercial business as we have experienced with our residential business.
For example, as our larger 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 Roto-Rooter 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. Roto-Rooter is well positioned in spite of economic headwinds on the consumer spending in our sector.
We anticipate continued expansion of market share by pressing Roto-Rooter'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.
Mike Witzeman (CFO)
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 6 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 points improvement. Finally, 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%-9.8% when compared to 2023. ADC is estimated to increase 6.5%-7%. Full-year EBITDA margin, prior to Medicare Cap, is estimated to be 17.8%-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%-4%. Roto-Rooter's adjusted EBITDA margin for 2024 is expected to be 28.7%-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-$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. Chemed'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.
Nick Westfall (CEO)
Thanks, Mike. As previously discussed, our 12-month retention and hiring bonus ended on June 30th, 2023. This program was very effective in stabilizing and expanding our patient capacity. I'm also very pleased that we've continued to expand our workforce and patient, patient capacity in the second half of 2023 without this retention program. While the fourth quarter net headcount addition was below our internal expectations, we are confident that was caused by the circumstances of the holiday season, and not any issue related to our ability to hire and retain the appropriate level of licensed bedside employees. While it's only two months in the new year, to further reinforce this confidence, we have seen a return to hiring and retention levels we anticipate for 2024.
In the fourth quarter of 2023, our average daily census was 19,352 patients, an increase of 11% when compared to the prior year, and an increase of 493, or 2.6% sequentially. VITAS has generated sequential ADC growth over the last five quarters. As Kevin mentioned in his opening remarks, we also achieved a milestone when we surpassed our pre-pandemic all-time ADC high during the fourth quarter of 2023. I'm particularly proud of the team for this achievement, as it was accomplished faster than we originally forecasted when we began 2023. In the fourth quarter of 2023, total VITAS admissions were 15,867. This is a 7% increase when compared to the fourth quarter of 2022.
In the quarter, our nursing home admissions increased 1.7%, assisted facility admissions expanded 16.4%, hospital-directed admissions increased 0.5%, and our home-based patient admissions expanded 15.2% when compared to the prior year period. Our balanced, community-based strategy continues to be successfully executed by our team, as illustrated by the consolidated 13.9% admissions increase in those segments during the fourth quarter. Our average length of stay in the quarter was 105.9 days. This compares to 103.9 days in the fourth quarter of 2022, and 103.1 days in the third quarter of 2023.
Our median length of stay was 17 days in the quarter and compares to 16 days in the fourth quarter of 2022, and 17 days in the third quarter of 2023. As Mike previously mentioned, our fourth quarter 2023 EBITDA margin was positively impacted by a number of factors. While we were slightly disappointed with our net headcount additions in the fourth quarter, the positive side effect is that there were less unproductive labor, onboarding, and training costs than anticipated. Additionally, during the pandemic, we increased the amount of paid time off, or PTO, our employees could carry over from year-to-year from 40 hours to 80 hours. This was designed to allow for our workers to better manage burnout and be able to quarantine, as was prescribed at that time, without worrying about whether they would be paid for that time.
In August 2023, we announced that the carryover policy was reverted back to the historical 40 hours at the end of the year. As a result, we experienced higher levels of PTO taken in the fourth quarter than normal. Additionally, the amount of forfeited PTO at the end of the year was higher than historical levels. We estimate that this one-time PTO change added approximately 135 basis points to the fourth quarter EBITDA margin. To recap what our team has accomplished, we've now generated six quarters of sequential net growth in licensed healthcare workers and five quarters of sequential growth in ADC. We now have a sustainable and predictable approach to continue methodically building our clinical capacity and patient base that has taken us past our pre-pandemic levels and catapulted us forward into 2024 and beyond.
I want to thank our entire team, as these accomplishments over the past few years were a result of the unwavering commitment, dedication, and focus each VITAS team member has towards fulfilling our mission in every community we serve. We got here together, and we are very excited for what 2024 and the future has in store for VITAS. With that, I'd like to turn the call back over to Kevin.
Kevin McNamara (President and CEO)
Thank you, Nick. I will now open this teleconference to questions.
Operator (participant)
To ask a question, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Joanna Gajuk of Bank of America. Your line is now open.
Joanna Gajuk (Equity Research Analyst)
Hi, good morning. Thanks, for taking the question. So I guess first, on VITAS, since this was the last topic, but, you know, the guidance, the guidance calls for, VITAS revenue to grow, you know, 9%-10% on census growing 7% again. So that's above, I guess, the kinda long-term growth outlook that you, talked about in the past for the industry, you know, to grow like mid to high single digits. So I guess the two-part question is, you know, what gives you confidence, you can grow volumes, you know, high single digits again? And I guess with that, you know, what is the long-term outlook for, for revenue growth, I guess, in, in the segment, you know, after 2024? Do you expect continuation of it?
Is there something to be said about aging demographics or, you know, people accessing, hospice earlier? You know, any dynamics that maybe imply the growth, you know, this accelerated growth is sustainable? Thank you.
Nick Westfall (CEO)
Yeah. Maybe just to take the two parts, Joanna, this is Nick. Short answer for 2024 and beyond is yes, we think the volume growth rate, combined with the pricing piece, is sustainable, you know, beyond 2024. The other factors that you're referencing, whether it is aging demographics, people, you know, traditionally going into the age range where they access the hospice benefit, that's very favorable from a tailwind standpoint. I think the biggest unknown is, hopefully, and I think we will, continue to see the momentum in the industry for people continuing to access the benefit earlier, which could drive overall days of care growth, you know, and I realize, there's a lot of things contributing to that.
You could get to federal government overall understanding through things like the NORC study, that earlier and longer access is beneficial to the Medicare Trust Fund, as well as to patients and families. And then you can take other pieces that are very favorable, like, you know, President Carter's continued journey on the benefit. He reached his one-year milestone on February 18th, and, you know, me and everybody else in the industry can't provide enough praise to him and his family for the dialogue that has sparked across the country about what hospice is and what it can be. So I think there's a lot of favorable tailwinds about, you know, for 2024 and beyond, around overall understanding of the hospice benefit acceptance and the fact that it is a really sustainable and high-quality program for the country.
Kevin McNamara (President and CEO)
And Joanna, I think that, you know, again, for people building a model and referring to past periods for VITAS, you have to build in you know, what Nick has described in various forums as a mix shift with community access. I mean, when you, you have to, you know, that when you look at our average length of stay, going from, you know, high 90s to 105, that's basically driven by the fact that, fewer of our referrals are coming from hospitals, which, still are very substantial, still our largest source, I mean, don't get me wrong. But, referrals from other sources, you know, tend to have, a longer lived, census. And so that mix shift makes some comparisons to past periods, less relevant.
Nick Westfall (CEO)
Yeah. And the overall healthcare demographic of people seeking care outside more and more of acute four-wall hospitals and facilities, I think, you know, helps to contribute to that for where, you know, we would see referrals coming to us.
Joanna Gajuk (Equity Research Analyst)
So I guess if I may follow up on the comment around the, you know, mix into the community access strategy and the increasing length of stay. You know, how does it, I guess, what's your strategy there when it comes to dealing with Medicare Cap, when it comes to this lengthening stay for some of these patients?
Nick Westfall (CEO)
No, it, the strategy itself doesn't change as it relates to it. We'll continue to manage it accordingly on a market-by-market basis. And, you know, we feel very comfortable that that balanced approach, and I specifically used the word balanced in my opening remarks, is what's needed and necessary. And so while there is a broader expanded access, don't want to discount the importance of our hospital partners and how that's gonna continue, you know, to be critical for us as an independent hospice provider, in every community in which we operate.
Mike Witzeman (CFO)
We still have a pretty high level of hospital-based admissions.
Nick Westfall (CEO)
Yep.
Mike Witzeman (CFO)
Which help with the Medicare Cap. We don't, we don't anticipate any real material Medicare Cap problems in the, in the near term, for sure.
Kevin McNamara (President and CEO)
Yeah, let's put it this way. Our Medicare Cap issues we, that we talk about and really plot against, occur in California, and that's not driven by high average length of stay.
Nick Westfall (CEO)
Right.
Kevin McNamara (President and CEO)
It's driven by very high reimbursement with a static, you know, nationwide level of cap measurement. So, suffice to say, we're knocking on wood here, but in the short and midterm outlook, cap is unlikely to rear its ugly head.
Joanna Gajuk (Equity Research Analyst)
Okay, that's helpful color. If I may stay on VITAS, on the margin side. So clearly, you talk about some items that helped to bring margins, you know, 23% versus, you know, kind of we talk about three months ago that Q4 guidance is less, you know, a little bit less than 22%. So I guess you explained the benefits of that, but I guess also your guidance calls for margins, you know, expanding, which is good. And, you know, there were some comments on the last call around, like, VITAS margins normalizing at, you know, 19%. So I guess you still, to your point, you know, the margins guidance 2024 call for margins to be above 2019 levels.
But, you know, should we still think about, you know, going forward, that there's potential for, you know, more margin expansion towards this 19%? Like you said, if you, if you continue to grow top line, you know, high single digits, is there opportunity for, you know, getting closer to 19? Thank you.
Nick Westfall (CEO)
So the, you know, the short story is, the guidance and the range that we provided for 17.8%-18.3%, we think is, is very reasonable from a bottom-up budgeting standpoint. You know, forecasting around how much, you know, headwinds there is on marginal compression, given pricing lagging and never catching up to real cost of operating the business, is impossible to forecast what that means out multiple years at this point. But, you know, I think the one thing you'd say uniformly is where our reference point up until the last call was, we're, you know, coming back to marginal levels that were pre-pandemic, and then seeing how it shakes out as we get to a very sustainable and predictable growth rate, as well as, overall profit contribution rate, and we'll see what the marginal contribution then blends out to be.
That we feel very confident in, and that comes out in that, you know, 17.8%-18.3% range for 2024.
Mike Witzeman (CFO)
Joanna, I think it's important that the components of how we got back to 2019 are a little bit important, as Nick mentioned. So we have seen a significant amount of wage compression and issues, and issues with wages going up faster than our reimbursement. But we've been able to effectively keep a lot of the efficiencies that Nick and his team at VITAS were able to garner through the pandemic and telehealth and those sorts of things. So we've offset some of those wage pressures with other efficiencies. I think. We think there's some opportunity for future margin expansion, but it's not gonna be any big bang kind of expansion. There's gonna be incremental, methodical increases, you know, call it 2025 and beyond.
Nick Westfall (CEO)
Yeah. Everything we're gonna do is focused on continued sustainability of the business, not maximizing short-term, near-term, you know, one quarter marginal contribution.
Joanna Gajuk (Equity Research Analyst)
No, I appreciate that. Thank you. Thank you for those comments. And I guess, a similar question on the Roto-Rooter, right? So, sounds like, for 2024, your guidance calls, you know, for, I guess, you know, maybe a little bit less than what you described in prior calls when it comes to, like, long-term growth. So I guess, you know, a similar two-part question, What gives you confidence you can, you know, grow, you know, faster, I guess, 2024 versus 2023? I mean, it sounds like pricing, I guess, is the driver there. But then how do we think about growth, you know, after that?
Like, would, is it fair to assume, you know, that kind of 4% growth is sustainable growth, or should it kind of snap back to something a little bit higher, you know, in years after when the economy, I guess, is in a different spot? Thank you.
Kevin McNamara (President and CEO)
Well, here, I'll just make a couple comments about Roto-Rooter. I mean, it's tough. I mean, we've really never had a period where the telephone has stopped ringing so suddenly. And we think there's reasons for that. I mean, basically, if you said what I really think the reason is driving it is that we had a sustained period where inflation was far above wage gains in the country. And, you know, that environment has shifted. It's gonna take some time to recover from that, but that's macroeconomics. I mean, we're a small company in Cincinnati. I mean, so that's for the economists in the University of Chicago to, you know, flesh out. What our belief is that, it, you know, it's a tough patch.
I mean, the good thing about that is, when we say that we're seeing this throughout the industry, certainly our system, with regard to franchisees and contractors and whatnot. The good news is, I think it's gonna give us an opportunity to buy some franchises, to be honest with you, because that's the time when they become available. So that's the silver lining. Now, with regard to looking after the future, I think that when all the dust continues to settle on Google Marketing, which is, you know, which is a problem now, because in this tough sales environment, we're spending a lot more on Google Marketing than we were a year ago.
But when the dust settles, we have such a competitive advantage, and that is each call for service in this industry, because we have a broad service line, that is, plumbing, drain cleaning, excavation, water restoration, each call is more valuable to us. And, you know, we will be able to afford to pay more for those leads. And, I guess when the dust settles and there's a proper price-setting mechanism for that, we're gonna have a huge comparative advantage. So now we feel very good when you talk about. So, I mean, our relative position is very good in the industry as it improves. Now, the question of how high is up for the industry? You got to remember that we provide services to houses and apartments and small businesses, generally.
So the question is, What's, you know, what are the formation rates for those three sectors? They're, you know, they're not 10%, they're less than that. So, you know, it's, we have a, you know, we'll be providing services to a fairly stable, fairly solid customer base, and we'll just be hoping to take market share with the continued aging of the blue-collar workforce. So, steady as she goes on Roto-Rooter, but very, you know, very, continues to be a very solid business. You know, with the first quarter of last year was through the roof, largely caused by very unusual. We don't like to talk about weather issues, but, January of last year, December and January of last year were just very unusual weather events.
You know, so we've mentioned it a lot just to warn everybody that it's gonna be a tough comparison, you know, certainly through December and January. But as we, as we get to the rest of the year, it's a much easier comparison.
Mike Witzeman (CFO)
Joanna, I think, from a 2024 perspective, we've, the guidance we've given is pretty straight down the middle. I think we think it's achievable, but it definitely assumes a level of improved consumer sentiment and consumer demand sequentially as the year goes on. So we're thinking a little, you know, demand volume improvement in the second quarter, a little more in the third, a little more in the fourth. So we have definitely assumed some improving economic indicators and economic performance towards the end of the year.
Then as far as 2025 and beyond, I would think, you know, somewhere in that 4%-6% revenue range is probably a fairly sustainable path when you think about price increases and, and then, as Kevin mentioned, you know, some, some demand improvement given our positioning in the industry and our positioning with Google Advertising and those sorts of things.
Joanna Gajuk (Equity Research Analyst)
The very last question, just to tie all these things out when it comes to the margin outlook for that segment, for the Roto. So the guidance implies similarly, you know, some improvement year in 2024, 'cause I guess you assume, you know, top line is growing. So how should we think about margins going forward in the Roto-Rooter? If you grow, like you said, 4%-6%, you know, is this enough to kinda drive margins higher over time? Thank you.
Mike Witzeman (CFO)
I think it'll drive margins higher, but again, it, there's not gonna be any big bang jump, you know, 200 or 300 basis points. They're gonna be methodically improving as we obtain leverage on that top-line growth.
Kevin McNamara (President and CEO)
Keep in mind, the Google marketing, I mean, we're spending, you know, $1 million a month, you know, more on that. You know, that's, you know, I say when we say the dust settle on that, it does, it's a short-term jolt to. You know, we think it's all accretive, but it's, on a comparative basis, it's a little bit of a jolt to margin. And, as you know, the kind of the singles and doubles that Mike is talking about as far as the improvements, does first have to overcome that jolt.
Mike Witzeman (CFO)
Sure.
Joanna Gajuk (Equity Research Analyst)
Thank you so much for the question.
Operator (participant)
One moment, please, for our next question. Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.
Michael Murray (Equity Research Associate)
Hi, this is Michael Murray on for Ben. I just double-clicking on Roto-Rooter. You saw a pretty sizable deceleration in commercial growth in 4Q. I wanted to see if you could expand upon that. What do you expect for commercial demand in 2024? What’s your expectations for residential growth as well?
Kevin McNamara (President and CEO)
Well, let me just start by saying, our commercial sales in Roto-Rooter in the fourth quarter were below our expectation. You know, and there were, there were a couple factors that we think are, you know, a couple, you know, big commercial customers that we thought had a, you know, effect on it. But even generally, it's not where we want it to be. It's an area of renewed focus and emphasis at Roto-Rooter. And, you know, again, it's we, we think that there's no reason it won't mirror a lot of our experience on the residential side, but it didn't in the fourth quarter.
Mike Witzeman (CFO)
The 3.5%-4% growth that we're projecting for 2024 comes fairly evenly across both segments and across each service offering within those segments. There's a little bit of variation, but we don't see a huge increase in commercial at the, and a decline in residential or anything. It's fairly stable across both business segments.
Michael Murray (Equity Research Associate)
Okay. And just a follow-up. What gives you confidence that what you saw in 4Q commercial won't continue into 2024?
Kevin McNamara (President and CEO)
Well, the thing that gives me confidence is, I see and know the increased emphasis that Roto-Rooter is making with each of its branch managers. And so the confidence I have over the years is just seeing that that type of emphasis and effort usually, in Roto-Rooter, yields results.
Mike Witzeman (CFO)
We've seen this before, maybe not quite to this magnitude, but there from time to time, local area managers at some of these big retailers, for instance, that get the idea that they can manage, you know, their plumbing needs on a mom-and-pop basis, on a store-by-store basis, and they quickly figure out that, that's not very manageable, and they come back to us. Not saying that's necessarily this case, but, we have had many instances in the past where we've lost that business for a small period of time, and they figure that, you know, our customers figure out that managing it on a store-by-store basis is not very, easy, and then they come back to us. So, you know, there's no guarantee in this instance, but we think that there's probably a potential for that as well.
Michael Murray (Equity Research Associate)
Okay, that's, that's really helpful. And, and switching to VITAS, so you're continuing to see solid ADC growth, and you're expecting that to continue. Well, some of your peers have had softer ADC growth coming out of the pandemic. Obviously, you had your retention program, but is there anything else in your competitive strategy that may explain some of your outperformance compared to peers?
Nick Westfall (CEO)
Yeah, so, you know, the thing we've been pretty rather consistent on, probably over the last year and a half, was, of course, the recruiting and retention program served as a catalyst. That catalyst, though, had a lot of other tactical things, and I'll put it under the overall umbrella from a cultural standpoint, that really had a compounding effect around improvement of retention at each local, you know, each one of our programs. And that, combined with some very strong hiring, continued to allow us to meet and not turn away any of the unwavering demand that we continue to see from our referral sources.
When we have that on a market-by-market basis, compared against some of our competitors who would either not respond with the same degree of commitment to those referral sources or not be able to provide the full complement of services that they expected before the pandemic started, I think is really allowing us to, and we can see it in our metrics, expand market share on an account-by-account basis. But in the same regard, enter into new relationships with certain accounts that may not have taken our call, but the circumstances have helped to reinforce that. So that's what we, you know, that, that combination, yeah, we feel very confident in, as well as helps provide confidence in our 2024 guidance and beyond.
Not to oversimplify it, but focusing on recruiting and retention, as well as, you know, continuing to lean into all of our educational approaches out on the market, are proving to be a very effective strategy for us.
Mike Witzeman (CFO)
There's a bit of a waterfall effect, right? So if we have, you know, if we feel like in a program, we're fully staffed from an admission nurse standpoint, right? We can get to the referrals maybe faster than some of our competitors that don't have the staffing levels that we do, and that's one of the key factors in being able to admit the patient. So it's sort of a waterfall, not just with, you know, nurses providing the care, but it starts at the admission nurse level to begin with.
Nick Westfall (CEO)
And while we don't report them publicly, we continue to see very strong strength in referral growth, you know, and that gives us great confidence that there's continues to be share to be gained. And the only impediment would be staffing, which we feel very comfortable about continuing to methodically build.
Michael Murray (Equity Research Associate)
Okay, that's really helpful. Just the last one for me. Do you have any comments regarding cadence of earnings throughout the year? Anything that we could keep in mind? And do you expect VITAS margin to ramp through the year, like you saw this year?
Mike Witzeman (CFO)
Yeah, I think VITAS margin will, it always spikes in the fourth quarter because we get our reimbursement rate on October 1st, and essentially, that increase just falls to the bottom line in the fourth quarter because we haven't, you know, seen the inflation that goes along with that. So we definitely think VITAS, particularly the fourth quarter, is gonna ramp. There's definitely a ramping as well at Roto-Rooter, as we talked a little bit before, is sequentially, we think demand, hopefully, in our opinion, is gonna increase and improve as the year goes on. So there's a little bit of ramping at Roto-Rooter, but that's a little more stable. VITAS, certainly the fourth quarter will be the best quarter.
Nick Westfall (CEO)
Yeah, and from a modeling standpoint, if you go back at the last full-year that was uninterrupted by the pandemic, which would be 2019, that type of sequential building is probably the easiest one to look at on a quarter-by-quarter basis. Because there's other things that go into play, like, you know, at the end of the second quarter, we award and distribute our entire merit increase to our workforce. Things like that, you know, are already forecasted in all of our modeling for the entire course of the year, but between that and the fourth quarter pricing are, you know, very predictable things that we have built into our earnings equation throughout the calendar year.
Michael Murray (Equity Research Associate)
All right, thank you.
Operator (participant)
Thank you. I do not see any other questions from the queue at this point. I would now like to turn the conference back to Chemed President and CEO, Kevin McNamara, for closing remarks.
Kevin McNamara (President and CEO)
I just wanna thank everybody for their kind attention. We thought we had a good solid quarter. I think our guidance represents a solid blueprint for this year. I think it's obviously, we think it's achievable, and I guess I'll have more information for you in about three months from this date. Thank you.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.