Q3 2024 Earnings Summary
- VITAS’ strong operational performance: The Q&A highlighted nine consecutive quarters of workforce growth and sequential ADC (average daily census) improvements, reinforcing the solid demand trajectory and strong execution in the hospice segment.
- Focused marketing improvements for Roto-Rooter: The discussion emphasized that the new marketing agency, with significantly more dedicated resources, is expected to increase call volume—a key metric for revenue conversion—supporting a recovery in its residential business.
- Favorable growth outlook and pricing tailwinds: Management signaled expectations for high single- to low double-digit day-of-care growth and noted a finalized Medicare rate update that provides additional pricing upside, supporting robust future margins, particularly in VITAS.
- Continued Residential Weakness: Roto-Rooter's persistent decline in residential call volume and revenue—highlighted by a drop in call volume of 11.7% year-over-year—raises concerns that if this trend persists, revenue and margins may remain under pressure.
- High Marketing Transition Costs: The ramp-up expenses associated with the new SEM provider have already impacted margins, and if these costs continue without yielding an improvement in call volume, it could further erode profitability.
- Limited Near-Term Revenue Improvement: Q&A guidance indicated that Q4 revenue is expected to remain similar to the third quarter on a year-over-year basis, suggesting that a turnaround in Roto-Rooter's performance could be delayed, particularly affecting its contribution to overall earnings.
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2025 Outlook
Q: What is next year's business outlook?
A: Management expects VITAS to deliver above-average growth with high single- to low double-digit improvements in days of care while Roto-Rooter should maintain revenue levels, albeit with margin pressure remaining, reflecting cautious optimism for 2025. -
Q4 Guidance
Q: What is Roto-Rooter’s Q4 forecast?
A: They expect Q4 revenue to mirror Q3 on a year-over-year basis with margins improving as additional marketing expenses normalize, reaching levels comparable to the second quarter EBITDA margin performance. -
Census Growth
Q: What are VITAS census growth expectations?
A: VITAS delivered 15.5% average daily census growth with admissions up 6.3% YoY and hospital-directed referrals growing nearly 10%, supporting a long-term annual growth expectation around 4–6%. -
Marketing Effects
Q: How will new marketing affect Roto-Rooter?
A: Management notes that while immediate breakthroughs aren’t expected, the renewed focus—particularly on commercial channels—should gradually boost call volumes and revenue, even as residential performance remains challenging. -
Vendor Differences
Q: What differentiates the new SEM vendor?
A: The new vendor deploys 7 full-time specialists compared to the previous 3, allowing more dynamic and frequent bid adjustments to optimize online placement despite a generally tougher internet search environment. -
Medicare Rates
Q: What’s the impact of the Medicare update?
A: With a finalized Medicare rate update of about 3.9%, management anticipates this will add modest pricing upside, benefiting VITAS’s revenue mix in the near term.
Research analysts covering CHEMED.