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. While the performance of both operating units did not meet our expectations for the second quarter of 2025, we remain confident in the overall fundamentals, growth potential, and strategic direction of both businesses. However, it is important to remember that over 600 patients transferred into VITAS in the second quarter of 2024 as a result of our April 2024 acquisition of Covenant Health. Our average daily census, or ADC, expanded to 22,318, an increase of 6.1% when compared to the prior year quarter.

The detailed rate information related to the reimbursement increase in Florida for the 2026 cap year will become available during the third quarter. We intend to update our assumptions regarding rates and overall outlook for the 2026 Medicare cap year in Florida in the third quarter earnings release. Roto-Rooter revenue increased 0.6% in the second quarter of 2025 compared to the same period of 2024, falling short of our internal expectations. Branch revenue, in particular, was softer than anticipated, with less than 1% growth compared to the prior year.

We continue to execute on the strategies implemented in 2024 that resulted in improved fourth quarter of 2024 and the first quarter of 2025 revenue trends. June and July residential revenue has rebounded to a level that is much closer to our internal expectations. This will cause some disruption in VITAS' operating metrics but positions them to return to a consistent higher growth rate for the long term. We remain confident that the competitive advantages enjoyed by Roto-Rooter will return its financial performance to a steadier growth trajectory.

What went well
  • VITAS net revenue rose 5.8% to $396.2 million, driven by a 6.1% increase in days of care and an approximately 4.2% Medicare reimbursement rate increase, while average daily census expanded 6.1% to 22,318.
  • Hospital-directed admissions grew 9.1%, reflecting the deliberate shift toward shorter-stay patients, and average revenue per patient per day reached $207.03, up 350 basis points year-over-year.
  • Excluding prior-year Covenant Health transfers, VITAS admissions increased 4.9%.
  • At Roto-Rooter, residential revenue rebounded in June and July closer to internal expectations, water restoration grew 16.9% in residential and 11.7% in commercial, commercial excavation rose 24.4%, and the lead-to-paying-job conversion rate reached nearly 50%, well above historical levels.
  • Chemed generated strong cash flow, expects share buyback activity in Q3, and remains confident in the long-term fundamentals of both businesses.
What went wrong
  • Both operating units missed second-quarter expectations.
  • A $16.4 million Medicare cap billing limitation was accrued at VITAS (including a $9.5 million catch-up for prior periods), and management projects a $19 million Florida billing limitation for the 2025 cap year, with full-year cap limitations of $28.2 million.
  • VITAS adjusted EBITDA excluding Medicare cap was essentially flat year-over-year and its margin fell 163 basis points to 16.2% due to the lower-revenue short-stay mix.
  • Roto-Rooter revenue grew only 0.6%, with branch revenue up less than 1%, hurt by weak April and May tied to the Liberation Day tariff hit to consumer confidence; total leads fell 7.2%.
  • Roto-Rooter adjusted EBITDA dropped 18.7% with margin down 517 basis points to 21.8%, driven by labor inefficiencies from idle technicians, higher commission rates, roughly 220 basis points of higher casualty and workers' compensation costs, and a rising share of more expensive paid-search leads (over 50% of leads versus a historical ~40%).

Guidance Changes

MetricPeriodCurrent guidance
VITAS revenue prior to Medicare cap (full year)FY2025+7.5% to +8.5% vs. 2024 (revised)
VITAS adjusted EBITDA margin prior to Medicare cap (full year)FY202518.2%-18.7% (revised)
Total Medicare cap billing limitation (calendar 2025)FY2025$28.2 million ($19M Florida, $9.2M other) (revised)
Roto-Rooter additional casualty/workers' comp expense (2H)2H 2025$4 million ($2M per quarter) (new)
VITAS adjusted EBITDA margin (indicative)FY2026~17.5%-18.5% (preliminary, vs. ~19% in 2024) (new)

Performance Breakdown

MetricYoYNote
VITAS net revenue +5.8% to $396.2M 6.1% more days of care and ~4.2% Medicare rate increase, partly offset by Medicare cap and acuity mix
VITAS average daily census +6.1% to 22,318 census expansion despite mix shift
VITAS admissions (excl. Covenant transfers) +4.9% growth tempered by deliberate short-stay focus and Florida cap pressure
VITAS adjusted EBITDA margin (excl. cap) -163 bps to 16.2% impact of admitting more lower-revenue short-stay patients
Roto-Rooter revenue +0.6% soft branch revenue from weak April/May consumer demand
Roto-Rooter adjusted EBITDA -18.7% labor inefficiency, higher commissions, casualty/workers' comp costs, and costlier paid-search leads
Roto-Rooter adjusted EBITDA margin -517 bps to 21.8% same drivers, including an out-of-period insurance accrual

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
Florida Medicare capon track to mitigate as of Q1 2025Weak April/May Florida admissions revised projection to a $19M limitation; expected near zero in 2026Deteriorated then expected to improve
VITAS short-stay patient mix shiftcommunity access program emphasized longer-stayEmphasizing hospital/short-stay admissions to manage cap, lowering revenue growth and margin near-termIntensifying
Long-stay patient bubble attritionbubble created in 2022-2024Getting smaller; post-COVID hardier patients moderating with passage of timeEasing
Roto-Rooter consumer demandimproved Q4 2024 and Q1 2025 trendsWeak April/May from tariff-driven confidence hit; June/July reboundedRecovering
Private equity / search competition at Roto-Rooterlocal management poaching discussedPE pressure on drain/plumbing volumes persists; Google shifting leads to paid searchOngoing
New Florida CON locations (Marion, Pinellas)—Ramping; provide extra time to right-size mix, but excluded from current cap projectionsImproving
Capital deploymentCovenant hospice acquisition priorNo strategy change; pursuing right-priced acquisitions plus expected Q3 buybacksUnchanged

Q&A Summary

What levers ensure the Medicare cap issue does not carry past 2025, and what is the 2026 margin impact?
VITAS is emphasizing hospital and short-stay admissions, letting the community-access long-stay bubble attrit, ramping new CON locations, and applying other cap management strategies. Management expects no significant 2026 cap and indicated 2026 adjusted EBITDA margins of roughly 17.5%-18.5%, below 2024's ~19%.
Is the post-COVID demographic shift driving below-trend admissions?
The bigger factor is that Florida's ~5% rate increase pressured all hospices to chase short-stay patients, making that competition harder. Hospital admissions were up over 9%, but the company intentionally took fewer long-stay admissions to right-size the Florida mix, bringing total admissions to 4.9%.
What informs the view on the wage-indexed rate spread versus the cap for 2026?
Management believes Florida rates will likely be above the national average and a higher spread is a good thing, but it will manage as if receiving only the national average and reserve any excess. The 2025 spread was the widest in 20 years of owning VITAS and may not recur.
Are the local management issues at Roto-Rooter linked to the June/July recovery?
The earlier issues, largely from private equity poaching general managers and water restoration managers, have mostly abated and are now reversing. Management views staffing as back to a more normal cycle, with the bigger problem being lower lead volume as Google monetizes search and shifts leads to paid placements.
Do the Q2 Roto-Rooter insurance issues persist for the rest of the year?
The nearly $5 million casualty/workers' comp hit included an out-of-period catch-up and is not expected to recur at that level as safety and claims management improve. Guidance nonetheless conservatively bakes in $4 million ($2 million per quarter) of additional expense for the second half.
Has the underperformance changed the capital deployment strategy?
No change; Chemed continues to pursue right-priced, right-location acquisitions including potential hospice consolidation, with a long lead time on outreach. The strong, debt-free balance sheet means buybacks and acquisitions are not mutually exclusive, and management expects share-buyback movement in Q3.

More on Chemed Corp

Reported 2025-07-30 · figures from the Chemed Corp Q2 2025 earnings call.

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