What Management Said
Read the full Q3 2025 transcript ↗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. Roto-Rooter revenue increased 1.1% in the third quarter of 2025 compared to the same period of 2024. Branch residential and commercial revenue were both encouraging, with increases of 3.4% and 2.8% respectively. Revenue from independent contractors continues to be disappointing, declining 4.7% in the third quarter of 2025.
For the first time in several quarters, we saw strength in our residential plumbing revenue service line. Residential plumbing revenue increased 8.2% in the third quarter of 2025 compared to the same period of 2024. A multi-pronged campaign to target selected high-revenue dollar plumbing services yielded positive results in the quarter. While we are paying for more leads, causing some margin pressure, we also believe this trend indicates a potential moderation of competition for leads from our most significant private equity competitors.
However, gross margin during the quarter was exactly in line with our guidance. The shift from unpaid leads to paid leads was the main driver of the $3.6 million increase in SG&A costs in the quarter. This led to EBITDA and EBITDA margins to be slightly lower than our expectations for the quarter. While still below our long-term expectations, there are signs that the Roto-Rooter business has stabilized and is on the way to returning to a predictable, sustainable growth trajectory.
- Both operating units performed primarily in line with expectations in the third quarter of 2025.
- VITAS admissions totaled 17,714, a 5.6% improvement over the prior year, with average daily census up 2.5% to 22,327 patients and net revenue up 4.2% to $407.7 million.
- The strategy to admit a higher percentage of hospital-based patients gained traction, with the hospital admissions ratio reaching 44.5% (a post-pandemic high watermark within the preferred 42%-45% range), supporting management's belief that there will be no Florida Medicare cap billing limitation in 2026.
- The 2025 Florida billing limitation came in slightly better than estimated at $18.9 million versus a projected $19 million.
- At Roto-Rooter, residential plumbing revenue rose 8.2% for the first time showing strength in several quarters, total leads improved (down only 1.3%), and sequential EBITDA margin improved about 90 basis points.
- Management reiterated full-year guidance of $22.00-$22.30 per share and indicated it is shooting for the upper end.
- VITAS adjusted EBITDA excluding Medicare cap declined 3.8% to $70.4 million, with margin of 17.0% down 157 basis points year over year, reflecting the impact of admitting more lower-margin hospital-based short-stay patients.
- A $6.1 million Medicare cap billing limitation was accrued in the quarter ($4.6 million Florida, $1.5 million mainly California).
- Roto-Rooter adjusted EBITDA fell 12.4% to $49.4 million with margin of 22.7%, a 351 basis point year-over-year decline, as a shift from natural to paid leads drove a $3.6 million increase in SG&A; revenue from independent contractors declined 4.7% and remains disappointing.
- Roto-Rooter margins remain below long-term expectations, and DSO was somewhat elevated due to slower Medicaid payment timing.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Full-year EPS | FY2025 | $22.00-$22.30 (Reiterated (targeting upper end)) |
| VITAS revenue growth | FY2026 | ~8% range (preliminary) (New / speculative) |
| VITAS EBITDA margin | FY2026 | ~17.5%-18% (preliminary) (New / speculative) |
| Roto-Rooter revenue growth | FY2026 | ~3%-5% (preliminary budget range) (New / speculative) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| VITAS net revenue | +4.2% | 2.5% increase in days of care and ~4.1% weighted average Medicare reimbursement rate increase, partly offset by acuity mix and Medicare cap/contra-revenue |
| VITAS adjusted EBITDA (ex-cap) | -3.8% | Impact of admitting more hospital-based short-stay patients lowering margin to 17.0% |
| VITAS average daily census | +2.5% | Census growth to 22,327 patients |
| Roto-Rooter revenue | +1.1% | Branch residential (+3.4%) and commercial (+2.8%) growth offset by independent contractor revenue decline of 4.7% |
| Roto-Rooter adjusted EBITDA | -12.4% | $3.6M SG&A increase from shift to paid leads pressuring margin to 22.7% |
| Roto-Rooter residential plumbing revenue | +8.2% | Multi-pronged campaign targeting high-revenue plumbing services |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Florida Medicare cap mitigation | Estimated $19M 2025 Florida billing limitation; ratio dipped below preferred range during community access program | $18.9M actual 2025 limitation; hospital admission ratio back to 44.5%; management expects no Florida cap in 2026 | Improving |
| Roto-Rooter lead generation shift | Increasing paid leads offsetting declining natural leads discussed prior two quarters | Paid leads up 8.6%, total leads down only 1.3%; signals moderation of private equity competition | Improving |
| Roto-Rooter margin recovery | Below long-term expectations; multi-quarter fix acknowledged in Q2 | Sequential margin up ~90 bps; long-term target 25%-26% EBITDA margin; pricing discipline tied to higher lead volume | Recovering |
| VITAS length of stay normalization | Q2 2025 average length of stay 137.1 days; community access created bubble of long-stay patients | Q3 average length of stay 109.7 days, median 18 days, returning to normal as hospital pre-admit focus increases | Normalizing |
Q&A Summary
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