Q4 2023 Chemed Corporation Earnings Call
Unknown Executive: The financial results for the fourth quarter of 2023, and it's 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.
The financial results.
For the fourth quarter of 2023 and at December 31, 2023.
Speaker Change: 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.
Unknown Executive: 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. However, 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. Please be 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.
Speaker Change: 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 27, 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.
Unknown Executive: 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'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.
Speaker Change: 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 Companys web.
Site at <unk> Dot com.
Speaker Change: I'd now like to introduce our speakers for today Kevin.
Kevin: President and Chief Executive Officer of Chemed Corporation.
Unknown Executive: 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. Thank you, Holley. Good morning.
Kevin: Smith, Chief Financial Officer of Tenet, and Nick Westfall, Chief Executive Officer, Tim at the VITAS Healthcare Corporation subsidiary I will now turn the call over to Kevin Mcnamara.
Kevin J. McNamara: Thank you Holly good morning, welcome to Chemed Corporation's fourth quarter 2023 conference calls.
Kevin J. McNamara: 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.
Kevin J. McNamara: 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 for questions.
Kevin J. McNamara: Our fourth quarter 2023 operating results released last night reflect continued improvement in our VTAS operational metrics. In the quarter, our admissions increased 7% over the prior year period. These strengthening admissions continue to drive higher patient numbers. 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.
Kevin J. McNamara: Our fourth quarter 2023 operating results released last night reflect continued improvement in our V passes operational metrics in the quarter, our admissions increased 7% over the prior year period.
Kevin J. McNamara: These strengthening admissions continued to drive higher patient census in the fourth quarter, our average daily census, or a b C expanded 1982, an increase of 11% when compared to the prior year quarter and two 6% when compared to the third quarter of 2023 during the <unk>.
Kevin J. McNamara: Fourth quarter, we surpassed our pre pandemic ABC all time high.
Kevin J. McNamara: VITAS's continued improvement in operating metrics is a result of our 12-month retention and hiring program launched in July 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 Voters Program ended in the second quarter of 2023.
Kevin J. McNamara: VITAS is continued improvement in operating metrics as a result of our 12 month retention and hiring program launched in July of 2022.
Kevin J. McNamara: This program was designed to stabilize turnover in our tenured staff and expand clinical workforce capacity.
Kevin J. McNamara: This 12 month retention program generated an aggregate increase of 784 licensed health care professionals, the majority of which are licensed sources.
Kevin J. McNamara: The retention bonus program ended in the second quarter of 2023 grew up in the second half of 2023, we continue to expand our licensed staff.
Kevin J. McNamara: 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 VTAS guidance assumes strong ADC growth driven by continued successful hiring and retention of licensed staff. Now, let's turn to Roto-Rooter.
Kevin J. McNamara: Related patient service capacity.
Kevin J. McNamara: <unk> not been side head count increased by 157 licensed professionals in the third quarter and 84 in the fourth quarter the.
Kevin J. McNamara: 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.
Kevin J. McNamara: Our 2020 for VITAS guidance assumes strong ADC growth driven by continued successful hiring and retention of license staff.
Kevin J. McNamara: Now, let's turn to Roto rooter.
Kevin J. McNamara: As discussed over the past few quarters, Roto-Rooter continues to manage through what can only be described as ongoing headwinds in consumer sentiment and consumer spending within our sector of the economy. Overall, our call volume is down 18.7 percent when compared to the prior year quarter. Additionally, the last week in the fourth quarter of 2022 was significantly impacted by a nationwide deep freeze.
Kevin J. McNamara: 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.
Kevin J. McNamara: 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 was down 13% during the fourth quarter of Troy Troy III compared to the same.
Kevin J. McNamara: Excluding that one week in 2022, call volume was down 13 percent during the fourth quarter of 2023 compared to the same period in 2022. This decline is comparable to the call volume declines we have been experiencing in the second and third quarters of 2023. Roto-Rooter has offset a significant portion of the softening demand with improvements in close rates. Our call center's conversion rate, the rate at which a call is converted into a technician's scheduled ticket, has improved 5.4 percent. Our ticket void rate, which is the rate of canceled jobs before a technician can be dispatched, improved 1.8 percent. Our technician conversion rate, the percentage of time a tech arrives at a home or business and converts the scheduled ticket into billable work, improved 1.3%. Commercial revenue at Roto-Root declined 7.9% in the fourth quarter of 2023 compared with the same period of 2022.
Kevin J. McNamara: Period, because 2022.
Kevin J. McNamara: This decline is comparable to the call volume declines we have experienced the second and third quarters of 2023.
Kevin J. McNamara: Roto Rooter has offset a significant portion of this softening demand with improvements in close rates are.
Kevin J. McNamara: Our call centers confirm your conversion rate the rate at which I call is converted into a technician scheduled ticket has improved five 4%.
Kevin J. McNamara: Our ticket void rate, which was the rate of canceled jobs for a technician can be this fast improved one 8%.
Kevin J. McNamara: Our technician conversion rate the percentage of time, a tech arrives at home or business and convert the scheduled ticketed the billable work improved one 3%.
Kevin J. McNamara: Commercial revenue declined seven 9% in the fourth quarter of 2023 compared with the same period of 2022.
Kevin J. McNamara: We've noticed some of the same demand issues with our commercial business as we have experienced with our residential business, for example. As our large, big box commercial customers have struggled with demand issues, we have been approached with a request for significant decreases in prices. We've walked away from this type of business.
Kevin J. McNamara: We've noticed that some of the same demand issues with our commercial business as we have experienced with our residential business for example.
Kevin J. McNamara: As our largest big box commercial customers have struggled with demand issues, we've been approached with request for significant decreases in prices.
Kevin J. McNamara: We've walked away from this type of business. It was our belief that when demand issues abate. This type of customer and will return to roto Rooter sports consistent high quality reliable service.
Unknown Executive: 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. Rotary is well-positioned in spite of economic headwinds on consumer spending in our sector. We anticipate continued expansion of market share by promoting Rotary'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. Thanks, Kevin.
Kevin J. McNamara: We continue to see overall stabilization of demand in our weekly revenue.
Kevin J. McNamara: Our guidance assumes improving demand trends starting in the second quarter of 2024.
Kevin J. McNamara: To summarize I am pleased with the accelerated improvement in VITAS post pandemic.
Kevin J. McNamara: Increased growth in licensed health care professionals strong admissions and a corresponding growth in patient census have returned VITAS to normalized operating conditions.
Kevin J. McNamara: Radio is well positioned in spite of economic headwinds on the consumer spending in our sector. We anticipate continued expansion of market share by pressing <unk> core competitive advantages in terms of excellent brand awareness customer response time 24, seven call centers and aggressive internet presence with that I would like to turn.
Kevin J. McNamara: The teleconference over to Mike.
Kevin J. McNamara: Okay.
Mike: Thanks, Kevin.
Unknown Executive: 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 percent increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.3 percent. The acuity mix shift negatively impacted revenue growth by 38 basis points in the quarter when compared to the prior year revenue and level of care mix. However, 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.
Mike: 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.
Mike: This revenue increase is comprised primarily of an 11.0% increase in days of care in a geographically weighted average Medicare reimbursement rate increase of approximately two 3%.
Kevin J. McNamara: 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.
Kevin J. McNamara: Combination of Medicare cap and other Contra revenue changes increased revenue growth by approximately 61 basis points.
Kevin J. McNamara: Average revenue per patient day in the fourth quarter of 2023 was $201 33.
Kevin J. McNamara: Which is 200 basis points above the prior year period.
Kevin J. McNamara: Reimbursement for routine home care and high acuity care averaged $177 62.
Kevin J. McNamara: And $1058 60, respectively.
Kevin J. McNamara: During the quarter high acuity days of care were 2.70% of total days of care.
Unknown Executive: [inaudible] 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, which Nick will discuss further. VITAS reverted back to its pre-pandemic vacation policy, which resulted in an estimated 135 basis point 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.
Kevin J. McNamara: A decline of six basis points, when compared to the prior year quarter.
Kevin J. McNamara: Adjusted EBITDA, excluding Medicare cap totaled $83 $3 million in the quarter, an increase of 61, 6%.
Kevin J. McNamara: Adjusted EBITDA margin in the quarter, excluding Medicare cap was 23, 7%, which is 705 basis points above the prior year period.
Kevin J. McNamara: The fourth quarter adjusted EBITDA margin comparison was positively impacted by a number of items.
Kevin J. McNamara: The expense attributable to the retention bonus program in 2022 resulted in a 406 basis point improvement in the 2023 margin.
Kevin J. McNamara: As Nick will discuss further.
Kevin J. McNamara: Detox reverted back to its pre predict pandemic vacation policy, which resulted in an estimated 135 basis point improvement.
Kevin J. McNamara: Finally, the lower than anticipated hiring rate in the fourth quarter previously discussed by Kevin provided less drag on the adjusted EBITA margin from Onboarding and training costs.
Speaker Change: Now, let's turn to Roto rooter.
Unknown Executive: 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. Rotary Branch residential revenue in the quarter totaled $162.5 million, an increase of 2% over the prior year. Adjusted EVADOT in the fourth quarter of 2023 totaled $64.9 million, a decrease of 6.4 percent 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 the Medicare cap is estimated to increase 9% to 9.8% when compared to 2023, and ADC is estimated to increase 6.5 to 7%. Full year EBITDA margin prior to the Medicare cap is estimated to be 17.8% to 18.3%.
Speaker Change: Roto Rooter generated quarterly revenue of $235 $9 million in the fourth quarter of 2023 a.
Kevin J. McNamara: A decrease of one 1% when compared to the prior year quarter.
Kevin J. McNamara: Roto Rooter branch commercial revenue in the quarter totaled $56 $8 million, a decrease of seven 9% over the prior year.
Kevin J. McNamara: Roto Rooter branch residential revenue in the quarter totaled $162 $5 million, an increase of 2% over the prior year.
Kevin J. McNamara: Adjusted EBITDA in the fourth quarter of 2023 totaled $64 $9 million.
Kevin J. McNamara: A decrease of six 4% compared to the prior year quarter.
Kevin J. McNamara: 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.
Kevin J. McNamara: Now, let's discuss our 2020 for guidance.
Kevin J. McNamara: VITAS is 2020 for revenue <unk>.
Kevin J. McNamara: Here to Medicare cap is estimated to increase 9% to nine 8% when compared to 2023.
Kevin J. McNamara: <unk> ADC is estimated to increase six 5% to 7%.
Kevin J. McNamara: Full year EBITDA margin prior to Medicare cap is estimated to be 17, 8% to 18, 3%.
Unknown Executive: This compares to the 2019 full-year adjusted EBITDA margin prior to the Medicare cap of 17.7%. As discussed previously, we believe that a return to pre-pandemic margins 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.
Kevin J. McNamara: This compares to the 2019 full year adjusted EBITDA margin prior to Medicare cap of 17, 7%.
Kevin J. McNamara: As discussed previously we believe that returned to pre pandemic margin was likely once the industry stabilized.
Kevin J. McNamara: 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.
Kevin J. McNamara: We are currently estimating $9 $5 million for Medicare cap billing limitations in calendar year 2024.
Unknown Executive: Roto-Rooter is forecasted to achieve full-year 2024 revenue growth of 3.5% to 4%. The road orders adjusted EBITDA margin for 2024 is expected to be 28.7% to 29.1%. Due to the nationwide decrease 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 to $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.
Kevin J. McNamara: Roto Rooter is forecasted to achieve full year 2020 for revenue growth of three 5% to 4%.
Kevin J. McNamara: Roto Rooters adjusted EBITDA margin for 'twenty 'twenty four is expected to be 28, 7% to 29, 1%.
Kevin J. McNamara: Due to the nationwide deep freeze in early 'twenty three 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.
Kevin J. McNamara: The January one 2024 price increase implemented by Roto Rooter average approximately three 5%.
Kevin J. McNamara: Based upon the above full year 2024 earnings per diluted per diluted share excluding noncash expense for stock options tax benefit benefits from stock option exercises costs related to litigation and other discreet items is estimated to be in the range of $23 30.
Kevin J. McNamara: Two to $23 70.
Kevin J. McNamara: 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.
Kevin J. McNamara: <unk> 2023 adjusted earnings per diluted share was $20 30.
Kevin J. McNamara: Including $1.04 per share for cost associated with the 2023 portion of the retention program.
Kevin J. McNamara: I will now turn this call over to Nick Westfall, Chief Executive Officer of our VITAS healthcare business segments.
Nicholas M. Westfall: Thanks, Mike as previously discussed our 12 month retention and hiring bonus ended on June 32023.
Nicholas M. Westfall: This program was very effective in stabilizing and expanding our patient capacity.
Nicholas Michael Westfall: I will now turn this call over to Nick Westfall, Chief Executive Officer of our VITAS Healthcare Business Segment. Thanks, Mike. As previously discussed, our 12-month retention and hiring bonus ended on June 30, 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 capacity in the second half of 2023 without this retention program, although the fourth quarter net headcount addition was below our internal expectation.
Nicholas M. Westfall: 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.
Nicholas M. Westfall: While the fourth quarter net head Count 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.
Nicholas M. Westfall: Well its only two months into the new year to further reinforced this confidence we've seen a return to hiring and retention levels, we anticipate for 2024.
Nicholas M. Westfall: In the fourth quarter of 2023, our average daily census was 19352 patients an increase of 11% when compared to the prior year and an increase of 493 or two 6% sequentially.
Nicholas Michael Westfall: We are confident that this 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 into 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. Kevin mentioned in his opening remarks that we also achieved a milestone when we surpassed our pre-pandemic all-time ADC high during the fourth quarter of twenty-three. 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 23, total VTOL admissions were 15,000.
Nicholas M. Westfall: VITAS generated sequential ADC growth over the last five quarters.
Nicholas M. Westfall: 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 'twenty three.
Nicholas M. Westfall: I'm, particularly proud of the team for this achievement as it was accomplished faster than we originally forecasted when we began 2023.
Nicholas M. Westfall: In the fourth quarter of 2003 total VITAS admissions were 15867.
Nicholas M. Westfall: The 7% increase when compared to the fourth quarter of 'twenty two.
Nicholas M. Westfall: In the quarter, our nursing home admissions increased one 7%.
Nicholas M. Westfall: Assisted facility admissions expanded 16, 4%.
Nicholas M. Westfall: Hospital, directed admissions increased 0.5% and our home based patient admissions expanded 15, 2% when compared to the prior year period.
Nicholas M. Westfall: 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.
Nicholas Michael Westfall: 167. This is a 7% increase when compared to the fourth quarter of 2020. In the quarter, our nursing home admissions increased 1.7%, Assisted Facility Admissions expanded 16.4%, hospital-directed admissions increased 0.5 percent, 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. Additionally, our average length of stay in the quarter was 105.9 days.
Kevin J. McNamara: Yes.
Kevin J. McNamara: Our average length of stay in the quarter was 105 nine days. This compares to $103 nine days in the fourth quarter of 2002.
Kevin J. McNamara: 103, one days in the third quarter of 'twenty three.
Kevin J. McNamara: Our median length of stay was 17 days in the quarter and compares to the 16 days in the fourth quarter of 2022 and.
Kevin J. McNamara: In 17 days in the third quarter of 23.
Kevin J. McNamara: As Mike previously mentioned, our fourth quarter 23, EBITDA margin was positively impacted by a number of factors.
Kevin J. McNamara: While we were slightly disappointed with our net head count additions in the fourth quarter. The positive side effect is that there were less unproductive labor onboarding and training cost and anticipated. Additionally.
Kevin J. McNamara: Additionally, during the pandemic, we increased the amount of paid time off or PTO, our employees can carryover from year to year from 40 hours to 80 hours.
Kevin J. McNamara: 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.
Nicholas Michael Westfall: This compares to 103.9 days in the fourth quarter of 22 and 103.1 days in the third quarter of 23. Our median length of stay was 17 days in the quarter, and it compares to 16 days in the fourth quarter of 2022.
Kevin J. McNamara: In August of 'twenty, three we announced that the carryover policy was reverted back to the historical 40 hours at the end of the year.
Kevin J. McNamara: As a result, we experienced higher levels of PTO taken in the fourth quarter than normal.
Kevin J. McNamara: Additionally, the amount of forfeited PTO at the end of the year was higher than historical levels. We anticipated. We estimate that this one time PTO change added approximately 135 basis points to the fourth quarter EBITDA margin.
Nicholas Michael Westfall: As Mike previously mentioned, our fourth quarter 23 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 trading 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 our workers to better manage burnout and be able to quarantine as prescribed at that time without worrying about whether they would be paid for that time. In August 23, we announced that the carryover policy would be reverted back to the historical 40 hours at the end of the year.
Kevin J. McNamara: To recap what our team has accomplished we've now generated six quarters of sequential net growth in licensed health care workers in five quarters of sequential growth in ADC.
Kevin J. McNamara: 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 'twenty four and beyond.
Speaker Change: I want to thank our entire team as these accomplishments over the past few years.
Speaker Change: 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're 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.
Unknown Executive: 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 anticipated, and we estimate, that this one-time PTO change added approximately 135 basis points to the fourth quarter EBITDA model. 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 24 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.
Kevin J. McNamara: Thank you Nick I will now open this teleconference to questions.
Kevin J. McNamara: To ask a question you will need to press star one on your telephone.
Kevin J. McNamara: Dan here, an automated message advising your hand this race to withdraw your question. Please press star one again.
Automated Message: Please stand by while we compile the Q&A roster.
Kevin J. McNamara: Our first question comes from the line of Joanna <unk> of Bank of America. Your line is now open.
Joanna: Hi, good morning, Thanks for taking the questions first on.
Kevin J. McNamara: <unk>.
Kevin J. McNamara: But.
Joanna: The guidance the guidance calls for revenue to grow in a 9% to 10% on census, going seven again.
Joanna: So that's above I guess, the kind of long term growth outlook that you talk about in the past for the industry.
Joanna: Mid to high single digits. So I guess the two part question as you know what gives you confidence.
Kevin J. McNamara: You can call volumes high single digits again, and I guess with that you know what is the long term outlook for revenue growth I guess in the segment.
Unknown Executive: We got here together, and we are very excited for what 2024 and the future have in store for VITAS. With that, I'd like to turn the call back over to Kevin. [inaudible] 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.
Kevin J. McNamara: After 24 do you expect continuation of Eddie is there something to be said about aging demographics or.
Kevin J. McNamara: People accessing hospice early right now any dynamics that may be imply the growth. This accelerated growth is sustainable.
Joanna Sylvia Gajuk: Please stand by while we compile the Q&A run. Our first question comes from the line of Joanna Gajuk of Bank of America. Your line is now open. Hi, good morning.
Kevin J. McNamara: Yes.
Speaker Change: Maybe just to take the two parks Joanna this net short answer for 'twenty four and beyond is yes, we think the.
Nicholas Michael Westfall: Thanks for taking the question. So I guess first on VDAS, since this was the last topic, but, you know, the guidance calls for VDAS revenue to grow, you know, 9 to 10% on census going seven again. So that's about, I guess, the kind of long-term growth outlook that you have talked about in the past for the industry, to grow like to high single digits. So I guess the two part question is, you know, what gives you confidence?
Kevin J. McNamara: Volume growth rate combined with the pricing pieces is sustainable beyond 2024, the other fab.
Kevin J. McNamara: Factors that youre referencing whether it is aging demographics people.
Kevin J. McNamara: Okay.
Kevin J. McNamara: Traditionally going into the <unk>.
Kevin J. McNamara: Age range, where they access to hospice benefit that's very favorable from a tailwind standpoint.
Kevin J. McNamara: 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 and you know and I realize there's a lot of things contributing to that you could get to federal government, who are all under.
Nicholas Michael Westfall: You can grow volumes, you know, high single digits again. And I guess with that, what is the long-term outlook for revenue growth, I guess, in this segment? You know, after 24, do you expect it to continue?
Kevin J. McNamara: Or standing through things like the North 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 president Carter's continued journey on the benefit he reached his one year milestone on February 18th and.
Nicholas Michael Westfall: 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 of this accelerated growth is sustainable. Thank you. Maybe just to take the two parts, Joanna. This is Nick.
Nicholas Michael Westfall: The short answer for 24 and beyond is yes. 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 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. And I realize there are a lot of things contributing to that. But you could get the federal government's 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 President Carter's continued journey on the benefit. He reached his one-year milestone on February 18th.
Kevin J. McNamara: You know me and everybody else in the industry cant.
Kevin J. McNamara: 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 theres a lot of favorable tailwind about.
Kevin J. McNamara: For 24 and beyond around overall understanding of the hospice benefit the acceptance and the fact that it is a really sustainable and high quality program for the country and Jordan I think that.
Kevin J. McNamara: For people building, a model and referring to past them.
Kevin J. McNamara: Periods for VITAS.
Kevin J. McNamara: <unk> built in.
Kevin J. McNamara: Nick has described various various forums as a mix shift for with community access I mean, when you have too.
Kevin J. McNamara: Yeah.
Kevin J. McNamara: When you look at our average length of stay going from high 90 to 105.
Kevin J. McNamara: That's basically driven by the fact that.
Kevin J. McNamara: Sure.
Kevin J. McNamara: Fewer of our referrals are coming from hospitals, which so a very substantial as our largest source I mean don't get me wrong, but.
Kevin J. McNamara: Referrals from other sources.
Kevin J. McNamara: <unk> tend to have longer lives.
Kevin J. McNamara: And so that mix shift make some comparisons to past periods, what's rolling.
Kevin J. McNamara: 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 for 24 and beyond around overall understanding of the hospice benefit and the fact that it is a really sustainable and high-quality program. And, Joanna, I think that, you know, for people building a model and referring to past... periods for VTAS, you have to build in, you know, what Nick has described in various forums as a mixed shift with community access. I mean, when you have to...
Kevin J. McNamara: And the overall health care demographic of people.
Kevin J. McNamara: Seeking care outside more and more of a Q4 wall hospitals and facilities I think helps to contribute to that for where.
Kevin J. McNamara: We would see referrals coming to us.
Speaker Change: So I guess, if I may follow up on the comment around that.
Kevin J. McNamara: Next set into the community access strategy and increasing length of stay.
Kevin J. McNamara: How does it I guess, what's your what's your I guess strategy there when it comes to dealing with Medicare cap when it comes to these lengthening.
Speaker Change: As for some organizations.
Kevin J. McNamara: The strategy itself doesn't change as it relates to it we'll continue to manage it accordingly on a market by market basis.
Kevin J. McNamara: When you look at our average length of stay going from the high 90s to 105, that's basically driven by the fact that fewer of our referrals are coming from hospitals, which are still 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 makes some comparisons to past periods less relevant, and the overall healthcare demographic of people. Seeking care outside more and more of the acute four-wall hospitals and facilities, I think, you know, helps to contribute to that for where, you know, we would see referrals coming from. So, I guess if I may follow up on the comment around the mix into the community access strategy and increasing length of stay. How does it, I guess, what's The strategy itself doesn't change as it relates to it.
Kevin J. McNamara: And 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 thats going to continue.
Kevin J. McNamara: To be critical for us as an independent hospice provider.
Kevin J. McNamara: In every community in which we operate.
Kevin J. McNamara: And we still have we still have a pretty high level of hospital based admissions at which helped with the Medicare cap. We don't we don't anticipate any real material Medicare Medicare cap problems in it.
Kevin J. McNamara: The near term for sure let's put it this way.
Kevin J. McNamara: Our Medicare cap issues, we talked about really.
Kevin J. McNamara: Plot against the current California, and Thats not driven by high average length of stay is driven by very high reimbursement with a static.
Kevin J. McNamara: We'll continue to manage it accordingly on a market-by-market basis, and 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, I don't want to discount the importance of our hospital partners and how that's going to continue to be critical for us as an independent in every community in which we operate. We still have a pretty high level of hospital-based admissions, which helps with the Medicare cap. We don't anticipate any real material Medicare cap problems in the near term, for sure. Sure. Let's put it this way.
Kevin J. McNamara: Nationwide level of cash.
Kevin J. McNamara: GAAP measurement so.
Kevin J. McNamara: Suffice it to say, we're knocking on wood here, but in the short and mid term.
Kevin J. McNamara: Outlook.
Kevin J. McNamara: Cap.
Kevin J. McNamara: Unlikely to rear its ugly head.
Speaker Change: Okay. That's helpful color if I may.
Speaker Change: Stay on VITAS.
Speaker Change: On the margin side could you talk about them.
Speaker Change: Items that helped the margins 23% for instance, so you know kind of we talk about two months ago that Q4 guidance implies a little bit less.
Speaker Change: 'twenty two.
Speaker Change: So I guess you explained the benefits of that but I guess also your guidance calls for margins.
Kevin J. McNamara: Margins are expanding.
Kevin J. McNamara: Which is good and you know there were some comments on the last call about like VITAS margins normalizing up 19%.
Kevin J. McNamara: Our Medicare cap issues that we talk about and really plot against occur in California, and that's not driven by high average length of stay; it's driven by very high reimbursement with a static nationwide level of cap measurement. So suffice it to say, we're knocking on wood here, but in the short and midterm outlook, the cap is unlikely to rear its ugly head. Okay, that's helpful color.
Kevin J. McNamara: So I guess you still to your point you know the margin guidance 24 call for margins to be about 2019 levels, but should we still think about you know going forward.
Kevin J. McNamara: <unk> four.
Kevin J. McNamara: <unk> margin expansion towards this 19% like you said if you if you continue to grow the top line you know high single digits.
Kevin J. McNamara: Is there opportunity for four we're getting closer to 19.
Joanna Sylvia Gajuk: If I may stay on data. On the margin side, so clearly you talk about some items that help to bring margins, you know, 23% versus, you know, kind of, we talked about three months ago that Q4 guidance was less, you know, a little bit less than 22%. So, I guess, to explain the benefits of that, but I guess also your guidance calls for margins to expand, which is good. And, you know, there were some comments on the last call around, like, VDAS margins normalizing at, you know, 19%. So, I guess, you still, to your point, the margins guidance 24 calls 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 continue to grow top line, you know, high single-digit, is there an opportunity for, for, you know, getting closer to 19.
Speaker Change: Thank you.
Kevin J. McNamara: So.
Kevin J. McNamara: The short story is the guidance in the range that we provided for 17, 8% to 18, three we think is very reasonable from a bottoms up budgeting standpoint.
Kevin J. McNamara: Forecasting around how much.
Kevin J. McNamara: <unk> 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.
Kevin J. McNamara: I think the one thing you can say uniformly as a reference point up until the last call was.
Kevin J. McNamara: You know coming back to margin 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.
Kevin J. McNamara: 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 17 eight.
Nicholas Michael Westfall: So, you know, the short story is, the guidance and the range that we provided for 17.8 to 18.3, we think is very reasonable from a bottoms-up budgeting standpoint. However, forecasting around how much headwinds there is on marginal compression given pricing lagging and never catching up to the real cost of operating the business is impossible to forecast what that means over multiple years at this point. But, you know, I think the one thing you'd say uniformly is where our reference point was up until the last call.
Kevin J. McNamara: 18, 3% range for 'twenty for Joanne.
Kevin J. McNamara: 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.
Kevin J. McNamara: 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, we're able to garner through.
Kevin J. McNamara: 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 an 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 to 18.3 percent. 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, 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.
Kevin J. McNamara: The pandemic and tell a telehealth and those sorts of things. So we've offset some of those wage pressures.
Kevin J. McNamara: Other efficiencies.
Kevin J. McNamara: I think we think there is some.
Kevin J. McNamara: Opportunity for future margin expansion, but it's not going to be any big Bang kind of expansion theres going to be incremental methodical increases.
Kevin J. McNamara: Call It 25 and beyond.
Kevin J. McNamara: And everything we're going to do is focused on continued sustainability of the business not maximizing short term near near.
Kevin J. McNamara: One quarter marginal contribution.
Speaker Change: No I appreciate that thank you and thank you for those comments and I guess the similar.
Speaker Change: Similar question on that on the Ocado galore.
Speaker Change: Right so.
Speaker Change: It sounds like for 'twenty for your guidance calls.
Speaker Change: Or I guess, maybe.
Kevin J. McNamara: Maybe a little bit less than what you described in prior calls when it comes to like long term growth. So I guess yeah.
Kevin J. McNamara: Two part question what gives you confidence you can sell them.
Kevin J. McNamara: So we've offset some of those wage pressures with other efficiencies. I think there's some opportunity for future margin expansion, but it's not going to be any big bang kind of expansion. There's going to be incremental methodical increases, call it 25 and beyond. And everything we're going to do is focused on continued sustainability of the business, not maximizing short-term near, you know, one quarter margin. No, I appreciate that.
Kevin J. McNamara: Faster I guess 24 versus between CME sounds like pricing I guess as you drive it there, but then how do we think about well, let you know after that.
Kevin J. McNamara: Is it fair to assume.
Kevin J. McNamara: So that kind of focus on quality sustainable gorazde shouldnt kind of snapped back to something a little bit higher in years. After when the economy I guess season different Scott. Thank you.
Joanna Sylvia Gajuk: Thank you. Thank you for those comments. And I guess the similar question on the bottom right. So, sounds like for 24, you got it, of course, you know, for, I guess, you know, maybe a little bit less than what you described in prior calls when it comes to long-term growth. So, I guess, you know, a similar 2 part question. What gives you confidence?
Scott: Yes, I'll just make a couple of comments, but roto rooter I mean.
Speaker Change: Its tough I mean, we really.
Scott: We never had a period where.
Scott: <unk>.
Scott: The <unk>.
Scott: Telephone has stopped ringing so suddenly.
Scott: The.
Speaker Change: So we think there's reasons for that I mean, basically if you said, but what I really think the reason is a draw.
Scott: Driving it is that we had a sustained period where inflation.
Scott: Was far above wage gains for the country.
Kevin J. McNamara: You can, you know, go, you know, faster, I guess, 24 versus 23. I mean, sounds like pricing, I guess, is the driver there. But then how do we think about growth, you know, after that? Is it fair to assume 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. I just made a couple of comments about Roto-Rooter. I mean, it's tough.
Scott: Sure.
Scott: That environment has shifted and it takes some time to recover from that but that's that's macroeconomics.
Scott: Small company in Cincinnati.
Scott: So that for the economist at the University of Chicago.
Scott: Sure.
Scott: Flesh out.
Scott: What we.
Scott: Our belief is that it.
Scott: 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.
Scott: Contractors are that the good news is I think this is going to give us an opportunity to buy some franchises Spanish weather because that's the time when they become available. So that's the silver lining now with regard to with regard to.
Kevin J. McNamara: I mean, we've really never had a period where the telephone has stopped ringing so suddenly. And we think there are reasons for that. I mean, basically, if you asked me what the real reason is driving it, I would say that we had a sustained period where inflation was far above wage gains in the country. And, you know, the environment has shifted. It's going to take some time to recover from that, but that's macroeconomics. All company in Cincinnati.
Scott: We'll have to the future.
Scott: I think that when all the dust continues to settle I'm Google marketing.
Scott: Which as you know.
Scott: Which is a problem now because.
Scott: Tough sales environment, where we're spending a lot more on Google marketing.
Scott: Year ago, but when the dust settles, we have such a competitive advantage and that is.
Kevin J. McNamara: I mean, we, So that's for the economists at the University of Chicago that are, you know, looking after the future. Well, I think that when all the dust continues to settle on Google marketing, 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. 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, and water restoration, each call is more valuable to us. And 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 going to have a huge comparative advantage.
Scott: Each call for.
Scott: Service in this industry, because we have a broad service line that is plumbing drain cleaning excavation and water restoration each call is more valuable to us and we will be able to.
Scott: <unk> had to pay more for those leads.
Scott: And.
Scott: I guess when the dust settles and there is a proper price setting mechanism for that.
Scott: We're going to have a huge competitive advantage. So now we feel very good when you. When you talk about sort of I mean, our relative position is very good in the industry as it improves now the question of.
Scott: Uh huh.
Scott: How high is up for the industry you got to remember that we provide services too.
Kevin J. McNamara: So we feel very good when you talk about, I mean, our role and position is very good in the industry as it improves. How high is it for the industry? You got to remember that we provide services to, you know, houses and apartments and small businesses generally. So the question is, what are the formation rates for those three sectors? They're not 10%. They're less than that.
Scott: Houses and apartments and small businesses generally so the question is whats.
Scott: What are the formation rates for those three sectors.
Scott: They're not 10% or less than that so we have a.
Scott: We'll be providing services to a fairly stable patient.
Scott: Patient us fairly.
Scott: A solid customer base.
Kevin J. McNamara: So, you know, we have a fairly stable patient population, a fairly solid customer base, and we'll just be hoping to take market share with the continued aging of the blue-collar workforce. Steady as she goes on Roto-Root, but very, you know, very, continues to be a very solid business. You know, the first quarter of last year was through the roof, largely caused by very unusual weather. 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, and So we've mentioned it a lot just to warn everybody that it's going to be a tough comparison, certainly through December and January, but as we get through the rest of the year, it's a much easier comparison.
Scott: And we'll just be hoping to take market share with the continued aging of the blue collar workforce. So.
Scott: Steady as she goes had rotary.
Speaker Change: Very <unk>.
Speaker Change: Very continues to be a very solid business.
Scott: The first quarter of last year was.
Scott: It was through the roof.
Scott: Largely caused.
Scott: Caused by very unusual we don't like to talk about weather issues, but.
Scott: January of last year December December January of last year were just very unusual weather events and.
Scott: So.
Scott: You've mentioned it a lot just to warn everybody that it's going to be.
Scott: A tough comparison.
Scott: Certainly through December and January but as we as we get through the rest of the year, it's much easier comparison.
Kevin J. McNamara: Joanna, I think, from a 2024 perspective, 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 of a little, you know, demand volume improvement in the second quarter, a little more in the third, a little more in the fourth, and economic indicators and economic performance towards the end of the year.
Scott: And I think from a 2024 perspective, we.
Scott: 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 demand volume improvement in the second quarter, a little more than a third a little more.
Scott: In the fourth.
Scott: We have definitely assumed some improving.
Scott: Economic indicators in economic performance towards the end of the year and then as far as 25 and beyond I would think somewhere in that 4% to 6% revenue range is probably.
Unknown Executive: And then as far as 25 and beyond, I would think, you know, somewhere in that four to six percent revenue range is probably a fairly sustainable path when you think about price increases and, as Kevin mentioned, some demand improvement given our positioning in the industry and our positioning with Google advertising and those sorts of things. And the very last question, just to tie all these things out when it comes to the margin outlook for that segment, for the voter. So the guidance implies some improvement over year 24, because I guess you assume, you know, the top line is growing. So how should we think about margins going forward in the voter? If you grow, like you said, four to six percent, you know, is this enough to kind of drive margins higher over time? Thank you.
Scott: Fairly sustainable.
Scott: Pat when you think about price increases and then.
Scott: As Kevin mentioned.
Scott: Some demand improvement given our positioning in the industry.
Scott: Our positioning with Google advertising and those sorts of things.
Interviewer: And very last question Tayo.
Tayo: Tie all these things out when it comes to the margin outlook for that segment for the murder. So the guidance implies some.
Tayo: Some improvement year over year, and 24, because I guess you assume top line is growing so how should we think about margins going forward in the part of or if you grow like you said, 4% to 6%.
Tayo: Is that enough to kind of drive margins higher over time. Thank you.
Unknown Executive: I think it will drive margins higher, but again, there's not going to be any big bang jump, you know, 200 or 300 basis points are going to be methodically improving as we obtain leverage on that top line growth. Google Marketing. I mean, we're spending, you know, a million dollars a month, you know, more on that.
Speaker Change: I think it will drive margins higher, but again theres not going to be any big Bang Jim.
Speaker Change: 200, or 300 basis points are going to be methodically improving as we.
Speaker Change: Obtain leverage on that top line growth.
Speaker Change: Keybanc.
Speaker Change: The.
Speaker Change: Google marketing I mean, we're spending.
Speaker Change: $1 million a month.
Speaker Change: More on that.
Kevin J. McNamara: You know, I say when we say the dust settles on that, there is a little bit of a jolt to margin. And, you know, the kind of the singles and doubles that Mike is talking about as far as the improvements go, first have to overcome that jolt. Thank you so much for the questions.
Speaker Change: When we say the dust settle on that.
Speaker Change: It does in the short term Joel.
Speaker Change: We think it is all accretive but it's.
Speaker Change: On a comparative basis is a little bit of a joke for margin.
Speaker Change: Is that kind of singles and doubles that Mike is talking about as far as the improvements that's first half to overcome that Joel sure.
Speaker Change: Thank you so much for the questions.
Unknown Executive: 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. Hi, this is Michael Murray on behalf of Ben.
Speaker Change: One moment please for our next question.
Speaker Change: Our next question comes from the line of Ben Hendrix of RBC capital markets. Your line is now open.
Speaker Change: Hi, This is Michael Murray on for Ben.
Michael D. Witzeman: 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. And what do you expect for commercial demand in 2024? And what are your expectations for residential growth as well? Well, let me just start by saying our commercial sales in Roto-Rooter in the fourth quarter were below our expectations. I mean, there were a couple of factors that we think are, you know. A couple of big commercial customers that we thought had an effect on it. But even generally, it's not where we want it to be. It's an area of renewed focus and emphasis. Red Rooter, and
Michael Murray: Just double clicking on Roto rooter.
Michael Murray: Saw a pretty sizable deceleration in commercial growth and for Q1.
Michael Murray: Wanted to see if you could expand on that and what do you expect for commercial demand.
Michael Murray: In 2024 and.
Speaker Change: What's your expectations for residential growth as well.
Speaker Change: Well, let me just start by segment.
Speaker Change: Commercial sales in the fourth quarter were below our expectations.
Speaker Change: And there are a couple of factors that we think of.
Speaker Change: A couple of big commercial customers that we thought had a effect on it but the EBIT generally it's not where we want it to be.
Speaker Change: Area of renewed focus and emphasis.
Speaker Change: Roto Rooter and.
Unknown Executive: Again, we think that there's no reason it won't mirror a lot of our experience on the residential side. But it didn't do so in the fourth quarter. And the 3.5% to 4% growth that we're projecting for 24 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 it. Huge increase in commercial and a decline in residential, I think. But it's fairly stable across both business segments. Okay, and just a follow-up question: what gives you confidence that what you saw in 4Q Commercial won't continue into 2024? Well, the thing that gives me confidence is I see and know the increased emphasis that Roadrunner is putting on each of its branch managers.
Speaker Change: Again.
Speaker Change: There's no reason it won't mirror.
Speaker Change: A lot of our experience on the residential side, but it didn't in the fourth quarter.
Speaker Change: In the three 5% to 4% growth that we're projecting for 24 comes fairly.
Speaker Change: Evenly across both segments and across each.
Speaker Change: Service offering within those segments.
Speaker Change: So there's a little bit of variation, but we don't see.
Speaker Change: Huge increase in commercial and.
Speaker Change: And a decline in residential rate, it's fairly stable across both business segments.
Speaker Change: Okay, and just a follow up.
Speaker Change: Your confidence that what you saw in four key commercial loan continuing into <unk>.
Speaker Change: Well.
Speaker Change: The confidence is I see and know the increased emphasis that.
Speaker Change: Roto Rooter is making with each of its branch managers.
Unknown Executive: So the content I have gathered over the years is just saying that that type of emphasis and effort usually literally yields results. We've seen this before, maybe not quite to this magnitude, but there are from time to time local area managers at some of these big retailers, for instance, that get the idea that they can manage 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.
Speaker Change: So the content they have over the years and you're seeing that that type of emphasis and effort usually at lower.
Speaker Change: Yields results.
Speaker Change: 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.
Speaker Change: You get the idea that they can manage.
Speaker Change: Theyre plumbing means on a mom and pop basis on a store by store basis, and they quickly figure out that.
Speaker Change: That's not very manageable and they come back to us not saying that.
Unknown Executive: And they come back to us. Not saying that's necessarily the 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.
Speaker Change: <unk> 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.
Speaker Change: Our customers figuring out that managing it on a store by store basis is not very easy.
Unknown Executive: And then they come back to us. So, there's no guarantee in this instance, but we think that there's probably a potential for that as well. Okay, that's really helpful. 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.
Speaker Change: Easy and then they come back to us so.
Speaker Change: There's no guarantee in this instance, where we think that theres, probably a potential for that as well.
Speaker Change: Okay, that's really helpful.
Speaker Change: Switching to VITAS youre, continuing to see solid ADC growth and yet.
Speaker Change: Youre expecting that to continue.
Speaker Change: Well some of your peers have.
Nicholas Michael Westfall: Had software 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? So, you know, the thing we've been pretty consistent about 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 tactful things and all, put it under the overall umbrella from a cultural standpoint, that really had a compounding effect around improvement in retention at each local level. Each one of our programs.
Speaker Change: <unk> had.
Speaker Change: <unk> software ADC growth coming out of this pandemic.
Speaker Change: Obviously, you had your retention program, but is there anything else in your competitive strategy strategy that may explain some of your outperformance compared to peers.
Speaker Change: Yeah. So.
Speaker Change: The thing we've been pretty rather consistent on probably over the last year and a half was of course, the recruiting and retention programs served as a catalyst that catalyst, though had a lot of other tactful things and I'll.
Speaker Change: Put it under the overall umbrella from a cultural standpoint, they really had a compounding effect around improvement of retention at each local.
Speaker Change: Each one 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 and when we have that on a market by market basis.
Nicholas Michael Westfall: 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. And 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 it 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 new relationships So that's what we, you know, that combination.
Speaker Change: Paired against some of our competitors, who would either not respond with the same degree.
Speaker Change: Degree of commitment to those referral sources or not be able to provide a full complement of services that they expected before the pandemic started I think is really.
Speaker Change: 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 new relationships with certain accounts that may not have taken our call, but the circumstances have helped to reinforce that so that's already that that combination.
Nicholas Michael Westfall: We feel very confident in it, as well as it helps provide confidence in our 24 guidance and beyond. So, not to oversimplify it, but focusing on recruiting and retention, as well as continuing to lean into all of our educational approaches out in the market, is proving to be a very effective tool. And there's a bit of a waterfall effect, right?
Speaker Change: We feel very confident in as well as it helps provide confidence in our 2004 guidance and beyond so not to oversimplify, it, but focusing on recruiting and retention as well as continuing to lean into all of our educational approach is out in the market are proving to be a very effective strategy.
Speaker Change: For us and there's a bit of a waterfall effect right. So if we have.
Nicholas Michael Westfall: 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.
Speaker Change: If we feel like in a program we are fully staffed from an admission nurses 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 sort of a waterfall not just with you know.
Speaker Change: Nurses, providing the care, but it starts at the admission nurse level to begin with.
Unknown Executive: 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 continues to be a share to be gained. And the only impediment would be staffing, which we feel very comfortable about continuing to methodically build. Really helpful. Just the last one for me. Do you have any comments regarding the cadence of earnings throughout the year? Anything that we should keep in mind?
Speaker Change: And while we don't report them publicly we continue to see very strong strength and referral growth.
Speaker Change: And that gives us great confidence that there's continues to be sure to be gained.
Speaker Change: The only impediment would be staffing, which we feel very comfortable about continuing to methodically build.
Speaker Change: Okay, that's really helpful.
Speaker Change: Last one for me do you have any comments regarding the cadence of earnings throughout the year.
Speaker Change: That we should keep in mind and do you expect VITAS margins to ramp through the year like you saw this year.
Unknown Executive: And do you expect VITAS margin to ramp through the year like you saw this? 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 falls to the bottom line in the fourth quarter because we haven't seen the inflation that goes along with that. So we definitely think VITAS, particularly in the fourth quarter, is going to ramp. There's definitely a ramping up as well. At Roto-Rooter, as we talked a little bit before, we think demand, hopefully, in our opinion, is going to 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.
Speaker Change: Yes, I think VITAS margin will will it always spikes in the fourth quarter, because we get our reimbursement rate on October one.
Speaker Change: Essentially that increase that falls to the bottom line in the fourth quarter, because we haven't.
Speaker Change: The inflation that goes along with that.
Speaker Change: So we definitely think VITAS, particularly the fourth quarter is going to ramp there is definitely a ramping as well.
Speaker Change: At Roto Rooter, as we talked a little bit before is sequentially, we think demand.
Speaker Change: Hopefully not.
Speaker Change: And it's going to increase and improve as the year goes on so there's a little bit of of ramping.
Speaker Change: At Roto Rooter, but thats, a little more stable VITAS certainly the fourth quarter will be the best quarter in <unk>.
Unknown Executive: VITAS, certainly, the fourth quarter will be the best quarter. Yeah. And from a modeling standpoint, if you go back at the last full year that was uninterrupted by the pandemic, which will be 2019, that type of sequential building is probably the easiest one to look at on a quarter-by-quarter basis because there are 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.
Speaker Change: From a modeling standpoint, if you go back at the last full year that was uninterrupted by the pandemic, which will 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.
Speaker Change: At the end of the second quarter, We award and distribute our entire merit increase to our workforce things like that.
Unknown Executive: 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... very predictable things that we have built into our earnings equation throughout the year. All right, thank you. Thank you. I do not see any other questions from the queue at this point.
Speaker Change: Our already forecasted in all of our modeling for the entire course of the year, but between that and the fourth quarter pricing are.
Speaker Change: Very predictable things that we have built into our earnings equation throughout the calendar year.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: See any other questions from the queue at this point I would now like to turn the conference back to Kevin <unk>, President and CEO, Kevin Mcnamara for closing remarks.
Kevin J. McNamara: I would now like to turn the conference back to ChemEd President and CEO Kevin McNamara for closing remarks. I want to thank everybody for their kind attention. We thought we had a good, solid quarter.
Kevin J. McNamara: So I just want to thank.
Kevin J. McNamara: Thank everybody for their kind attention.
Kevin J. McNamara: Although we had a good solid quarter.
Unknown Executive: [inaudible] solid blueprint for this year. I think it's, obviously, we think it's achievable and more information for you in about three months from this date. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Thanks for watching!
Kevin J. McNamara: I think our guidance represents a.
Kevin Mcnamara: Solid blueprint for this year I think it's.
Kevin Mcnamara: Obviously, we think it's achievable and.
Kevin Mcnamara: I guess one of them.
Kevin Mcnamara: More information for you in about three months. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].