Q3 2024 Chemed Corp Earnings Call
Good day and thank you for standing by welcome to the Kim Ed Corporation 3rd quarter 2024 earnings conference call. At this time all participants are in listen only mode.
After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1-1 on your telephone, you will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Holley Schmidt, Kim Ed, assistant controller, please go ahead.
Holley Schmidt: Good morning, our conference call this morning will review the financial results for the third quarter of 2024 and it's September 30th, 2024.
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.
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.
Speaker Change: 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 October 25th and in various other filings with the SEC.
Speaker Change: 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.
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.
Speaker Change: A reconciliation of these non-GAAP results is provided in the company's press release dated September 29th, which is available on the company's website at ChemEd.com.
Speaker Change: I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of ChemEd Corporation.
Speaker Change: Mike Witzeman, Chief Financial Officer of ChemEd, and Nick Westfall, Chairman and Chief Executive Officer of ChemEd's VITAS Healthcare Corporation subsidiaries.
Speaker Change: I will now turn the call over to Kevin McNamara.
Kevin Mcnamara: Thank you, Holley. Good morning. Welcome to ChemEd Corporation's third quarter 2024 conference call. I will begin with the highlights for the quarter, then Mike and Nick will follow up with additional details. I will then open the call for questions.
Kevin Mcnamara: We continue to be pleased with the exceptional operating metrics in VITAS. In the third quarter of 2024, admissions totaled 16,775, which equates to a 6.3% improvement from the same period of 2023.
Kevin Mcnamara: Our average daily census, or ABC, expanded 2,926, an increase of 15.5% when compared to the prior year quarter.
Kevin Mcnamara: These historically good metrics were positively impacted by the $85 million acquisition of Covenant Health, which was closed on April 17, 2024.
Kevin Mcnamara: To the end of the third quarter, Covenant Health Acquisition is meeting all of our internal financial projections developed at the time of the acquisition. Nick will provide further commentary on the Covenant integration.
Kevin Mcnamara: Hurricane Helene, which impacted the Panhandle of Florida and other parts of southeastern United States in late September, did not result in any significant property loss or damage to VITAS.
Kevin Mcnamara: However, as with other similar events, we did experience a slowdown in admission activity while our healthcare partners prepared for the hurricane then dealt with the aftermath.
Kevin Mcnamara: We estimate that admissions were negatively impacted during the quarter by approximately 60 to 100 patients. We also believe that the Florida admission impact will be more significant in the fourth quarter with a combination of Hurricanes Helene and Milton.
Kevin Mcnamara: Finally, we're excited that, early in the fourth quarter of 2024, our new program in Pasco County, Florida, accepted its first patient. We believe this program offers an exciting growth path for Florida in 2025 and beyond. Now let's turn to Rotary.
Kevin Mcnamara: and Kevin McNamara.
Kevin Mcnamara: We continue to be disappointed in Roto-Rooter's results. Roto-Rooter generated quarterly revenue of $214.8 million in the third quarter of 2024, a decrease of 6.9% when compared to the prior year quarter.
Kevin Mcnamara: Overall, our call volume was down 11.7% when compared to the prior year quarter. Close rates at the call center at the time of dispatch and when our technician reaches the customer location remain consistently strong compared to historical levels.
Kevin Mcnamara: Residential revenue at Roto-Rooter declined 6.3% and commercial revenue declined 5.9%.
Kevin Mcnamara: Our residential beer business experienced a very choppy quarter. We continue to believe that there is lower demand across the entire industry, resulting in high levels of competition for both internet marketing position and related job leads.
Kevin Mcnamara: Residential demand and the resulting revenue varied significantly on a month-to-month basis during the quarter. In early July, we replaced our Search Engine Marketing Firm, or SEM.
Kevin Mcnamara: responsible for managing our paid search marketing program. There was both a transition time and ramp-up cost that we believe led to some of the disruption during the quarter.
Kevin Mcnamara: Thank you very much.
Kevin Mcnamara: Finally, we don't like to talk about weather as a general rule. Weather patterns tend to normalize over time and therefore do not have a significant impact on the business over an extended period of time. However, in the summer of 2024, there were parts of the Midwest and Northeast regions that were abnormally dry. This includes the location of some of our largest branches.
Kevin Mcnamara: We believe this contributed to an overall residential softness of the corridor.
Kevin Mcnamara: Turning to the commercial business, we did experience some sequential improvement in our commercial revenue. Our third quarter, 2024, commercial revenue was a 5% improvement over the second quarter of 2024.
Kevin Mcnamara: Historically, there is little to no sequential growth in revenue between the second and third quarters of a given year. This trend gives us some optimism that our action plans implemented earlier in the year are starting to show positive results.
Kevin Mcnamara: To summarize
Kevin Mcnamara: We are excited about the continued strong results of VITAS.
Kevin Mcnamara: VITAS management has consistently demonstrated the ability to accelerate hiring and retention of licensed healthcare professionals.
Kevin Mcnamara: This is translated into continued strong admission and census growth.
Kevin Mcnamara: We are very bullish on the prospect for VITAS for the remainder of 2024 and beyond.
Kevin Mcnamara: We believe Roto-Rooter is still well positioned, despite the difficult operating conditions that it faces. Roto-Rooter maintains its core competitive advantages in terms of excellent brand awareness, customer response time, 24-7 call centers, and aggressive internet presence.
Speaker Change: With that, I would like to turn the conference over to Mike.
Speaker Change: and Kevin McNamara.
Mike Witzeman: Thank you, Kevin.
Speaker Change: VITAS net revenue was $391.4 million in the third quarter of 2024, which is an increase of 17.3% when compared to the prior year period.
Mike Witzeman: This revenue increase is comprised primarily
Mike Witzeman: of a 15.5% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%.
Mike Witzeman: The ACUITY mixed shift negatively impacted revenue growth 144 basis points in the quarter when compared to the prior year revenue and level of care mix.
Mike Witzeman: The combination of Medicare cap and other contra revenue changes increased revenue growth by approximately 64 basis points
Mike Witzeman: Average revenue per patient day in the third quarter of 2024 was $199.16, which is 139 basis points above the prior year period.
Mike Witzeman: Reimbursement for routine home care and high-acuity care averaged $175.82 and $1,094.97, respectively.
Mike Witzeman: During the quarter, high-acuity days of care were 2.5 percent of total days of care, a decline of 26 basis points when compared to the prior year quarter.
Mike Witzeman: Adjusted EBITDA excluding Medicare cap totaled $73.1 million in the quarter, an increase of 33.1%.
Mike Witzeman: Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 18.6%, which is 212 basis points above the prior year period.
Mike Witzeman: The financial results just discussed include the impact of the Covenant health acquisition.
Mike Witzeman: Covenant Health contributed $10 million to $11 million of revenue in the third quarter of 2024.
Mike Witzeman: This revenue translated to net income of approximately $1.8 million to $2 million.
Mike Witzeman: Adjusted EBITDA in the quarter attributed to Covenant Health is between $2.4 million and $2.6 million.
Mike Witzeman: Now let's turn to Roto-Rooter.
Mike Witzeman: Roto-Rooter Branch residential revenue in the quarter totaled $146 million, a decrease of 6.3% from the prior period.
Mike Witzeman: Based on Roto-Rooter's disappointing revenue results over the past few quarters, a decision was made to look for a new marketing agency to provide a fresh look at how Roto-Rooter's paid search program is operating.
Mike Witzeman: That process culminated in Roto-Rooters transitioning to a new SEM in early July.
Mike Witzeman: The ramp-up time required by the new provider caused some of the softness in demand and residential revenue experienced in the third quarter.
Mike Witzeman: Roto-Rooter Management believes that the new provider will provide more positive results on a go-forward basis.
Mike Witzeman: Thank you.
Speaker Change: Roto-Rooter branch commercial revenue in the quarter totaled $53.5 million, a decrease of 5.9% from the prior year.
Speaker Change: The commercial revenue results in the third quarter were within the range of our expectations as given in our revised 2024 guidance from July.
Speaker Change: This represents a 5% sequential improvement over the second quarter of 2024.
Speaker Change: Roadrunner Management has put a tremendous amount of effort into improving the commercial revenue trends, including hiring more salespeople, contacting new and existing customers through a variety of channels, and implementing targeted initiatives specific to struggling branches.
Speaker Change: Adjusted EBITDA at Roto-Rooter in the third quarter of 2024 totaled $56.4 million, a decrease of 15.8% compared to the prior year quarter.
Speaker Change: The adjusted EBITDA margin in the quarter was 26.3%.
Speaker Change: The third quarter adjusted EBITDA margin represents a 275 basis point decline from the third quarter of 2023.
Speaker Change: Of this decline, approximately 95 basis points relates to the ramp-up of the new SEM, as previously discussed.
Speaker Change: Additionally, Roto-Rooter invested more in different non-Google advertising channels, such as billboards and radio spots. This represents approximately 40 basis points of the margin decline.
Speaker Change: Based solely on Roto-Rooter's continued softness, we have reduced our 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 estimate to be in the range of $23 to $23.15.
Speaker Change: This range represents a 13.3% to 14% increase from ChemIT's 2023 reported adjusted earnings per diluted share of $20.30.
Speaker Change: This guidance assumes an effective corporate tax rate on adjusted earnings of 24.3% and a diluted share count of 15.2 million shares.
Speaker Change: ChemEd's previously issued 2024 guidance range was $23.55 to $23.80.
Speaker Change: I will now turn this call over to Nick.
Nick Westfall: Thanks Mike
Nick Westfall: I continue to be very pleased with our demonstrated sustainable expansion of our workforce and patient capacity.
Nick Westfall: The third quarter of 24 marked our ninth consecutive quarter of expanding our clinical workforce capacity in disciplines identified as part of the retention program.
Nick Westfall: The expansion of headcount during the quarter was in line with our expectations and similar to the headcount expansion as we discussed in prior quarters.
Nick Westfall: We believe that this predictable level of headcount expansion is, for the foreseeable future, VITAS's new operating normal to continue to meet elevated demand for our services across the country.
Nick Westfall: VITAS has generated quarterly sequential ADC growth over the last eight quarters.
Speaker Change: In the third quarter of 2024, total VTOS emissions were 16,775. This is a 6.3% increase when compared to the third quarter of 2023.
Speaker Change: In the quarter, admissions increased in three of the top four pre-admit location types.
Speaker Change: Our nursing home admissions increased 8.2 percent, hospital-directed admissions increased 9.4 percent, and our home-based patient admissions expanded 10.3 percent when compared to the prior year period.
Speaker Change: Admissions for assisted living facilities slightly declined by 0.2%.
Speaker Change: Our average length of stay in the quarter was 102 days. This compares to 103.1 days in the third quarter of 2023.
Speaker Change: Our median like to stay with 18 days in the quarter and compares to 17 days in the third quarter of 2023.
Speaker Change: Our teams have now completed all aspects of integrating the operations of Covenant.
Speaker Change: The integration went smoothly, both from an operational and cultural perspective.
Speaker Change: I'd like to thank our collective VITAS team members, including those that transitioned over from Covenant, for this successful integration.
Speaker Change: It would not have been accomplished without the unwavering commitment, dedication, and focus each team member showed towards fulfilling our mission in every community served across the Florida Panhandle and Alabama.
Speaker Change: Thank you.
Speaker Change: As Kevin mentioned, we are very excited about the opportunity to provide service in Pasco County, Florida. We admitted our first patient in October.
Speaker Change: We believe our entry into Pasco County is a win-win for both the people we will serve in Pasco and for the future growth potential of VITAS.
Speaker Change: As Kevin also mentioned previously,
Speaker Change: Florida and our southeastern locations experienced two significant hurricanes in late September and early October with Helene and Milton.
Speaker Change: While we did experience a temporary slowdown in referral volume, I'm proud to say our collective team enacted our emergency response protocols and successfully supported one another, while providing exceptional care to our patients and the impacted communities.
Speaker Change: In certain instances, we assisted in caring for patients who were displaced from evacuation areas from our competitor hospices to ensure these patients and their families receive the care and attention they deserve.
Speaker Change: Our locations and teams were available throughout the storms and immediately back out in their communities once it became safe to do so.
Speaker Change: Over my career at VITAS, these natural disasters, while unfortunate, have been unifying events for our team with inspiring stories of heroics, compassion, and companionship, which invoke a great degree of pride for what we do each day.
Speaker Change: To quickly recap what our team has accomplished, we've now generated nine quarters of sequential net growth in licensed healthcare workers and eight quarters of sequential growth in ADC.
Speaker Change: We have also demonstrated the ability and interest in partnering with other providers through acquisitions to ensure communities continue to receive the best possible patient care.
Speaker Change: We are extremely optimistic about the ability of VITAS to maintain an above-average historical growth, both organically and through potential acquisitions, over the next few years.
Speaker Change: With that, I'd like to turn this call back over to Kevin.
Kevin: Thank you.
Kevin: Thank you, Nick. I will now open this teleconference to questions.
Kevin: Thank you.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster
Speaker Change: Kevin Fischbeck, Kevin McNamara, David Williams, Nicholas Westfall, Michael Murray,
Speaker Change: The first question comes from Ben Hendricks with RBC Capital Markets. Ben, your line is now open.
Ben Hendricks: Thank you very much. Maybe a first question here for Nick. Clearly you guys are seeing really good traction with the community access strategy with that strong census growth you referenced and the margin contribution from that.
Ben Hendricks: Perhaps there could be a little bit of, you know, pressing some cap limits in some areas. We're still seeing, you know, a lot of good occupancy minimum among kind of referral settings. Could you maybe talk about all that in terms of your long-term growth expectations for Census, how we think about it, and if there's any kind of regional considerations we need to think about going forward? Thanks.
Speaker Change: Yes, sounds good.
Speaker Change: So let me, I'll start at the end of the question. In terms of regional considerations, I don't think there necessarily is any that are new. You know, of course, certain markets, particularly California, have their own...
Speaker Change: you know, expected operating level given the dynamic of how Medicare cap is, you know.
Speaker Change: is calculated out in that market. As it relates to community access, we continue to see strong, as you alluded to, strong occupancy levels and strong demand across every market throughout the country. And while, you know, we'll continue to execute on our
Speaker Change: Community access strategy. I just have to reaffirm that throughout that entire time period where we've talked about it in no way shape or form. Have we, you know,
Speaker Change: de-emphasized our commitment to our hospital partners and others. And so that continuity, as you can see through, you know, the third quarter performance of
Speaker Change: the hospital segment, admins being up almost 10 percent, I would continue to expect and anticipate, and that's for two reasons, right? One is that's who we are, that's how we operate, and it's what the community needs. And then secondarily, as you point out, both short, mid, and long term, it continues to be part of our, you know, effective strategy of operating a hospice company and ensuring we're, you know, managing Medicare cap.
Speaker Change: and others.
Speaker Change: Ben, as I know you're aware, we ended the Medicare cap year because when this quarter completed and started a new one as we lifted it up, and as you can see in the results, our Medicare cap forecast came right in line, actually, with where the Medicare cap year ended, and we anticipate that being the same case for 2025 and beyond.
Speaker Change: We'll speak about long term
Speaker Change: growth trajectories when we come out with 25 guidance, but we feel good that they'll continue to be above, you know, pre-pandemic historical growth levels from a volume standpoint. You know, that range was four to six. It will be above four to six, but where it exactly lands, you know, we'll fine-tune as we get into our guidance for 25.
Speaker Change: Really appreciate that. Thank you, Nick. And then just maybe switch over to Roto-Rooter real quick.
Speaker Change: With this new marketing initiative and the marketing investments you have kind of on the residential side, can you talk about, and also commercial too, I guess, can you talk about just any kind of hurdle rates or benchmarks or any kind of milestones that are set to achieve in the near term underneath this new marketing strategy, or are there any kind of...
Speaker Change: any measures of improvement you're looking for kind of in the near term from that marketing. Thanks.
Speaker Change: Thank you very much.
Speaker Change: Well, Ben, let me start it before I turn it over to Mike, but just say it's a tough one. We don't expect any big breakthroughs. I'll tell you that the shortfall in rotor-rotor
Speaker Change: You know this quarter, you know, if you ask me from my perspective in big picture, it was it was two things It was kind of the ramp up cost
Speaker Change: and marketing expenditures in July, the first month of the quarter, and it was the, you know, kind of the poor performance of the residential.
Speaker Change: It's 4% worse than we thought, just in one quarter. Not tied to anything, just in demand, if you just say the number of telephone calls we're getting were fewer than expected.
Speaker Change: You know, we're just blocking and tackling on a market-by-market basis, you know, approaching that. I think that the short, in the short term, the improvement...
Speaker Change: You know that we're going to see to the extent we see it is going to be on the commercial side because that's what that's An area that is you know we're putting a lot of effort in and it can have two things they're going to have Some short-term positive impact because you tend to get let's say it's a big apartment complex. You might get
Speaker Change: 25 jobs over the course of a month and a half and as opposed to one every you know 14 months on the residential side, so
Speaker Change: It's a tough one, but really the answer to your question, not to shrink from it, is that we don't expect any big breakthrough. We just think that...
Speaker Change: as the internet became the preeminent, you know,
Speaker Change: became very dominant on that.
Speaker Change: Spectrum, and
Speaker Change: to the extent that we'll bore you with this call, the changes made on the marketing side,
Speaker Change: the nature of paid search, whether it's just normal or the
Speaker Change: you know some of the other facets that Google has added it's it's something that it's a process of going through but I have no doubt that we're positioned that be dominant
Speaker Change: We're still dominant, but we're more dominant in the near future. But I guess what I'm really saying is it's a process.
Speaker Change: It's not a blip. When something's happened for three and a half, four quarters in a row, you can't describe it as a blip.
Speaker Change: And, you know, it's cut.
Speaker Change: Full fire, full attention
Speaker Change: Mike, anything else to add there? Yeah, Ben, I think, I mean, to be direct, I think we will believe, and it doesn't boil down, as Kevin is saying, it doesn't boil down to one specific metric or one specific thing, but if there was one thing that we will...
Speaker Change: judge the marketing program successful by its call count. As we talked about, it was down 11.7% year over year, and that's a tough...
Speaker Change: metric to overcome for a revenue perspective. As Kevin also said, you know, we're doing a lot of other things and I think we're doing them well at Roto-Rooter. Our conversion rates are good, in fact, historically good, so we're we're doing a lot with what we get.
Speaker Change: But until that call count number starts to grow, or at least, you know, not decline significantly, the residential business is going to struggle.
Speaker Change: I guess next question?
Speaker Change: Please stand by for the next question.
Speaker Change: The next question comes from Gianna Gaggia from Bank of America. Your line is now open.
Gianna Gaggia: Hi, thank you. Thanks so much for taking the questions. So I guess maybe first, Angora, in terms of that last comment around a change in a new vendor to manage the online searches, so what exactly can they do differently versus the prior vendor? So I understand, yeah, the goal is to obviously increase the call volume coming through and then, you know.
Gianna Gaggia: convert those products. The problem was really the Google algorithms were preferring the local providers, but what would I guess this new vendor can do differently?
Speaker Change: I'll be the first to say that no one in this room is an internet marketing expert, so we'll start there. But when we talk to Roto-Rooter management, they talk, there's more dependence, for instance, between
Speaker Change: paid and non-paid and how Google algorithm puts that all into one bucket, and I think the new marketing agency is going to be experimenting on how that interdependency works
Speaker Change: And is there a way, for instance, if we increase our paid advertising, does that also move us up or down on the nonpaid? And I think it's just they have new ideas that our old agency didn't have.
Speaker Change: And I think at the end of the day, I think to some degree, we view it as, you know, call it every three to five years, it's good to go out.
Speaker Change: get a new agency with new ideas, different strategies, and see if they can drive something that maybe the old agency has overlooked. Let me put it very simply. A former agency
Speaker Change: assigned three full-time people to our account.
Speaker Change: all the different cities and you just have to say it's a bidding and you bid for position and it's bidding is constantly evolving depending on time of day, day of the week.
Speaker Change: whether it's raining or not. And I mean, again, it's the better mousetrap is able to capture.
Speaker Change: prime physician at a reasonable cost more often than not, and to the extent that we think that we're doing a better job of that. There's no doubt in our mind that we're doing a better job of that, but as the overall conditions are tough, that is the, you know...
Speaker Change: You've supplied the information that shows that just
Speaker Change: you know.
Speaker Change: It's a battle, but we have more people, you know, fighting over the few that are there. And again, I think that over time, Rudra has demonstrated they have the staying power.
Speaker Change: the commitment to throwing more and have the ability to throw more resources at it and ultimately
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: There's no doubt, I mean put it this way, I mentioned this, I don't want it, we don't, some information that we've looked in much closer, Roto-Rooter has a dominant position in every market.
Speaker Change: where we have a branch. Everyone.
Speaker Change: And it's just a question of
Speaker Change: We hope.
Speaker Change: returning to, you know, a higher level of dominance. And, you know, again, when you're talking about whether you have a...
Speaker Change: I mean, that's the area that we're talking about here. And I have confidence we'll be able to do that.
Speaker Change: Okay, thank you. That's helpful. But I guess I'll stay on border.
Speaker Change: So you said you've reduced your EPS guidance.
Speaker Change: Essentially on the road, but you did not give us egos. They usually do, but it's referred to as some, you know, in your guidance here, some kind of similar rivalry, declining Q4 and also margins, I guess, how to think about it. So you called out those two items. So should we think about those two combined kind of reversing and then
Speaker Change: Q4 margin, I guess, tends to be better seasonally. So, you know, kind of what do you think for revenues and margins in Q4? So, so, Joanna,
Speaker Change: VITAS's guidance hasn't really changed. There might have been a couple tweaks, but it really hasn't changed for the fourth quarter. So the entire decline in EPS is relating to Roto-Rooter. If you want to call out specifically what we're talking about in the fourth quarter,
Speaker Change: If you want to put it into your model, I would expect...
Speaker Change: a similar revenue number as the third quarter from a year-over-year comparison. We didn't really project a significant amount of improvement in the fourth quarter for Roto-Rooter compared to its third quarter year-over-year comparison.
Speaker Change: on extra marketing, that was mostly the transition to the SEM, so the margins will be back at the levels they were, or like call it second quarter EBITDA margin level, which was
Speaker Change: 125 basis points down from 2023, and that's purely a volume, revenue volume covering fixed costs issue.
Speaker Change: And John, one other thing I'd like to add, the kind of things that are, you know, kind of cause mix shifts is, you know, when we miss the number on the residential side, that has almost a multiplier effect.
Speaker Change: because we get much more ancillary service, but many more excavation jobs.
Speaker Change: and water restoration jobs on the residential side. So if you miss there, again, it has a multiplier effect. Just another factor that we haven't talked about a lot.
Speaker Change: Basically, when we talk about Google's changing strategy, and I saw they just had record results yesterday. I mean, part of their change of strategy is to have fewer, you know, have fewer people
Speaker Change: search on the natural basis, that is, where there's no fee, and they prefer to drive traffic on the paid side, not surprisingly. And this order of magnitude, you know, in the last 12 months, the percentage of our jobs that are free
Speaker Change: That is, they came from somebody looking on a natural basis, is down about 5%.
Speaker Change: from its high. Now you can imagine if 5% of your business you're paying a substantial marketing fee whereas before they were free, you know that has effect on margin and you know that's you know, there's strategies to deal with that and we're you know, we're pushing back on some of you know, Google's efforts in that regard.
Speaker Change: But that's another thing that has affected margin, is again, despite in Roto-Rooter from their perspective, very good operating metrics. That is, we've been able to retain at very reasonable levels our service.
Speaker Change: We've done a much better job of retaining our good branch managers, whereas two years ago we were losing all the PE firms.
Speaker Change: Our close rates, as Micah said, have been very strong. All those aspects are very good. We're just dealing with some overarching issues that are not susceptible to easy fixes.
Speaker Change: It's got our full attention, and when I look back at the 44 years that Roto-Rooter and its management has been dealing with problems like this, it's just...
Speaker Change: an unbroken, unparalleled story of success, so it gives me a lot of confidence.
Speaker Change: Okay, and I guess thinking about next year, I know you don't have guidance here, but I guess just...
Speaker Change: You know, high level comments on broader and I guess beat up to when it comes to, you know, top line and margins. It sounds like maybe on the road with the margin pressure.
Speaker Change: continue, I guess, when it comes to that, what you just described around, you know, paid searches and such, but how should we think about, you know, both businesses into next year, high level, in terms of the growth outlook? Thank you.
Speaker Change: I'll start and then Nick will give probably a little more color on VITAS, but from a Roto-Rooter side, we are
Speaker Change: cautious about 2025.
Speaker Change: We see some actual green shoots and some positive things coming from commercial.
Speaker Change: And we're hopeful that that continues in the momentum, actually gains steam in 2025. We think that is well within Roadrunner's management to fix a significant portion of that.
Speaker Change: The residential side is a little more uncertain, and we haven't put pen to paper, so I can't really give you numbers.
Speaker Change: I would say we've seen some articles that are about industries that are sort of adjacent to our industry that suggest that there's going to be a change or, you know, a return to some growth by mid-25, but those are...
Speaker Change: sort of anecdotes, and so I think our hope is that by mid-25, we start to see some strengthening just in the demand in the overall industry.
Speaker Change: We would not expect, again, with what's called flattish revenue in 2025, we would not expect any significant margin expansion at Roto-Rooter, but not deterioration either.
Speaker Change: On a VITAS side, I think Nick mentioned it before, but, you know, we expect above average, above historical averages, growth. I don't know that we expect, you know, 15 to 16 percent days of care growth like we're seeing at the moment, but certainly...
Speaker Change: high single, low double-digit day of care growth, and then, you know, a little bit of margin expansion potential from there.
Speaker Change: We haven't put pen to paper to anything and you'll get more details when we give guidance in February.
Speaker Change: And I guess with 25, the Medicare rate update is also maybe a little bit better than the circle average. So that helps, too. So combined with the highs to go to low double-digit census, there's maybe a couple percent from pricing, so to speak, for the rate update, right, until next year. Yeah. And since the rate update is now, you know, done and finalized, as you're aware, you know, October 1.
Speaker Change: Basically, our anticipated, you know, if we look at our current blend, everything created equal. We're looking, you know, we would anticipate about 3.9 percent like we had alluded to, which is about...
Speaker Change: a hundred basis points above the national average, just given where we operate today. So yes, that provides a little additional...
Speaker Change: as that rate increase, you know, matures and gets issued in, you know, early fall of next year.
Speaker Change: Great, thank you so much.
Speaker Change: I'm showing no further questions at this time. I would now like to turn it back to Kevin McNamara for closing remarks.
Kevin Mcnamara: Thank you. I just wanted to...
Kevin Mcnamara: Obviously, restate that it's a little bit tough quarter for Roto-Rooter, a little tougher than we expected. We still have a lot of confidence in PTOS, doing great. When you look at our current guidance, we're still expecting our adjusted...
Kevin Mcnamara: That income to be up 13 to 14 percent over last year
Kevin Mcnamara: All right. Let's go. All right. All right. All right.
Kevin Mcnamara: Y'all
Kevin Mcnamara: Not a bad year, as we were expecting it to come in, but, you know.
Kevin Mcnamara: But I would like to thank everyone for their attention.
Kevin Mcnamara: I guess we'll reconvene after we have the fourth quarter and our guidance for next year. Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.