Chemed Corp (CHE) November 9, 2026 Conference Transcript

All right. Thanks, everybody, and welcome to the UBS Healthcare Conference. We're going to kick off this morning with ChemEd Corporation. We're very happy to have Kevin McNamara, CEO, Mike Weitzman, CFO, and Joel Wheatley, CEO of VTAS. So, thanks for participating again in the conference this year. Thanks for having us. I always think about there's probably some new people in the audience, and KMIT has a rather unique and diverse business model with VTAS, a leading hospice provider, and Roto-Rooter. The plumbing company, a leading plumbing company, and for those who are new, you want to just give us a few minutes, a little high-level overview of the company and the overall strategy, do you mind?

Sure, definitely. Maybe start with history. ChemEd is a company that was formed in 1971, a subsidiary of W.R. Grayson Company, and it really had developed over time a business that had several specialty chemical companies, and it developed a healthcare group. And it's spun with W.R. Grayson Company. It's healthcare division out as Omnicare in 1981. And in fact, I was with the healthcare side of the business at that point. And I was going to say, so we had healthcare, especially chemical, Roto-Rooter. Roto-Rooter purchased in 1980 for, I think, $17 million. And we just grew the company, developed another healthcare business called Veritex, and bought and sold companies, and also, excuse me, in the 1990s, purchased a one-third interest in VITAS as part of our healthcare group. Sold the specialty chemicals companies off, had a home healthcare company that we sold off. So in 2004, we were sitting with cash in the balance sheet, Roto-Rooter, and our interest in VITAS. We had the opportunity to buy the rest of VITAS we did not previously own. So in 2004, we were in the position of we had Roto-Rooter and VITAS, healthcare company. The healthcare company was roughly two times this year. Size of Rotorua at that point. Our strategy was we were going to be, you know, followed by health care companies and go to health care conferences. And, you know, the point of view that we thought that the Rotorua was a good, stable company with excellent cash flow characteristics. And we were going to sell the combination, not to investors, as the idea that, look, you're health care investors. VTAS is. You know, it's going to be a great growing company. Roto-Rooter will be chugging along, excellent cash flow, and hopefully it would not be a distraction. We've always said that we would put out a lot of information, helping investors value the two companies, and to the extent that, you know, we recognize that oftentimes, it was said at the time, Wall Street loves a pure play. Um, to the extent that, um, You know, we were holding the company back. We were always prepared to look into strategic alternatives. From 2004 until really the start of really through 2025, even though it was a tough year for us, it was interesting that both companies grew at the rate of just over 11% per annum. And, as I say, both had good cash flow, and... Our strategy really was to just keep two basic service businesses going. We didn't say that there were synergies between the companies. We just said they were both growing companies. I think the investor market had accepted the unusual combination of the two. And we used the free cash flow to... to reduce the number of shares outstanding from about 27 million to 13 million. So, you can imagine the situation. We have two growing companies. We have reducing the share count, both growing at over 11% per annum with the magic of having fewer shares outstanding over that 21-year period. The KEMBED earnings grew about 18% per annum, and the stock price at that point had grown to 20% per annum. So the strategy was to just keep the two basic businesses growing, adding not so much by acquisition, small acquisition at Roto-Rooter, and a few new programs, getting CONs for new programs in Florida with a couple purchases in Florida. But, AJ, that's really the strategy we've had for... You know, now a 22-year period. And people ask us, are we interested in changing? Are we interested in the third leg of the stool? You know, Kevin, if you go back some number of years, was a buyer and seller of companies. We just have decided that, at least for the period, if it's not broken, don't fix it. Even though we've looked at alternatives, we have a pretty high bar as far as other alternatives. Again, I think that other than 2025, which is a bad year for both different reasons, for both companies, I think we're back in a winning wicket.

Okay. And that's what I was going to pivot to a little more short-term. What, we're 10 months into the year, and you look at coming off a tough 25, what have been the positives and surprises, and if there's any ongoing challenges worth highlighting?

Well, we'll prove this right. I'm going to let Joel, when we talk about it more specifically, VTAS, talk about how he did it, but basically, the real success was VTAS reordered their business to having basically the right mix of referrals. In other words, Florida is over 60% of our business. We have to have the right mix. All of Florida is one program. We'll run into a cap issue if you don't have the right mix of referral sources. It just so happens that's for hospital admissions you want somewhere between 40% and 45% of your admissions coming from a hospital. That'll give you short-stay patients, and it's a powerhouse. You keep in those – there's plenty of business. You keep within those environs, and you're going to be successful. And Joel's been great at rebalancing the portfolio, as it were. Thank you. VTAS has had nothing but strong results. Florida ended the year, the government plan year ends in September 30, with about a $32 million cap cushion. So from that perspective, very safe. With regard to surprises, it's a negative surprise. It's been on Roto-Rooter. The sales are there. The problem is every company gets the sales in the home services market through Google at this point, 90% through Google, and Google has just been on a process to make things tough for its best customers, and that is they know that AI is coming, they are doing everything they can to wring the profits out of their source, which is their algorithm and how people... I'll help people with companies show up on Google, and it's been tough, and we've made a number of adjustments, and they've made a number of adjustments, and you have the company. It's an unusual situation in that they make it toughest for their best customer. They're the best customers. They feel that if you're successful enough to be able to afford paid advertising, you shouldn't get any free leads. You know, and... If it's a surprise during the course of the year, it's been how tough it's been at Roto-Rooter, given this situation where there's business out there. I mean, last quarter we grew sales at 7.5%, and it's just that a margin has been hurt exclusively through marketing expenses with costs of marketing going basically so far this year from 7% of sales to 9% of sales. That's a big move. So that's been a surprise.

Yeah. So you just on the last quarter, you updated your outlook 25-75, I think, for 26. As you look in the fourth quarter and into next year, what are the biggest swing factors? Is it this Roto-Rooter challenge you're talking about, or what are the biggest swing factors?

I'll let Mike talk about this because he comes up with basic guidance, but Mike, how about from your perspective?

Yeah, I think margins at Roto-Rooter are going to be... Still, the headwind of marketing is still going to be there in 27, so that's a challenge. As Kevin likes to say and Joel will tell you on the VTOS side, I think things are going very well, and from a margin, a top-line growth standpoint, I don't see any impediments for 27 to continue strong growth. As Kevin likes to say, it's a bit like an aircraft carrier. Once it's going in one direction, it's hard to move it, you know, in a different direction. But I think both businesses should have strong 27s.

And I would say that in talking to investors, what the investment group is looking for is continued strong growth in VTAS and demonstrating that – we know the sales are there earlier – just demonstrating that, you know. We've reached a new normal, and there's going to be no more deterioration as far as what marketing costs can do to us.

Right, right. So let's talk about VITAS for a second. The segment saw strong revenue growth of 12%. ADC, I think, was up 9.4%, a market continuation that you've seen year-to-date in volumes. So what's driving the strong volume gains? How should we think about? Volumes as we head into next year. Is it share gains? Is it just underlying growth of the market? Joel, why don't you start off?

So volume gains reflect strong execution of our strategies. We sat here a year ago talking about the fact that our plans have been put in place, but it was going to take some time to see how those plans evolved. We wanted to get through the fourth quarter of last year, which was the first quarter of the Medicare plan year for 26, to really see where we could then make adjustments to expand growth. We came out in the first quarter of 26 ahead of our expectation. And really, one thing I want to focus on, we can't control length of stay. And length of stay is what expands that ADC growth. What we can control is where our resources spend their time. And so we were able to balance our referral stream and expand that throughout the year, which resulted in the expansion. To give you an example in the third quarter of how we have balanced that referral stream, hospital admits. We're 5.7%. Home admits, we're 6.3%. Assisted living, 8.1%. And nursing homes, 9.8%. So we were able to, through the deployment of our resources and our messaging, expand beyond that short length of stay focused, which we had put in place and needed for cap mitigation. And then the result of that was a longer length of stay patient that we know comes from those other pre-admit environments, and that allowed us to expand ADC throughout the year.

I think just to add to that, since you asked about 27, I think it's important to point out that, as Joel mentioned, in the latter half of 25, we were intentionally taking down ADC to manage the Medicare cap and all of the issues that were going along with that. So, 26, we have some easier comps. I only mention that as context for we probably will not guide to 9% volume growth and 12% revenue growth next year. Very healthy above historical, but not quite that high, most likely.

And let me also add that we're just in the process of – this is the month where we really do our budgets, finalized in the beginning of December. But I'll make one point that – I don't know what the ideal is, but when you talk about – VTAS, I think it's important to say, if we look at Florida and look at a $32 million cap cushion, I mean, to the extent that's really room for $32 million more in sales, just in the state of Florida. And by and large, the business is there. And so if I was an investor, I'd be looking and say, how high is up? I would look at that. Well, you never want to finish Good morning, everyone. You know, especially, it's kind of like kryptonite, or, you know, to mention Cap. I personally would like to have Mike be within, like, 5 million under or 5 million over, right? I mean, that's pretty close, but I mean, you don't want to end, you know, again, it's pretty conservative to end the year on $32 million of cap cushion. Let me put it that way.

Yeah, interesting. There was a lot of discussion from the administration about fraud and abuse, and one of the areas they focused on is hospice. Presumably, what we're hearing is companies like yours, bigger, more developed compliance programs, etc. Maybe they're seeing a little benefit from a shift in referral sources. Is that true? Are you guys seeing any of that this year?

Well, again, turn it over to Joel. In Southern California, sure, because there was fraud in Southern California. There's no question about it. But, Joel, I know you've been talking to Washington. What do you have to add on that?

Yeah. California has been the majority of the focus. Although they lifted up a nationwide moratorium, the purpose for the nationwide broad brush approach was simply to prevent the fraudsters in California from moving to other states. Oh, they were. Very aware that many of the states police this very, very closely and have no fraud. So I'll give you some statistics. I was with Kim Brandt, deputy director of CMS, week before last. She and I both spoke on a panel, and she communicated to the group that they have suspended the provider numbers of a little over 800 hospice providers nationwide, but almost 600 of those were in the state of California. So they have identified the issue. They're working with the state for improved program integrity. We support the program integrity nationwide, but we also do not support the fact that there needs to continue to be a broad brush approach. It has not had a financial business impact on us anywhere in the country. It has had a slight uptick for us, a flight to safety, a little bit in California, and we've enjoyed that. But keep in mind, the hospice benefit was lifted up in 1983. There were 16 individuals in Washington spearheading. Lifting up the Medicare Hospice Benefit. Three of those 16 individuals were from VITAS Healthcare. We wrote the benefit. We are a very compliant organization. We are surveyed and audited as much as anyone in the nation. We don't have a concern about the increased program integrity, but we want it to be fair, and most importantly, we do not want it in any way to restrict access. To a patient and their loved ones in need of the hospice benefit.

I mean, and there's one thing, just to give you an idea, is this problem manageable? Joel, correct me if I'm wrong, but I don't understand. I mean, it's really like in the California. If we were to make the slightest change in our hospice business in California, a surveyor has to approve it, you know, and he'll just, I mean, doesn't, how, wouldn't, the establishment of all the, you know, like 21 hospices in a single, you know, on a single office building floor, how does that pass a survey? California just doesn't do them now, or, you know, it's kind of surprising to me.

They're... There was over 120 hospice licenses identified at one singular address in L.A. County.

And how does that pass a survey? And the state does a survey. I guess my point is it can start solving this problem. The tools are already there at the state level, and you just have to make sure there's not a complete and utter breakdown at the state level.

A couple other things on the macro. Perspective on hospice. First baby boomer hits 80 this year. You know, it seems like you'd be one of the ones to benefit from aging into the 80s plus. Just remind us what the average age of your hospice, I guess you call them patient, is. And then there's always been this discussion about how many people are actually eligible for hospice. That never get referred to it. Are we getting to the point where people are getting referred at the appropriate time, or is there still a lot of wood to chop there?

I'll let Joel jump into this, but the answer is a lot of wood. It's a puzzlement, but Joel, why don't you talk about some of the statistics that you usually have at your fingertips?

There's still a significant tailwind when you think about opportunity. By 2030, one in five Americans will be over the age of 65. In Florida, one in four. You touched on that boomers are hitting that 80-year mark. Something to keep in mind, the average age of a Medicare hospice patient is 80 years old. Now, diagnoses. Influence that significantly, and there oftentimes are multiple diagnoses associated with determining the terminal diagnosis associated with a patient. But when you think about the fact that today, only 52% of the Medicare decedents actually benefit or access the Medicare hospice benefit, you've got almost half. That never have that opportunity. And that's why we really want to ensure the script is flipped on this waste, fraud, and abuse. I'll give you one other number in talking to Kim Brandt. She also went on to say, in reality, we've suspended more home health provider numbers than we have hospice. Yet hospice gets that lead. In the public narrative, we've got to remove that. When you think about almost half of the Medicare decedents don't have the opportunity or access the Medicare hospice benefit, we have a tremendous opportunity to educate and improve that access so that those individuals can transition through their final journey. With an improved life, hospice is not about death. It's about life. It's infusing as much life as possible into whatever journey that patient and their loved ones have left. So there is a big opportunity.

Joel often calls it the silver tsunami, and there's no doubt that demographically, you know. Hospice companies are in a good position. As I said, the business is there to the extent that you're in a program, you need to have the right mix of short-stay and long-stay patients. But with that one caveat, I mean, it's a program for the super elderly, always has been. It's just going to be more super elderly. Yeah.

Um, We talked a little bit about the cap issue, and one of the things you've said is you're trying to manage toward 42% to 45% of your volume coming out of hospitals, which I guess tend to be the shorter stay that help you manage that. And you also called out on the conference call that the high acuity days were 2.2%. It seemed like that was up a little bit. And then you called out an acuity mix shift was about a 25 basis point headwind. Maybe just give some perspective. That's three different items. How easy is it to manage the type of patients you get? How do you see that trending? Do you see it diverging in one way or the other versus history, or are you on a pretty steady state, and is it easy to manage to that 42 to 45 hospital percentage, et cetera?

Well, no job is too difficult for the person to have to do it, so I'll leave that really to answer, Joel. It's probably a little bit harder than it is from my perspective.

Yeah. Again, the only thing we can influence is where we deploy our resources. And so The most important part of managing a balanced approach is understanding on a daily basis where your business is coming from. And those were the tools that we put into place and lifted up to help us mitigate CAP. We know every single day where our business comes from and the type of patient that is coming from that environment. And then we know on average that type of patient typically will stay on service X number of days. So we look at that very, very closely. If we've got a shift away from if we've got too much of a hospital influence, too short of a length of stay, you know, we can emphasize our message in those other pre-admit non-hospital environments. And again, we track that daily so that we can make those adjustments. But in reality, again, we can't control length to stay. We've just got to stay on top of. How that division between the pre-admitted environments exists and then influence our resources one way or another associated.

So when you're trying to manage it, that's the reason that we were able to grow so fast this year and continue to think that we can grow at, you know, high single digits is, you know, as long as Joel and his team are putting resources to hospitals, which generally results in shorter stay, then we can also. Put more resources to the longer stay and get the patients that usually drive the revenue and margin a little better.

Managing this isn't a matter of hospital discharge planters. I want to send somebody to you and you say no. It's leaning in. Correct.

Mike, anything else to say on mix shift from high acuity otherwise?

Yeah, I think the high acuity, the increase in high acuity is, you know, high acuity is about six times per day. A higher revenue per day. And so just very, very- It's not six times more profitable. Right, right. But very small changes in the number of days of high acuity we serve can have an outsized impact on the revenue. Again, as Kevin says, it doesn't necessarily impact our bottom line or our margins, certainly, but it does have an outsized impact on the revenue.

And keep in mind that it's something that is required under the hospice benefit provided not- Very few hospices out there provide all levels of, you know, basically the level of service. But it's challenging logistically, but we probably are the most successful in providing all the levels of acuity. And it bounces around, but it's not driven. Those changes in mix are not driven by an effort to make more money. It's to provide... The right amount of service to the various programs.

Well, and if I could on that, and it's actually less of a margin with a high acuity patient. However, let's think about the bigger picture to the Medicare trust fund. Studies now show, and this was not always the belief within the healthcare environment, as well as the government. Uh, previous to this, um... A lot of individuals believe the longer a patient stayed on hospice, or if they had high acuity, the more money it cost the Medicare trust fund, when now it's been proven that it's completely the opposite. And the utilization of that high acuity, and to Kevin's point, I want to point out, the conditions participation of the hospice benefit require every... Medicare provider within the hospice program to be able to provide all four levels of care. Yet, less than 10% of the hospice providers provide any meaningful. High acuity care.

Interesting.

What's the importance of high acuity? And that is to address sentinel events, symptoms out of control, which what would happen if that was not addressed? They access curative medicine. They go back to the very expensive side of health care, which then ends up costing the Medicare trust fund more money. So lower live discharges, keep them on service, utilize. High acuity care when medically appropriate, and it's a better care continuum, not only for the patients, their loved ones, but it also saves the trust fund money.

I want to make sure I get a few in on Roto-Rooter, but one last one on hospice. The labor pool that you have in your business is different than a lot of the other providers that I work with. Maybe comment on that and then comment on what you're seeing in terms of wage inflation or other challenges.

Yeah, look, the labor pool is made up of an interdisciplinary team, which has not changed since the benefit was lifted up. The allied health physicians included in that interdisciplinary team are nurses, aides, psychosocial team, a physician. That hasn't changed. Our ability to appropriately staff those individuals also is in a very good position, while we're all aware of the inflationary pressures that we all face every single day. And yes, has there been some inflationary pressure on wages? Sure. But we've been able to meet those pressures. We have no issues with labor. We have adequate capacity to not only care for our existing patient base, which is now pushing almost 25,000 patients every single day. But prepared for the growth expansion that we would expect throughout 27. So we're in a good position.

So when you put a fine point on a 3% wage inflation, does that sound about right, something a little higher, a little lower?

Yeah. I wouldn't say it's much more than that. But we manage it appropriately. And again, our reimbursement is set by the federal government, comes out October 1st. The most recent market basket adjustment came out nationwide at 2.3%. We recognize we will probably need to give more of a merit increase above 2.3%, but we manage to that, and it's something that we're accustomed to year in and year out and have no concerns.

As Joel said, our workers are, you know, the hospice worker, it's really a vocation for them. We don't pay, you know, traveling nurse wages or anything like that. Right. Operating from nurses. Ultimately, it's a vocation for them. They've chosen hospice. They recognize our margins, and they recognize our things, but their only focus is ensuring that they're taking care of hospice patients. We have great retention when a nurse or a social worker stays greater than a year. The one year or less is pretty high turnover because of the... You know, they're trying to figure out is hospice for them, but once they figure out that they want to be in hospice, they stay in hospice. It's their vocation, right?

Pivoting over to Roto-Rooter, you called out earlier the 7.5% growth in the latest quarter, healthy increase. What is driving that, and is that something you, as you look ahead to next year, you think you could sustain?

Mike, you know, again, we haven't finished the road we're budgeting, but yeah, the business is there. It's a question. Our question is margin. I mean, if you really, I know we're kind of running out of time, but if I look at the road we're business, what I see is that, first of all, it changed after the pandemic. It was so successful. Home services were so successful. Private equity money came in. And generally speaking, what they did is buy HVAC companies with the idea that they already did a little plumbing or they could do more. And they've become aggressive advertisers. And basically, it comes down to this. I'd say there's plenty of business there. It's a stable industry. It's not a fast-growing industry, but it's a stable industry. And... On Google, on the paid search, obviously there's a hole in the bucket because they're taking away our free search, but on paid search, our goal is just to stay on the first page, what they call the first page of the listing when you come up for, like, plumbing Cincinnati. You want to be on the first page. We pay just enough to be on that first page, and I just listed in the first three or four. We're not pushing the market. It's a bid market for pricing. We follow the bidding and bid what's necessary to stay on that first page. I don't know if it's panic. I don't know if it's a business acumen. I don't know what's driving it, but the bidding to stay on that first page is... It's going up, and it has been going up. And to answer your question, what we project to the future largely determines on that. It's determined on that. I can tell you right now that these competitors on plumbing have a margin that might be- I mean, they use the bottom half of plumbing jobs as a loft leader. I mean, they don't make any money on those. So it's right in their hands a little bit. But again, we've been doing it a long time. We have the best service mark in the whole industry, Roto-Rooter. And again, we hope that we're seeing signs of stabilization. That's basically all we need.

You said earlier that Google sort of disadvantages its best customers. Are people higher than you on that first page but paying less to Google?

No, no. Here's what happens. They're advantaging them by, let's say, the biggest area of the Google listing where you get free leads, what they call natural leads, is the map section. It used to be that the way you got listed on the maps, actually, does have... The best reviews and being closer to customers, which, keep in mind, under that standard, Rotorua appeared in maps 72% of the time. That's called visibility. And in the first quarter of, early in the first quarter of 2025, they flipped the switch, and Rotorua started appearing about 21% of the time. And they came out and said, well, we want to have that section show more of a diversified look to have smaller competitors in there, meaning smaller competitors, that is, who don't have the wherewithal for paid search. And just basically what that means is the, you know, with that. The problem is, what Google's doing is we get no free leads. Free leads used to be 60% of our business, now it's 40%. So the issue is really, we bid to stay on, what now they have ahead of that is their paid search, and we want to be listed in that paid search. I think we have an advantage in that we've been around for a long period of time, but over 50% of our jobs are repeat customers. People are coming to Google looking for Roto-Rooter. We just have to make sure they can find it.

Just one more question then. On capital deployment, buybacks have been an important part of the story. This year you bought a franchisee, your largest, I think. How do we think about where the opportunities are for capital deployment in the next year or two?

Mike, take it for 30 seconds, but we're going to continue to buy shares back, but Mike.

Yeah, I think we'll always, on a quarterly basis, buy some shares, regardless of the stock price. We think, you know, with our cash flow characteristics, it's the right thing to do to return at least some level of free cash flow to the investors. We pay a dividend. It's pretty small, but we'll always pay a dividend. We'll usually increase it every year. And then we're always looking for opportunities to buy, rebuy franchises at Roto-Rooter. We've spent $96 million this year. We'd love to continue to spend money on that. And then Joel, I think, is always looking for potential acquisition opportunities. They're tougher in the hospice industry for various reasons, but I think you'll continue to see us do what we've done the last few years.

Okay. Well, I really appreciate Kim Ed being a part of the conference again this year. Thanks, everyone. And the next up in this room at 930 will be Health Care Service Group.

Thanks, AJ.