Chemed's Q4 fell short of expectations at both subsidiaries (about a $0.70 per share miss), as VITAS margins were pressured by a deliberate short-stay admission mix that, importantly, eliminated the Florida Medicare cap liability, while Roto-Rooter revenue fell 3.7% and EBITDA dropped 21.1% on surging water restoration write-offs and higher marketing costs. Management framed 2026 as a transition year, guiding VITAS revenue up 5.5%-6.5% (building through the year as the admission mix rebalances) and Roto-Rooter revenue up 3%-3.5%, with a $4M-$6M write-off recovery tailwind. Key risks remain Roto-Rooter's reliance on increasingly paid Google leads and execution on centralized billing, though management sees no structural impairment.
Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2025, ended December 31, 2025. Before we begin, let me remind you of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. 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 25 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.
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 25th, 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, Michael Witzeman, Chief Financial Officer of Chemed, and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.
Thank you, Holley. Good morning. Welcome to Chemed Corporation's fourth quarter 2025 conference call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. The fourth quarter of 2025 fell short of our expectations for both subsidiaries. We will touch on the circumstances that led to these results, but more importantly, we will discuss what's being done to improve these results for 2026 and beyond. VITAS continues to execute the strategies required to fully mitigate potential Florida Medicare cap billing limitations for the government's fiscal 2026. Admissions at VITAS during the quarter totaled 17,419, which equates to a 6% improvement from the same period of 2024.
An important metric that we have been tracking related to Florida admissions is the percentage of total admissions that come from hospitals. Our analysis indicates that an appropriate balance for sustained long-term stability in the Florida patient base, given the current mix of referral sources, is that between 42% and 45% of total admissions come from hospitals. During our community access program, this ratio dipped below the preferred range for a sustained period. In the fourth quarter of 2025, this ratio was 44.8%, which represents a high watermark during the post-pandemic period. The continued emphasis on short-term hospital-based admissions had two main impacts on the results for the fourth quarter of 2025. The first impact is that the Florida Medicare cap position in the fourth quarter improved by almost $25 million in 2025 compared to 2025.
It is important to remember that our fourth quarter is the first quarter of the government fiscal year. The year-over-year improvement gives management even more confident that the Florida Medicare cap problem of 2025 is behind us. The second impact is that due to the overwhelming success of garnering elevated short-stay patient admissions, our revenue growth and EBITDA margin were lower than anticipated. Ultimately, the percentage of total admissions that come from hospitals was higher than we originally budgeted in both the third and fourth quarters of 2025, resulting in this muted revenue growth and EBITDA margin. In mid-January 2026, VITAS management responded to the improved Florida Medicare cap position by instructing operating personnel to begin the process of refocusing admissions to a more balanced approach between hospital admissions and pre-admission, other pre-admission locations. That process is underway.
In the guidance that Mike will discuss further, we have anticipated that the more balanced approach will start being reflected in financial results, mainly in the second half of the year. All patients are short-term patients for the first 30 days after admission, regardless of their pre-admission location. As a result, refocusing the admission patterns will result in revenue growth and EBITDA margins building over the course of 2026. In December, we were granted a certificate of need to begin operating in Manatee County, Florida. Manatee County is in western Florida, between Hillsborough and Sarasota. Approximately 3,000 Medicare patients received hospice care in Manatee County during the government's fiscal 2024, which is the most recently published government information. Manatee represents another significant opportunity for VITAS in 2026 and beyond. Let's turn to Roto-Rooter.
Roto-Rooter revenue declined 3.7% in the fourth quarter of 2025 compared to the same period of 2024. Branch commercial revenue increased 1.6% compared to the fourth quarter of 2024. We continued to add commercial business managers to select branches during the quarter. Branches with commercial business managers had percentage revenue increases, 10% more than those without them. Roto-Rooter Management intends to continue and expand this program in 2026. Branch residential revenue declined 3.1%. Total leads were flat in the fourth quarter of 2025 compared to the same period of 2024. As discussed in the past few quarters, the trend of increasing paid leads, offset by declining natural leads, continues. During the fourth quarter, paid leads increased 9.4% compared to the same quarter of 2024.
The decline in natural leads essentially offset the increase in paid leads. Roto-Rooter Management has contracted with a new third-party search engine optimization provider in late December. The new provider does not provide services to any of our private equity competitors. Additionally, they focus on understanding and responding to the underlying code used by internet search engines to develop their search algorithms. We believe that these two factors will give us the ability to more positively impact our natural search results in 2026. Write-offs related mainly to our water restoration business, increasingly became an issue over the course of 2025. In the fourth quarter of 2025, implicit price concessions and credit memos increased at Roto-Rooter by $4 million, or 57%, compared to the fourth quarter of 2024. A similar increase in write-offs was seen in the third quarter of 2025.
The company has put into place modifications to the billing and collection support functions. Collection experience began to improve in early 2026. We anticipate improvement to accelerate through the course of the year. Our guidance reflects management's belief that 2026 is expected to be a transition year for both VITAS and Roto-Rooter. VITAS financial results are expected to build over the course of the year as we rebalance our patient mix. We are very confident the Florida Medicare capital limitation in 2025 is fully behind us. The demographic makeup of the U.S. population, along with the addition of new territories in Florida, provides VITAS with significant growth opportunities over the next several years. Roto-Rooter continues to deal with a difficult operating environment. We have initiatives in place that I believe can lead to modest growth, mainly coming in the back half of 2026.
We anticipate continued improvement in overall leads based on the past few quarters of paid lead generation improvement, plus the impact of the new search engine optimization company. Improved overall leads should lead to modest organic growth in 2026. The addition of more commercial sales resources is anticipated to further improve organic growth. As Mike will discuss further, improvements we are working on with respect to water restoration, billing, and collections, should provide a $4 million-$6 million tailwind in 2026. We believe these improvements, along with an aggressive program to find and reacquire franchises in desirable territories, gives us confidence that we can meet or exceed our 2026 guidance. We believe that the difficult operating environment is temporary, there has not been any impairment in the underlying long-term growth outlook for Roto-Rooter. With that, I would like to turn this teleconference over to Mike.
Thanks, Kevin. VITAS' net revenue was $418.8 million in the fourth quarter of 2025, which is an increase of 1.9% when compared to the prior year period. This revenue increase is comprised primarily of a 1.3% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.2%. The acuity mix shift negatively impacted revenue growth 143 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 20 basis points. A $2.4 million Medicare cap billing limitation was accrued in the fourth quarter of 2025.
There was no Medicare cap billing limitation accrued for a Florida program in the fourth quarter of 2025. Average revenue per patient day in the fourth quarter of 2025 was $288.01, which is 86 basis points above the prior year period. During the quarter, high acuity days of care were 2.2% of total days of care, a decline of 32 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $91.6 million in the quarter, which is a decline of 1.7% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 21.7%, which is 79 basis points below the prior year period.
The lower EBITDA margin in the quarter reflects the impact of admitting more hospital-based, short-stay patients. Now, let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $155.6 million, a decrease of 3.1% from the prior year period. This aggregate residential revenue change consisted of plumbing increasing 6.3% Excavation essentially flat, offset by water restoration declining 10.3% and drain cleaning declining 3.2%. As Kevin mentioned, water restoration write-offs, also referred to as implicit price concessions and credit memos, have been increasing over the course of 2025. Historically, total write-offs have been slightly below 3% of gross revenue. There was an uptick to the mid 3% range in the first half of 25.
We then experienced a significant jump in the second half of 2025 to over 4.5%. As a result of those increases, total write-offs increased $11 million in fiscal 2025 compared to 2024. Primarily through the use of artificial intelligence, many insurance companies have increased their scrutiny of every line item on every job we bill. This has led to the higher write-off percentage. Roto-Rooter management also believes that it has led to a reluctance to bill for certain water restoration services at the branch level. As the scrutiny on collections has increased over the year, billing employees in some branches have reduced their billings per job to help ensure a higher collection rate. This was the biggest factor that led to the 10.3% decline in residential water restoration revenue in the fourth quarter of 2025.
In response to this issue, Roto-Rooter is taking steps to improve its documentation through better use of technology. They have also undertaken a project to centralize water restoration, billing, and collections. Billing and collections were historically performed at each branch. This led to some inconsistent practices across the company. Centralizing these processes is expected to create more concentrated expertise and result in better billing and collection results. The financial impact is expected to be seen mostly in the second half of the year as these improvements take hold. Additionally, during the transition period, we expect some duplication of costs and investment in technology, which will cause some marginal headwinds in the first half of the year. Roto-Rooter branch commercial revenue in the quarter totaled $55.2 million, an increase of 1.6% from the prior year period.
This aggregate commercial revenue change consisted of excavation increasing 10.9%, drain cleaning increasing 2%, plumbing essentially flat between years, offset by a 20% decline in water restoration. The water restoration decline is a symptom mainly of the increased insurance scrutiny previously discussed. Roto-Rooter management believes that our commercial business continues to represent a significant opportunity for growth in 2026 and beyond. Commercial customers generally use our services more often than residential customers. They also have direct access to our local managers and thus generally do not search for us over the internet. In response to the commercial business opportunity, Roto-Rooter management hired commercial business managers at select branches during 2025. The preliminary results in the branches with commercial business managers are encouraging. As a result, Roto-Rooter continues to add commercial business managers in early 2026.
It is a roughly 45-day process to get these positions trained and productive, which also may cause some marginal drag in the first half of 2026. Adjusted EBITDA at Roto-Rooter in the fourth quarter of 2025 totaled $47.5 million, a decrease of 21.1% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 21.5%. The fourth quarter adjusted EBITDA margin represents a 477 basis point decline from the fourth quarter of 2024. The decline in EBITDA margin was caused by higher marketing costs and higher water restoration write-offs. During the quarter, we repurchased 400,000 shares of Chemed stock at an average price of $436.39. These purchases were funded by the free cash flow generated by both VITAS and Roto-Rooter.
Since the beginning of the program, we've returned over $2.9 billion to shareholders through repurchases at an average cost of approximately $167 per share. Let's turn to the 2026 guidance. VITAS revenue, prior to Medicare cap, is estimated to increase 5.5%-6.5% when compared to 2025. Average daily census is estimated to increase 3.5%-4%. Full year EBITDA margin, prior to Medicare cap, is estimated to be 17.5%-18%. Medicare cap billing limitations are estimated to be $9.5 million in calendar 2026, compared to $27.2 million in calendar 2025.
The estimate for 2026 is in line with our historical run rate prior to 2025 and includes no limitations related to our Florida combined program. Roto-Rooter is forecasted to achieve full year 2026 revenue growth of 3%-3.5%. Roto-Rooter's adjusted EBITDA margin for 2026 is expected to be 22.5%-23%. We believe this forecast is achievable based on anticipated improved lead volume in 2026, improved billing and collections in our water restoration service line, and a lift in our commercial business through a commercial-focused sales force.
Based on the above, full year 2026 earnings per diluted share, excluding non-cash expense for stock options, tax benefit from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $23.25-$24.25. This compares to full year 2025 adjusted earnings per diluted share of $21.55. The 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.9 million shares. It's important to note that the 2026 earnings trajectory is weighted towards the second half of the year. We estimate 55% of the consolidated adjusted net income and consolidated adjusted EBITDA prior to Medicare CAP is projected to be generated in the second half of the year.
I will now turn the call over to Joel.
Thanks, Mike. In the fourth quarter of 2025, our average daily census was 22,462 patients, an increase of 1.3%. In the quarter, hospital-directed admissions increased 9.9%. Home-based patient admissions increased 4.1%. Assisted living facility admissions increased 5.6%, and nursing home admissions declined 8.7% when compared to the prior year period. Our average length of stay in the quarter was 115.1 days. This compares to 105.5 days in the fourth quarter of 2024. Our median length of stay was 17 days in the fourth quarter of 2025, one day less than the median in the fourth quarter of 2024.
As Kevin discussed above, we have very successfully transitioned our admission pattern towards more hospital-directed admissions in our Florida combined program. To add some context to that success, at the end of the fourth quarter of 2025, that Medicare cap billing limitation was less than $2 million. As of the end of January 2026, we have no billing limitation in our Florida combined program. This success has allowed us to begin the process of balancing the admission patterns to a better mix of hospital-based admissions and other pre-admission locations. It's important to remember that hospital-based admissions generally provide for shorter stay patients than other pre-admission locations. Admitting more short-stay patients results in ADC pressure and lower margins, as previously mentioned. However, in the first roughly 30 days of any patient's stay with us, the economics are the same for us, regardless of their pre-admission location.
Only when a patient exceeds that 30 days do we see the more positive financial impacts. Balancing the mix of admissions will lead to accelerated revenue growth and improved EBITDA margins as the year progresses. In December 2025, we were notified that we received a new CON to operate in Manatee County, Florida. As Kevin mentioned, this represents another opportunity for significant growth over the next 2 years. This is the 4th CON awarded to VITAS over the past 2 years. The previous awards in Pinellas, Marion, and Pasco Counties have met or exceeded our expectations. Currently, Marion and Pasco are admitting between 40 and 50 first-time Medicare patients per month. In just its second full month of operation, Pinellas admitted 28 first-time Medicare patients. We will continue to aggressively pursue CON opportunities in Florida in the territories in which we do not currently operate.
Now that we believe the Florida Medicare cap issue is behind us, we are focused on returning VITAS to a more normal, sustainable, organic growth pattern. We will look to achieve higher overall growth through the pursuit of new starts, not only in Florida, but other CON states as well. We also continue to evaluate strategic acquisitions to add to VITAS's overall growth. With that, I'll turn it back to Kevin.
Thank you, Joel. I will now open this teleconference to questions.