Chemed Corp
NYSE:CHE
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Chemed Corp
Earnings Call Analysis
Q2-2024 Analysis
Chemed Corp
Chemed Corporation's second quarter of 2024 saw significant achievements and challenges. The earnings call kicked off with highlights from Kevin McNamara, emphasizing the strong performance of VITAS Healthcare, driven by effective staff retention and the positive impact of the recent Covenant Health acquisition. VITAS reported a notable 11% increase in admissions and a 14.4% growth in their average daily census compared to the same period in the previous year. Conversely, their Roto-Rooter segment faced a 5% decrease in quarterly revenue, attributed to a substantial drop in call volume.
VITAS Healthcare's success was a focal point, with admissions totaling 17,344 in Q2 2024, an 11% improvement from the previous year. The acquisition of Covenant Health played a key role, contributing $8.2 million to $8.7 million in revenue and bolstering net income by approximately $1.6 million to $1.8 million. Furthermore, VITAS received a Certificate of Need to provide hospice services in Pasco County, Florida, representing a promising growth opportunity.
Roto-Rooter faced headwinds with revenue dropping to $221.3 million, a 5% decrease year-over-year, largely due to a 6.1% fall in call volume. Residential revenue declined by 1.6% and commercial revenue saw an 8.2% drop. This underperformance was partially attributed to lower consumer spending and increased competition within the home services market.
Chemed's guidance for VITAS in 2024 reflects strong expected growth, with revenue prior to Medicare Cap anticipated to increase by 16.3% to 17.3%. The average daily census is estimated to grow by 13.3% to 14.4%, and the full-year adjusted EBITDA margin is projected to be between 19.3% and 19.7%. Roto-Rooter, on the other hand, is expected to see a 4% to 5% decline in revenue, with adjustments being made to bolster their performance, including enhanced customer relationship management and targeted improvement programs.
The Covenant Health acquisition has been instrumental for VITAS, adding $8.2 million to $8.7 million in the second quarter, translating to a net income boost of $1.6 million to $1.8 million. It showcased Chemed's strategic focus on expanding their footprint through acquisitions while integrating seamlessly with existing operations to maintain high-efficiency levels and robust financial performance.
VITAS’s operational metrics underpin their solid performance, with a revenue increase of 16.7% year-over-year, driven primarily by a 14.4% increase in days of care. The company's ability to hire and retain clinical staff has been critical, alongside the successful integration of Covenant Health. This has ensured continued strong admission and census growth, reinforcing their optimistic outlook for the remainder of 2024.
Chemed remains confident in VITAS's growth potential, underscored by its robust hiring trends and the strategic expansion into new markets like Pasco County, Florida. Conversely, Roto-Rooter is repositioning itself to tackle current market challenges, driven by a comprehensive approach to improve commercial sales and enhance operational efficiency.
In conclusion, Chemed Corporation exhibits a dichotomy in performance between its two main segments. VITAS Healthcare demonstrates strong growth and potential with strategic acquisitions and market expansions, while Roto-Rooter contends with market-driven challenges but shows a clear strategic path for recovery and growth. Investors should note the positive transformations within VITAS and the concerted efforts to fortify Roto-Rooter’s commercial and residential services for a stronger performance ahead.
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Thank you for standing by, and welcome to the Chemed Corporation Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.
And now I'd like to introduce your host for today's program, Holley Schmidt. Please go ahead, ma'am.
Good morning. Our conference call this morning will review the financial results for the second quarter of 2024 ended June 30, 2024. 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. 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 July 24 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 July 24, 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; Mike Witzeman, Chief Financial Officer of Chemed; and Nick Westfall, Chairman 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 Second Quarter 2024 Conference Call. I will begin with highlights for the quarter, then Mike and Nick will follow up with additional details. I will then open up the call for questions. We continue to be pleased with the excellent operating metrics at VITAS, coupled with a strong start for our f Covenant Health acquisition.
In the second quarter of 2024, admissions totaled 17,344, which equates to an 11% improvement from the same period of 2023. Our average daily census or ADC expanded 2,644, an increase of 14.4% when compared with the prior year quarter. These historically good metrics were positively impacted by the $85 million acquisition of Covenant Health, which was closed on April 17, 2024.
Nick will provide further insight on the positive impact of the acquisition on these metrics. These operating metric improvements and related financial impact would not be achievable without VITAS' continued strength in hiring and retaining clinical staff. We're also pleased that in the second quarter of 2024, VITAS was awarded a Certificate of Need to provide hospice services in Pasco County, Florida. This represents an opportunity for VITAS to begin service in a vibrant and growing community in Florida.
Now let's turn to Roto-Rooter. Roto-Rooter generated quarterly revenue of $221.3 million in the second quarter of 2024, a decrease of 5% when compared with the prior year quarter. Overall, our call volume was down 6.1% when compared with 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 historic levels.
Residential revenue at Roto-Rooter declined 1.6% and commercial revenue declined 8.2%. Residential demand is significantly impacted by consumer sentiment and consumer spending, which continues to be depressed, particularly as it relates to home services and home improvements. With lower demand across the entire industry, competition for Internet marketing position and related job leads continues to be fierce. However, the commercial sector of Roto-Rooter provides significant opportunity for improvement both sequentially through 2024 and then 2025.
As we mentioned in the first quarter, the extraordinarily high demand we experienced during the pandemic, led the commercial business to be deprioritized. The habits required in the field to make for a successful commercial business were not reestablished at the end of the pandemic in some locations. As Mike will discuss further, the company has implemented several initiatives which I believe will have a significant positive impact on Roto-Rooter's commercial sector.
To summarize, we are excited about the continued strong results at VITAS. VITAS management has consistently demonstrated the ability to accelerate hiring and retention of licensed health care professionals. This has translated into continued strong admission and census growth. We are very bullish on the prospects of VITAS for the remainder of 2024 and beyond. 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, 24x7 call centers and aggressive Internet presence.
With that, I would like to turn this teleconference over to Mike.
Thanks, Kevin. Before discussing VITAS's results, it is important that we discuss the methodology used in determining the impact of Covenant Health's acquisition on VITAS overall results. As you may remember, we already had significant operations in 2 of the 3 Florida locations we acquired from Covenant Health. Those locations require that we estimate the Covenant Health impact as once the operations are integrated, there are not separate results. For instance, there are not VITAS specific referral sources versus Covenant-specific referral sources in these locations. It is very likely that referral sources in the area have historically referred to both VITAS and Covenant.
We have used historical operating trends in these locations to determine what is legacy VITAS activity. All activity above these historical operating trends have been attributed to the Covenant Health acquisition. Of course, we have included the specifically determined impact as it relates to new operating territories acquired. Based on the above, the following discusses the range of impact that Covenant had on the overall VITAS operating metrics.
The Covenant Health acquisition contributed $8.2 million to $8.7 million of revenue in the second quarter of 2024. This revenue translated to net income of approximately $1.6 million to $1.8 million. Adjusted EBITDA in the quarter attributed to Covenant Health is between $2.2 million and $2.4 million. As we already had operations in 2 of the acquired programs, we did not need to add significant infrastructure to absorb the additional activity. This results in higher overall margins for these 2 programs and for the acquisition as a whole.
VITAS net revenue was $374.6 million in the second quarter of 2024, which is an increase of 16.7% when compared to the prior-year period. This revenue increase is comprised primarily of a 14.4% increase in days of care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.5%. The acuity mix shift negatively impacted revenue growth, 112 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 increased revenue growth by approximately 92 basis points. Average revenue per patient day in the second quarter of 2024 was $200.03, which is 153 basis points above the prior year period. Reimbursement for routine home care and high acuity care averaged $176.73, and $1,071.65, respectively. During the quarter, high acuity days of care were 2.6% of total days of care, a decline of 21 basis points when compared to the prior year quarter.
Adjusted EBITDA, excluding Medicare Cap, totaled $67 million in the quarter, an increase of 77%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 17.8%, which is 613 basis points above the prior year period. The expense attributable to the retention bonus program in 2023 contributed 397 basis points to the year-over-year improvement in the 2024 margin.
Now let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $155 million, a decrease of 1.6% from the prior year period. Roto-Rooter branch commercial revenue in the quarter totaled $50.9 million, a decrease of 8.2% from the prior year. As Kevin mentioned, this continues to lag our expectations for this segment of the business.
The commercial business is experiencing some of the same overall demand issues we have seen with residential revenue in the second quarter. In general, small business owners behave very similarly to our residential customer base and therefore, consumer demand and increased competition are impacting this cohort of commercial customers. Roto-Rooter has continued its company-wide push to reemphasize the behaviors that are necessary to develop and retain commercial customers.
Commercial sales have been added during the quarter and will continue to be added. Roto-Rooter management has implemented enhanced customer relationship management capabilities to improve the efficiency of the expanded sales staff. Each branch general manager was required to directly contact or have their sales staff contact every key commercial customer as determined by certain customer demographic metrics.
Additionally, Roto-Rooter management has noted that a handful of branches have contributed to a large majority of the decline in commercial revenue. A deep dive analysis has been performed on these branches, in specific targeted improvement programs have been implemented. As we noted in the first quarter, many of the general managers of these programs are new to their positions since the pandemic. Training the general managers to recognize issues on a timely basis is part of the ongoing remediation program in the field.
Roto-Rooter management believes that the process of retraining managers and reemphasizing the commercial business will require multiple quarters to take full effect. Adjusted EBITDA at Roto-Rooter in the second quarter of 2024 totaled $59.8 million, a decrease of 9.2% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 27%. The second quarter adjusted EBITDA margin represents a 120 basis point sequential improvement from the first quarter of '24 based mainly on lower Internet marketing costs.
Now let's talk about our revised 2024 guidance. VITAS 2024 revenue prior to Medicare Cap is estimated to increase 16.3% to 17.3% when compared to 2023. Average daily census is estimated to increase 13.3% to 14.4%. Full year adjusted EBITDA margin prior to Medicare Cap is estimated to be 19.3% to 19.7%. We are currently estimating $8.5 million in Medicare Cap billing limitations in calendar 2024.
The cost of the retention program negatively impacted VITAS 2023 full year adjusted EBITDA by 159 basis points. The Covenant Health acquisition is estimated to contribute approximately $30 million to $32 million to VITAS' full year revenue. There is no estimated Medicare Cap billing limitation expected related to Covenant Health. This translates into adjusted net income attributable to Covenant Health of $5.5 million to $6 million and adjusted EBITDA of $8 million to $8.5 million.
Roto-Rooter is forecasted to have a 4% to 5% revenue decline in 2024 compared to 2023. Roto-Rooter's adjusted EBITDA margin for 2024 is expected to be 26.5% to 27%. Based on the above full year 2024 earnings per diluted share excluding noncash expenses 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 $23.55 to $23.80. This guidance assumes an effective corporate tax rate on adjusted earnings of 24.3% and a diluted share count of 15.25 million shares. Chemed's previously issued 2024 guidance was $23.30 to $23.70 per share. Chemed's 2023 reported adjusted earnings per diluted share was $20.30.
I will now turn this call over to Nick.
Thanks, Mike. I'm very pleased with the continued sustainable expansion of our workforce and patient capacity through the second quarter of 2024. As Kevin mentioned, excluding the personnel who transitioned over as part of the Covenant Health acquisition, we expanded our bedside headcount by 234 licensed professionals during the quarter. The second quarter of 2024 marked our eighth consecutive quarter of expanding our clinical workforce capacity in disciplines identified as part of the retention program.
In the second quarter of 2024, our average daily census was 21,036 patients, an increase of 14.4%. VITAS has generated quarterly sequential ADC growth over the last 7 quarters. In the second quarter of 2024, total VITAS admissions were 17,334. This is an 11% increase when compared to the second quarter of 2023. As previously announced, approximately 680 of those admissions are the result of the onetime admission of Covenant Health patients at the time of the acquisition.
In the quarter, admissions, excluding the onetime admissions related to the acquisition, increased in each of the top 4 preadmit location types. Our nursing home admissions increased 13.2% and assisted facility admissions expanded 15.7%, hospital directed admissions increased 6.3%, and our home-based patient admissions expanded 8.3% when compared to the prior year period.
Our average length of stays in the quarter was 100.6 days. This compares to 99.5 days in the second quarter of '23 and 103.9 days in the first quarter of '24. Our median length of stay was 18 days in the quarter and compares to 16 days in the second quarter of '23 and 16 days in the first quarter of '24. Our teams remain hard at work integrating the operations of Covenant. To date, the integration has gone better than expected. The Covenant transaction could not have been accomplished without the unwavering commitment, dedication and focuse each BTOP team member shows towards fulfilling our mission in every community we serve.
As I mentioned in the call last quarter, this transaction illustrates what's possible when 2 long-standing mission-focused organizations collaborate irrespective of tax status to ensure we collectively serve the evolving needs of our communities. I believe these types of opportunities should continue as the hospice and palliative care industry carries on its 45-plus-year mission in this country focusing on patients and families in the communities we serve without allowing for items like tax status to impede progress.
As Kevin mentioned, we are very excited about the opportunity to begin providing service in Pasco County, Florida. While we have not forecast a significant impact in 2024 as a result of the newly received CON, we believe this provides significant growth opportunity for us in the future. To recap what our team has accomplished, we've now generated 8 quarters of sequential net growth in licensed health care workers and 7 quarters of sequential growth in ADC.
With our targeted retention program having been completed over a year ago, we have demonstrated a sustainable and predictable approach to methodically building our clinical capacity and patient base that has taken us way past pre-pandemic levels. We've also demonstrated the ability and interest in partnering with other providers through acquisitions to ensure communities continue to receive the best possible care. We are extremely optimistic about the ability of VITAS to maintain above average historical growth, both organically and through potential acquisitions over the next few years.
With that, I'd like to turn this call back over to Kevin.
Thank you, Nick. I will now open this teleconference to questions.
[Operator Instructions] And our first question comes from the line of Ben Hendrix from RBC Capital Markets.
Maybe a question for Nick here on VITAS. Just curious if you could provide some more information on kind of that long-term runway for census growth and how you're thinking about the capacity that you could open up over the intermediate term, given the hiring activity, retention activity and what we're seeing across what seem to be a lot of your community referral sources in terms of occupancy improvements and skilled nursing and senior housing to the degree in which that could continue to open up census opportunity, how you think where that growth could go over the next handful of years?
Yes, absolutely. So just to reiterate, right, our revised full year census guidance for this year, which I realize is part of the question, but not the full part of the question, is 13.3 to 14.3 on '24 as compared to '23. When we think about the algorithm into '25 and beyond, which, of course, we don't guide to, but just from a commentary standpoint, we think the pace and cadence and all the factors that go into what we've built has demonstrated thus far throughout '24 and into the latter half of '23 are sustainable.
And so as we think about the markets in which we operate in as well as the markets in which we are targeting to also operate in, we think this combination that's inferred in our '24 guidance is something that could be achievable on a go-forward basis. And as we point out, the underlying pinpoint is the demand in the market is not changing or waning.
However, as long as we continue our successful track record of retaining and attracting staff into all the locations in which we operate, that would be the only limitation. But as we've tried to illustrate over a year plus now with the retention program being behind us, we think we have a really sustainable culture and approach towards methodically building that, and we don't see any headwinds from a demand standpoint for hospice services across the country and in particular, in the markets in which we operate.
Appreciate that. And just on the M&A front, can you -- any comments you can offer about the -- about your pipeline of opportunities to acquire more Covenants out there, maybe opportunities where you don't already have a presence and could attain a certificate need?
Yes. So I guess the comment we'd make is, it is an active pipeline and a very targeted and focused one, as we've commented on in the past in states as well as in counties, particularly those that are restricted because we think they operate very efficiently and help to service the needs of all those communities. So we have a lot in active discussion, but time will tell.
And depending on the provider, obviously, there's a bunch of different catalysts of things that would lead towards that strategic interest, whether it's single site regional focused providers with the ongoing headwinds from a reimbursement or reform standpoint, and then there's other assets out in the market that are long in the tooth in their ownership cycle for some other private equity firms and others that may create interesting opportunities for us as well. So we're looking to put our balance sheet to work if it makes sense for our shareholders. And as you guys can see on the Covenant side of it, also from a valuation standpoint in markets which we want to operate. So we think we're well positioned.
And one thing I'd add is, we've seen in Florida a bit of a blurring in the line between acquisition and new start-up through CON. I mean, I'm speaking about it in Florida. The pace of growth that VITAS has been able to achieve has sped up geometrically. In other words, it used to be -- we used to say, it took 2 years to get to about 100 census on the new program starting from scratch, and VITAS has blown that out of water over the last several CONs.
So I'm just saying that you put your finger on one thing is, yes, there's geography in Florida that we are precluded from being in VITAS has shown that once they have the legal IP there, they've grown very fast. So whether we get there by CON or acquisition, as I say, that differentiation is blurring a little bit in our mind, but I think there's opportunities in both of those categories for expanding our footprint in Florida.
Yes. No, that's a really excellent point by Kevin. Very happy and proud of the efforts our team has put into place to really accelerate impact in each of those markets that wouldn't have been the same years back. So we've taken a very intentional approach there so that everything is lined up, whether it's through acquisition or whether it's through new start de novo to really penetrate, make an impact and service as many patients as quickly as we can in the markets in which we operate. So that impacts that growth algorithm as well.
And just the last thing from me. I was just getting a lot of questions about kind of the longer-term kind of growth algorithm for Roto-Rooter kind of given the headwinds that we've seen on the commercial side. I appreciate the commentary about the multi-quarter retraining opportunity to turn around those locations. But any way we should think about kind of the longer-term growth trajectory for this business, any thoughts on this point?
Well, let me start by saying that we've owned Roto-Rooter for 44 years. And during that period, of course, we always say it's recession resistant, it's been a very consistent strong but -- consistent but grinded out type grower. We have had cyclical periods where it's been up a little more or down a little bit more.
Clearly, we're in, what I think is, one of those cyclical periods, we're a little bit on the -- calls were down 6% in the quarter. I mean, it's down. And when you're on that slope of the line, you kind of look at it and say, does this slope continue to go down forever, how quickly does it turn? Historically, it's turned pretty quickly. I would say that the way we look at it is there's nothing substantially changed in the business.
I mean, when I look at the -- what we call the macroeconomic trends, those could turn on 2 Fed rate cuts. I mean, that's not something we worry about on anything but the short term, to the extent that the home services sector went through a period during the pandemic of just explosive growth. It attracted a lot of private equity money into the field. I think that's disrupted the market a little bit.
What we always say is those competitors are -- they're running a sprint, we're running a marathon. Their #1 priority is growing top line and building a brand. We have a brand and we're out to build net income, first and foremost, and then top line. So it's a bit of a mismatch. But I guess to answer your question, we view it as just kind of the normal ying and yang cyclical period that we are on the question -- the negative side of that question. But Mike, anything to add there?
Sure. On a longer-term basis, I think to your question, we view probably the long-term potential for Roto-Rooter to be in the 5% to 6% range top line growth. And the way you would build that up is we're always going to pass along a price increase at the beginning of the year based on inflation and hopefully a little bit higher than inflation. That's not only good for our top line, but because all of our technicians are generally commission-based, we need to at least pass along price increases so that their commission stays up with the price of inflation and real rates.
So we'll always have a price increase at the beginning of the year. We always talk about -- and it's a very crude measure, but new home formation is sort of how the demand will increase over the years just in the whole sector itself. So call that a couple of percent. So if we pass through a 3% price increase, a couple of percent demand increase, that's where you get to 5%, 6%.
On top of that, if we were to start thinking about growing on a long-term consistent basis higher than that, we would be adding acquisitions, which we think are a very, very good possibility over the next 18 to 24 months. And then we would start developing and looking at new lines of businesses that are within the plumbing sort of sector and we're constantly looking and exploring those kind of different services. So 5% to 6% with add-on from acquisition and new potential lines of business.
And our next question comes from the line of Joanna Gajuk from Bank of America.
So maybe since we finished on Roto-Rooter, I'll continue that topic first. So the business, I guess, sounds like it did worse than your internal expectations. I mean, clearly worse than our model. And you made it sound like things are kind of when it comes to these headwinds similar to Q1. But the revenues did decline sequentially, but I assume there's some seasonality because Q1 tends to be a busy quarter there. But then when I look at the last few years, obviously, I think [indiscernible] by the pandemic.
So is there any historical data you can share kind of organic basis like typical seasonality Q2 from Q1. And can you flag -- was there any new issue? Or kind of how would you describe the reasons for why it was a little bit worse than what you were initially expecting?
Sure. On a sequential basis, the first quarter and the fourth quarter every year are Roto-Rooter's best top line quarters. There's freezing, there's more precipitation, those things help our demand. Generally, overall, I would tell you that first quarter to second quarter sequentially, the decline is roughly 4% to 5% of revenue. That's normal. We're going from a really cold period into a more mild period and that just happens every year normally.
From third -- second quarter and third quarter then are generally comparable to each other. Fourth quarter then generally goes up 5% to 7% based on weather as well as the idea that during the holidays, people are home more, they're doing more things around the house, they're getting their house ready for holiday, festivities and things. So that helps pump up our demand. So there's a bit of a dip historically in the second and third quarter as it relates to revenue.
Okay. And when I look at the different -- sorry...
Just to answer one question about issue, why it was kind of an overarching question, why were sales lower than we expected in the quarter? And again, I'm reiterating many things we've said in our press release and then our earlier presentation. But generally, I would say, it could be 2 things. I mean, commercial sales were lower than -- they really should have been. They were lower than we expected. There's no reason in our view for them to be quite that low. I mean, we expect those couple of percentage point improvements of that just through blocking and tackling.
The other aspect of the question is really relates more to the residential. And that is, go on Google and open up plumbing services. You'll see there is a cacophony of service offerings and much more so than past years. It's a very complex issue. All firms are fighting that. We're fighting that through not only our top locations, but all our contractor operations and our franchise, our hundreds of franchise operations.
I mean, I have a feeling that of all the companies in that sector to figure it out, historically, it's always been Roto-Rooter to get on top of changes on the marketing side. So we're not there yet. But to answer your question as far as why is it lower, it's those 2 issues. It's getting the calls on the residential side. And doing a better job dealing with the commercial market.
And I guess another question because I was us trying to say, the breakdown you gave in terms of the different elements inside of residential, commercial and the water restoration was down year-over-year, I guess, more in commercial, but still residential, it was down like almost 5% year-over-year because I thought this would be sort of the most need-base business, right?
Because you always talk about whether that should be more like macro-driven consumer confidence and I guess just economy, broadly speaking. So I thought that will be the -- I don't know whether there was anything year-over-year. How would you describe kind of the need basis of core business versus the sort of the more discretionary elements, how those are tracking?
So the water restoration business is dependent on the severity of the issues that we find when we get to the job site. So it's difficult to say why or how it varies on a quarter-to-quarter sequentially or year-over-year. What I can say with some definition or some definity is that our conversion rate on calls that we received that we think had the water restoration possibility are at close to all-time highs. So we are converting the calls that we get that we think have water restoration possibilities at a higher rate than we have in the past. But how those calls come in and why they may or may not come in is a hard question to answer, really. It generally goes with our plumbing and sewer drain revenue, though, as you point out. So we're converting the jobs we're getting, I can say that with certainty.
All right. And I guess the last question on Roto around. So your guidance assumes revenue declines worth 5, but I guess it was a bigger decline in first half to kind of imply second half still down by maybe less than second -- the first half. So can you talk about maybe the exiting the quarter and into early Q3 or how are things tracking in that business?
We are projecting some sequential improvement third quarter and fourth quarter on a year-over-year comparison basis. So obviously, if we're down roughly 5.5% year-to-date, and we're only guiding to 4% to 5% down, there is going to be some improvement in the second half of the year.
The other thing I can say is and I don't want to make too big of a deal out of this, but sequential improvement intra-quarter in the second quarter, particularly on commercial revenue on a monthly basis, our commercial revenue comps improved each month during the second quarter. I don't want to make too big of a deal out of that. That's just a couple of months of activity. But we think that there's a -- some positive momentum for the second half of the year going in the right direction.
Okay. That's helpful. And if I may go close to that end, you kind of said in your prepared remarks about the management team of Roto-Rooter is not going to anticipate several quarters for kind of the actions to represent themselves in results, I guess. So is it fair to assume like -- headed into '25 there may be still like revenue declining. But I guess, status quo or assuming economy doesn't change much in either direction, you would think that '25 could be a growth year. I mean, it sounds like it's probably not growing as fast, maybe your long term, the 5% to 6% you described, but is it somewhere kind of approaching that into next year?
We haven't done any real analysis for '25 yet, Joanna. So I would hesitate to say that we're going to be at a 5% to 6% growth rate in '25 but I think we think we're moving in that direction.
Okay. And maybe switching gears to VITAS. So you raised guidance there quite a bit. Obviously, the [indiscernible] but just more fraction. And I guess the Medicare Cap is lower, but it sounds like your census is much higher, so that's where it is. But the last piece I want to ask and clarify comments around Medicare rate of this, so we've seen the proposal. So what do you assume for Q4 for the Medicare rate of it and how much, I guess, it helped your guidance versus, say, your original expectations?
Yes. Sounds good. So let me provide what we have baked in. And of course, while I it's -- I believe it's at OMB getting finalized as we speak, the construct of it is locked and loaded. So we believe the impact in the fourth quarter that's embedded in our estimate that should come to fruition when it's finalized is about 3.5% net across the entire company, which is -- we then do better, of course, than the national stated blended rate of 2.6%. So that's great.
Inside of our original estimate, I think I can't recall totally off the top of my head, but this is slightly better than our original estimate related to it, and it really comes down to, as you point out, some of the key markets in which we operate in, saw higher price increases than we anticipated, which is good. And then the other real underlying driving factor is the government continues to recognize in that wage rule that high acuity services, particularly continuous care are an area of focus.
And so continuous care happened to have the largest price increase of all 4 levels with GIP being the lowest, but it's really reflective of a continued decrease of providers in the hospice space, providing continuous care, and we continue to provide all 4 levels and we think that's a differentiating offering, not only for our partners, but more importantly, for patients and families as we're able to provide services, keep them at home and help them through a period of crisis. So that's how it all...
Right. And the bigger piece seems to that the censors grow, right? And you mentioned you continue to hire large capacity, which is going to address census. So it sounds like you just essentially hire nurses or workers from others. So I guess -- I think I know the answer, but I just would like to hear you talk about the competitive environment, how long -- for how long I guess you can grow at rate and kind of, I guess, continue to take market share?
Yes. I mean, we believe there is -- we feel real confident in what we've proven over the last effective 2 years, right? You have 7 quarters of ADC growth, 2 years of clinical capacity, and we've been referencing just the 5 disciplines associated with the retention program. And those -- that trend is consistent with all the other clinical disciplines we need to provide full comprehensive care.
As it relates to talent in the marketplace, that predictability and culture and ability to really provide comprehensive care to patients and families continues to resonate with clinicians, we believe that as a differentiating proposition for them to come to us and come to us with a fantastic cultural and local family that they're joining. So whether those individuals are coming from other health care settings, whether it -- we're also seeing a combination of strength of people either coming back into the workforce or a much more reliable and predictable pattern of resources available out there, that's really encouraging. That's what we're experiencing.
And that's what gives us further confidence not only in this year's remaining growth rate at 13.3% to 14.3%. But as you point out, all of our revised guidance is volume driven, and we anticipate that to continue going forward, and we'll provide those details once we get into the '25 planning process.
So I guess you're saying like you offer culture and better work environment, but I guess it must be some monetary, I guess, advantages you guys have versus your competitors, right?
Yes, we're going to continue to play -- correct. The prevailing market range, rich benefits, all the things that attract. But as we've spoken about over the last 2 years, it's not just money that drives people to make a choice want to come either in the hospice, it is also the ability and confidence they have to fulfill that mission and calling that typically bring people into our industry.
And we think we're -- obviously, I have a slighted view, but we think we're the best place in the market to do so and we're trying and have evolved our targeted marketing evaluation strategies. The pandemic forced us to elevate our game appropriately, and we've done that. So that's what the last 2 years, I think, have helped to illustrate. And we're well past the year's worth anniversary of the retention program being behind us. We've completed the last payment. I mean, we have a proven track record right now of a year plus of being able to do this in the environment which we're operating right now.
And I guess, if I may, on the new CON, so it sounds like this is pretty close to Tampa. So can you remind us what was the last time you added new CON? It sounds like those CONs that you added in Florida were much better than you had expected. So any way to kind of size up opportunity in this new territory, maybe not this year, but like as we think about, say, next year?
Yes. We'll provide some of the sizing embedded in our guidance in '25 and beyond. It's one of the things we want to hesitate doing right now. I'd have to go back because I don't want to do it off the top of my head as to when the timing of a few of the last CONs went into place. But what Kevin was alluding to, whether it's CON entry or whether it's acquisition entry, our teams -- we've refined our approach and have really found great performance and deploying resources immediately pre-day 1 and on day 1 at being successful at penetrating the markets and for the CON pieces, it just helps to further reinforce the underserved population which drove to the identification of need and we found that demand to be substantial.
And so it -- we basically threw away all of our other historical growth algorithms because they weren't -- they were grossly under -- we are outperforming all of that and we anticipate that here in Pasco once we enter.
And Joanna, another big benefit of -- fast-growing CON like that is the Medicare Cap protection that it provides is in the early years, almost more important than the contribution to the top or bottom line, but it's good to get them, I guess. We don't we don't take them lightly.
Yes. And our latest one, the performance of it is so substantially off the charts compared to anything else historically. That's why I'm hesitating to reference it right now. I don't think that's what we would attribute in the Pasco entry to be, but it was substantial.
Okay. That's good to hear. I guess that -- so the very last one. On the length of stay metrics, the median is higher 18 versus 16 last year and I guess 16 last quarter. But then the average length of stay, I guess, been declining. So I guess you kind of peaked almost like 106 days, but now it's like a little bit about 100 days. So should we expect this average length of stay to continue to decline? Because I guess you had a pretty good growth in the hospital admission. So I assume that's where it's being reflected, but then the median is higher. So I'm trying to reconcile that too?
Yes. I wouldn't put too much credence in quarter-over-quarter movement of any of the average length of stay components, I think what you could anticipate is it will remain relatively consistent with where the first half of the year has been. The median length of stay at 18 days, I find very encouraging, whether it was 16, whether it's 18, it may not sound substantial.
But to me, it really becomes the accurate representation of how well we are doing out in the communities with our health care partners of educating them around earlier identification of hospice appropriateness and it begins to translate through that way. And so while one day of movement doesn't meaningfully drive a whole lot, it is something we look at because it becomes a good barometer of how good of a job we're doing with that education cycle and how every day matters in the patient and family's experience here. And that's what we always remind all of our team members and the quarter represents a positive trajectory.
But whether it's 16, 17, 18 or 19, that's probably the range we'll operate in. We referenced it in the pandemic when we hit an all-time low of 11, but that was more of the health care system being completely disrupted, patients coming to us at the real extreme end of life, and we were trying to forecast at that time what it was going to mean over time for census. And so we're encouraged by 16 to 18 range.
This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kevin McNamara, CEO, for any further remarks.
Thank you, everyone, for your questions and your kind attention. And we'll reconvene about 3 months from today. Thank you.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.