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Risk Factors (Item 1A)
6,543 words
Item 1A. Risk Factors
You should carefully consider the risks described below, together with all of the information included in this Annual Report on Form 10-K, in evaluating us and our Capital Stock. They are not the only ones facing the Company. Other risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, or results of operations.
ROTO-ROOTER
We face intense competition from numerous, fragmented competitors. If we do not compete effectively, our business may suffer.
We face intense competition from numerous competitors. The sewer, drain and pipe cleaning, excavation, plumbing repair and water restoration businesses are highly fragmented, with the bulk of the competitors consisting of local and regional entities. Private equity businesses have recently made significant investments in home services companies, including plumbing. We compete primarily on the basis of advertising, range of services provided, name recognition, availability of emergency service, speed and quality of customer service, service guarantees and pricing. Our competitors may succeed in developing new or enhanced products and services more successful than ours and in marketing and selling existing and new products and services better than we do. Also, effective marketing and advertising may become more expensive and more difficult as search engines revise algorithms, customers use of artificial intelligence (“AI”) platforms become more prevalent and business models and customers change how they find our services. In addition, new competitors may emerge. We cannot make any assurances that we will continue to be able to compete successfully with any of these companies.
Our operations are subject to numerous laws and regulations, exposing us to potential claims and compliance costs that could adversely affect our business.
We are subject to federal, state and local laws and regulations relating to franchising, insurance and other aspects of our business. These are discussed in greater detail under “Government Regulations” in the Description of Business section hereof. If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines and sanctions. Our franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the FTC regarding the offering or sale of franchises. These rules and regulations require us to provide all of our prospective franchisees with specific information regarding us and our franchise program in the form of a detailed franchise offering circular. In addition, a number of states require us to register our franchise offering prior to offering or selling franchises in such states. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor’s ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor’s ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is or not renewed in of such laws and (iv) provisions relating to arbitration. The ability to engage in the plumbing repair business is also subject to certain and restrictions imposed by the state and local licensing laws and regulations. We cannot predict what legislation or regulations affecting our business will be enacted in the future, how existing or future laws or regulations will be enforced, administered and interpreted, or the amount of future expenditures that may be required to comply with these laws or regulations. Compliance costs associated with governmental regulations could have a material effect on our business, financial condition and results of operations.
Roto-Rooter’s loss of key management personnel or its inability to hire and retain skilled employees could adversely affect its business, financial condition and results of operations.
Roto-Rooter’s future success significantly depends upon the continued service of its senior management personnel. The loss of one or more of Roto-Rooter’s key senior management personnel or its inability to hire and retain new skilled employees could
negatively impact its ability to maintain or increase customer calls and jobs, a key aspect of its growth strategy, and could adversely affect its future operating results.
Competition for skilled employees, particularly licensed plumbers, is intense, and the process of locating and recruiting skilled employees with the combination of qualifications and attributes required to adequately perform plumbing duties can be difficult and lengthy. We cannot assure you that Roto-Rooter will be successful in attracting, retaining or training highly skilled personnel. Roto-Rooter’s business could be disrupted and its growth and profitabilitynegatively impacted if it is unable to attract and retain skilled employees.
Cybersecurity
Our information technology systems hold sensitive customer information in the ordinary course of business, including names, addresses, and partial credit card information. We utilize those same systems to perform our day-to-day activities, such as receiving customer calls, dispatching technicians to jobs, and maintaining an accurate record of all transactions. We have not experienced any known material system/data breaches on our information technology systems that compromised customer data or the company’s proprietary data. We maintain our information technology systems with safeguard protection against cyber-attacks, including intrusion detection and protection services, firewalls, and endpoint security software. Every month, we test our information technology systems using cyber-scanning software and other methods to learn how a successful system/data breach may occur. If a deficiency is detected, our IT staff will log and remediate the deficiency prescribed by the vendor or manufacturer. Roto-Rooter has developed and tested a response plan in the event of a successful system/data breach and maintains commercial insurance related to cyber-security. We obtain internal control reports from key vendors that maintain company data or process company transactions on a yearly basis. We review these reports to detect any potential cybersecurity issues. However, these safeguards do not ensure that a significant system/data may occur. Since the pandemic, certain roles have been conducted remotely, increasing the role and importance of our information technology and security systems. Additionally, the increasing development and use of AI and other new and evolving technologies create additional system and other risks. Chemed’s Chief Legal Officer and Chief Financial Officer are to any potential issues and evaluate those issues for cybersecurity materiality. A attack on our information technology systems could significantly affect the business, including liability for compromised customer information and business .
Roto-Rooter’s success is highly dependent on its brand reputation.
Roto-Rooter’s national reputation and brand image for performing necessary, high quality services in a timely manner is critical to Roto-Rooter’s continued success. Adverse publicity, litigation or on-line negative reviews focused on the Roto-Rooter brand could negatively impact Roto-Rooter’s national reputation resulting in decreased future demand for Roto-Rooter branded services. Roto-Rooter maintains a reputation management risk program, however, a loss of brand reputation at Roto-Rooter could adversely affect consumer willingness to use our service and thus, adversely affect our future operating performance.
VITAS
VITAS is highly dependent on payments from Medicare and Medicaid. If there are changes in the rate or methods governing these payments, VITAS’ net patient service revenue and profits could be materially affected.
In excess of 95% of VITAS’ net patient service revenue consists of payments from the Medicare and Medicaid programs. Such payments are made primarily on a “per diem” basis. Because VITAS receives a per diem fee to provide eligible services to all patients, VITAS’ profitability is largely dependent upon its ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on VITAS’ business in the future. Additionally, regulators are increasing scrutiny of claims, including through the TPE program, which may require additional resources to respond to audits, and which may cause additional delays or denials in receiving payments. Medicare and Medicaid currently adjust the various hospice payment rates annually based primarily on the increase or decrease of the hospital wage index basket, regionally adjusted. However, the increases may be less than actual inflation. VITAS’ profitability could be negatively impacted if this adjustment were eliminated or reduced, or if VITAS’ costs of providing hospice services increased more than the annual adjustment. In addition, cost pressures resulting from shorter patient lengths of stay and the use of more expensive forms of palliative care, including drugs and drug delivery systems, could impact VITAS’ . Many payors are increasing pressure to control health care costs. The U.S. federal budget remains in flux, which could, among other things, Medicare payments to providers. The Medicare program is frequently mentioned as a target for spending cuts and within the Medicare program the hospice is often specifically targeted for cuts. The full impact on our business of any future cuts in Medicare or other programs is uncertain. In addition, both public and private payors are increasing pressure to decrease, or limit increases in, reimbursement rates for health care services. VITAS’ levels of revenue and will be subject to the effect of possible reductions in coverage or payment rates by third-party payors, including payment rates from Medicare and Medicaid.
Hospice Medicare reimbursement is subject to certain limitations or “caps” based on the number of inpatient days of care and overall average capitation per admission. The cap per admission is increased yearly based on the national average Medicare reimbursement increase for hospice. However, the actual reimbursement increase is calculated on a county-by-county basis and may vary significantly from the national average. Because of the potentially significant difference between these two calculations, there is a risk that VITAS could incur a significant cap limitation in one or more of its programs, if the actual reimbursement increase for one of it's programs significantly outpaces the associated increase in the per admission cap.
Each state that maintains a Medicaid program has the option to provide reimbursement for hospice services at reimbursement rates generally required to be at least as much as Medicare rates. All states in which VITAS operates cover Medicaid hospice services; however, we cannot assure you that the states in which VITAS is presently operating or states into which VITAS could expand operations will continue to cover Medicaid hospice services. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on VITAS’ business. We cannot assure that Medicare and/or Medicaid payments to hospices will not decrease. Reductions in amounts paid by government programs for services or changes in methods or regulations governing payments could cause VITAS’ net patient service revenue and profits to materially decline.
15% to 20% of VITAS’ days of care are provided to patients who reside in nursing homes. Changes in the laws and regulations regarding payments for hospice services and “room and board” provided to VITAS’ hospice patients residing in nursing homes could reduce its net patient service revenue and profitability.
For VITAS’ hospice patients receiving nursing home care under certain state Medicaid programs who elect hospice care under Medicare and Medicaid, the state generally must pay VITAS, in addition to the applicable Medicare or Medicaid hospice per diem rate, an amount equal to at least 95% of the Medicaid per diem nursing home rate for “room and board” furnished to the patient by the nursing home. VITAS contracts with various nursing homes for the nursing homes’ provision of certain “room and board” services that the nursing homes would otherwise provide Medicaid nursing home patients. VITAS bills and collects from the applicable state Medicaid program an amount equal to approximately 95% of the amount that would otherwise have been paid directly to the nursing home under the state’s Medicaid plan. Under VITAS’ standard nursing home contracts, it pays the nursing home for these “room and board” services at approximately 100% of the Medicaid per diem nursing home rate.
The reduction or elimination of Medicare and Medicaid payments for hospice patients residing in nursing homes would reduce VITAS’ net patient service revenue and profitability. In addition, changes in the way nursing homes are reimbursed for “room and board” services provided to hospice patients residing in nursing homes could affect VITAS’ ability to serve patients in nursing homes.
If VITAS is unable to maintain relationships with existing patient referral sources or to establish new referral sources, VITAS’ growth and profitability could be adversely affected.
VITAS’ success is heavily dependent on referrals from physicians, long-term care facilities, hospitals and other institutional health care providers, managed care companies, insurance companies and other patient referral sources in the communities that its hospice locations serve, as well as on its ability to maintain good relations with these referral sources. VITAS’ referral sources may refer their patients to other hospice care providers or not to a hospice provider at all. Additionally, during the pandemic, VITAS experienced significant changes in referral patterns and sources. In the event that CMS re-institutes the SFP or a similar type of program and any VITAS program is identified as a “poor performer”, we do not know the extent to which such identification will affect industry referrals or referral patterns. VITAS’ growth and profitability depend significantly on its ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of hospice care by its referral sources and their patients. We cannot assure that VITAS will be able to maintain its existing relationships or that it will be able to develop and maintain new relationships in existing or new markets. Moreover, if shifts to referrals continue, it could materially affect the business. VITAS’ of existing relationships or its to develop new relationships could affect its ability to expand or maintain its operations and operate . Moreover, we cannot you that awareness or acceptance of hospice care will increase or remain at current levels.
VITAS operates in an industry that is subject to extensive government regulation and claims reviews, and changes in law and regulatory interpretations could reduce its net patient service revenue and profitability and adversely affect its financial condition and results of operations.
The healthcare industry is subject to extensive federal, state and local laws, rules and regulations relating to, among others:
Payment for services;
Conduct of operations, including quality assurance and compliance with conditions of participation, fraud and abuse, anti-kickback prohibitions, self-referral prohibitions and falseclaims;
Privacy and security of medical records;
Employment practices; and
Various state approval requirements, such as facility and professional licensure, Certificate of Need, compliance surveys and other certification or recertification requirements.
Changes in these laws, rules and regulations or their interpretations or methods of enforcement, including the elimination of any Certificate of Need laws or other license restrictions, could reduce VITAS’ net patient service revenue and profitability, or increase VITAS’ liabilities, cost of compliance, or legal and other costs in defending any claims. VITAS’ ability to comply with such regulations is a key factor in determining the success of its business. See the “Government Regulations” section of this 10-K for a greater description of these matters.
VITAS maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. We cannot assure you, however, that VITAS’ practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on VITAS.
Federal and state legislative and regulatory initiatives could require VITAS to expend substantial sums on acquiring, implementing and supporting new information systems, which could negatively impact its profitability and cash flows.
There are currently numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. We cannot predict the total financial or other impact of the regulations on VITAS’ operations. In addition, although VITAS’ management believes it is in compliance with the requirement of patient privacy regulations, we cannot assure you that VITAS will not be found to have violated state and federal laws, rules or guidelines surrounding patient privacy. Compliance with current and future HIPAA and HITECH requirements or any other federal or state privacy initiatives could require VITAS to make substantial investments, which could negatively impact its profitability and cash flows.
VITAS’ growth strategies may not be successful, which could adversely affect its business.
A significant element of VITAS’ growth strategy is expected to include expansion of its business in new and existing markets. This aspect of VITAS’ growth strategy may not be successful, which could adversely impact its growth and profitability. We cannot assure you that VITAS will be able to:
Identify markets that meet its selection criteria for new hospice locations;
Hire and retain qualified management teams to operate each of its new hospice locations;
Manage a large and geographically diverse group of hospice locations;
Become Medicare and Medicaid certified in new markets, particularly if a moratorium prohibits the granting of new licenses in certain markets;
Generate sufficient hospice admissions to operate profitably in these new markets;
Compete effectively with existing hospices in new markets; or
Obtain state licensure and/or a Certificate of Need from appropriate state agencies in new markets.
VITAS’ loss of key management personnel or its inability to hire and retain skilled employees could adversely affect its business, financial condition and results of operations.
VITAS’ future success significantly depends upon the continued service of its senior management personnel. The loss of one or more of VITAS’ key senior management personnel or its inability to hire and retain new skilled employees could negatively impact VITAS’ ability to maintain or increase patient referrals, a key aspect of its growth strategy, and could adversely affect its future operating results.
Competition for skilled employees is intense, and the process of locating and recruiting skilled employees with the combination of qualifications and attributes required to care effectively for terminally ill patients and their families can be difficult and lengthy. We cannot assure you that VITAS will be successful in attracting, retaining or training highly skilled nursing, management, community education, operations, admissions and other personnel. VITAS’ business could be disrupted and its growth and profitabilitynegatively impacted if it is unable to attract and retain skilled employees.
A nationwide shortage of qualified nurses and aides could adversely affect VITAS’ profitability, growth and ability to continue to provide quality, responsive hospice services to its patients as nursing and health aides’ wages and benefits increase.
A significant portion of VITAS’ workforce is licensed nurses. VITAS depends on qualified nurses to provide quality, responsive hospice services to its patients. The recent nationwide shortage of qualified nurses impacts some of the markets in which VITAS provides hospice services. In response to this shortage, VITAS has adjusted its wages and benefits to recruit and retain nurses and to engage contract nurses. Similarly, there recently has been a shortage of home health aides, who provide many of the hospice services provided by VITAS. VITAS has also adjusted its wages and benefits to recruit and retain home health and other aides. VITAS’ inability to attract and retain qualified nurses and aides as well as other healthcare workers, could adversely affect its ability to provide quality, responsive hospice services to its patients and its ability to increase or maintain patient census in those markets. Increases in the wages and benefits required to attract and retain qualified nurses or an increase in reliance on contract nurses could negatively impact profitability.
VITAS may not be able to compete successfullyagainst other hospice providers, and competitive pressures may limit its ability to maintain or increase its market position, which could adversely affect its profitability, financial condition and cash flows.
Hospice care in the United States is highly competitive. In many areas in which VITAS’ hospices are located, they compete with a large number of organizations, including:
Community-based hospice providers;
National and regional companies;
Hospital-based hospice and palliative care programs;
Physician groups;
Nursing homes;
Home health agencies;
Infusion therapy companies; and
Nursing agencies.
Various health care companies have diversified into the hospice industry and there is an increasing consolidation across hospice industry. Other companies, including hospitals and health care organizations that are not currently providing hospice care, may enter the markets VITAS serves and expand the variety of services offered to include hospice care. Additionally, jurisdictions where VITAS operates where competition is limited by Certificates of Need, may remove or lessen these restrictions, which could increase competition. We cannot assure you that VITAS will not encounter increased competition in the future that could limit its ability to maintain or increase its market position, including competition from parties in a position to impact referrals to VITAS. Such increased competition could have a material adverse effect on VITAS’ business, financial condition and results of operations.
Changes in rates or methods of payment for VITAS’ services could adversely affect its revenues and profits.
Managed care organizations have grown substantially in terms of the percentage of the population they cover and their control over an increasing portion of the health care economy. Managed care organizations have continued to consolidate to enhance their ability to influence the delivery of health care services and to exert pressure to control health care costs. VITAS has a number of contractual arrangements with managed care organizations and other similar parties.
VITAS provides hospice care to many Medicare beneficiaries who have elected Medicare managed care. Under such contracts between HMOs and the federal Department of Health and Human Services, the Medicare payments for hospice services are excluded from the per-member, per-month payment from Medicare to HMOs and instead are paid directly by Medicare to the hospices. As a result, VITAS’ payments for Medicare beneficiaries enrolled in Medicare risk HMOs are processed in the same way with the same rates as other Medicare beneficiaries. We cannot assure, however, that payment for hospice services will continue to be excluded from HMO payment under Medicare risk contracts and similar Medicare managed care plans or that if not excluded, managed care organizations or other large third-party payors would not use their power to influence and exert pressure on health care providers to reduce costs in a manner that could have a material adverse effect on VITAS’ business, financial condition and results of operations.
Liability claims may have an adverse effect on VITAS, and its insurance coverage may be inadequate.
Participants in the hospice industry are subject to lawsuits allegingnegligence, professional liability, wage and hour or other similar legal theories, many of which involve large claims and significant defense costs. We are also subject to the risk of lawsuits under the FalseClaims Act and comparable state laws for allegedly submitting fraudulent bills for services to the Medicare and Medicaid programs and other federal and state healthcare programs. These lawsuits, which may be initiated by “whistleblowers”, subpoenas or Civil Investigative Demands can involve significant monetary damages, fines, attorneys’ fees and the award of bounties to private qui tam plaintiffs. From time to time, VITAS is subject to such claims and other types of lawsuits. See the description below under Legal Proceedings in the Notes to the Consolidated Financial Statements. The ultimate liability for , if any, could have a material effect on its financial condition or operating results. Although VITAS currently maintains liability insurance intended to cover certain , we cannot you that the coverage limits of such insurance policies will be adequate or that all such will be covered by the insurance. In addition, VITAS’ insurance policies must be renewed annually and may be subject to increasing premiums, high deductibles, and during the policy period. While VITAS has been to obtain liability insurance in the past, such insurance varies in cost, and may not be available in the future on terms acceptable to VITAS, if at all.
A successful claim in excess of the insurance coverage could have a material adverse effect on VITAS. Claims, regardless of their merit or eventual outcome, also may have a material adverse effect on VITAS’ business and reputation due to the costs of litigation, diversion of management’s time and related publicity.
VITAS procures professional liability coverage on a claims-made basis. The insurance contracts specify that coverage is available only during the term of each insurance contract. VITAS’ management intends to renew or replace the existing claims-made policy annually but such coverage is difficult to obtain, may be subject to cancellation and may be written by carriers that are unable, or unwilling to pay claims. Additionally, some risks and liabilities, including claims for punitivedamages, are not covered by insurance.
Cybersecurity
In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data, eligibility for various medical plans including Medicare and Medicaid and protected health information. We utilize those same systems to perform our day-to-day activities, such as receiving referrals, assigning medical teams to patients, documenting medical information and maintaining an accurate record of all transactions.
Despite significant safeguards, including active intrusion protection, firewalls and virus detection software, as discussed in greater detail on Item 1C below, in October of 2025, access to our systems was gained by a threat actor in a cybersecurity attack. The threat actor was able to access a significant amount of Protected Health Information (“PHI”); however, despite repeated attempts, was not able to insert a tool often used by threat actors into our system. Our response plan was effective in identifying, quarantining, and eliminating the third-party intrusion, but not before access to PHI was gained.
As a result of the cyberattack, we have reviewed our system and strengthened it further to better prevent future successful attacks.
We maintain commercial insurance related to cyberattacks. We obtain internal control reports from key vendors that maintain company data or process company transactions on a yearly basis. We review these reports to detect any potential cybersecurity issues. However, these safeguards do not ensure that another significant cyberattack could not occur. The current environment, particularly in
healthcare and with the increase in use of AI and other new technologies, has significantly increased our usage of information technology systems and heightened the need for security of those systems with the increase in telehealth.
Although the cyberattack that led to the breach of PHI was the first to successfullygain access to our systems, it was not an isolated incident. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all large companies, including ours. Chemed’s Chief Legal Officer and Chief Financial Officer are alerted to any potential issues and evaluate those issues for cybersecurity materiality.
While we have been able to mitigate the damages from the prior successful attack, and did not experience any material operational or financial issues as a result of the attack, a subsequent successful attack on our information technology systems could have even greater consequences to the business including liability for compromised patient information and business interruption.
VITAS’ success is highly dependent on its brand reputation.
VITAS’ reputation for performing quality routine and high acuity patient hospice care within the regulations mandated by Medicare, Medicaid and commercial payors is critical to our success. Failure to provide quality patient care within the regulations mandated by our third-party payors, or the perception of inappropriate care resulting in adverse publicity, litigation or a campaign of negative on-line reviews are some of the factors that could negatively impact VITAS’ national reputation. VITAS maintains a reputation management risk program however, a loss of brand reputation at VITAS could adversely affect referral sources’ willingness to refer our service and thus, adversely affect our future operating performance.
It is unclear what effects that CMS’ Special Focus Program (“SFP”) may have on VITAS’ brand reputation. CMS has halted implementation of the program. However, if CMS revises the program or implements a similar program and its implementation identifies any VITAS programs as “poor performers”, such designation could negatively affect VITAS’ brand reputation, and any additional governmental oversight could materially adversely affect the operations profitability of any affected programs.
VITAS’ headquarters and a significant portion of its operations are in Florida.
The occurrence of a natural disaster in any region that VITAS has significant operations could have a negative impact on the business. VITAS’ headquarters are located in south Florida. In addition, two of our largest programs and an office complex are in south Florida and a substantial percentage of our revenue is derived from our operations across Florida. The location of our headquarters and the size of our operations across Florida increases our exposure to hurricanes. Major hurricanes in Florida could impede our ability to bill for our services, operate our businesses and serve our patients in the affected area. VITAS maintains a disaster recovery program to mitigate this risk and has successfully weathered many hurricanes through the years; however, natural disasters could have an adverse effect on our future operating performance.
GENERAL
The agreements and instruments governing borrowing capacity contain restrictions and limitations that could significantly impact our ability to operate our business and adversely affect the price of our Capital Stock.
The operating and financial restrictions and covenants in our instruments of indebtedness restrict our ability to incur additional debt; issue and sell capital stock of subsidiaries; sell assets; engage in transactions with affiliates; restrict distributions from subsidiaries; incur liens; engage in business other than permitted businesses; engage in sale/leaseback transactions; engage in mergers or consolidations; make capital expenditures; make guarantees; make investments and acquisitions; enter into operating leases; hedge interest rates; and prepay other debt.
Moreover, if we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements. A default, if not waived by our lenders, could accelerate repayment of our outstanding indebtedness. If acceleration occurs, we may not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance such debt on acceptable terms. In the event of any default under our credit facilities, the lenders thereunder could elect to declare all outstanding borrowings, together with accrued and unpaid interest and other fees, to be due and payable, and to require us to apply all of our available cash to repay these borrowings, any of which would be an event of default.
We depend on our management team and the loss of their service could have a material adverse effect on our business, financial condition and results of operations.
Our success depends to a large extent upon the continued services of our executive management team. The loss of key personnel could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, we cannot assure you that we will be able to attract or retain other skilled personnel in the future.
Environmental and safety compliance costs and liabilities could increase our expenses and adversely affect our financial condition.
Our operations are subject to numerous environmental, health and safety laws and regulations that prohibit or restrict the discharge of pollutants into the environment and regulate employee exposure to hazardous substance in the workplace. Failure to comply with these laws could subject us to material costs and liabilities, including civil and criminalfines, costs to cleanup contamination we cause and, in some circumstances, costs to cleanup contamination we discover on our own property but did not cause.
Because we use and generate hazardous materials in some of our operations, we are potentially subject to material liabilities relating to the cleanup of contamination and personal injuryclaims. In addition, we have retained certain environmental liabilities in connection with the sale of former businesses. We are currently funding the cleanup of historical contamination at one of our former properties and contributing to the cleanup of third-party sites as a result of our sale of our former subsidiary DuBois Chemicals Inc. Although we have established a reserve for these liabilities, actual cleanup costs may exceed our current estimates due to factors beyond our control, such as the discovery of additional contamination or the enforcement of more stringent cleanup requirements. New laws and regulations or their stricter enforcement, the discovery of presently unknown conditions or the receipt of additional claims for indemnification could require us to incur costs or become the basis for new or increased liabilities including impairment of our brand that could have a material adverse effect on our business, financial condition and results of operations.
We are subject to certain anti-takeover statutes that might make it more difficult to effect a change in control of the Company.
We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or preventing a change of control that could be advantageous to stockholders. Additionally, the FTC and other antitrust regulators have recently heightened their scrutiny of both horizontal and vertical merges in healthcare which could delay or prevent potential acquisitions, divestitures or a change in control.
An adverse ruling against us in certain litigation could have an adverse effect on our financial condition and results of operations.
We are involved in litigation incidental to the conduct of our business currently and from time to time. The damages claimed against us in some of these cases can be substantial. See the “Legal Proceedings” sections of this 10-K and the Notes to the Consolidated Financial Statements for discussion of particular matters. We cannot assure you that we will prevail in pending cases. Regardless of the outcome, such litigation is costly to manage, investigate and defend, and the related defense costs, diversion of management’s time and related publicity may adversely affect the conduct of our business and the results of our operations.
We have historically incurred debt to finance the operations of the Company.
The Company has historically had debt service obligations and has the ability through its existing credit facility to incur debt that may restrict our operating flexibility. We cannot assure you that our cash flow from operations would be sufficient to service our future operating needs, which would require us to borrow additional funds, or restructure or otherwise refinance our debt. In addition, the Company has the ability to expand its existing debt and borrowing capacity subject to various restrictions and covenants defined by its creditors. The interest rate the Company pays will fluctuate from time to time based upon a number of factors including current SOFR rates and Company operating performance. Significant changes in these factors could result in a material change in the Company’s interest expense.
Our future ability to repay or to refinance our indebtedness and to pay interest on our indebtedness will depend on our operating performance, which may be affected by factors beyond our control. These factors could include operating difficulties, increased operating costs, our competitors’ actions and regulatory developments. Our ability to meet our debt service and other obligations may depend in significant part on the extent to which we successfully implement our business strategy. We cannot assure you that we will be able to implement our strategy fully or that the anticipated results of our strategy will be realized. Credit market conditions may make it difficult for us to obtain new financing or refinance our current debt on terms and conditions acceptable to us.
If our cash flows and capital resources are insufficient to fund our potential debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional equity capital or restructure our debt. We cannot assure you that our cash flows and capital resources would be sufficient to make scheduled payments of principal and interest on our indebtedness in the future or that alternative measures would successfully meet our debt service obligations.
Issues associated with the actual or perceived effects of another epidemic, pandemic, or similar widespread public health concern, could adversely affect our businesses.
Our businesses may be negatively impacted by the fear of exposure to or actual effects of another epidemic, pandemic, or similar widespread public health concern as we experienced with the COVID-19 pandemic. Negative impacts may include, but not be limited to: restrictions or limitations on our ability to continue operations and service our patients and customers in-person, changes in demand for our services or mix of services demanded, additional costs for personal protection equipment and other items or processes necessitated to maintain the health and safety of our employees, customers and patients, isolated outbreaks of disease that may affect our ability to provide services in certain areas for a period of time, and increasing difficulty in our ability to hire employees to provide in-person services for our patients and customers during the pendency of any public health concern.
Despite our efforts to manage and remedy these impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
Significant Tariffs Could Increase Costs, Decrease Margin, and Materially Adversely Affect the Business.
Both Roto-Rooter’s and VITAS’s primary businesses are the provision of services within the United States. Accordingly, they are likely to be less affected by the impact of specific or wide-ranging tariffs than many other entities in the United States and Global economies. However, significant tariffs on certain products, such as steel for Roto-Rooter’s cabling machines and pharmaceuticals utilized by VITAS, could materially increase the costs of Roto-Rooter and VITAS. Additionally, because our service businesses heavily rely on delivering service to customers or patients in their residences, increases in the costs of vehicle acquisition, maintenance, repair, and reimbursement for employees’ use of personal vehicles, could have a significant increase on our expenses.
These additional costs, in the case of VITAS, cannot be passed along to our patients because of the structure of hospice reimbursement, and in the case of Roto-Rooter, may not be able to be fully passed along to our customers. These additional costs could materially adversely affect our margins.
To the extent that tariffs cause any adverse impacts on global supply chains, it could further materially affect the ability of both businesses to timely source critical supplies, which may affect our delivery of services.
If, as a result of tariffs, the United States’ economy experiences a recession or other economic slowdown, the demand for Roto-Rooter’s non-emergency services may decline materially.
MD&A (Item 7)
24,374 words
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, including the President and Chief Executive Officer, and Vice President, Chief Financial Officer, and Controller, has conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2025, based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2025, based on criteria in Internal Control—Integrated Framework issued by COSO.
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, as stated in their report which appears on pages 41 through 42.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Chemed Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Chemed Corporation and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
VITAS Revenue Implicit Price Concessions
As described in Note 2 to the consolidated financial statements, service revenue for VITAS is reported at the amount that reflects the ultimate consideration management expects to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid). Management estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and the Company’s historical settlement activity. The impact of these estimates is disclosed as implicit price concessions and totaled $14.3 million for the year ended December 31, 2025.
The principal considerations for our determination that performing procedures relating to VITAS revenue implicit price concessions is a critical audit matter are (i) the significant judgment by management when developing the estimate of implicit price concessions used in determining the transaction price for each third-party payor and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the ultimate consideration management expects to receive, estimates of implicit price concessions, the assessment of management’s evaluation of correspondence from the payor, and the Company’s historical settlement activity.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the VITAS revenue implicit price concessions estimate. These procedures also included, among others, (i) developing an independent estimate of the implicit price concessions by utilizing historical settlement activity and (ii) comparing the independent estimate to management’s estimate. Evaluating the reasonableness of the implicit price concessions estimate involved inspecting evidence of correspondence from payors, testing the completeness and accuracy of historical settlement activity on a sample basis, and performing a retrospective review of consideration received subsequent to prior and current year-end to evaluate the reasonableness of the prior and current period estimated implicit price concessions applied by management.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 27, 2026
We have served as the Company’s auditor since 1971.
CONSOLIDATED STATEMENTS OF INCOME
Chemed Corporation and Subsidiary Companies
(in thousands, except per share data)
For the Years Ended December 31,
Service revenues and sales (Note 2)
Cost of services provided and goods sold (excluding depreciation)
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expenses (Note 20)
Total costs and expenses
Income from operations
Interest expense
Other income--net (Note 10)
Income before income taxes
Income taxes (Note 11)
Net Income
Earnings Per Share (Note 16)
Net Income
Average number of shares outstanding
Diluted Earnings Per Share (Note 16)
Net Income
Average number of shares outstanding
The Notes to Consolidated Financial Statements are integral parts of these statements.
CONSOLIDATED BALANCE SHEETS
Chemed Corporation and Subsidiary Companies
(in thousands, except shares and per share data)
December 31,
Assets
Current assets
Cash and cash equivalents (Note 9)
Accounts receivable
Inventories
Prepaid income taxes
Prepaid expenses
Total current assets
Investments of deferred compensation plans held in trust (Notes 15 and 17)
Properties and equipment, at cost, less accumulated depreciation (Note 13)
Lease right of use asset (Note 14)
Identifiable intangible assets less accumulated amortization (Note 6)
Deferred compensation payable in Company stock (Note 15)
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
The Notes to Consolidated Financial Statements are integral parts of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Chemed Corporation and Subsidiary Companies
(in thousands)
For the Years Ended December 31,
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization
Stock option expense
Benefit for deferred income taxes
Noncash portion of long-term incentive compensation
Litigation settlements
Noncash directors' compensation
Amortization of debt issuance costs
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable
Decrease/(increase) in inventories
(Increase)/decrease in prepaid expenses
Decrease in accounts payable and other current liabilities
Change in current income taxes
Net change in lease assets and liabilities
Decrease/(increase) in other assets
Increase in other liabilities
Other sources
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures
Proceeds from sale of fixed assets
Business combinations, net of cash acquired
Other uses
Net cash used by investing activities
Cash Flows from Financing Activities
Purchases of treasury stock
Dividends paid
Proceeds from exercise of stock options
Change in cash overdraft payable
Capital stock surrendered to pay taxes on stock-based compensation
Payments on other long-term debt
Other sources/(uses)
Net cash used by financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The Notes to Consolidated Financial Statements are integral parts of these statements.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Chemed Corporation and Subsidiary Companies
(in thousands, except per share data)
Deferred
Compensation
Treasury
Payable in
Capital
Paid-in
Retained
Stock-
Company
Stock
Capital
Earnings
at Cost
Stock
Total
Balance at December 31, 2022
Net income
Dividends paid ($ 1.56 per share)
Stock awards and exercise of stock options (Note 4)
Purchases of treasury stock (Note 19)
Other
Balance at December 31, 2023
Net income
Dividends paid ($ 1.80 per share)
Stock awards and exercise of stock options (Note 4)
Purchases of treasury stock (Note 19)
Excise tax on share repurchase
Other
Balance at December 31, 2024
Net income
Dividends paid ($ 2.20 per share)
Stock awards and exercise of stock options (Note 4)
Purchases of treasury stock (Note 19)
Excise tax on share repurchase
Other
Balance at December 31, 2025
The Notes to Consolidated Financial Statements are integral parts of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
NATURE OF OPERATIONS
We operate through our two wholly-owned subsidiaries: VITAS Healthcare Corporation (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter provides plumbing, drain cleaning, excavation and water restoration services to both residential and commercial customers. Through its network of company-owned branches, Independent Contractors and franchisees, Roto-Rooter offers plumbing, drain cleaning service and water restoration to over 90 % of the U.S. population.
PRINCIPLES OF ACCOUNTING
The consolidated financial statements have been prepared on a going-concern basis. The consolidated financial statements include the accounts of Chemed Corporation and its wholly owned subsidiaries. All intercompany transactions have been eliminated. We have analyzed the provisions of the Financial Accounting Standards Board (“FASB”) authoritative guidance on the consolidation of variable interest entities relative to our contractual relationships with Roto-Rooter’s Independent Contractors and franchisees. The guidance requires the primary beneficiary of a Variable Interest Entity (“VIE”) to consolidate the accounts of the VIE. We have concluded that neither the Independent Contractors nor the franchisees are VIEs.
CURRENT EXPECTED CREDIT LOSSES
In June 2016, the FASB issued Accounting Standards Update “ASU No. 2016-13”, Financial Instruments, Credit Losses. The Company’s only material financial asset subject to ASU No. 2016-13 is accounts receivable, trade and other. The Company recognizes an allowance for credit losses related to accounts receivable to present the net amount expected to be collected as of the balance sheet date. Accounts receivable are written-off when it is determined that the amount is deemed uncollectible. The following presents a detailed discussion of the operating subsidiaries’ accounts receivable and their evaluation of credit risk related to those accounts:
Roto-Rooter’s trade accounts receivable are comprised mainly of amounts due from commercial entities and commercial insurance carriers. Roto-Rooter’s accounts receivable are generally outstanding for 90 days or less and there are no significant amounts outstanding greater than one year. Roto-Rooter historically has not experienced significant write-offs due to credit losses. For amounts due from commercial entities, Roto-Rooter utilizes a provision matrix based on historical credit losses by aging category. For amounts due from commercial insurance carriers, mainly from water restoration revenue, Roto-Rooter periodically reviews published default tables related to commercial insurance carriers and provides an allowance. As further discussed below, Roto-Rooter assesses on a quarterly basis whether the historical rates used are expected to be representative of credit risk over the life of the account taking into consideration existing economic conditions.
In excess of 90% of VITAS’ accounts receivable are from the Federal or state governments under Medicare and Medicaid. VITAS believes that it is reasonable to expect that the risk of non-payment as a result of credit issues from these government entities is zero. As such, there is no allowance for credit losses established related to these accounts. The remainder of VITAS’ accounts are from commercial insurance carriers. VITAS’ accounts are generally outstanding for 90 days or less and there are no significant amounts outstanding greater than one year. VITAS historically has not experienced significant write-offs due to credit losses. VITAS periodically reviews published default tables related to commercial insurance carriers and provides an allowance. VITAS assesses on a quarterly basis whether these default rates are expected to be representative of credit risk over the life of the account taking into consideration existing economic conditions.
As further discussed in Note 3, Chemed has $ 45.5 million in standby letters of credit outstanding. These letters of credit are with large, highly rated financial institutions. The Company periodically reviews published default tables related to these institutions to assess the need for an allowance. Chemed believes that any expected credit loss related to outstanding letters of credit based on current economic conditions is not material. The allowance for credit losses is not material at December 31, 2025.
CASH EQUIVALENTS
Cash equivalents comprise short-term, highly liquid investments, including overnight deposits and money market funds that have original maturities of three months or less.
CONCENTRATION OF RISK
As of December 31, 2025, and 2024, approximately 58 % and 64 %, respectively, of VITAS’ total accounts receivable balances were from Medicare and 34 % and 31 %, respectively, of VITAS’ total accounts receivable balances were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately 78 % of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of December 31, 2025.
VITAS has a pharmacy services contract with one service provider for specified pharmacy services related to its hospice operations. Similarly, VITAS obtains the majority of its medical supplies from a single vendor. A large majority of VITAS’ pharmaceutical and medical supplies purchases are from these vendors. The pharmaceutical and medical supplies purchased by VITAS are available through many providers in the United States. However, a disruption from VITAS’ main service providers could adversely impact VITAS’ operations, including temporary logistical challenges and increased cost associated with getting medication and medical supplies to our patients.
INVENTORIES
Substantially all of the inventories are either general merchandise or finished goods. Inventories are stated at the lower of cost or net realizable value. For determining the value of inventories, cost methods that reasonably approximate the first-in, first-out (“FIFO”) method are used.
DEPRECIATION AND PROPERTIES AND EQUIPMENT
Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the remaining lease terms (excluding option terms) or their useful lives. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are expensed as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected currently in other operating expenses/(income).
Expenditures for major software purchases and software developed for internal use are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets. For software developed for internal use, external direct costs for materials and services and certain internal payroll and related fringe benefit costs are capitalized in accordance with the FASB’s authoritative guidance on accounting for the costs of computer software developed or obtained for internal use.
The weighted average lives of our property and equipment at December 31, 2025, were:
Buildings and building improvements
yrs.
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
GOODWILL AND INTANGIBLE ASSETS
The table below shows a rollforward of goodwill (in thousands):
Roto-
Vitas
Rooter
Total
Balance at December 31, 2023
Business combinations
Foreign currency adjustments
Balance at December 31, 2024
Business combinations
Foreign currency adjustments
Balance at December 31, 2025
Identifiable, definite-lived intangible assets arise from purchase business combinations and are amortized using either an accelerated method or the straight-line method over the estimated useful lives of the assets. The selection of an amortization method is based on which method best reflects the economic pattern of usage of the asset. Reacquired franchise rights are amortized over the remaining term of the franchise agreement at the time of acquisition. The weighted average lives of our identifiable, definite-lived intangible assets at December 31, 2025, were:
Covenants not to compete
yrs.
Reacquired franchise rights
Referral networks
Customer lists
The date of our annual goodwill and indefinite-lived intangible asset impairment analysis is October 1. The VITAS trade name is considered to have an indefinite life. We also capitalize the direct costs of obtaining licenses to operate either hospice programs or plumbing operations subject to a minimum capitalization threshold. These costs are amortized over the life of the license using the straight-line method. Certificates of Need (“CON”), which are required in certain states for hospice operations, are generally granted without expiration and thus, we believe them to be indefinite-lived assets subject to impairment testing.
We consider that Roto-Rooter Corp. (“RRC”), Roto-Rooter Services Co. (“RRSC”) and VITAS are appropriate reporting units for testing goodwill impairment. We consider RRC and RRSC separate reporting units but one operating segment. This is appropriate as they each have their own set of general ledger accounts that can be analyzed at “one level below an operating segment” per the definition of a reporting unit in FASB guidance.
We completed our qualitative analysis for impairment of goodwill and our indefinite-lived intangible assets as of October 1, 2025. Based on our assessment, we do not believe that it is more likely than not that our reporting units or indefinite-lived assets fair values are less than their carrying values.
LONG-LIVED ASSETS
If we believe a triggering event may have occurred that indicates a possible impairment of our long-lived assets, we perform an estimate and valuation of the future benefits of our long-lived assets (other than goodwill, the VITAS trade name and capitalized CON costs) based on key financial indicators. If the projected undiscounted cash flows of a major business unit indicate that properties and equipment or identifiable, definite-lived intangible assets’ have been impaired, a write-down to fair value is made.
LEASE ACCOUNTING
In February 2016, the FASB issued Accounting Standards Update “ASU No. 2016-02 Leases” which introduced a lessee model that brings most leases onto the balance sheet and updates lessor accounting to align with changes in the lessee model and the revenue recognition standard. This standard is also referred to as Accountings Standards Codification No. 842 (“ASC 842”).
Our leases have remaining terms of less than 1 year to 13 years, some of which include options to extend the lease for up to 5 years , and some of which include options to terminate the lease within 1 year . We made a policy election to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. We adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component. We do not currently have any finance leases, all lease information disclosed is related to operating leases.
Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly has leased office space.
Roto-Rooter purchases equipment and leases it to certain of its Independent Contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income. See Note 14 for the detail of lease accounting.
CLOUD COMPUTING
As of December 31, 2025, Roto-Rooter has no significant capitalized implementation cost related to cloud computing. There are two projects included in prepaid assets in the accompanying balance sheet which have implementation costs of $ 415,000 . No amortization has been recorded for these two projects as they have not been placed into service.
VITAS utilizes a human resource system that is considered a cloud computing arrangement. We have capitalized approximately $ 5.6 million related to implementation of this project which were included in prepaid assets in the accompanying balance sheets. The VITAS human resource system was placed into service in January 2020 and was amortized through August 2025. For each of the years ending December 31, 2025, 2024 and 2023, amortization expense of $ 663,000 , $ 995,000 , and $ 995,000 has been recognized, respectively.
OTHER ASSETS
Debt issuance costs are included in other assets. Issuance costs related to revolving credit agreements are amortized using the straight-line method, over the life of the agreement. All other issuance costs are amortized using the effective interest method over the life of the debt. See Note 12 for the detail of other assets.
SALES TAX
The Roto-Rooter segment collects sales tax from customers when required by state and federal laws. We record the amount of sales tax collected net in the accompanying consolidated statements of income.
OPERATING EXPENSES
Cost of services provided and goods sold (excluding depreciation) includes salaries, wages and benefits of service providers and field personnel, material costs, medical supplies and equipment, pharmaceuticals, insurance costs, service vehicle costs and other expenses directly related to providing service revenues or generating sales. Selling, general and administrative expenses include salaries, wages, stock -based compensation expense and benefits of selling, marketing and administrative employees, advertising expenses, communication expenses, office rent and operating costs, legal, banking and professional fees and other administrative costs. The cost associated with VITAS sales personnel is included in cost of services provided and goods sold (excluding depreciation).
ADVERTISING
We expense the production costs of advertising the first time the advertising takes place. We pay for and expense the cost of internet advertising and placement on a “per click” basis. Similarly, the majority of our telephone directory listings and certain types of internet advertising are paid for and expensed on a “cost per call” basis. Advertising expense for the year ended December 31, 2025 was $ 83.1 million (2024 - $ 78.8 million; 2023 – $ 72.2 million).
OTHER CURRENT LIABILITIES
See Note 21 for the detail of other current liabilities.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation cost is measured at the grant date, based on the fair value of the award and recognized as expense over the employee’s requisite service period on a straight-line basis. See Note 4 for the detail on stock-based compensation.
I NSURANCE ACCRUALS
For our Roto-Rooter segment and Corporate Office, we initially self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability ). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped by stop-loss coverage at $ 750,000 , with the exception of auto liability claims which are capped at $ 3.0 million of stop-loss coverage. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.
For the VITAS segment, we initially self-insure for workers’ compensation claims. Currently, VITAS’ exposure on any single claim is capped by stop- loss coverage at $ 1,000,000 . For VITAS’ self-insurance accruals for workers’ compensation, the valuation methods used are similar to those used internally for our other business units. We are also insured for other risks with respect to professional liability with a deductible of $ 1,000,000 .
Our casualty insurance liabilities are recorded gross before any estimated recovery for amounts exceeding our stop loss limits. Estimated recoveries from insurance carriers are recorded as accounts receivable. Claims experience adjustments to our casualty and workers’ compensation accrual for the years ended December 31, 2025, 2024 and 2023, were net pretax expense/(credits) of $ 81,000 , ($ 10,374,000 ), and ($ 6,862,000 ) respectively.
INCOME TAXES
We adopted ASU 2023-09 for the year ending December 31, 2025, and applied a retrospective approach to all periods presented in our consolidated financial statements. In December 2023, the FASB issued Accounting Standards Update “ASU 2023-09 – Income Tax Disclosure”. The guidance required a reconciliation between the amount of reported income tax expense from continuing operations and the amount computed from the income multiplied by the United States federal income tax rate. In addition, the guidance required an annual disaggregation between the income tax rate reconciliation and potential key categories: state and local income tax, tax credits, changes in valuation allowances, nontaxable or nondeductible tax items and changes in unrecognized tax benefits. Those not meeting the disaggregation conditions were aggregated within other adjustments. See Note 11 for the detail of income taxes.
Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized due to insufficient taxable income within the carryback or carryforward period available under the tax laws. Deferred tax assets and liabilities are adjusted for the effects of changes in law and rates on the date of enactment.
We are subject to income taxes in Canada, U.S. federal and most state jurisdictions. Judgement is required to determine our provision for income taxes. Our financial statements reflect expected future tax consequences of such uncertain positions assuming the taxing authorities’ full knowledge of the position and all relevant facts.
Our effective income tax rate was 25.4 %, 24.4 % and 22.2 % for the years ended December 31, 2025, 2024, and 2023, respectively. Excess tax expense on stock compensation increased our income tax expense by $ 696,000 for the year ended December 31, 2025 and excess tax benefit on stock options reduced our income tax expenses by $ 4.4 million, and $ 4.3 million for the years ended December 31, 2024 and 2023, respectively.
During the third quarter of 2023, the Company recognized a tax benefit from realignment of its state and local corporate tax structure based on the location of operating resources and profitability by business segment. This benefit includes a reduction in current state and local tax expense and a one time benefit of $ 4.2 million in reduction of deferred tax liabilities reflecting the lower tax rates.
CONTINGENCIES
As discussed in Note 18, we are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and reasonably estimable. We record legal fees associated with legal and regulatory actions as the costs are incurred. We disclose material loss contingencies that are probable but not reasonably estimable and those that are at least reasonably possible.
BUSINESS COMBINATIONS
We account for acquired businesses using the acquisition method of accounting. All assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair value involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in accordance with accepted valuation models, primarily the income approach. The significant assumptions used in developing fair values include, but are not limited to, revenue growth rates, the amount and timing of future cash flows, discount rates, useful lives, royalty rates and future tax rates. The excess of purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. See Note 7 for discussion of recent acquisitions.
ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates .
2. Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers.” The standard and subsequent amendments are theoretically intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide for more useful information to users through improved disclosure requirements and simplify the preparation of financial statements. The standard is also referred to as Accounting Standards Codification No. 606 (“ASC 606”).
VITAS
Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and includes variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations. Amounts are generally billed monthly or subsequent to patient discharge. Subsequent changes in the transaction price initially recognized are not significant.
Hospice services are provided on a daily basis and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and associated reimbursement model for each are as follows:
Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after. In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven day s of a hospice patient’s life, reimbursed up to 4 hours per day in 15 minute increments at the continuous home care rate.
General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management which cannot be managed in other settings. General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing.
Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of 8 hours of care within a 24 hour day, which begins at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner. While the published Medicare continuous home care rates are daily rates, Medicare pays for continuous home care in 15 minute increments. This 15 minute rate is calculated by dividing the daily rate by 96.
Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.
Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or
partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least 12 months after discharge.
Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying consolidated financial statements related to charity care. The cost of providing charity care during the years ended December 31, 2025, 2024 and 2023, was $ 8.6 million, $ 9.2 million and $ 8.1 million, respectively and is included in cost of services provided and goods sold. The cost of charity care is calculated by taking the ratio of charity care days to total days of care and multiplying by total cost of care.
Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. Compliance with such laws and regulations may be subject to future government review and interpretation. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.
We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as follows:
Inpatient Cap . If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20 % of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20 % figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the years ended December 31, 2025, 2024 and 2023.
Medicare Cap . We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At December 31, 2025, all our programs except one are using the “streamlined” method.
The “proportional” method compares the total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by the Medicare provider number between September 28 and September 27 of the following year with the product of the per beneficiary cap amount and a pro-rated number of Medicare beneficiaries receiving hospice services from that program during the same period. The pro-rated number of Medicare beneficiaries is calculated based on the ratio of days the beneficiary received hospice services during the measurement period to the total number of days the beneficiary received hospice services.
We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data, as well as differences between reimbursement rate increases versus the increase in the per beneficiary cap, in an attempt to determine whether revenues are likely to exceed the annual per-beneficiary Medicare cap. Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.
During the year ended December 31, 2025 we recorded $ 27.2 million in Medicare cap revenue reduction related to five programs’ projected 2025 measurement period liability and five programs’ 2026 measurement period liability.
During the year ended December 31, 2024 we recorded $ 8.4 million in Medicare cap revenue reduction related to three programs’ projected 2024 measurement period liability and five programs’ 2025 measurement period liability.
During the year ended December 31, 2023 we recorded $ 8.0 million in Medicare cap revenue reduction related to two programs’ projected 2023 measurement period liability and six programs’ 2024 measurement period liability.
At December 31, 2025 and 2024, the Medicare cap liability included in other current liabilities on the accompanying balance sheets was $ 30.9 million and $ 13.6 million, respectively.
For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. We are responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses us for 95 % of the amount we have paid. This results in a 5 % net expense for VITAS related to nursing home room and board. This transaction creates a performance obligation in that VITAS is facilitating room and board being delivered to our patient. As a result, the 5 % net expense is recognized as a contra-revenue account under ASC 606 in the accompanying financial statements.
The composition of patient care service revenue by payor and level of care for the year ended December 31, 2025 is as follows (in thousands):
Medicare
Medicaid
Commercial
Total
Routine home care
Inpatient care
Continuous care
All other revenue - self-pay, respite care, etc.
Subtotal
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
The composition of patient care service revenue by payor and level of care for the year ended December 31, 2024 is as follows (in thousands):
Medicare
Medicaid
Commercial
Total
Routine home care
Inpatient care
Continuous care
All other revenue - self-pay, respite care, etc.
Subtotal
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
The composition of patient care service revenue by payor and level of care for the year ended December 31, 2023 is as follows (in thousands):
Medicare
Medicaid
Commercial
Total
Routine home care
Inpatient care
Continuous care
All other revenue - self-pay, respite care, etc.
Subtotal
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
Roto-Rooter
Roto-Rooter provides plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers primarily in the United States. Services are provided through a network of company-owned branches, Independent Contractors and franchisees. Service revenue for Roto-Rooter is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing services.
Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:
Short-term Core Services are plumbing, drain and sewer cleaning and excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category range from a few hours to a few days. There are no significant warranty costs or on-going obligations to the customer once a service has been completed. For residential customers, payment is usually received at the time of job completion before the Roto-Rooter technician leaves the residence. Commercial customers may be granted credit subject to internally designated authority limits and credit check guidelines. If credit is granted, payment terms are generally 30 days or less.
Each job in this category is a distinct service with a distinct performance obligation to the customer. Revenue is recognized at the completion of each job. Variable consideration consists of pre-invoice discounts and post-invoice discounts. Pre-invoice discounts are given in the form of coupons or price concessions. Post-invoice discounts consist of credit memos generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days. There are no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid in part by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.
For both short-term core services and water restoration services, Roto-Rooter satisfies its performance obligation at a point in time. The services provided generally involve fixing plumbing, drainage or flood-related issues at the customer’s property. At the time service is complete, the customer acknowledges its obligation to pay for service and its satisfaction with the service performed. This provides evidence that the customer has accepted the service and Roto-Rooter is now entitled to payment. As such, Roto-Rooter recognizes revenue for these services upon completion of the job and receipt of customer acknowledgement. Roto-Rooter’s performance obligations for short-term core services and water restoration services relate to contracts with an expected duration of less than a year. Therefore, Roto-Rooter has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Roto-Rooter does not have significant unsatisfied or partially unsatisfied performance obligations at the time of initial revenue recognition for short-term core or water restoration services.
Roto-Rooter owns the rights to certain territories and contracts with independent third-parties to operate the territory under Roto-Rooter’s registered trademarks (“Independent Contractors”). Such contracts are for a specified term but cancellable by either party without penalty with 90 days’ advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back office support and advertising along with a limited license to use Roto-Rooter’s registered trademarks. The Independent Contractor is responsible for all day-to-day management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Independent Contractors pay Roto-Rooter a standard fee calculated as a percentage of their cash collection from weekly sales. The primary value for the Independent Contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from Independent Contractors over-time (weekly) as the Independent Contractor’s labor sales are completed and payment from customers are received. Payment from Independent Contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the Independent Contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. The contract is for a 10 year term but cancellable by Roto-Rooter for cause with 60 day advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day-to-day management of the business including staffing decisions, pricing of services provided and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks for plumbing, drain care cleaning and water restoration services. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.
The composition of disaggregated revenue for the years ended December 31, 2025, 2024 and 2023 is as follows (in thousands):
Drain cleaning
Plumbing
Excavation
Other
Subtotal - short term core
Water restoration
Independent contractors
Franchisee fees
Other
Gross revenue
Implicit price concessions and credit memos
Net revenue
3. Long-Term Debt and Lines of Credit
On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $ 450 million revolver as well as a five-year $ 100 million term loan. The 2022 Credit Facilities have a floating interest rate that is generally the secured overnight financing rate (“SOFR”) plus an additional tiered rate which varies based on our current leverage ratio. As of December 31, 2025 and 2024, the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and/or term loan by an additional $ 250 million.
The term loan was repaid in 2023. This prepayment reduced the total borrowing capacity of the 2022 Credit Facilities from $ 550.0 million to $ 450.0 million There were no prepayment penalties associated with repayments. There are no significant deferred debt issuance costs capitalized related to the term loan.
Capitalized interest was not material for any of the periods shown. Summarized below are the total amounts of interest paid during the years ended December 31 (in thousands):
The 2022 Credit Facilities contains the following quarterly financial covenants effective as of December 31, 2025:
Chemed
Description
Requirement
December 31, 2025
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
Interest Coverage Ratio (Consolidated Adj. EBITDA/Consolidated Interest Expense)
We are in compliance with all debt covenants as of December 31, 2025. We have issued $ 45.5 million in standby letters of credit as of December 31, 2025 for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of December 31, 2025, we have approximately $ 404.5 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility.
4. Stock-Based Compensation Plans
We have four stock incentive plans under which a total of 5.5 million shares were able to be issued to key employees and directors through a grant of stock options, stock awards and/or performance stock units (“PSUs”). The Compensation/Incentive Committee (“CIC”) of the Board of Directors administers these plans.
We grant stock options, stock awards and PSUs to our officers, other key employees and directors to better align their long-term interests with those of our shareholders. We grant stock options at an exercise price equal to the market price of our stock on the date of grant. Options vest ratably annually over a three year period. Those granted after 2014 have a contractual life of 5 years. Unrestricted stock awards generally are granted to our non-employee directors annually at the time of our annual meeting. PSUs are contingent upon achievement of multi-year earnings per share (“EPS”) targets or total shareholder return (“TSR”) targets. Upon achievement of targets, PSUs are converted to unrestricted shares of stock.
At the end of 2023, the then Chief Financial Officer (CFO) transitioned to an employee advisor role. In early 2024, in connection with this change of roles, the CFO’s employment agreement terminated, and the CFO was given a one-time grant of 6,424 PSUs to be paid based on the Company’s TSR performance for the fiscal years 2024 to 2026. This one-time grant is structured the same as the Company’s standard TSR-based PSU grants with the exception that there are no future service requirements to be satisfied by the employee and a minimum value of shares are guaranteed. Based on the structure of the one-time award, the entire value of the award, $ 5.3 million, was recognized as compensation expense in SG&A in the consolidated statements of income for the period ended March 31, 2024.
We recognize the cost of stock options, stock awards and PSUs on a straight-line basis over the service life of the award, generally the vesting period. We include the cost of all stock-based compensation in selling, general and administrative expense.
In May 2025, the CIC granted 1,939 unrestricted shares of stock to the Company’s outside directors. In December 2025, the CIC granted 1,702 unrestricted shares of stock to one former VITAS executive as part of a severance agreement.
PERFORMANCE AWARDS
The CIC determines a targeted number of PSUs to be granted to each participant. A participant can ultimately receive up to 200 % of the targeted PSUs based upon exceeding the respective EPS and TSR targets.
In February 2023, 2024, and 2025, the CIC granted PSUs contingent upon the achievement of certain TSR targets as compared to the TSR of a group of peer companies for the three-year measurement period, at which date the awards may vest. We utilize a Monte Carlo simulation approach in a risk-neutral framework with inputs including historical volatility and the risk-free rate of interest to value these TSR awards. We amortize the total estimated cost over the service period of the award.
In February 2023, 2024, and 2025, the CIC granted PSUs contingent on the achievement of certain EPS targets over the three-year measurement period. At the end of each reporting period , we estimate the number of shares of stock we believe will ultimately vest and record that expense over the service period of the award.
Comparative data for the PSUs include:
2025 Awards
2024 Awards
2023 Awards
TSR Awards
Shares of stock granted - target
Per-share fair value
Volatility
Risk-free interest rate
EPS Awards
Shares of stock granted - target
Per-share fair value
TSR Awards - Former CFO One-Time Grant
Shares of stock granted - target
Per-share fair value
Volatility
Risk-free interest rate
Common Assumptions
Service period (years)
Three-year measurement period ends December 31,
The following table summarizes total stock option, stock award and PSU activity during 2025:
Stock Options
Stock Awards
Performance Units (PSUs)
Weighted
Weighted Average
Aggregate
Average
Weighted
Remaining
Intrinsic
Grant-Date
Number of
Average
Number of
Exercise
Contractual
Value
Number of
Per-Share
Target
Grant-Date
Options
Price
Life (Years)
(thousands)
Awards
Fair Value
Units
Price
Outstanding at December 31, 2024
Granted
Exercised/Vested
Canceled/ Forfeited
Outstanding at December 31, 2025
Vested and expected to vest
at December 31, 2025
Exercisable at December 31, 2025
* Amount includes 10,743 share units which vested and were converted to shares of stock and distributed in the first quarter of 2026.
We estimate the fair value of stock options using the Black-Scholes valuation model. We determine expected term, volatility, and dividend yield and forfeiture rate based on our historical experience. We believe that historical experience is the best indicator of these factors.
Comparative data for stock options, stock awards and PSUs include (in thousands, except per-share amounts):
Years Ended December 31,
Total compensation expense of stock-based compensation
plans charged against income
Total income tax benefit recognized in income for stock
based compensation expense charged against income
Total intrinsic value of stock options exercised
Total intrinsic value of stock awards vested during the period
Per-share weighted average grant-date fair value of
stock awards granted
The assumptions we used to value stock option grants are as follows:
Stock price on date of issuance
Grant date fair value per option
Number of options granted
Expected term (years)
Risk free rate of return
Volatility
Dividend yield
Forfeiture rate
Other data for stock options, stock awards and PSUs for 2025 include (dollar amounts in thousands):
Stock
Stock
Options
Awards
PSUs
Total unrecognized compensation at the end of the year
Weighted average period over which unrecognized compensation to be recognized (years)
Actual income tax benefit realized
Aggregate intrinsic value vested and expected to vest
EMPLOYEE STOCK PURCHASE PLAN (“ESPP”)
The ESPP allows eligible participants to purchase shares of stock through payroll deductions at current market value. We pay administrative and broker fees associated with the ESPP. Shares of stock purchased for the ESPP are purchased on the open market and credited directly to participants’ accounts. In accordance with the FASB’s guidance, the ESPP is non-compensatory.
5. Segments and Nature of the Business
In November 2023, the FASB issued Accounting Standards Update “ASU 2023-07 – Improvements to Reportable Segment Disclosures”. The guidance provides enhanced disclosures about significant segment expenses. The purpose of the amendment is to provide investors with a better understanding of an entity’s overall performance and assess potential future cash flows. The ASU does not change how an entity identifies its operating segments. We adopted ASU 2023-07 for the year ending December 31, 2025, and applied a retrospective approach to all periods presented in our consolidated financial statements.
Our segments include the VITAS segment and the Roto-Rooter segment , which comprise the structure used by our President and Chief Executive Officer, who has been determined to be our Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance. Relative contributions of each segment to service revenues and sales were 64 % and 36 % in 2025, 63 % and 37 % in 2024, and 58 % and 42 % in 2023. The vast majority of our service revenues and sales from continuing operations are generated from business within the United States. Service revenues and sales by business segment are shown in Note 2.
The reportable segments have been defined along service lines, which is consistent with the way the businesses are managed. In determining reportable segments, the RRSC and RRC operating units of the Roto-Rooter segment have been aggregated on the basis of possessing similar operating and economic characteristics. The characteristics of these operating segments and the basis for aggregation are reviewed annually.
We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”. Corporate administrative expense includes the stewardship, accounting and reporting, legal, tax and other costs of operating a publicly held corporation. Corporate investing and financing income and expenses include the costs and income associated with corporate debt and investment arrangements.
Our CODM evaluates the segments’ operating performance based mainly on income/(loss) from operations. For each segment, the CODM compares segment income/(loss) from operations in the annual budgeting and monthly forecasting process to actual results. The CODM considers variances on a monthly basis for evaluating performance of each segment and making decisions about allocating resources to each segment.
Segment data are set forth below (in thousands):
Reportable
Chemed
2025 (in thousands)
VITAS
Roto-Rooter
Segments
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
(excluding depreciation)
Wages
Patient care expense
Other expenses
Total cost of services provided and goods sold
Selling, general and administrative expense
Wages
Advertising
Stock compensation
Other expenses
Total selling, general and administrative expense
Depreciation
Amortization
Other operating expense/(income)
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income - net
Income/(expense) before income taxes
Income taxes
Net income/(loss)
Identifiable assets
Additions to long-lived assets
Reportable
Chemed
2024 (in thousands)
VITAS
Roto-Rooter
Segments
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
(excluding depreciation)
Wages
Patient care expense
Other expenses
Total cost of services provided and goods sold
Selling, general and administrative expense
Wages
Advertising
Stock compensation
Other expenses
Total selling, general and administrative expense
Depreciation
Amortization
Other operating expense
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income - net
Income/(expense) before income taxes
Income taxes
Net income/(loss)
Identifiable assets
Additions to long-lived assets
Reportable
Chemed
2023 (in thousands)
VITAS
Roto-Rooter
Segments
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
(excluding depreciation)
Wages
Patient care expense
Other expenses
Total cost of services provided and goods sold
Selling, general and administrative expense
Wages
Advertising
Stock compensation
Other expenses
Total selling, general and administrative expense
Depreciation
Amortization
Other operating (income)/expense
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income - net
Income/(expense) before income taxes
Income taxes
Net income/(loss)
Identifiable assets
Additions to long-lived assets
6. Intangible Assets
Amortization of definite-lived intangible assets for the years ended December 31, 2025, 2024 and 2023, was $ 10.3 million, $ 10.2 million and $ 10.1 million, respectively. The following is a schedule by year of projected amortization expense for definite-lived intangible assets (in thousands):
Thereafter
The balance in identifiable intangible assets comprises the following (in thousands):
Gross
Accumulated
Net Book
Asset
Amortization
Value
December 31, 2025
Referral networks
Covenants not to compete
Customer lists
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
Roto-Rooter trade name
Operating licenses
Total
December 31, 2024
Referral networks
Covenants not to compete
Customer lists
Reacquired franchise rights
Subtotal - definite-lived intangibles
VITAS trade name
Roto-Rooter trade name
Operating licenses
Total
7. Acquisitions
On January 3, 2025, Roto-Rooter completed the acquisition of one franchise in Michigan for $ 225,000 in cash.
On March 11, 2024, Roto-Rooter completed the acquisition of one franchise in New Jersey for $ 5.8 million in cash. On March 27, 2024, Roto-Rooter completed the acquisition of one franchise in Texas for $ 1.5 million in cash. On August 20, 2024, Roto-Rooter completed the acquisition of one franchise in Kentucky for $ 5.1 million in cash.
On April 17, 2024, VITAS completed the purchase of all hospice operations and an assisted living facility from Covenant Health and Community Services, Inc d/b/a/ Covenant Care (“Covenant”) for an aggregated purchase price of $ 85.0 million in cash.
The purchase price allocation of the acquired VITAS business is as follows (in thousands):
Goodwill
Operating licenses
Property, plant, and equipment
The pro forma revenue and earnings for the Company for the years ended December 31, 2025, 2024 and 2023 as if the Covenant acquisition made in 2024 was completed on January 1, 2023 are as follows (in thousands, except per share data):
For the Years Ended December 31,
Service revenues and sales
Net income
Earnings per share
Diluted earnings per share
Revenue and net income from other acquisitions made in 2025, 2024 and 2023 are not material.
In 2023, Roto-Rooter completed the acquisition of one franchise in South Carolina for $ 305,000 in cash and one franchise in Georgia for $ 3.689 million in cash.
Goodwill is assessed for impairment on a yearly basis as of October 1. The primary factor that contributed to the purchase price resulting in the recognition of goodwill is operational efficiencies expected as a result of consolidating stand- alone franchises and Roto-Rooter’s network of nationwide branches. All goodwill recognized is deductible for tax purposes.
8. Discontinued Operations
At December 31, 2025 and 2024, the accrual for our estimated liability for potential environmental cleanup and related costs arising from the 1991 sale of DuBois amounted to $ 1.7 million. Of the 2025 balance, $ 826,000 is included in other current liabilities and $ 882,000 is included in other liabilities (long-term).
We are contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $ 14.9 million. On the basis of a continuing evaluation of the potential liability, we believe it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. The potential liability is not insured, and the recorded liability does not assume the recovery of insurance proceeds. Also, the environmental liability has not been discounted because it is not possible to reliably project the timing of payments. We believe that any adjustments to our recorded liability will not materially adversely affect our financial position, results of operations or cash flows.
9. Cash Overdrafts, Cash Equivalents, and Supplemental Cash Flow Disclosure
Included in the accompanying Consolidated Balance Sheets are $ 2.1 million, $ 1.1 million, and $ 690,000 of capitalized property and equipment which were not paid for as of December 31, 2025, 2024, and 2023, respectively. These amounts have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flows. There are no material non-cash amounts included in interest expense for any period presented.
There are $ 11.0 million of cash overdrafts included in accounts payable as of December 31, 2025. There were no cash overdrafts included in accounts payable as of December 31, 2024.
From time to time throughout the year, we invest excess cash in money market funds directly with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. In 2023, Chemed began investing excess cash in a money market fund holding US Treasuries. Deposits and withdrawals are made daily, based on the Company’s excess cash balance. There are no penalties associated with withdrawals. The accounts bear interest at a normal market rate.
10. Other Income -- Net
Other income -- net comprises the following (in thousands):
For the Years Ended December 31,
Market value gains related to deferred
compensation trusts
Interest income
Other
Total other income - net
The market value gain relates to realized and unrealized activity on the assets in the deferred compensation trust. There is an offsetting amount in selling, general and administrative expense to reflect the corresponding increase in the liability.
11. Income Taxes
The provision for income taxes comprises the following (in thousands):
For the Years Ended December 31,
Current
U.S. federal
U.S. state and local
Foreign
Deferred
U.S. federal, state and local
Foreign
Total
A summary of the temporary differences that give rise to deferred tax assets/ (liabilities) follows (in thousands):
December 31,
Accrued liabilities
Lease liabilities
Stock compensation expense
Implicit price concessions
State net operating loss carryforwards
Other
Deferred income tax assets
Amortization of intangible assets
Accelerated tax depreciation
Right of use lease assets
Currents assets
State income taxes
Market valuation of investments
Deposit with OAS
Other
Deferred income tax liabilities
Net deferred income tax liabilities
At December 31, 2025 and 2024, state net operating loss carryforwards were $ 52.0 million and $ 39.4 million, respectively. These net operating losses will expire, in varying amounts, between 2026 and 2045 . Based on our history of operating earnings, we have determined that our operating income will, more likely than not, be sufficient to ensure realization of our deferred income tax assets.
A reconciliation of the beginning and ending of year amount of our unrecognized tax benefit is as follows (in thousands):
Balance at January 1,
Decrease due to expiration of statute of limitations
Unrecognized tax benefits due to positions taken in current year
Balance at December 31,
We file tax returns in the U.S. federal jurisdiction and various states. The years ended December 31, 2022 and forward remain open for review for federal income tax purposes. The earliest open year relating to any of our major state jurisdictions is the fiscal year ended December 31, 2021.
We classify interest related to our accrual for uncertain tax positions in separate interest accounts. As of December 31, 2025, and 2024, we have approximately $ 180,000 and $ 275,000 , respectively, accrued in interest payable related to uncertain tax positions. These accruals are included in other current liabilities in the accompanying consolidated balance sheet. Net interest expense related to uncertain tax positions included in interest expense in the accompanying consolidated statement of income is not material.
The difference between the actual income tax provision for continuing operations and the income tax provision calculated at the statutory U.S. federal tax rate is explained as follows (in thousands):
For the Years Ended December 31,
U.S. federal tax at statutory rate
State and local income taxes, net of federal income tax effect (1)
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Florida and Illinois for 2025 and 2024, and 2023.
During the third quarter of 2023, the Company recognized a tax benefit from realignment of its state and local corporate tax structure based on the location of operating resources and profitability by business segment. This benefit includes a reduction in current state and local tax expense and a one-time benefit of $ 4.2 million in reduction of deferred tax liabilities reflecting the lower tax rates.
Summarized below are the total amounts of income taxes paid (net of refunds received) during the years ended December 31 (in thousands):
For the Years Ended December 31,
Federal
State
Foreign
Total (1)
(1) In 2025, 2024, and 2023, there were no individual jurisdictions with cash taxes paid (net of refunds received) that equaled or exceeded 5% of total income taxes paid.
Provision has not been made for additional taxes on $ 35.1 million of undistributed earnings of our domestic subsidiaries. Should we elect to sell our interest in these businesses rather than to affect a tax-free liquidation, additional taxes amounting to approximately $ 8.0 million would be incurred based on current income tax rates.
12. Other Assets
Other assets comprise of the following (in thousands):
December 31,
Deposit with OAS (Note 18)
Other
Total other assets
13. Properties and Equipment
A summary of properties and equipment follows (in thousands):
December 31,
Land
Buildings and building improvements
Transportation equipment
Machinery and equipment
Computer software
Furniture and fixtures
Projects under development
Total properties and equipment
Less accumulated depreciation
Net properties and equipment
The net book value of computer software at December 31, 2025 and 2024, was $ 9.9 million and $ 8.1 million, respectively. Depreciation expense for computer software was $ 4.3 million, $ 4.3 million, and $ 4.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.
14. Leases
Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for IPUs and/or contract beds within hospitals. Roto-Rooter has leased office space.
The components of balance sheet information related to leases were as follows:
December 31,
Assets
Operating lease assets
Liabilities
Current operating leases
Noncurrent operating leases
Total operating lease liabilities
The components of lease expense were as follows:
December 31,
Lease Expense (a)
Operating lease expense
Sublease income
Net lease expense
(a) Includes short-term leases and variable lease costs, which are immaterial. Included in both cost of services provided and goods sold and selling, general and administrative expenses.
The components of cash flow information related to leases were as follows:
December 31,
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from leases
Leased assets obtained in exchange for new operating lease liabilities
Weighted Average Remaining Lease Term
Operating leases
yrs
Weighted Average Discount Rate
Operating leases
Maturity of Operating Lease Liabilities (in thousands)
Thereafter
Total lease payments
Less: interest
Total liability recognized on the balance sheet
For leases commencing prior to 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $ 8.4 million related to extended lease terms that are reasonably certain of being exercised and exclude $ 1.1 million of lease payments for leases signed but not yet commenced.
15. Retirement Plans
Retirement obligations under various plans cover substantially all full-time employees who meet age and/or service eligibility requirements. All plans providing retirement benefits to our employees are defined contribution plans. Expenses for our retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):
For the Years Ended December 31,
These expenses include the impact of market gains and losses on assets held in deferred compensation plans. Trust assets invested in shares of our stock are included in treasury stock, and the corresponding liability is included in a separate component of stockholders’ equity. At December 31, 2025, these trusts held 54,648 shares at historical average cost of $ 2.3 million (2024 – 55,072 shares or $ 2.2 million).
We have excess benefit plans for key employees whose participation in the qualified plans is limited by U.S. Employee Retirement Income Security Act requirements. Benefits are determined based on theoretical participation in the qualified plans. Benefits are only invested in mutual funds, and participants are not permitted to diversify accumulated benefits in shares of our capital stock.
16. Earnings Per Share
The computation of earnings per share follows (in thousands, except per share data):
For the Years Ended December 31,
Net Income
Shares
Earnings per Share
Earnings
Dilutive stock options
Nonvested stock awards
Diluted earnings
Earnings
Dilutive stock options
Nonvested stock awards
Diluted earnings
Earnings
Dilutive stock options
Nonvested stock awards
Diluted earnings
During 2025, 1.0 million stock options were excluded from the computation of diluted earnings per share as their exercise prices were greater than the average market price during most of the year. During 2024, 619,000 stock options were excluded. During 2023, 601,000 stock options were excluded.
17. Financial Instruments
FASB’s authoritative guidance on fair value measurements defines a hierarchy which prioritizes the inputs in fair value measurements. Level 1 measurements are measurements using quoted prices in active markets for identical assets or liabilities. Level 2 measurements use significant other observable inputs. Level 3 measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2025 (in thousands):
Fair Value Measure
Carrying Value
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Investments of deferred compensation plans held in trust
Cash equivalents
The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2024 (in thousands):
Fair Value Measure
Carrying Value
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Investments of deferred compensation plans held in trust
Cash equivalents
For cash and cash equivalents, accounts receivable and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments. As further described in Note 3, our outstanding long-term debt and current portion of long-term debt have floating interest rates that are reset at short-term intervals, generally 30 or 60 days. The interest rate we pay also includes an additional amount based on our current leverage ratio. As such, we believe our borrowings reflect significant nonperformance risks, mainly credit risk. Based on these factors, we believe the fair value of our long-term debt and current portion of long-term debt approximate the carrying value.
18. Legal and Regulatory Matters
The VITAS segment of the Company’s business operates in a heavily-regulated industry. As a result, the Company is subjected to inquiries and investigations by various government agencies, which can result in penalties including repayment obligations, funding withholding, or debarment, as well as to lawsuits, including qui tam actions. The following describes the material lawsuits and investigations of which the Company is currently aware.
Regulatory Matters and Litigation
VITAS was one of a group of hospice providers selected by the Office of the Inspector General’s (“OIG”) Office of Audit Services (“OAS”) for inclusion in an audit of the provision of elevated level-of-care hospice services, which reviewed 100 out of a total population of 50,850 inpatient and continuous care claims.
On August 29, 2022, VITAS received a demand letter from its Medicare Administrative Contractor (“MAC”) seeking repayment of $ 50.3 million. VITAS appealed the overpayment decision and deposited $ 50.3 million under the “Immediate Recoupment” process. The amount deposited was recorded as an “other long-term asset” in the consolidated balance sheets, as detailed in Note 12.
On February 3, 2025, an Administrative Law Judge (“ALJ”) ruled that VITAS’ care met Medicare’s hospice standards for the applicable higher level of care as originally billed for all but one of the claims appealed, and therefore VITAS was entitled to receive payment for all such claims. With respect to the one claim that the judge did not fully side with VITAS, the judge found that four of the five days billed met the applicable standard and only one day did not.
In a letter dated March 18, 2025, VITAS’ MAC provided notice that due to the ALJ’s ruling the total overpayment amount was reduced to a de minimis amount, and on April 1, 2025 refunded VITAS all previously unreturned deposited amounts in excess of that dollar figure.
As a result of the cybersecurity incident and data breach on October 24, 2025 referenced in Item 1C above, multiple class action lawsuits have been filed against VITAS alleging various causes of action and seeking damages resulting from the breach. The Company intends to defendagainst the allegations in these lawsuits. The Company is not able to reasonably estimate the probability of loss or range of loss for any of these lawsuits at this time.
Regardless of the outcome of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, diversion of management time, and related publicity.
19. Capital Stock Transactions
We repurchased the following capital stock:
For the Years Ended December 31,
Total cost of repurchased shares (in thousands):
Shares repurchased
Weighted average price per share
In August 2025, the Board of Directors authorized $ 300.0 million for additional stock repurchase under the February 2011 repurchase program. In November 2024 and 2023, the Board of Directors authorized $ 300.0 million for additional stock repurchase under the February 2011 repurchase program. We currently have $ 127.3 million of authorization remaining under this share purchase plan.
20. Other Operating Expenses
December 31,
Legal settlements
(Gain)/loss on disposal of property and equipment
Total other operating expenses
21. Other Current Liabilities
December 31,
Medicare cap
All other
Total other current liabilities
There are no individual amounts exceeding 5 % of the total current liabilities in the “all other” line item for either period presented.
22. Recent Accounting Standards
In November 2024, the FASB issued Accounting Standards Update “ASU 2024-03 – Disaggregation of Income Statement Expenses”. The guidance provides enhanced disclosures about commonly presented expense categories such as cost of sales, selling, general and administrative expenses and research and development. The objective is to provide investors with a better understanding of the entity’s performance, assess potential future cash flows and comparability with other entities. The guidance is effective for fiscal periods beginning December 15, 2026, and interim periods within fiscal years beginning December 15, 2027. The Company is finalizing the impact of the ASU, and expects to incorporate within our footnote disclosures in our 2026 Annual Report on Form 10-K.
In September 2025, the FASB issued Accounting Standards Update “ASU 2025-06 – Intangibles – Goodwill and Other – Internal – Use Software”. The guidance seeks to modernize the accounting guidance for the costs to develop software for internal use. The guidance amends the existing standard to better align with current software development methods. Entities will start capitalizing eligible costs when management has authorized and committed to funding software projects and when it is probable that the projects will be completed and used as intended. The guidance is effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods. The Company is currently analyzing the impact of the ASU on the consolidated financial statements.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2025
(in thousands)(unaudited)
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expense/(income)
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income—net
Income/(loss) before income taxes (a)
Income taxes
Net income/(loss) (a)
(a) The following amounts are included in income from continuing operations (in thousands):
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
Amortization of reacquired franchise agreements
Long-term incentive compensation
Legal settlements
Other
Total
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
Amortization of reacquired franchise agreements
Long-term incentive compensation
Legal settlements
Other
Excess tax expense on stock compensation
Total
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2024
(in thousands)(unaudited)
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expenses
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income—net
Income/(loss) before income taxes (a)
Income taxes
Net income/(loss) (a)
(a) The following amounts are included in income from continuing operations (in thousands):
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
Long-term incentive compensation
Amortization of reacquired franchise agreements
Acquisition expense
Total
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
Long-term incentive compensation
Amortization of reacquired franchise agreements
Acquisition expense
Excess tax benefits on stock compensation
Total
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2023
(in thousands)(unaudited)
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Service revenues and sales
Cost of services provided and goods sold
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expenses/(income)
Total costs and expenses
Income/(loss) from operations
Interest expense
Intercompany interest income/(expense)
Other income—net
Income/(loss) before income taxes (a)
Income taxes
Net income/(loss) (a)
(a) The following amounts are included in income from continuing operations (in thousands):
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
Pretax benefit/(cost):
Stock option expense
Long-term incentive compensation
Amortization of reacquired franchise agreements
Legal settlements
Total
Roto-
Chemed
VITAS
Rooter
Corporate
Consolidated
After-tax benefit/(cost):
Stock option expense
Long-term incentive compensation
Amortization of reacquired franchise agreements
Impact of deferred rate tax change
Legal settlements
Excess tax benefits on stock compensation
Total
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
We operate through our two wholly owned subsidiaries: VITAS Healthcare Corporation (“VITAS”) and Roto-Rooter Group, Inc. (“Roto-Rooter”). VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter is focused on providing plumbing, drain cleaning, excavation, water restoration and other related services to both residential and commercial customers. Through its network of company-owned branches, Independent Contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.
The vast majority of the Company’s operations are located in the United States. As both operations are service companies, our employees are the most critical resource of the Company. We have very little or no exposure related to customers, vendors or employees in other regions of the world.
The following is a summary of the key operating results for the years ended December 31, 2025, 2024 and 2023 (in thousands except percentages and per share amounts):
Consolidated service revenues and sales
Consolidated net income
Diluted EPS
Adjusted net income
Adjusted diluted EPS
Adjusted EBITDA
Adjusted EBITDA as a % of revenue
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA are not measures derived in accordance with GAAP. We use Adjusted EPS as a measure of earnings for certain long-term incentive awards. We use adjusted EBITDA to determine compliance with certain debt covenants. We provide non-GAAP measures to help readers evaluate our operating results and compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. Reconciliations of our non-GAAP measures are presented in tables following the Critical Accounting Policies section.
2025 versus 2024
The increase in consolidated service revenues and sales from 2025 to 2024 was a result of a 6.5% increase at VITAS with Roto-Rooter being essentially flat. The increase in service revenues at VITAS is comprised primarily of a 5.2% increase in days-of-care, and a geographically weighted average Medicare reimbursement rate increase of approximately 3.4%. Acuity mix shift negatively impacted revenue growth by 110-basis points when compared to prior year revenue and level-of-care mix. The combination of Medicare cap and other contra revenue changes decreased revenue growth by 100-basis points.
The service revenues at Roto-Rooter were essentially flat for 2025 compared to 2024. The plumbing revenue increase of 0.7% for 2025 versus 2024 is attributable to a 3.6% increase in job count offset by a 2.9% decrease in price and service mix shift. The drain cleaning revenue decrease of 2.4% for 2025 versus 2024 is attributable to a 2.1% increase in price and service mix shift offset by a 4.5% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues. As a result, the 4.8% increase in excavation revenue and 6.9% increase in water restoration revenue are mainly a function of plumbing and drain cleaning jobs. Contractor operations decreased 4.6%. Implicit price concessions and credit memos increased 41.8% mainly related to the water restoration business.
On April 17, 2024, VITAS completed the purchase of all hospice operations and an assisted living facility from Covenant Health and Community Services, Inc d/b/a/ Covenant Care (“Covenant”) for an aggregated purchase price of $85.0 million in cash.
The pro forma revenue and earnings for the Company for the years ended December 31, 2025 and 2024 as if the Covenant acquisition made in 2024 was completed on January 1, 2024 are as follows (in thousands, except per share data):
For the Years Ended December 31,
Service revenues and sales
Net income
Earnings per share
Diluted earnings per share
In late September and early October 2024, Hurricanes Helene and Milton impacted the panhandle of Florida and other parts of the southeastern United States. They did not result in any significant property loss or damage to VITAS. However, as with other similar events, we did experience a slowdown in admission activity while health systems prepared for the hurricane and then dealt with the aftermath.
2024 versus 2023
The increase in consolidated service revenues and sales from 2024 to 2023 was a result of a 16.4% increase at VITAS and a 5.2% decrease at Roto-Rooter. The increase in service revenues at VITAS is comprised primarily of a 14.1% increase in days-of-care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.8%. Acuity mix shift negatively impacted revenue growth by 110-basis points when compared to prior year revenue and level-of-care mix. The combination of Medicare cap and other contra revenue changes increased revenue growth by 60-basis points. The decrease in service revenues at Roto-Rooter was driven by a decrease in all lines of service.
The pandemic created a significant shortage of licensed healthcare workers industry wide. VITAS was not immune to this shortage. As a result, on July 1, 2022, VITAS implemented a hiring and retention bonus program for its licensed healthcare workers. It is a temporary program intended to help VITAS attract and retain licensed healthcare workers in light of the pandemic induced healthcare worker shortage. An eligible employee must continue in employment for a period of one-year from July 1 st to receive a bonus. Additionally, employees hired between July 1, 2022 and June 30, 2023 are eligible if they continue employment for a one-year period from their hire date. Total payments for the retention bonus program were $39.2 million paid through 2024.
On April 17, 2024, VITAS completed the purchase of all hospice operations and an assisted living facility from Covenant Health and Community Services, Inc d/b/a/ Covenant Care (“Covenant”) for an aggregated purchase price of $85.0 million in cash.
Revenue for the Covenant acquisition for 2024, was approximately $31.0 million to $32.0 million and this translated to net income of approximately $5.0 million to $6.0 million. Adjusted EBITDA for 2024 attributed to Covenant is between $7.0 million and $8.0 million.
The pro forma revenue and earnings for the Company for the years ended December 31, 2024 and 2023 as if the Covenant acquisition made in 2024 was completed on January 1, 2023 are as follows (in thousands, except per share data):
For the Years Ended December 31,
Service revenues and sales
Net income
Earnings per share
Diluted earnings per share
In late September and early October 2024, Hurricanes Helene and Milton impacted the panhandle of Florida and other parts of the southeastern United States. They did not result in any significant property loss or damage to VITAS. However, as with other similar events, we did experience a slowdown in admission activity while health systems prepared for the hurricane and then dealt with the aftermath.
LIQUIDITY AND CAPITAL RESOURCES
Material changes in the balance sheet accounts from December 31, 2024 to December 31, 2025 include the following:
An $11.4 million increase in accounts receivable due to the timing of payments. Other s ignificant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $60.0 million from the Federal government for hospice services every other Friday. The timing of a period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two-year period, as cash flow variations in one year are offset in the following year.
A $47.1 million decrease in other assets primarily related to the refund of the OAS deposit.
A $20.3 million increase in accounts payable due to timing.
A $33.7 million decline in accrued compensation due primarily to lower bonus expense in 2025 and timing of year end payroll at VITAS.
A $16.0 million increase in other current liabilities due primarily to the increase in Medicare Cap liability.
A $10.1 million increase in deferred compensation liabilities due to market valuation gains. This resulted in a similar increase in the assets associated with deferred compensation plans.
Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.
We anticipate that our operating income and cash flows will be sufficient to operate our business and meet any commitments for the foreseeable future.
The Company had no debt outstanding at December 31, 2025 and 2024. Our current ratio was 1.1 and 1.4 at December 31, 2025 and 2024, respectively.
On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $450.0 million revolver as well as a five-year $100.0 million term loan. The 2022 Credit Facilities have a floating interest rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of December 31, 2025 the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and/or term loan by an additional $250.0 million.
The term loan was repaid in 2023. This prepayment reduced the total borrowing capacity of the 2022 Credit Facilities from $550.0 million to $450.0 million There were no prepayment penalties associated with repayments. There are no significant deferred debt issuance costs capitalized related to the term loan.
The 2022 Credit Facilities contains the following quarterly financial covenants effective as of December 31, 2025:
Chemed
Description
Requirement
December 31, 2025
Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)
Interest Coverage Ratio (Consolidated Adj. EBITDA/Consolidated Interest Expense)
We forecast to be in compliance with all debt covenants through fiscal 2026.
We have issued $45.5 million in standby letters of credit as of December 31, 2025, mainly for insurance purposes. Issued letters of credit reduce our available credit under the revolving credit agreement. As of December 31, 2025, we have approximately $404.5 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. We believe our cash flow from operating activities and our unused eligible lines of credit are sufficient to fund our obligations and operate our business in the near and long term. We continually evaluate cash utilization alternatives, including share repurchase, debt repayment, acquisitions, and increased dividends to determine the most beneficial use of available capital resources.
CASH FLOW
Our cash flows for 2025, 2024 and 2023 are summarized as follows (in millions):
For the Years Ended December 31,
Net cash provided by operating activities
Capital expenditures
Net cash provided for operating activities after capital expenditures
Purchase of treasury stock in the open market
Dividends paid
Proceeds from exercise of stock options
Change in cash overdraft payable
Capital stock surrendered to pay taxes on stock-based compensation
Business combinations
Net decrease in long-term debt
Other--net
(Decrease)/increase in cash and cash equivalents
2025 versus 2024
Net cash provided by operating activities decreased $29.2 million from the year ended December 31, 2024 to the year ended December 31, 2025. The main drivers are a decrease in earnings of $36.8 million combined with working capital changes. Significant changes in our accounts receivable balances are driven mainly by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $60.0 million from the Federal government from hospice services every other Friday. The timing of year end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two-year period, as cash flow variations in one year are offset in the following year. The swing in accounts receivable increased cash flow by $22.3 million between 2025 and 2024.
In 2025, we repurchased 932,500 shares of Chemed capital stock at a weighted average price of $459.02 per share. In 2024, we repurchased 638,235 shares of Chemed capital stock at a weighted average price of $562.08 per share. Based on our current operations and our current sources of capital, we believe we have the ability to continue our current share repurchase program into the foreseeable future.
2024 versus 2023
Net cash provided by operating activities increased $87.2 million from the year ended December 31, 2023 to the year ended December 31, 2024. The main drivers are an increase in earnings of $29.5 million combined with working capital changes. Significant changes in our accounts receivable balances are driven mainly by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $55.0 million from the Federal government from hospice services every other Friday. The timing of year end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two-year period, as cash flow variations in one year are offset in the following year. The swing in accounts receivable increased cash flow by $52.2 million between 2024 and 2023.
In 2024, we repurchased 638,235 shares of Chemed capital stock at a weighted average price of $562.08 per share. In 2023, we repurchased 132,969 shares of Chemed stock at a weighted average price of $555.12 per share. Based on our current operations and our current sources of capital, we believe we have the ability to continue our current share repurchase program into the foreseeable future.
COMMITMENTS AND CONTINGENCIES
We are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We disclose the existence of regulatory and legal actions when we believe it is reasonably possible that a loss could occur in connection with the specific action. In most instances, we are unable to make a reasonable estimate of any reasonably possible liability due to the uncertainty of the outcome and stage of litigation. We record legal fees associated with legal and regulatory actions as the costs are incurred.
Please see Note 18 in the Notes to the Consolidated Financial Statements for a description of current material legal and regulatory matters.
CONTRACTUAL OBLIGATIONS
The table below summarizes our debt and contractual obligations as of December 31, 2025 (in thousands):
Less than
After
Total
1 year
1-3 Years
3-5 Years
5 Years
Lease liabilities
Purchase obligations (a)
Other long-term obligations (b)
Total contractual cash obligations
(a) Purchase obligations consist of accounts payable at December 31, 2025.
(b) Other long-term obligations comprise largely excess benefit obligations.
RESULTS OF OPERATIONS
2025 Versus 2024 – Consolidated Results
Set forth below are the year-to-year changes in the components of the statement of operations relating to income for 2025 versus 2024 (in thousands, except percentages):
Increase/(Decrease)
Percent
Service revenues and sales
VITAS
Roto-Rooter
Total
Cost of services provided and goods sold
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expenses
Total cost and expenses
Income from operations
Interest expense
Other income - net
Income before income taxes
Income taxes
Net income
The VITAS segment revenue is as follows (dollars in thousands):
Increase/(Decrease)
Percent
Routine homecare
Inpatient care
Continuous care
Other
Subtotal
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
Days of care are as follows:
Increase/(Decrease)
Percent
Routine homecare
Nursing home
Respite
Subtotal routine homecare and respite
Continuous care
General inpatient
Total days of care
The increase in service revenues at VITAS is comprised primarily of a 5.2% increase in days-of-care, and a geographically weighted average Medicare reimbursement rate increase of approximately 3.4%. Acuity mix shift negatively impacted revenue growth
by 110-basis points when compared to prior year revenue and level-of-care mix. The combination of Medicare cap and other contra revenue changes decreased revenue growth by 100-basis points.
The Roto-Rooter segment revenue is as follows (dollars in thousands):
Increase/(Decrease)
Percent
Drain cleaning
Plumbing
Excavation
Other
Subtotal - short term core
Water restoration
Independent contractors
Franchisee fees
Other
Gross revenue
Implicit price concessions and credit memos
Net revenue
The increase in plumbing revenues for 2025 versus 2024 is attributable to a 3.6% increase in job count offset by a 2.9% decrease in price and service mix shift. The decrease in drain cleaning revenues for 2025 versus 2024 is attributable to a 2.1% increase in price and service mix shift offset by a 4.5% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues. As a result, the 4.8% increase in excavation revenue and 6.9% increase in water restoration revenue are mainly a function of plumbing and drain cleaning jobs. Contractor operations decreased 4.6%. Implicit price concessions and credit memos increased 41.8% mainly related to the water restoration business.
The consolidated gross margin excluding depreciation was 32.5% in 2025 versus 35.1% in 2024. On a segment basis, VITAS’ gross margin excluding depreciation was 22.8% in 2025 and 25.1% in 2024. The decline was primarily due to an increase in Medicare Cap liability of $18.7 million and an increase in variable patient care expenses and wages. Roto-Rooter’s gross margin excluding depreciation was 50.1% in 2025 and 52.2% in 2024. The decline is primarily due to a $5.3 million increase in casualty insurance expense and a 41.8% increase in implicit price concessions and credit memos primarily related to the water restoration business line as well as an increase in variable expenses.
Selling, general and administrative expenses (“SG&A”) for 2025 and 2024 comprise (in thousands):
SG&A expenses before long-term incentive compensation, and the impact of market
value adjustments related to deferred compensation trusts
Impact of market value adjustments related to assets held in deferred compensation trusts
Long-term incentive compensation
Total SG&A expenses
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for 2025 were up 4.4% when compared to 2024. This increase was mainly a result of a $2.4 million increase in legal expenses mainly at VITAS, and a $2.7 million severance accrual related to one former VITAS executive. The remaining increase is related to normal salary increases and an increase in variable selling expenses, primarily internet marketing costs at Roto-Rooter.
Included in the allocation of the purchase price for Roto-Rooter’s 2019 acquisitions was $59.2 million related to reacquired franchise rights. Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in 2019 is 7.4 years. In 2025 and 2024, amortization expense from the reacquired franchise rights for these two acquisitions was $8.1 million compared to the franchise fee revenue recognized from all other Roto-Rooter franchises, nationwide, of $1.8 million and $1.7 million, respectively.
Other operating expense for 2025 and 2024 comprise (in thousands):
Legal settlements
(Gain)/loss on disposal of property and equipment
Total other operating expenses
Other income-net for 2025 and 2024 comprise (in thousands):
Market value adjustments related to deferred compensation trusts
Interest income
Other
Total other income - net
Our effective tax rate reconciliation is as follows:
Income tax provision calculated using the statutory rate
State and local income taxes, less federal income tax effect
Nondeductible expenses
Limitation on executive compensation
Excess stock compensation tax provision/(benefit)
Other
Other-net
Income tax provision
Effective tax rate
Net income for both periods include the following after-tax adjustments that increased/(reduced) after-tax earnings (in thousands):
VITAS
Legal settlements
Acquisition expense
Other
Roto-Rooter
Amortization of reacquired franchise agreements
Acquisition expense
Other
Corporate
Stock option expense
Long-term incentive compensation
Other
Excess tax (expense)/benefit on stock compensation
Total
2025 Versus 2024– Segment Results
Net income/(loss) for 2025 versus 2024 (in thousands):
VITAS
Roto-Rooter
Corporate
VITAS’ after-tax earnings decreased mainly due to an increase in Medicare Cap liability of $18.7 million and an increase in legal expense of $3.9 million. After-tax earnings as a percent of revenue at VITAS in 2025 was 12.5% as compared to 14.2% in 2024.
Roto-Rooter’s net income was negatively impacted in 2025 compared to 2024 due primarily to an increase in casualty insurance expense of $5.3 million and increased variable expenses combined with essentially flat revenue. Roto-Rooter’s after-tax earnings as a percent of revenue in 2025 was 15.1% as compared to 17.8% in 2024.
After-tax Corporate expenses for 2025 decreased 0.8% when compared to 2024 due primarily to a $12.9 million decrease in stock-based compensation offset by $2.7 million in severance expense recorded for one former VITAS executive, a $5.9 million decrease in interest income and a $5.1 million decrease in excess tax benefit on stock compensation.
RESULTS OF OPERATIONS
2024 Versus 2023 – Consolidated Results
Set forth below are the year-to-year changes in the components of the statement of operations relating to income for 2024 versus 2023 (in thousands, except percentages):
Increase/(Decrease)
Percent
Service revenues and sales
VITAS
Roto-Rooter
Total
Cost of services provided and goods sold
Selling, general and administrative expenses
Depreciation
Amortization
Other operating expenses
Total cost and expenses
Income from operations
Interest expense
Other income - net
Income before income taxes
Income taxes
Net income
The VITAS segment revenue is as follows (dollars in thousands):
Increase/(Decrease)
Percent
Routine homecare
Inpatient care
Continuous care
Other
Subtotal
Medicare cap adjustment
Implicit price concessions
Room and board, net
Net revenue
Days of care are as follows:
Increase/(Decrease)
Percent
Routine homecare
Nursing home
Respite
Subtotal routine homecare and respite
Continuous care
General inpatient
Total days of care
The increase in service revenues at VITAS is comprised primarily of a 14.1% increase in days-of-care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.8%. Acuity mix shift negatively impacted revenue growth by 110-basis points when compared to prior year revenue and level-of-care mix. The combination of Medicare cap and other contra revenue changes increased revenue growth by 60-basis points.
The Roto-Rooter segment revenue is as follows (dollars in thousands):
Increase/(Decrease)
Percent
Drain cleaning
Plumbing
Excavation
Other
Subtotal - short term core
Water restoration
Independent contractors
Franchisee fees
Other
Gross revenue
Implicit price concessions and credit memos
Net revenue
The decrease in plumbing revenues for 2024 versus 2023 is attributable to a 1.6% decrease in price and service mix shift and a 6.2% decrease in job count. The decrease in drain cleaning revenues for 2024 versus 2023 is attributable to a 2.9% increase in price and service mix shift offset by a 7.5% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues. As a result, the 2.5% decrease in excavation revenue and 5.7% decrease in water restoration revenue are mainly a function of the decreased plumbing and drain cleaning jobs. Contractor operations decreased 15.1%.
The consolidated gross margin excluding depreciation was 35.1% in 2024 versus 35.3% in 2023. On a segment basis, VITAS’ gross margin excluding depreciation was 25.1% in 2024 and 22.6% in 2023. The increase in gross margin at VITAS is mostly the result of the increased revenues and expiration of the retention bonus program. Roto-Rooter’s gross margin excluding depreciation was 52.2% in 2024 and 52.8% in 2023.
Selling, general and administrative expenses (“SG&A”) for 2024 and 2023 comprise (in thousands):
SG&A expenses before long-term incentive compensation, and the impact of market
value adjustments related to deferred compensation trusts
Long-term incentive compensation
Impact of market value adjustments related to assets held in deferred compensation trusts
Total SG&A expenses
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for 2024 were up 1.9% when compared to 2023. This increase was mainly a result of normal salary increases and an increase in variable selling expenses, primarily increased marketing expenses at Roto-Rooter.
Included in the allocation of the purchase price for Roto-Rooter’s 2019 acquisitions was $59.2 million related to reacquired franchise rights. Reacquired franchise rights, included in identifiable intangibles on the Consolidated Balance Sheets, are amortized over the period remaining in each individual franchise agreement. The average amortization period for reacquired franchise rights for the acquisitions made in 2019 is 7.4 years. In 2024 and 2023, amortization expense from the reacquired franchise rights for these two acquisitions was $8.1 million compared to the franchise fee revenue recognized from all other Roto-Rooter franchises, nationwide, of $1.7 million and $1.6 million, respectively.
Other operating expense for 2024 and 2023 comprise (in thousands):
Loss on disposal of property and equipment
Legal settlements
Total other operating expenses
Other income-net for 2024 and 2023 comprise (in thousands):
Market value gains on assets held in deferred
compensation trusts
Interest income
Other
Total other (expense)/income
Our effective tax rate reconciliation is as follows:
Income tax provision calculated using the statutory rate
State and local income taxes, less federal income tax effect
Nondeductible expenses
Limitation on executive compensation
Excess stock compensation tax benefits
Other
Other-net
Income tax provision
Effective tax rate
During the third quarter of 2023, the Company recognized a tax benefit from realignment of its state and local corporate tax structure based on the location of operating resources and profitability by business segment. This benefit includes a reduction in current state and local tax expense and a one time benefit of $4.2 million in reduction of deferred tax liabilities reflecting the lower tax rates.
Net income for both periods include the following after-tax adjustments that increased/(reduced) after-tax earnings (in thousands):
VITAS
Acquisition expense
Impact of deferred rate tax change
Roto-Rooter
Amortization of reacquired franchise agreements
Acquisition expense
Impact of deferred rate tax change
Legal settlements
Corporate
Stock option expense
Long-term incentive compensation
Impact of deferred rate tax change
Excess tax benefits on stock compensation
Total
2024 Versus 2023 – Segment Results
Net income/(loss) for 2024 versus 2023 (in thousand):
VITAS
Roto-Rooter
Corporate
VITAS’ after-tax earnings increased mainly to higher revenue and the expiration of the retention bonus program. After-tax earnings as a percent of revenue at VITAS in 2024 was 14.2% as compared to 12.1% in 2023.
Roto-Rooter’s after-tax earnings decreased due to lower revenue and a $3.6 million tax benefit due to the impact of the deferred rate tax change in 2023 which did not recur in 2024. Roto-Rooter’s after-tax earnings as a percent of revenue at Roto-Rooter in 2024 was 17.8% as compared to 19.8% in 2023.
After-tax Corporate expenses for 2024 increased 0.8% when compared to 2023 due mainly to a $5.3 million severance agreement in 2024 and a $1.1 million tax expense due to the impact of the deferred rate tax change in 2023, which did not recur in 2024.
CRITICAL ACCOUNTING ESTIMATES
VITAS Revenue Implicit Price Concessions
Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily government programs (Medicare and Medicaid) or commercial health insurers. Revenue is recorded at the government-mandated service level rate or the contractually agreed-upon service level rate, whichever is applicable for the patient being served. At the same time, a reduction in revenue is estimated and recorded for expected contractual adjustments. These contractual adjustments are referred to as “implicit price concessions”. Implicit price concessions at VITAS are considered critical accounting estimates as they involve a significant amount of judgment by management. Over 95% of VITAS’ revenue is from Medicare or Medicaid, resulting in the majority of implicit price concessions being related to Federal or state payors. The remainder of this discussion focuses on the process related to these Federal or state related implicit price concessions.
The laws and regulations governing hospice services are voluminous. Federal and state agencies, or their designated intermediaries, scrutinize hospice claims under various review initiatives to determine their validity and appropriateness. These reviews generally target specific categories of patients and are not statistically chosen. The Company has processes and procedures in place to help ensure compliance. The estimate of implicit price concessions is based on two main assumptions, as follows:
There are a small percentage of claims that are rejected by the payor soon after billing. These claims generally contain a minor non-medical, documentation defect in the billing process. The estimated implicit price concession for this type of claim is based mainly on historical experience which is relatively consistent from year-to-year. The implicit price concession estimate relating to this assumption is not material.
There are claims subject to the review process described above which are initially denied by the reviewer. There are many reasons that a claim may be denied including, but not limited to: defects in the non-medical documentation; a difference of opinion with respect to the medical condition of the patient; or a perceived lack of adequate medical documentation. Each denial is researched by a team of internal VITAS employees. There is a standard appeal process for any claim we believe was inappropriatelydenied. The appeal for these claims may take several months if not years to make it through the entire appeal process. The estimated implicit price concession for this type of claim is based on a number of key factors, including our historical success rate of appeal, settlement history for similar reviews, the types of reviews being conducted and the overall current review environment.
Our estimate currently assumes that we ultimately do not receive consideration for approximately 20% to 30% of claims currently selected for review or expected to be selected for review. If our current estimate changes by 1%, there would be a $2.8 million impact on our estimate of implicit price concessions.
Our estimates of implicit price concessions at VITAS are updated and reviewed quarterly based on the most recent facts available. Subsequent changes in facts and circumstances are recorded in the period they become known. There have been no changes to the assumptions that would significantly impact our estimate of implicit price concessions.
Insurance Accruals
For the Roto-Rooter segment and Chemed’s Corporate Office, we initially self-insure for all casualty insurance claims (workers’ compensation, auto liability and general liability). As a result, we closely monitor and frequently evaluate our historical claims experience to estimate the appropriate level of accrual for self-insured claims. Our third-party administrator (“TPA”) processes and reviews claims on a monthly basis. Currently, our exposure on any single claim is capped by stop-loss coverage at $750,000, with the exception of auto liability claims which are capped at $3.0 million of stop-loss coverage. In developing our estimates, we accumulate historical claims data for the previous 10 years to calculate loss development factors (“LDF”) by insurance coverage type. LDFs are applied to known claims to estimate the ultimate potential liability for known and unknown claims for each open policy year. LDFs are updated annually. Because this methodology relies heavily on historical claims data, the key risk is whether the historical claims are an accurate predictor of future claims exposure. The risk also exists that certain claims have been incurred and not reported on a timely basis. To mitigate these risks, in conjunction with our TPA, we closely monitor claims to ensure timely accumulation of data and compare claims trends with the industry experience of our TPA.
For the VITAS segment, we initially self-insure for workers’ compensation claims. Currently, VITAS’ exposure on any single claim is capped at $1,000,000, due to stop loss insurance held with a commercial insurance carrier. For VITAS’ self-insurance accruals for workers’ compensation, the valuation methods used are similar to those used internally for our other business units. We are also insured for other risks with respect to professional liability with a deductible of $1,000,000.
Our casualty insurance liabilities are recorded gross before any estimated recovery for amounts exceeding our stop loss limits. Estimated recoveries from insurance carriers are recorded as accounts receivable. Claims experience adjustments to our casualty and workers’ compensation accrual for the years ended December 31, 2025, 2024 and 2023, were net pretax expense/(credits) of $81,000, ($10,374,000), and ($6,862,000), respectively.
As an indication of the sensitivity of the accrued liability to reported claims, our analysis indicates that a 1% across-the-board increase or decrease in the amount of projected losses would increase or decrease the accrued insurance liability at December 31, 2025 by $5.4 million or 8.7%. While the amount recorded represents our best estimate of the casualty and workers’ compensation insurance liability, we have calculated, based on historical claims experience, the actual loss could reasonably be expected to increase or decrease by approximately $500,000 as of December 31, 2025.
Chemed Corporation and Subsidiary Companies
Unaudited Consolidating Summaries and Reconciliations of Adjusted EBITDA (in thousands)
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
Add/(deduct):
Interest expense
Income taxes
Depreciation
Amortization
EBITDA
Add/(deduct):
Intercompany interest/(expense)
Interest income
Stock option expense
Long-term incentive compensation
Legal settlements
Other
Adjusted EBITDA
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
Add/(deduct):
Interest expense
Income taxes
Depreciation
Amortization
EBITDA
Add/(deduct):
Intercompany interest/(expense)
Interest income
Stock option expense
Long-term incentive compensation
Acquisition expense
Adjusted EBITDA
Chemed
VITAS
Roto-Rooter
Corporate
Consolidated
Net income/(loss)
Add/(deduct):
Interest expense
Income taxes
Depreciation
Amortization
EBITDA
Add/(deduct):
Intercompany interest/(expense)
Interest income
Stock option expense
Long-term incentive compensation
Legal settlements
Adjusted EBITDA
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
For the Years Ended December 31,
Net income as reported
Add/(deduct) pre-tax cost of:
Stock option expense
Amortization of reacquired franchise agreements
Long-term incentive compensation
Legal settlements
Acquisition expense
Other
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1)
Tax impact of deferred tax rate change
Excess tax expense/(benefit) on stock compensation
Adjusted net income
Diluted Earnings Per Share As Reported
Net income
Average number of shares outstanding
Adjusted Diluted Earnings Per Share
Net income
Average number of shares outstanding
(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.
The "Footnotes to Financial Statements" are integral parts of this financial information.
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT(unaudited)
Three Months Ended December 31,
Year Ended December 31,
OPERATING STATISTICS
Net revenue ($000)
Homecare
Inpatient
Continuous care
Other
Subtotal
Room and board, net
Contractual allowances
Medicare cap allowance
Total
Net revenue as a percent of total before Medicare cap allowance
Homecare
Inpatient
Continuous care
Other
Subtotal
Room and board, net
Contractual allowances
Medicare cap allowance
Total
Days of Care
Homecare
Nursing home
Respite
Subtotal routine homecare and respite
Inpatient
Continuous care
Total
Number of days in relevant time period
Average daily census ("ADC") (days)
Homecare
Nursing home
Respite
Subtotal routine homecare and respite
Inpatient
Continuous care
Total
Total Admissions
Total Discharges
Average length of stay (days)
Median length of stay (days)
ADC by major diagnosis
Cerebro
Neurological
Cancer
Cardio
Respiratory
Other
Total
Admissions by major diagnosis
Cerebro
Neurological
Cancer
Cardio
Respiratory
Other
Total
Bad debt expense as a percent of revenues
Accounts receivable --Days of revenue outstanding- excluding unapplied Medicare payments
Accounts receivable--Days of revenue outstanding- including unapplied Medicare payments
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 REGARDING FORWARD-LOOKING INFORMATION
In addition to historical information, this report contains forward-looking statements and performance trends that are based upon assumptions subject to certain known and unknown risks, uncertainties, contingencies and other factors. Such forward-looking statements and trends include, but are not limited to, the impact of laws and regulations on our operations, our estimate of future effective income tax rates and the recoverability of deferred tax assets. Variances in any or all of the risks, uncertainties, contingencies, and other factors from our assumptions could cause actual results to differ materially from these forward-looking statements and trends. Our ability to deal with the unknown outcomes of these events, many of which are beyond our control, may affect the reliability of our projections and other financial matters.
