Q3 2023 Chemed CorpEarnings Call

October 26, 2023

Okay.

Good morning, Our conference call. This morning will review the financial results for the third quarter of 2023 ended September 30th 2023 before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 apply to this conference call.

During the course of this call the company will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors, including those identified in the company's news release of October 20.

Fifth in various other filings with the SEC.

Cautioned that any forward looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future.

In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated October 25th which is available on the company's website at chemed.

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I'd now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams, Executive Vice President and Chief Financial Officer of Chemed, and Nick Westfall, President and Chief Executive Officer of Chemed, VITAS Healthcare Corporation subsidiary.

Now I'll turn the call over to Kevin Mcnamara. Thank.

Thank you Holly.

Good morning, welcome to Chemed Corporation's third quarter 2023 conference call.

I will begin with highlights for the quarter and David and Nick will follow up with additional operating details I will then open up the call for questions.

Our third quarter 2023 operating results released last night reflect continued improvement in VITAS is operational metrics.

In the quarter, our admissions increased seven 5% over the prior year period.

These strengthening admissions continued to drive higher patient census in the third quarter, our average daily census, or ABC.

Expanded 1617, an increase of nine 4% when compared with the prior year.

Two 5% when compared with the second quarter of 2023.

VITAS is improving operating metrics are a direct result of our retention and hiring program launched July <unk> of last year. This program was designed to stabilize the turnover in our tenured staff and expand patient capacity.

Since July one 2022, our staffing has methodically increased on a sequential basis over this 12 month period. This increase in staffing and related patient capacity has been converted into increased admissions and census at roughly 60 to 90 days.

This 12 months retention program generated an aggregate increase of 784 licensed health care professionals. The majority of which are licensed nurses. This is Rick.

<unk> bonus program ended in the second quarter reporting 23, however in the third quarter, we continued to expand our license staff and related patient capacity.

VITAS bedside head count increased by 157 licensed professionals in the quarter.

Our September 2020.

Our September 23.

Was ADC or excuse me in September 2023, our ADC was 19047 patients. This compares to our September 2022, ADC of 17325 for a net increase of 1722.

Patients.

This raw ADC patient increase translates into a $123 million of increased annualized billable revenue.

Our revised guidance assumes continued sequential AUC growth in the fourth quarter of 2023.

Now, let's turn to Roto rooter.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the third quarter of 2023 and its September 30th, 2023. Before we begin, let me remind you that the state parable provisions of the Private Security Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management, expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of October 25th and in various other filings with the SEC.

As I discussed last quarter Roto Rooter continues to manage through but I can only describe as headwinds on consumer spending.

Overall, our coal volume was down approximately 13, 6% when compared to the prior year quarter.

Although call volume as crude measurement. It does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services Roto rooter hasnt as offset a significant portion of this softening demand with a material increase in close rates.

Our call centers conversion rate the rate at which a call is converted into a technician scheduled ticket has improved four 8%.

Holley Schmidt: You were cautioned that any forward-looking statements reflect management's current view only in that the company undertakes new obligation to revise or update statements in the future. In addition, management may also discuss non-GAP operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization or EBITDA and adjusted EBITDA.

Our ticket void rate, which is the rate of cancelled jobs report technician can be dispatched improved four 6%.

Our technician conversion rate the percentage of time.

A tech arrives at a home or business and converts are scheduled ticketed. The billable work was essentially equal to the prior year.

These improved conversion rates combined with price increases resulted in roto rooter, increasing revenue 40 basis points when compared to the prior year.

We continue to see stabilization of our demand and our weekly revenue our guidance assumes roto rooter will have modest fourth quarter sequential growth when compared to our third quarter of 2023.

This conservative revenue guidance for Roto Rooter fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year.

To summarize I am pleased with the accelerated improvement in VITAS post pandemic, our increased gross of licensed health care professionals strong admissions.

Unknown Executive: A reconciliation of these non-GAP results is provided in the company's press release dated October 25th, which is available on the company's website at chemit.com.

Kevin Mcnamara: I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemit Corporation, Dave Williams, Executive Vice President and Chief Financial Officer of Chemit, and Nick Westball, President and Chief Executive Officer of Chemit's BTOS Healthcare Corporation subsidiaries. I will now turn the call over to Kevin McNamara. Thank you, Holly. Good morning. Welcome to Chemit Corporation's third quarter 2023 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow up with additional operating details.

Corresponding growth in patient census have returned VITAS to normalized operating conditions.

Kevin Mcnamara: I will then open up the call for questions. A third quarter 2023 operating results release last night reflect continued improvement in BTOS' operational metrics. In the quarter, our admissions increase 7.5% over the prior year period. These strengthening admissions continued to drive higher patient census in the third quarter, our average daily census, our ABC, expanded 1,617, an increase of 9.4% when compared to the prior year, and 2.5% when compared to the second quarter of 2023.

Roto Rooter is well positioned despite economic headwinds on consumer spending.

We anticipate continued expansion market share by pressing rotors core competitive advantages in terms of excellent brand awareness customer.

Customer response time.

47 call centers and aggressive internet presence.

I would like to turn this conference over to David.

Thanks, Kevin.

<unk> net revenue was $334 million in the third quarter of 2023, which is an increase of 12, 5% when compared to the prior year period.

This revenue increase is comprised primarily of a nine 4% increase in days of care in a geographically weighted average Medicare reimbursement rate increase of approximately two 7%.

Kevin Mcnamara: BTOS' improving operating metrics are a direct result of our retention and hiring program launched July 1st of last year. This program was designed to stabilize turnover in our tendered staff and expand patient capacity. Since July 1st, 2022, our staffing has methodically increased on a sequential basis over this 12 month period. This increase in staffing and related patient capacity has been converted into increased admissions and census in roughly 60 to 90 days.

The acuity mix shift positively impacted revenue growth 24 basis points in the quarter when compared to the prior year revenue and level of care mix the.

The combination of Medicare cap and other contract revenue changes increased revenue growth by approximately 20 basis points.

Our average revenue per patient per day in the third quarter of 2023 was $196 43.

Kevin Mcnamara: This 12 month retention program generated an aggregate increase of 784 health care professionals, the majority of which are licensed nurses. This retention bonus program ended in the second quarter of 2023. However, in the third quarter, we continued to expand our license staff and related patient capacity. BTOS bedside headcount increased by 157 licensed professionals in the quarter. September 2023 was in September 2023, our ADC was 19,047 patients. This compared to our September 2022 ADC of 17,325 for a net increase of 1,722 patients. This raw ADC patient increase translates into $123 million of increased annualized billable revenue. A revised guidance assumes contingent sequential ADC growth in the fourth quarter of 2023.

Which is 296 basis points above the prior year period.

Reimbursement for routine home care and high acuity care averaged $172 52.

$1026 48, respectively.

During the quarter high acuity days of care were two 8% of our total days of care, which is an increase of five basis points compared to the prior year quarter.

Adjusted EBITDA, excluding Medicare cap totaled $54 $9 million in the quarter, which is an increase of 53, 4%.

Adjusted EBITDA margin in the quarter, excluding Medicare cap was 16, 5%, which is 441 basis points above the prior year period.

Now, let's take a look at Roto rooter.

Roto Rooter generated quarterly revenue of $231 million in the third quarter of 2023, an increase of four tenths of 1% compared to the prior year quarter.

One way to branch commercial revenue in the quarter was $56 $8 million, an increase of one 5% over the prior year.

Kevin Mcnamara: Now let's turn to road order. As I discuss last quarter, road order continues to manage through but I can only describe as headwinds on consumer spending. Overall our call volume is down to approximately 13.6 percent when compared to the prior year quarter. Although call volume is a crude measurement, it does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services. Road order has as offset a significant portion of this softening demand with a material increase in close rates.

The aggregate commercial revenue growth consisted of drain cleaning revenue declining four 2%.

Plumbing, increasing one 8% excavation expanding 11, 9% and water restoration and increasing 2%.

Roto Rooter branch residential revenue in the quarter totaled $155 million, an increase of three tenths of 1% over the prior year period.

This aggregate residential revenue growth consisted of drain cleaning decreased six 7% plumbing expanding three tenths of 1%.

Kevin Mcnamara: Our call centers conversion rate, the rate at which I call is converted into technician scheduled ticket has improved 4.8 percent. Our ticket void rate, which is the rate of canceled jobs before technician can be dispatched, improve 4.6 percent. Our technician conversion rate, the percentage of time a tech arrives at a home or business and converts a scheduled ticket into billable work was essentially equal to the prior year. These improved conversion rates combined with price resulted in road order increasing revenue 40 basis points for compared to the prior year.

Exploration expanding three 2%.

In water restoration, increasing four 3%.

Adjusted EBITDA in the third quarter of 2023 totaled $66 9 million a decrease of three 7%.

The adjusted EBITDA margin in the quarter was 29%, which is 124 basis points below the prior year period.

Now, let's take a look at our updated guidance VITAS.

<unk> 2023 revenue prior to Medicare cap is estimated to increased nine 3% to nine 5% when compared to 2022.

Kevin Mcnamara: We continue to see stabilization or demand in our weekly revenue. Our guidance assumes road order will have modest fourth quarter sequential growth when compared to our third quarter of 2023. This conservative revenue guidance for road order's fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year.

Full year 2023 revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to full a full year of sequestration in 2023.

Our average daily census, our ADC is estimated to increase seven 3% to seven 5%.

Kevin Mcnamara: To summarize, I'm pleased with the accelerated improvement in VTOS post-pandemic. Our increased growth in licensed healthcare professionals, strong admissions and corresponding growth in patient census have returned VTOS to normalized operating conditions. Road order is well-positioned despite of economic headwinds on consumer spending. We anticipate continued expansion of market share by pressing road order's core competitive advantages in terms of excellent bread awareness. Customers post-time 24-7 call centers and aggressive internet presence.

In full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15, 4% to 15, 7%.

The total pre tax cost of the retention program in 2023 is estimated at $23 $8 million.

This reduced our adjusted EBITDA margin guidance for 2023 by approximately 180 basis points.

We are currently estimating $8 million for Medicare cap billing limitations in calendar year 2023.

David Williams: With that, I would like to turn this conference over to David. Thanks, Kevin. VTOS's net revenue was $334 million in the third quarter of 2023, which is an increase of 12.5 percent when compared to the prior year period. This revenue increase is comprised primarily of a 9.4 percent increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.7 percent. The Acuity Mix Shift positively impacted revenue growth 24 basis points in the quarter when compared to the prior year revenue and level of care mix.

Roto Rooter is forecasted to achieve the full year 2020 through revenue growth of one 6% to 2%.

Right orders adjusted EBITDA margin for 2023 is guided to 28, 4% to 28, 6%.

Based upon the above full year 2023 earnings per diluted share excluding noncash expense for stock options tax benefits from stock option exercises.

<unk> costs related to litigation and other discreet items is estimated to be in the range of $19 82.

David Williams: The combination of Medicare cap and other contra revenue changes increased revenue growth by approximately 20 basis points. Our average revenue per patient per day in the third quarter of 2023 was $196.43, which is 296 basis points above the prior year period. Reimbursement for reaching home care and high acuity care averaged $172.52 and $1,026.48 respectively. During the quarter, high acuity days of care were 2.8% of our total days of care, which is an increase of five basis points compared to the prior year quarter.

To $20 <unk>.

This guidance includes $1 18 per share of <unk> after tax costs related to the 2023 portion of the retention program.

This revised 2023 guidance compares to previous guidance.

As recast to no longer exclude costs related to the retention program of.

Of $18 72.

To $18 92.

Current 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23, 6% and a diluted share count of $15 2 million shares.

David Williams: Adjusted EBITDA, excluding Medicare cap, totaled $54.9 million in the quarter, which is an increase of 53.4%. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 15.5%, which is 441 basis points above the prior year period.

<unk> 2022 adjusted earnings per diluted share was $18 78.

That includes 97 per share for cost associated with a 2022 retention program.

During the third quarter the company finalized a realignment of our state and local corporate tax structure.

David Williams: Now let's take a look at Rotorwater. Rotorwater generated quarterly revenue of $231 million in the third quarter of 2023, an increase of 4% of 1% compared to the prior year quarter. Rotorwater branch commercial revenue in the quarter was $56.8 million, an increase of 1.5% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning revenue to 24.2%, plumbing increasing 1.8%, excavation expanding 11.9%, and water restoration increasing 2%. Rotorwater branched residential revenue in the quarter, totaled $155 million, an increase of 3% of 1% over the prior year period.

S realignment effective January one 2022 was based on the location of operating resources and profitability by business segment.

This reduced state taxes for 2020.

<unk> 22 in 2023 and is estimated to result in a 24 24, 3% effective tax rate starting in 2024.

I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS healthcare business segments.

Thanks, David as Kevin discussed, our 12 month retention and hiring bonus ended on June 32023.

This program was very effective in stabilizing and expanding our patient capacity.

David Williams: This aggregate residential revenue growth consisted of drain cleaning decreasing 6.7%, plumbing expanding 3% of 1%, excavation expanding 3.2%, and water restoration increasing 4.3%. Adjusted EBITDA in the third quarter of 2023, totaled $66.9 million, a decrease of 3.7%. The adjusted EBITDA margin in the quarter was 29%, which is 124 basis points below the prior year period.

While retention bonus payments are individually cliff vested and paid out after the employee has successfully completed 12 months of continuous employment.

I'm also very pleased that we've continued to expand our workforce and patient capacity in the third quarter without this retention program in.

In the quarter VITAS increased net bedside head count by 157 licensed professional professionals.

Similarly, I am pleased that we've continued to see strong retention of our team members, who receive their retention bonus payment illustrating the sustainability of improvements and culture and morale at our locations.

David Williams: Now let's take a look at our updated guidance. VTAS is 2023 revenue prior to Medicare cap is estimated to increase 9.3% to 9.5% compared to 2022. Full year 2023 revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023. Our average daily census or ADC is estimated to increase 7.3% to 7.5%. In full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15.4% to 15.7%.

In the third quarter of 2023, our average daily census of 18859 patients an increase of 1617 or nine 4% when compared to the prior year and an increase of 467 or two 5% sequentially.

As Kevin mentioned, we crossed the 19000 ADC Mark in September of 2023 at 19047 patients. This compares to our September 'twenty two ADC of 17325 for a net increase of 17022 patients.

<unk> generated quarterly sequential ADC growth over the last four quarters.

David Williams: The total pretext cost of the retention program in 2023 is estimated at $23.8 million. Harris. This reduced or adjusted EBITDA margin guidance for 2023 by approximately 180 basis points. We are currently estimating $8 million for Medicare cat billing limitations in calendar year 2023. Rotorouter is forecasted to achieve the full year 2020 revenue growth of 1.6 percent to 2 percent. Rotorouter is adjusted EBITDA margin for 2023 is guided to 28.4 percent to 28.6 percent.

In the third quarter of 23 total VITAS admissions were 15774.

This is a seven 5% increase when compared to the third quarter of 'twenty two.

In the quarter, our nursing home admissions increased two 8%.

Assisted living facility admissions expanded 17, 1% hospital directed admissions increased six 5% and our home based patient admissions expanded nine 2% when compared to the prior year period.

Our average length of stay in the quarter was 103, one days. This compares to a 106 two days in the third quarter of 'twenty two.

99, five days in the second quarter of 2023.

David Williams: Based upon the above, full year 2023 earnings per diluted share, excluding noncash expense for stock options, tax benefits from stock option exercises, cost related to litigation, and other discrete items is estimated to be in the range of $19.82 to $20.02. This guidance includes $1.18 per share of after tax costs related to the 2023 portion of the retention program. This revised 2023 guidance compares to previous guidance as recast to no longer exclude costs related to the retention program of $18.72 to $18.92.

Our median length of stay was 17 days in the quarter and compares to 17 days in the third quarter of 2002, and 16 days in the second quarter of 'twenty three.

To recap what our team has accomplished we've now generated five quarters of sequential growth in licensed health care workers and four quarters of sequential growth in ADC.

We've developed what I believe is a very sustainable path to methodically build our clinical capacity and patient base to pre pandemic levels and beyond.

These accomplishments were a result of the unwavering commitment dedication and focus each VITAS team member has towards fulfilling our mission in every community. We serve I wanted to take this opportunity to opportunity to thank our entire VITAS team for what we've done to get US here today and I look forward to what we will accomplish going forward.

David Williams: Current 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23.6 percent in the diluted share count of 15.2 million shares. Cammett's 2022 adjusted earnings per diluted share was $18.78 that includes $0.97 per share for cost associated with the 2022 retention program. During the third quarter, the company finalized a realignment of its state and local corporate tax structure. This realignment affected January 1st of 2022 was based on the location of operating resources and profitability by business segment. This reduced state taxes for 2022 in 2023 and is estimated to result in a 24.3 percent effective tax rate starting in 2024.

With that I'd like to turn this call back over to Kevin.

Thank you Nick.

It is now appropriate time to entertain any questions people might have.

Okay. Thank you at this time, we will conduct a question and answer session and as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Ben Hendrix of RBC capital markets. Your line is open.

Okay. Thank you very much just on the VITAS in terms of the new revised guidance and wanted to get your thoughts on how you are factoring in the hiring that you saw in this quarter into your revised estimates and could you remind us kind of what youre expecting in terms of pull through in <unk> from some of the new hires that you noted I think you noted about 150%.

Nick Westfall: I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VTAS Healthcare Business Segment. Thanks, David. As Kevin discussed, our 12-month retention and hiring bonus ended on June 30, 2023. This program was very effective in stabilizing and expanding our patient capacity. All retention bonus payments are individually cliff-fested and paid out after the employee has successfully completed 12 months of continuous employment. I'm also very pleased that we've continued to expand our workforce and patient capacity in the third quarter without this retention program.

<unk>.

New nurses. Thank you.

Yep sounds good so in terms of forecasting for the fourth quarter and obviously takes we have previous five quarters of experience around what we believe to be the translation from our census growth standpoint, So it's obviously factored into our fourth quarter guidance for this year.

As alluded to in the comments, we feel very good about our methodical approach while it was $1 57, net bedside head count expansion in the third quarter. There is no reason to believe that can't continue and won't continue throughout the end of the year, which will launch us into 'twenty four and we'll include that in our 2024 guidance when we discuss that.

Nick Westfall: In the quarter, VTAS increased net bedside headcount by 157 licensed professionals. Similarly, I'm pleased that we've continued to see strong retention of our team members who received their retention bonus payment, illustrating the sustainability of improvements in culture and morale at our location. In the third quarter of 2023, our average daily census of 18,859 patients in increase of 1617 or 9.4% when compared to the prior year in an increase of 467 or 2.5% sequentially.

In February of next year.

What you probably noticed if you kind of do the math on that three quarters of actual to get to our full year guidance, we're anticipating a pretty big sequential pop from Q3 to Q4, and our adjusted EBITDA margin ex cap.

And Thats, primarily due to three factors one of which is all of the price increase is going to drop down to our EBITDA line or the rail.

All of that.

And geographically week came out about 20 basis points ahead of the National average three 3% is where we anticipate that we will pick up about three three points that way and then the other ratio we're looking at as Nick and his team are still actually monetizing all but done a substantial piece of that the huge growth rate in labor in Q2.

Nick Westfall: As Kevin mentioned, we crossed the 19,000 ADC mark in September of 2023 at 19,047 patients. This compares to our September 22 ADC of 17,325 for a net increase of 17,022 patients. VTOS is generated quarterly sequential ADC growth over the last four quarters. In the third quarter of 23, total VTOS admissions were 15,774. This is a 7.5% increase when compared to the third quarter of 22. In the quarter, our nursing home admissions increased 2.8%, assisted living facility admissions expanded 17.1%, hospital directed admissions increased 6.5%, and our home based patient admissions expanded 9.2% when compared to the prior year period.

The 302 increase in debt side Ftes.

As well as he is digesting the $1 57, and we are getting leverage on central support costs.

Relative to the marginal revenue growth. So that's just a long way of saying is we are going to have a very very nice pop around to about 21% in fourth quarter adjusted EBITDA margin, but certainly that is not the go forward margin for 'twenty four we're obviously working on a very good very positive tailwind in terms of how we're <unk>.

Monetizing this huge capacity increase as well as their admission increases which are expensive, but when we get 24 guidance, it's going to moderate from the fourth quarter obviously.

Nick Westfall: Our average length of stay in the quarter was 103.1 days. This compares to 106.2 days in the third quarter of 22, and 99.5 days in the second quarter of 2023. Our median length of stay was 17 days in the quarter, and compares to 17 days in the third quarter of 22, and 16 days in the second quarter of 23. To recap what our team has accomplished, we've now generated five quarters of sequential growth in licensed healthcare workers and four quarters of sequential growth in ADC.

Thank you that's very helpful.

Moving quickly to.

<unk>.

Roto Rooter.

Can you talk about the water restoration trends it looks like the revenues are a little softer than what we've seen in.

Past quarters.

Remind us of any seasonality that goes into that number and kind of how that business is faring amid some of the broader consumer headwinds.

In terms of seasonality there is not much but.

Nick Westfall: We've developed what I believe is a very sustainable path to methodically build our clinical capacity and patient base to pre-pandemic levels and beyond. These accomplishments were result of the unwavering commitment, dedication, and focus. Each BTOS team member has towards fulfilling our mission in every community we serve.

Rarely like Hey, we don't like to talk about weather, but for example in the first quarter of this year, we had extremely cold weather that contributed to frozen pipes frozen pipes tend to have a lot of water restoration work, because they burst and there's water and certain parts of our structure.

So from that standpoint, there could be a modest amount of seasonality beyond that every water restoration job is largely be spoke it's triggered from a small plumbing and drain cleaning job. Then that result, and do you want this water and humidity remove so from that standpoint, it generally tracks plumbing.

Nick Westfall: I want to take this opportunity to thank our entire BTOS team for what we've done to get us here today, and I look forward to what we will accomplish going forward.

Kevin Mcnamara: With that, I'd like to turn this call back over to Kevin. Thank you, Nick.

Unknown Executive: It's now appropriate time to entertain any questions people might have. Okay, thank you. At this time, we will conduct a question-and-answer session. And as a reminder, to ask a question, you will need to press Star-101 on your telephone and wait for your name to be announced. To withdraw your question, please press Star-101 again. Please stand by while we compile the Q&A roster.

And sewer drain work. However, we are still doing a great job of responding quickly to jobs that have a high probability of water restoration in capturing that business. So for right now because of our speed of response or actually outperforming and water restoration that growth and sewer drain, but we eventually expect that to be.

Totally correlated within a couple of years.

Ben Hendrix: Our first question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open. Thank you very much. Just on the BTOS in terms of the new revised guidance, I wanted to get your thoughts on how you're factoring and hiring that you saw in this quarter into your revised estimates. And if you remind us kind of what you're expecting in terms of pull-through and fork you from some of the new hires that you noted, I think you noted about 150 some odd new nurses. Thank you. Yeah, sounds good.

Great. Thank you just one last question can you just talk about any changes in thoughts around your capital deployment priorities kind of amid the current interest rate environment and expectations for rates to stay higher for longer.

I would just say obviously there is a.

Basically talk about a little bit of a change given the overnight rate.

So we get our money, but it's still we're still going to be buying in stock base once.

Kevin Mcnamara: So in terms of forecasting for the fourth quarter, it obviously takes, you know, we have previous five quarters of experience around what we believe to be the translation from a census growth standpoint. So, you know, it's obviously factored into our fourth quarter guidance for this year. And as alluded to in the comments, feel very good about our methodical approach while it was 157 net bedside headcount expansion in the third quarter. There's no reason to believe that.

Before I mean in past years, when we were getting what was only 18 months ago, we're getting 20 basis points on overnight money.

Kevin and I, certainly felt a strong urge to put that to work quickly and that was share repurchase primarily on dollar averaging now that we actually can get a good rate of five 2%, which on an after tax basis about equals our free cash flow yield per share there isn't an economic cost if we try to time things so from that.

Kevin Mcnamara: That can't continue and won't continue throughout the end of the year, which will launch us into 24 and will include that in our 2024 guidance when we discuss that in February of next year. And then what you probably noticed, if you kind of do the math on the three quarters of actual to get to our full year guidance, we're anticipating a pretty big sequential pop from Q3 to Q4 in our adjusted even dot margin, X cap.

Standpoint, Thats why youre seeing our interest income increasing as we put that cash to work on an overnight basis, and then we will be opportunistic when the stock corrects jumping on share repurchase, but that clearly will be a continued part of our way to return capital to shareholders until we can find some nice juicy acquisitions are.

Other ways to risk adjusted increase our returns.

Kevin Mcnamara: And that's primarily due to three factors, one of which is all of the price increases going to drop down to our EBIT dial line or really all of it. And geographically, we came out what 20 basis points ahead of a national average of 3.3% is where we anticipate. So we'll pick up about 3.3 points that way. And then the other issue we're looking at is, Nick and his team are still actually monetizing, although they've done a substantial piece of that, the huge growth rate in labor in Q2, the 32 increase in bedside FTEs.

Thank you.

Alright. Thank you one moment for our next question.

Our next question comes from the line of Joanne.

Bank of America. Your line is open.

Okay.

Thank you good morning, Thanks for taking my question. So I guess, if I can the first follow up.

The discussion around the desk margins.

So you alluded.

Kevin Mcnamara: As well as he's digesting the 157 and we are getting leverage on central support costs relative to the marginal revenue growth. So that's just a long way of saying is we are going to have a very, very nice pop around to about 21% in fourth quarter adjusted EBIT dial margin. But certainly that is not the go forward margin for 24. We're obviously working on a very good, very positive tailwind in terms of how we're monetizing this huge capacity increase, as well as his admission increases, which are expensive. But when we give 24 guidance, it's going to moderate from the fourth quarter obviously.

The Q4 guidance implies pretty high margin.

Of 21% that's not good.

Assumptions for next year, obviously because of the seasonality and how that.

Unknown Executive: Thank you. That's very helpful.

Medicare radar business too, but is it fair to assume.

Full year.

Margin guidance, excluding the 180 basis points headwind from the pension program. So I guess when you do that math, because you're guiding now $15 four to 57, but excluding that headwind I guess 17 points to 275.

Is that a good starting point for next year because also the other way I guess to look at things would be maybe second half. So combine Q4 and Q3, so thats like a 19% margin.

Unknown Executive: Moving quickly to, to rotor, rotor.

Kevin Mcnamara: Can you talk about the water restoration trends? It looks like the revenue is a little softer than what we've seen in in past quarters. Remind us of any seasonality that goes into that number and kind of how that business is faring amid some of the broader consumer headwind. In terms of seasonality, there's not much but rarely like, hey, we don't like to talk about weather. But for example, in the first quarter of this year, we had extremely cold weather that contributed to frozen pipes.

Sorry to kind of think about margins into next year in that kind of neighborhood.

What I would say on margin and Youre asking an interesting question, we're going to be cagey, but not only because we're look we don't know how things are going to smooth out post pandemic. So before.

We're getting tail end of a pandemic so even last year I think Nick Kevin and I were talking about VITAS margins, there's no retention program or anything else. We said, we'll return to that $17, 518% adjusted EBITDA margin ex cap, that's what we've been saying as we're working our way through the pandemic.

Kevin Mcnamara: Frozen pipes tend to have a lot of water restoration work because they burst and there's water in certain parts of a structure. So from that standpoint, there could be a modest amount of seasonality. Beyond that, every water restoration job is largely bespoke. It's triggered from a small plumber to drain cleaning job. Then that resultant, you want this water and humidity removed. So from that standpoint, it generally tracks plumbing and sewer and drain work.

Now as we look at the overall mix, we look at the efficiencies Nick and his team out of necessity created during the pandemic.

Again, Duane probably more high acute less high acuity care on a go forward basis, and we're doing pre pandemic all of that leads to I think our margins are going to be higher than that 17, an app to 18% that we posted in calendar year 2019.

Kevin Mcnamara: However, we are still doing a great job of responding quickly to jobs that have a high probability of water restoration and capturing that business. So for right now, because of our speed of response, or actually outperforming in water restoration, the growth in sewer and drain. But we eventually expect that to be totally correlated within a couple years.

But whatever that margin turns out to be maybe it turns out to be 19, maybe turned out to be 19 in app, but whatever it settles out at once we normalize our hospital admissions.

Unknown Executive: Thank you.

<unk> stay kind of the mix of where our patients come from whatever margin. We ended up settling out probably in our 24 guidance. That's pretty much is going to be static there'll be minimal opportunity to improve that margin. So again, whether it's 1919, 520% whatever it settles out at.

Unknown Executive: Great.

Unknown Executive: Thank you.

Unknown Executive: Just one last question. Can you just talk about any changes and thoughts around your capital, deployment priorities, kind of amid the current industry environment and expectations for rates to stay higher for longer? Thanks.

For our go forward mix post pandemic.

It's going to be then pretty flat hard to grow that margin.

So we're still trying to guessing.

When things settle out.

David Williams: Obviously, there's basically going to talk about a little bit of a change given the overnight rate of that we get on our money, but we're still going to be buying stock based once a year. Now, before, I mean, in past years, when we were getting, you know, what was only 18 months ago, we're getting 20 basis points on overnight money. Kevin and I certainly felt a strong urge to put that to work quickly, and that was Sherry purchase primarily on dollar average.

But it is going to be sometime in 'twenty four has a high high high probability we're going to be above our pre pandemic census.

Early in the first quarter of 'twenty four if we don't put if we don't publish that in the fourth quarter of this year.

But that's just a long winded way of saying Joanna Yes, we think we have a tailwind on pre pandemic margin increasing it just not quite sure where it's going to settle out yet, but the fourth quarter isn't going to be representative of a go forward annual guidance it might be representative of an annual fourth quarter guidance.

David Williams: Now that we actually can get a good rate of 5.2%, which in an after tax basis about equals our free cash flow yield per share, there isn't an economic cost if we try to time things. So from that standpoint, that's why you're seeing our interest income increasing as we put that cash to work on an overnight basis, and then we'll be opportunistic when the stock corrects, you know, jumping on Sherry purchase.

Alright.

Which would be conveying.

So pre pandemic fourth quarter marginal contribution prints at that point, that's exactly right right, usually the highest margin right no I agree.

And then I guess.

And.

David Williams: But that clearly will be a continued part of our way to return capital to shareholders until we can find some nice juicy acquisitions or other ways to risk adjusted increase our returns. Thank you. All right. Thank you. One moment for our next question.

In terms of you mentioned on census, you kind of reached that 19.

Mike and the outlook was raised it sounds like yes.

Are you expecting Q4 to sequentially improve from Q3, so how should so my question I guess, so how should we think about next year. So for this year I guess, you're talking about revenues growing 9% this year.

Largely on back on that census grew really.

Okay can you grow high single digits on top of that number again that creates a tougher comp I guess any framework for how we should think about things.

Joanna Gajuk: Our next question comes from the line of Joanne Gajouk of Bank of America. Your line is open. Thank you.

So just from an operational standpoint, I think the sequential component that youre seeing illustrative and built in and baked into some of them.

Joanna Gajuk: Good morning. I think for the question. So I guess if I can the first follow up on the discussion around the death margins. So you alluded, you know, the Q4 guidance implies pretty high margin of 21% that's not a good. But you know, essentially, for next year, obviously, because of the seasonality and how you know, the market rate up is most true. But is it fair to assume, you know, year again for your margin guidance, excluding the 180 basis points that went from the attention program.

My comments earlier, we feel very good about the sustainability of sequential ADC growth Johan on a go forward basis in terms of the overall rate of course, we don't want to comment about what we think 24 will be until we get into talking about 2024 guidance, but my comment is really just to reinforce the AUM.

Our confidence we have in our ability to continue to methodically build clinical capacity that will continue to translate into admissions growth in ADC growth and it's a different way of saying the pandemic is behind US we feel great around we're hitting on all cylinders, including just as importantly.

Joanna Gajuk: So I guess, you know, when you do that math, because you're guiding now 15.4 to 15.7. But excluding that headwind, I guess it's 17.2 to 70.5. I'll put some margin. So is that a good starting point for for next year? Because also the other way I guess to look at things would be maybe second half to combine Q4 and Q3. So that's like a 19% margin. So is it fair to kind of think about margins into next year?

Everything we're investing from a human capital and cultural standpoint back at our individual locations and so we're on a we're on a good path and trajectory, but in terms of range of ADC and guidance, we will talk about it when we get into 'twenty four but just from an overall confidence standpoint, we sit here very confident based upon the results were printing and Anna.

Joanna Gajuk: You know, in that in the corner neighborhood? What I would say on margin, and you're asking an interesting question, we're going to be cagey, but not only because we're looking. We don't know how things are going to smooth out post pandemic. So before, as we're getting tail end of the pandemic, so even last year, I think Nick, Kevin and I were talking about Vtasa's margins. There's no retention program or anything else.

Dissipate continuing to produce on a go forward basis.

To answer your question also probably lives in a factory that's outside of our control as Dave indicated.

It's kind of a unusual situation as things were tough in the hospice arena.

Joanna Gajuk: We said, we'll return to that 17.5, 18%, adjusted EBITDA margin X cap. That's what we've been saying as we're working away through the pandemic. Now as we look at the overall mix, we look at the efficiencies in his team out of necessity created during the pandemic. Again, doing probably less high acuity care on the go-forward basis than we're doing pre-pandemic. All of that leads to, I think our margins are going to be higher than that 17-and-aft to 18% that we posted in calendar year 2019.

Our competitors, who are smaller less well capitalized.

Maybe less professionally managed.

More mildly than we did in <unk>.

So.

A lot of our improvement was.

Some of our improvement was based on taking business away from those struggling competitors. So to the extent that our ADC in the quarter was up nine 4% that's a historically high number.

To the extent that you're talking about where is that going to settle in some of that comes out to.

Joanna Gajuk: But whatever that margin turns out to be, maybe it turns out to be 19, maybe it turns out to be 19-and-aft. But whatever it settles out at, once we normalize our hospital admissions, length of stay kind of them, the mix of where our patients come from, whatever margin we end up settling at probably in our 24 guidance, that's pretty much is going to be static. There'll be minimal opportunity to improve that margin.

Due to our competitors some of the competitor, especially in Florida.

Come back to.

Kind of a cut.

Our recovery rate of doing business I mean, they were they've been struggling we continue to see them struggle.

But that so I guess, what they're really saying is some of those factors are certainly in the category of the unknown, but again, if you asked us.

Joanna Gajuk: So again, whether it's 19, 19-and-aft 20%, whatever it settles out at, for our go-forward mix post-pandemic, it's going to be then pretty flat, hard to grow that margin. So we're still trying to guessing when things settle out, but it's going to be sometime in 24 is a high, high, high probability. We're going to be above our pre-pandemic census, early in the first quarter of 24 if we don't post it in the fourth quarter of this year.

As we sit here, we see them continue to struggle so.

That's good news for us.

Okay I appreciate it and before I guess I ask my question.

Last thing on VITAS.

So we know what they are.

Great update us which is.

Pretty good I guess and it sounds like you actually had a little.

A higher than average rate, but there is also some provisions in the hospital, but also in that home health proposal, Nevada Hospice Costless over site right. So there is a medical with yourself hospice stays out longer than 90 days.

Joanna Gajuk: But that's just a long, winded way of saying Joanna, yes, we think we have a tailwind on pre-pandemic margin increasing it, just not quite sure where it's going to settle out yet. But the fourth quarter isn't going to be representative of a go-forward annual guidance, it might be representative of an annual fourth quarter guidance stuff. Which would be consistent with all pre-pandemic fourth quarter marginal contribution prints at that point. That's exactly right.

<unk> focused program.

Sure.

And I guess they talk about.

Selecting some providers for that additional review.

So can you talk about what does it mean for your business in terms of.

Any impact how you operate or any impact to that.

Costs associated with just dealing with this increase.

Joanna Gajuk: Right, usually the highest margin, right? No, I agree. And then I guess put that end in terms of you mentioning on census, you kind of reached that 19 mark, and you know, the outlook was raised, so sounds like, yeah, you're expecting Q4 to sequentially improve from Q3. So how should it be a similar question I guess? How should you think about the next year? So for this year, I guess you're talking about revenues growing 9% this year, largely on that census grew really.

With this increased oversight.

Yes, so John if we take your comments sort of break it into two different parts of your comment around any potential desire to look at patient records.

For any length of stay I think its something where as you might imagine.

We've constantly and have.

We're constantly able to successfully defend those things and with the research studies that I know many are aware of.

Joanna Gajuk: So can you grow high single digits on top of that number again, or that creates a path of column? I guess any framework for how we should think about things? So just from an operational standpoint, I think the sequential component that you're seeing illustrative in built-in and baked into some of the comments earlier, you feel very good about the sustainability of the Quential ADC growth Johan on a go for basis. In terms of the overall rate, of course, we don't want to comment about what we think 24 will be until we get into talking about 2024 guidance.

Illustrating longer length of stays in the hospice benefit actually have a larger outsized return for the Medicare Trust fund in terms of total cost of care reduction, we will see if the appetite.

Look at those things now aligns with the best interest of the Medicare Trust fund as well.

Regarding the special focus program proposed rule and provisions.

There'll be some semblance of that'll be finalized here over the next coming days, but the one item that I would point to regarding it is when you look at.

Comment letters that are all public from the for trade associations that are representative of large providers small providers for profit providers nonprofit providers as well as bipartisan letters.

Joanna Gajuk: But my comment is really just to reinforce the overall confidence we have in our ability to continue to methodically build clinical capacity that will continue to translate into admissions growth and ADC growth. And it's a different way of saying, you know, the pandemic is behind us. We feel great around. We're hitting on all cylinders, including just as importantly, everything we're investing from a human capital and cultural standpoint back at our individual locations.

Congressional leadership, all of those things point to and help to illustrate some of the concerns of the construct of the special focused program embedded inside of the proposed rule along with recommendations that CMS has been listening to enable to collaborate with for consideration of things.

Joanna Gajuk: And so we're on a good path in trajectory, but in terms of range of ADC and guidance, you know, just from an overall confidence standpoint, we sit here very confident based upon the results we're printing and anticipate continuing to produce on a go for basis. What the answer to Quential also is probably lies in a factor that's outside of our control. As days indicated. It's kind of an unusual situation as things were tough in the hospice arena.

They can and should do within the SSP to be able to achieve their goal, which is identifying poor performing hospices in particular, those that with the vast explosion in the last four years of hospice licenses in California, Texas, Nevada, and Arizona. So just as an illustration of some of those construct.

<unk> comments are the need to normalize for it.

Providers related to condition level deficiency, so they don't treat it provider with the $4 50, and 25% exactly the same there are also highlighting 40% of hospice provider numbers haven't had a survey in three years over half don't have a cap score and so we think there is.

Joanna Gajuk: Our competitors who are smaller Westville capitalized, maybe less professionally managed, struggled more mightily than we did. And so a lot of our improvement was, there's some of our improvement was based on taking business away from those struggling competitors. So to the extent that our ADC in the quarter was up 9.4%, that's an historically high number. To the extent that you talk about where is that going to settle in, some of that comes down to do our competitors, some of the competitors, especially in Florida, come back to a recovered rate of doing business.

Continuing to work to do in the industry and all the providers are rowing in the same direction to provide that insight. So that the government can achieve what their objective is but speculating around something that is proposed that should have some either significant modifications or pause too.

Just be able to get it right and achieve that objective that everybody believes in I think is going to be key and critical and we'll see how that plays out over there.

The next week or two and then over the coming years.

Joanna Gajuk: I mean, they were, they've been struggling. We continue to see them struggle. But that, so I guess what they're really saying is some of those factors are certainly in the category of the unknown. But again, if you ask us from our as we sit here, we see them continue to struggle. So that's good news for us. Okay, I appreciate it. And before I guess I asked my little question at the last thing on Vita's.

Alright, Thanks, guys I guess, we'd have to see where we're at.

Alright, it sounds when it's finalized but if I can last question on the product right.

Things tracking a little bit better it sounds like you've considered on Q4.

But still you raised your guidance it sounds like maybe a little bit more than that.

The Q3.

It gives you confidence I guess.

Doing better.

And can you talk about maybe trends exiting Q3, and so far in October.

Joanna Gajuk: You know, so we know the what the rate update is, which is pretty good. I guess, and thank you actually a little bit higher than average, right? But there's also, you know, some provisions in the hospice rate, but also in the home health proposal around the hospice across the oversight. Right. So there's the medical reviews of hospice days are longer than 90 days. There's a special focused program. And I guess they talk about, you know, selecting some providers, you know, for that additional review.

There's really not much to talk about theres nothing that stood out in October seasonality Joanna kicks in about mid November.

Really through the end of the year. So it's too early to see what kind of seasonality. We have if you look at the exact change we did to the guidance that we issued at the end of Q2 versus the end of Q3 now we really just tightened everything up to the higher rent on roto rooter side effectively so it's better margin improvement, which is also an exam.

<unk> expense control at the run rate or level and those that are really kind of a resulting in about a $3 million pop in EBITDA for roto rooter in the second half of the year than we were first initially anticipated. So it's really coming down to margin performance and just slightly better Rev.

Joanna Gajuk: So can you talk about what does it mean for your business in terms of, you know, an impact to how you operate or an impact to the cost associated with just, you know, dealing with this increase, increase the, with this increase oversight. Yeah, so John, if we take your comments, sort of, and break it into two different parts, you're coming around any potential desire to look at patient records for any length of stay.

<unk> trend lines, but still not up to where we think that you need.

And I guess that leads me to my question I had on Ddos.

To think about next year.

Joanna Gajuk: I think it's something, you know, we're, as you might imagine, we're constantly and have we're constantly able to successfully defend those things. And, you know, with research studies that I know many are aware of that are illustrating longer length of stays in the hospice benefit actually have a larger outsized return for the Medicare trust fund in terms of total cost of care reduction. You know, we'll see if the appetite to look at those things now aligns with the best interest of the Medicare trust fund as well.

Well I guess.

We will continue to excel.

And it's probably the answer depends on where that will land, but any kind of framework or things you would be looking at as leading indicators for how to think about.

So I think next year in Nevada.

Okay.

VITAS to China, or both I apologize there yes, okay.

Okay.

About <unk> I mean.

Okay.

The only thing.

I'll give you an example ferguson supply huge.

Joanna Gajuk: Regarding the special focus program proposed rule and provisions, you know, there'll be some semblance of that will be finalized here over the next coming days. But the one item that it would point to regarding it is when you look at comment letters that are all public from the four trade associations that are representative of large providers, small providers, for profit providers, nonprofit providers, as well as bipartisan letters from congressional providers. And, you know, there'll be some national leadership, all those things point to and help to illustrate some of the concerns of the construct of the special focus program embedded inside of the proposed rule along with recommendations that CMS has been listening to and able to collaborate with for consideration of things they can and should do within the SFP to be able to achieve their goal, which is, you know, identifying poor performing hospices.

The supplier of a lot of devices, but including <unk>.

Repair plumbing devices pipes, and what have you.

First year, they've broken it out so we can track the people who buy those are people like roto Rooter go to a stored by the by the pipes in the plumbing materials do it yourself versus rival plumbing companies.

They recently indicated their sales of those in that sector.

Are down about 12% for the year to date.

Last year, they were up 22% in other words the point I'm, making is first of all it's very broad thats an indication that.

It's consumer driven it's not we're not losing business to competitors.

The point there is that it changed very quickly in the downward.

Syed.

That suggests to me that it could improve very quickly.

Joanna Gajuk: In particular, those that with the vast explosion in the last four years of hospice licenses in California, Texas, Nevada, and Arizona. So, you know, just as an illustration, some of those constructive comments are the need to normalize, you know, for providers related to condition level deficiencies so they don't treat a provider with 450 and 25 exactly the same. They're also highlighting, you know, 40% of hospice provider numbers haven't had a survey in three years, over half don't have a cap score.

On the positive side.

As far as.

What causes consumers to put off these less an emergency jobs and.

So that's an unknown, but I would say that I have some confidence that.

What we're.

Looking at it as a cyclical economic problem that has indications to me that it could improve as quickly as it evolved so.

We make are those are the kind of issues. When we go through the budget for Roto Rooter.

Joanna Gajuk: And so we think there's, you know, continual work to do in the industry and all the providers are rowing in the same direction to provide that insight so that the government can achieve what their objective is, but, you know, speculating around something that is proposed that should have some either significant modifications or a pause to just be able to get it right and achieve that objective that everybody believes in. I think it's going to be, you know, key and critical and we'll see how that plays out over the next week or two and then over the coming, in years.

We're going to try and analyze it.

A little bit unknowable, but you'll get a lot you'll get our best thinking.

When we give our guidance for February for next year, but.

I wouldn't rule out.

Some improvement, but when you see our guidance youre going to see a.

Unless something changes significantly between now and then.

I'd say the middle of January with regard to consumer demand you're going to see.

Joanna Gajuk: No, exactly, I guess we have to see where it stands when it's finalized. But if I can't left question on the, on the broader way, things starting a little bit better, sounds like you're considered on Q4, but still you raised your guidance, it sounds like maybe a little bit more than the Q3. So what gives you confidence, I guess, in the role of doing better? And can you talk about maybe trans-exiting Q3 and so far in October?

Relative some conservatism, but at the same time, some some optimism because they say it looks like we've already kind of hit bottom on that and have normalized yes. If you think about it Joanna we really want to see what the fourth quarter turns out to be to the impact.

On Roto Rooter from what I'd call softening consumer demand to the extent that we really achieve a softening in 2024 I suspect roto Rooter will have a very very good year in 'twenty four.

<unk> headwinds kind of Nag spending throughout next year I think we're set up for an incredible 2025, because as Kevin keeps reminding people. These jobs that are not coming in for the industry as well as for us they're not going away they are getting deferred.

Joanna Gajuk: There's really not much to talk about. There's nothing that stood out in October. Seasonality, Joanna, kicks in about mid-November, really through the end of the year. So it's too early to see what kind of seasonality we have. If you look at the exact change we did to the guidance that we should at the end of Q2 versus the end of Q3 now, we really just tightened everything up to the higher end on rotor order side, effectively.

Problems don't fix themselves you might delay it might push some big logs down the line, but all of those work eventually has to be done and we're positioned for it.

Joanna Gajuk: So it's better margin improvement, which is also an example of expense control at the rotor order level. And it's those that are really kind of resulting in about a $3 million pop in EBITDA for rotor order in the second half of the year, then we were first initially anticipated. So it's really coming down to margin performance and just slightly better revenue trend lines, but still not up to where we think it should be.

Hi.

I have a fair amount of optimism on 2024, but it really just comes down to.

How much extra cash consumers have and how much longer they can defer some of these jobs, but we anticipate there'll be growth next year with one caveat, David Rodriguez going to have a very difficult comparison to the first quarter first quarter was before the slowdown.

So they have excellent had good weather and some excellent first quarter.

Would do numbers, we're talking about are for the year.

Joanna Gajuk: And I guess I think it's a small question I had on VDA, you know, how to think about next year, you know, can you grow, I guess, I'll continue to grow, I guess I understand it's probably the answer depends on what they're calling online, but any kind of framework or, you know, things you would be looking at as they're leading indicators for how to think about the next year in rotor. There were VTOSTA, China, or both.

Not in the first quarter Q1 will be challenging and I love the margin that we're pulling out right now so yes.

Yes, without a doubt the hardest quarter to lap is going to be Q1 of 2023 after that actually I guess.

Barghest easier to hurdle.

Thank you that's a lot of detail.

Just last follow up on that so you mentioned the kind of industry level trends, indicating you're not losing share but also if we think about the two different businesses. So you can talk about like the water restoration.

Joanna Gajuk: About rotor order, I mean, you know, we're the only thing, you know, I'll give you an example, Ferguson supply, huge, you know, supplier of a lot of devices, but including repair plumbing devices and pipes and what have you. First year, they've broken it out so we can track, the people who buy those are people like rotor order go to a store and buy the pipes and plumbing materials, do it yourselfers, rival plumbing companies.

And you gave us the job count down, but then I guess as we think about our commercial versus residential any any difference in behavior. There were similar and I guess to that end.

Are you exposed to like the building activity slowing down or are you kind of your commercial business is more diverse.

And you don't rely I guess on mute.

The housing stock. Thank you.

The commercial business tends to be what I would say less discretionary because theyre trying to keep things open the number one commercial cohort. We have is actually multifamily housing than the number two turns into restaurants.

Joanna Gajuk: They recently indicated their sales of those in that sector are down about 12% for the year today. Last year, they were up 22%. In other words, the point I'm making is, first of all, that's very broad, that's a dedication that, you know, it's consumer driven, it's not, we're not losing the business, the competitors. The point there is that it changed very quickly on the downward side. That suggests to me that it could improve very quickly, you know, on the positive side.

The restaurants are exactly volume driven and if theyre getting a lot of in.

In in restaurant dining, that's where our volume comes from from there. So it's not really deferral on the commercial side of it just comes down to how often they are using their equipment and their drains and their plumbing systems that triggers our repairs.

And actually commercial right now is what I would say is <unk>.

Joanna Gajuk: You know, as far as what causes consumers to put off these less than emergency jobs and, you know, so that's an unknown. But I would say that I have some confidence that what we're dealing with looking at is a cyclical economic problem that has indications to me that it could improve as quickly as it evolved. So, you know, when we make our, those are the kind of issues when we go through the budget for rotor order.

Slightly outperforming residential.

Thank you for the color. Thank you.

Yeah, all right. Thank you.

Alright. Thank you for your questions I am showing no further questions at this time.

I would now like to turn it back to Kevin Mcnamara for closing comments comments.

The only comment I have is we were.

<unk>.

We had what we thought.

Operating quarter.

Joanna Gajuk: You know, we're going to try and analyze. It's a little bit unknowable, but you'll get a lot, you'll get our best thinking, you know, when we give our guidance for the February for next year. But, you know, I wouldn't rule out, you know, some improvements, but I bet when you see our guidance, you're going to see, yeah, could less that if that's something changes significantly between now and we'll say the middle of January we've got a consumer demand you could see you know relative you know some conservatism but at the same time some some optimism because they say it looks like we've already kind of hit bottom on that and have normalized.

Really it was gratifying to see the.

The retention program bearing fruit.

Group.

Roto Rooter.

Were you happy that we've kind of normalized.

The activity.

Gratified that to the extent that we have.

Our close rates indicate.

Indicate and expense control indicate.

Good.

Excellent field.

Field level management and.

We look forward to.

The good closed in the year, but with that I'd like to thank everyone for their attention.

Joanna Gajuk: Yeah if you think about it Joanna we really want to see what the fourth quarter turns out to be to the impact on rotor rotor from what I call soft and consumer demand to the extent that we really achieve a softening in 2024 I suspect rotor rotor will have a very very good year in 24 if consumer headwinds kind of nag spending throughout next year I think we're set up for an incredible 2025 because as Kevin keeps reminding people these jobs that are not coming in for the industry as well as for us they're not going away they're getting deferred. If problems don't fix themselves you might delay it you might push some big clogs down the line but all this work eventually has to be done and we're positioned for it I have a fair amount of optimism on 2024 but it really just comes down to how much extra cash consumers have and how much longer they can defer some of these jobs but we anticipate they'll be grown next year.

<unk>.

I guess, we'll have another one of these in February at which time, we report on the fourth quarter and our guidance for next year. Thank you.

Alright. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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Joanna Gajuk: With one copy I say that rotor is going to have a very difficult comparison of the first quarter first quarter was before the slowdown and so they had excellent and had good weather and so excellent first quarter you know what would be numbers we're talking about are for the year not the first quarter. He wanted to be challenging and I love the margin that we're pulling out right now so yeah it's yeah it's without a doubt the hardest quarter to lap is going to be Q1 of 2023.

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Joanna Gajuk: After that actually gets my the bar gets easier to hurt. Thank you there's a lot of details but can invite my just last saw up on the so you mentioned the kind of that industry level trends are indicating you know I was insure but also if we think about the two different businesses so you talk about like the water restoration and you gave us the job count down but then I guess as we think about like commercial versus residential any any difference in behavior there where it's I guess similar and I guess to that end you know are you exposed to like the building activity slowing down or you kind of your commercial business is more diverse and you don't rely on new ads the housing stock thank you.

Joanna Gajuk: The commercial business tends to be you know what I'd say less discretionary because they're trying to keep things open. The number one commercial cohort we have is actually multi family housing then the number two turns into restaurants the restaurants are exactly volume driven and if they're getting a lot of in in restaurant dining that's where our volume comes from from there so it's not really deferable on the commercial side is comes down to how often they're using your equipment and their drains and their plumbing systems that triggers our repairs. And actually commercial right now is what I would say is slightly outperforming residents. Mitchell. Thank you for your questions.

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Good morning, Our conference call. This morning will review the financial results for the third quarter of 2023 ended September 32023, before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 apply to this conference call.

During the course of this call the company will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements.

Actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors, including those identified in the company's news release of October 25th and in various other filings with the SEC.

You are cautioned that any forward looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future.

At <unk> Dot Com I would now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams, Executive Vice President and Chief Financial Officer, a format and Nick Westfall, President and Chief Executive Officer of <unk> VITAS Healthcare Corporation subsidiary I will now turn the call over to <unk>.

Mcnamara.

Thank you Holly.

Good morning, welcome to Chemed Corporation's third quarter 2023 conference call.

We'll begin with highlights for the quarter and David and Nick will follow up with additional operating details I will then open up the call for questions.

Our third quarter 2023 operating results released last night reflect continued improvement in VITAS is operational metrics in the quarter, our admissions increased seven 5% over the prior year period.

This strengthening admissions continued to drive higher patient census in the third quarter, our average daily census, or ABC.

Expanded 1617, an increase of nine 4% when compared with the prior year and two 5% when compared with the second quarter of 2023.

Yes.

VITAS is improving operating metrics are a direct result of our retention and hiring program launched July one of last year. This program was designed to stabilize turnover in our tenured staff and expand patient capacity.

Since July one 2022, our staffing has been statically increased on a sequential basis over this 12 month period. This increase in staffing and related patient capacity has been converted into increased admissions and census could roughly 60 to 90 days.

This 12 month retention program generated an aggregate increase of 784 licensed health care professionals, the majority of which are licensed nurses.

This retention bonus program ended in the second quarter reporting <unk> III. However, in the third quarter, we continued to expand our license staff and related patient capacity.

The test bed side head count increased by 157 licensed professionals in the quarter.

Our September 2020.

Separately credit III.

Okay.

Was ABC CBS in September 23, our ADC was 19047 patients. This compares to our September 2022 ADC of 17325.

For a net increase of 1722.

<unk>.

This raw ADC patient increase translates into a $123 million of.

Increased annualized billable revenue.

Our revised guidance assumes continued sequential AUC growth in the fourth quarter of 2023.

Now, let's turn to Roto Rooter as I discussed last quarter Roto Rooter continues to manage through but I can only describe as headwinds in consumer spending.

Overall, our coal volume was down approximately 13, 6% when compared to the prior year quarter.

Although call volume is accrued measurement. It does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services.

Roto Rooter is offset a significant portion of this softening demand with a material increase in close rates.

Our call centers conversion rate the rate at which a call is converted into a technician scheduled ticket has improved four 8%.

Our ticket void rate, which is the rate of cancel job support technician can be dispatched improved four 6%.

Our technician conversion rate the percentage of time.

Tech arrives at a home or business and converts are scheduled ticketed. The billable work was essentially equal to the prior year.

These improved conversion rates combined with price increases resulted in roto rooter, increasing revenue 40 basis points when compared to the prior year.

We continue to see stabilization of our demand and our weekly revenue our guidance assumes roto rooter will help modest fourth quarter sequential growth when compared to our third quarter of 2023.

This conservative revenue guidance for Roto Rooter fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year.

To summarize I am pleased with the accelerated improvement in VITAS post pandemic, our increased gross of licensed health care professionals strong admissions and a corresponding growth in patient census have returned VITAS to normalized operating conditions.

Unknown Executive: I'm showing no further questions at this time.

Kevin Mcnamara: I would now like to turn it back to Kevin McNamara for closing comments. The only comment I have is, you know, we were gratified that, you know, we had what we thought of, you know, great operating quarter, you know, really was gratifying to see the, you know, the retention program bearing such fruit, the V-toss, regular, very happy that we've kind of normalized, you know, the activity, very gratified that to the extent that we have, you know, our, our close rates in Rotorua indicate that, and expense control indicate, you know, good feel, actual feel level management. And, you know, we look forward to the good close in the year.

Unknown Executive: But without, I'd like to thank everyone for their attention. And I guess we'll have another one of these in February, at which time we report on the fourth quarter and our guidance for our next year. Thank you. All right. Thank you for your participation in today's conference.

Unknown Executive: This does conclude the program. You may now disconnect. Thank you. . In addition, management may also discuss non-gap operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-gap results is provided in the company's press release dated October 25th, which is available on the company's website at chemed.com.

Roto Rooter is well positioned despite of economic headwinds on consumer spending.

Unknown Executive: I would now like to interview our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation. Dave Williams, Executive Vice-President and Chief Financial Officer of Chemed, and Nick Westfall, President and Chief Executive Officer of Chemed's BTOF Healthcare Corporation subsidiaries.

We anticipate continued expansion of market share by pressing rotors core competitive advantages in terms of excellent brand awareness customer.

Kevin Mcnamara: I will now turn the call over to Kevin McNamara. Thank you, Holley. Good morning.

Customer response time.

Kevin Mcnamara: Welcome to Chemed Corporation's 3rd quarter 2023 conference call. I will begin with highlights for the quarter and Dave and Nick will follow up with additional operating details. I will then open up the call for questions.

47 call centers and aggressive internet presence.

Kevin Mcnamara: A 3rd quarter 2023 operating results released last night reflect continued improvement in BTOF's operational metrics. In the quarter, our admissions increased 7.5% over the prior year period. These strengthening admissions continued to drive higher patient census. In the 3rd quarter, our average daily census, or ABC, expanded 1,617. An increase of 9.4% when compared with the prior year and 2.5% when compared with the 2nd quarter of 2023. BTOF's improving operating metrics are direct result of our retention and hiring program launched July 1st of last year.

I would like to turn this conference over to David.

Thanks, Kevin.

VITAS net revenue was $334 million in the third quarter of 2023, which is an increase of 12, 5% when compared to the prior year period.

This revenue increase is comprised primarily of a nine 4% increase in days of care in a geographically weighted average Medicare reimbursement rate increase of approximately two 7%.

Kevin Mcnamara: This program was designed to stabilize turnover in our tendered staff and expand patient capacity. Since July 1st, 2022, our staffing has methodically increased on a sequential basis over this 12 month period. This increase in staffing and related patient capacity has been converted into increased admissions and census in roughly 60 to 90 days. This 12 month retention program generated an aggregate increase of 784 licensed healthcare professionals, the majority of which are licensed nurses.

The acuity mix shift positively impacted revenue growth 24 basis points in the quarter when compared to the prior year revenue and level of care mix the.

The combination of Medicare cap and other contra revenue changes increased revenue growth by approximately 20 basis points.

Our average revenue per patient per day in the third quarter of 2023 was $196 43.

Which is 296 basis points above the prior year period.

Reimbursement for routine home care and high acuity care averaged $172 52.

Kevin Mcnamara: This retention bonus program ended in the 2nd quarter of 2023. However, in the 3rd quarter, we continued to expand our licensed staff and related patient capacity. BTOF's bedside headcount increased by 157 licensed professionals in the quarter. Our September 2023 was in September 2023. Our ABC was 19,047 patients. This compares to our September 2022 ABC of 17,325 for a net increase of 1,722 patients. This raw ABC patient increase translates into $123 million of increased annualized billable revenue. Our revised guidance assumes continued sequential ABC growth in the 4th quarter of 2023.

$1026 48, respectively.

During the quarter high acuity days of care were two 8% of our total days of care, which is an increase of five basis points compared to the prior year quarter.

Adjusted EBITDA, excluding Medicare cap totaled $54 $9 million in the quarter, which is an increase of 53, 4%.

Adjusted EBITDA margin in the quarter, excluding Medicare cap was 16, 5%, which is 441 basis points above the prior year period now.

Now, let's take a look at Roto rooter.

Ritter generated quarterly revenue of $231 million in the third quarter of 2023, an increase of four tenths of 1% compared to the prior year quarter.

Roto Rooter branch commercial revenue in the quarter was $56 $8 million, an increase of one 5% over the prior year.

Kevin Mcnamara: Now let's turn to Rotorwood. As I discuss last quarter, Rotorwood continues to manage through but I can only describe as headwinds on consumer spending. K. Overall, our call volume is down to approximately 13.6 percent when compared to the prior year quarter. Although call volume is a crude measurement, it does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services. Rotary has, as I've said, a significant portion of this softening demand with a material increase in clothes rates.

The aggregate commercial revenue growth consisted of drain cleaning revenue declining four 2% plumbing, increasing one 8% excavation expanding 11, 9% and water restoration increasing 2%.

Roto Rooter branch residential revenue in the quarter totaled $155 million, an increase of three tenths of 1% over the prior year period.

Aggregate residential revenue growth consisted of drain cleaning decreased six 7% plumbing, expanding three tenths of 1% excavation expanding three 2% and water restoration, increasing four 3%.

Kevin Mcnamara: Our call centers conversion rate, the rate at which a call is converted into technical technician's scheduled ticket has improved 4.8 percent. Our ticket void rate, which is the rate of cancelled jobs before a technician can be dispatched, improved 4.6 percent. Our technician conversion rate, the percentage of time a tech arrives at a home or business and converts a scheduled ticket in the bill of a work, was essentially equal to the prior year.

Adjusted EBITDA in the third quarter of 2023 totaled $66 9 million a decrease of three 7%.

The adjusted EBITDA margin in the quarter was 29%, which is a 124 basis points below the prior year period.

Kevin Mcnamara: These improved conversion rates combined with price increases resulted in road-to-ruder increasing revenue, 40 based points for compared to the prior year. We continue to see stabilization or demand in our weekly revenue. Our guidance assumes road-to-ruder will have modest 4.4 sequential growth when compared to our third quarter of 2023. This conservative revenue guidance for road-to-ruder's fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year.

Now, let's take a look at our updated guidance VITAS.

<unk> 2023 revenue prior to Medicare cap is estimated to increased nine 3% to nine 5% when compared to 2022.

Full year 2023 revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to full a full year of sequestration in 2023.

Our average daily census, our ADC is estimated to increase seven 3% to seven 5%.

Kevin Mcnamara: To summarize, I'm pleased with the accelerated improvement in VTOS post-pendemic. Our increased growth in licensed healthcare professionals, strong admissions and corresponding growth in patient census have returned VTOS to normalized operating conditions. Road-to-ruder's well-positioned despite of economic headwinds on consumer spending. We anticipate continued expansion of market share by pressing road-to-ruder's core competitive advantages in terms of excellent bread awareness, customer response time, 24-7 call centers and aggressive internet presence.

In full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15, 4% to 15, 7%.

The total pre tax cost of the retention program in 2023 is estimated at $23 $8 million.

This reduced our adjusted EBITDA margin guidance for 2023 by approximately 180 basis points.

We are currently estimating $8 million for Medicare cap billing limitations in calendar year 2023.

David Williams: I would like to turn this conference over to David. Thanks, Kevin.

Roto Rooter is forecasted to achieve our full year 2020 through revenue growth of one 6% to 2%.

David Williams: VTOS's net revenue was $334 million in the third quarter of 2023, which is an increase of 12.5% when compared to the prior year period. This revenue increase is comprised primarily of a 9.4% increase in days of care in the geographically weighted average Medicare reimbursement rate increase of approximately 2.7%. The acuity midship positively impacted revenue growth 24 basis points in the quarter when compared to the prior year revenue and level of care mix.

Right orders adjusted EBITDA margin for 2023 is guided to 28, 4% to 28, 6%.

Based upon the above full year 2023 earnings per diluted share excluding noncash expense for stock options tax benefits from stock option exercises.

This cost related to litigation and other discreet items is estimated to be in the range of $19 82.

To $20 <unk>.

This guidance includes $1 18 per share of after after tax costs related to the 2023 portion of the retention program.

This revised 2023 guidance compares to previous guidance.

As recast to no longer exclude costs related to the retention program of.

Of $18 72.

To $18 92.

Current 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23, 6% and a diluted share count of $15 2 million shares.

David Williams: Carter. Adjusted EBITDA, excluding Medicare cap, totaled $54.9 million in the quarter, which is an increase of 53.4%. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 16.5%, which is 441 basis points above the prior year period.

<unk> 2022 adjusted earnings per diluted share was $18 78.

That includes 97 per share for cost associated with a 2022 retention program.

During the third quarter the company finalized a realignment of our state and local corporate tax structure.

David Williams: Now let's take a look at Rotor-Rooter. Rotor-Rooter generated quarterly revenue of $231 million in the third quarter of 2020. 23, an increase of 4% of 1% compared to the prior year quarter. Rotor-Rooter branched commercial revenue in the quarter, was $56.8 million in increase of 1.5% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning revenue declining 4.2%, plumbing increasing 1.8%, excavation expanding 11.9% in water restoration increasing 2%. Rotor-Rooter branched residential revenue in the quarter, totaled $155 million in increase of 3% of 1% over the prior year period.

Realignment effective January one 2022 was based on the location of operating resources and profitability by business segment.

This reduced state taxes for 2000 and.

22, and 2023 and is estimated to result in a 2024, 3% effective tax rate starting in 2024.

I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS healthcare business segments.

Thanks, David as Kevin discussed, our 12 month retention and hiring bonus ended on June 32023.

This program was very effective in stabilizing and expanding our patient capacity.

David Williams: This aggregate residential revenue growth consisted of drain cleaning decreasing 6.7%, plumbing expanding 3% of 1%, excavation expanding 3.2% in water restoration increasing 4.3%. Adjusted EBITDA in the third quarter of 2023 totaled $66.9 million, a decrease of 3.7%. The adjusted EBITDA margin in the quarter was 29%, which is 124 basis points below the prior year period.

While retention bonus payments are individually cliff vested and paid out after the employee has successfully completed 12 months of continuous employment.

I am also very pleased that we've continued to expand our workforce and patient capacity in the third quarter without this retention program in.

In the quarter VITAS increased net bedside head count by 157 licensed professional professionals.

Similarly, I am pleased that we continued to see strong retention of our team members who've received their retention bonus payment illustrating the sustainability of improvements and culture and morale at our locations.

David Williams: Now let's take a look at our updated guidance. VTAS is 2023 revenue, prior to Medicare cap, is estimated to increase 9.3% to 9.5% compared to 2022. Full year 2023 revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to full a full year of sequestration in 2023. Our average daily census or ADC is estimated to increase 7.3% to 7.5%.

In the third quarter of 2023, our average daily census of 18859 patients an increase of 1617 or nine 4% when compared to the prior year.

An increase of 467 or two 5% sequentially.

As Kevin mentioned, we crossed the 19000 ADC Mark in September of 2023.

At 19047 patients. This compares to our September 'twenty, two ADC of 17325 for a net increase of 17022 patients.

David Williams: In full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15.4% to 15.7%. The total pretext cost of the retention program in 2023 is estimated at $23.8 million. This reduced our adjusted EBITDA margin guidance for 2023 by approximately 180 basis points. We are currently estimating $8 million for Medicare cap billing limitations in calendar year 2023.

VITAS generated quarterly sequential ADC growth over the last four quarters.

In the third quarter of 23 total VITAS admissions were 15774. This is a seven 5% increase when compared to the third quarter of 'twenty two.

In the quarter, our nursing home admissions increased two 8%.

Assisted living facility admissions expanded 17, 1% hospital directed admissions increased six 5% and our home based patient admissions expanded nine 2% when compared to the prior year period.

David Williams: Rotorouter is forecasted to achieve the full year 2023 revenue growth of 1.6% to 2%. Rotorouter is adjusted EBITDA margin for 2023 is guided to 28.4% to 28.6%. Based upon the above, full year 2023 earnings per diluted share excluding noncash expense for stock options, tax benefits from stock option exercises, cost related to litigation, and other discrete items is estimated to be in the range of $19.82 to $20.2, of the Reattention Program. This guidance includes $1.18 per share of after-text costs related to the 2023 portion of the retention program.

Our average length of stay in the quarter was $103. One days. This compares to 106 two days in the third quarter of 2002.

And $99 five days in the second quarter of 2023 or.

Our median length of stay was 17 days in the quarter and compares to 17 days in the third quarter of 2002, and 16 days in the second quarter of 'twenty three.

To recap what our team has accomplished we've now generated five quarters of sequential growth in licensed health care workers and four quarters of sequential growth in ADC. We've developed what I believe is a very sustainable path to methodically build our clinical capacity and patient base to pre pandemic levels and beyond.

These accomplishments were a result of the unwavering commitment dedication and focus each VITAS team member has towards fulfilling our mission in every community we serve.

Wanted to take this opportunity to opportunity to thank our entire VITAS team for what we've done to get US here today and I look forward to what we will accomplish going forward with that I'd like to turn this call back over to Kevin.

David Williams: The 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23.6 percent in a diluted share count of 15.2 million shares. Kevin Fischbeck's 2022 adjusted earnings per diluted share was $18.78 that includes 97 cents per share for cost associated with the 2022 retention program.

Thank you Nick.

It is now appropriate time to entertain any questions people might have.

To withdraw your question. Please press star one again.

David Williams: During the third quarter, the company finalized the realignment of its state and local corporate tax structure. This realignment effective January 1st of 2022 was based on the location of operating resources and profitability by business segment. This reduced state taxes for 2022 and 2023 and is estimated to result in a 24.3 percent effective tax rate starting in 2024.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Ben Hendrix of RBC capital markets. Your line is open.

Okay. Thank you very much.

On the VITAS in terms of the new revised guidance and wanted to get your thoughts on how you are factoring in the hiring that you saw in this quarter into your revised estimates and could you remind us kind of what youre expecting in terms of pull through in <unk> from some of the new hires that you noted I think you noted about 150 some odd.

Nick Westfall: I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VTAS Healthcare Business Segment. Thanks, David. As Kevin discussed, our 12-month retention and hiring bonus ended on June 30, 2023. This program was very effective in stabilizing and expanding our patient capacity. All retention bonus payments are individually cliff-fested and paid out after the employee has successfully completed 12 months of continuous employment. I am also very pleased that we have continued to expand our workforce and patient capacity in the third quarter without this retention program.

New nurses.

Thank you.

Yep sounds good so in terms of forecasting for the fourth quarter and obviously takes we have previous five quarters of experience around what we believe to be the translation from our census growth standpoint. So it's obviously factored into our fourth quarter guidance for this year and as alluded to in the comp.

We feel very good about our methodical approach while it was $1 57, net bedside head count expansion in the third quarter. There is no reason to believe that can't continue on won't continue throughout the end of the year, which will launch us into 'twenty four and we'll include that in our 2024 guidance when we discuss that in February of next year.

Nick Westfall: In the quarter, VTAS increased net bedside headcount by 157 licensed professionals. Similarly, I am pleased that we have continued to see strong retention of our team members who have received their retention bonus payment, illustrating the sustainability of improvements in culture and morale at our locations. In the third quarter of 2023, our average daily census of 18,859 patients in increase of 1,617 or 9.4 percent when compared to the prior year in an increase of 467 or 2.5 percent sequentially.

And then what you probably noticed if you kind of do the math on the three quarters of actual to get to our full year guidance, we're anticipating a pretty big sequential pop from Q3 to Q4, and our adjusted EBITDA margin ex cap.

And Thats, primarily due to three factors one of which is all of the price increase is going to drop down to our EBITDA liner.

Really all of it.

And geographically we came out with 20 basis points ahead of the National average of 3% was where we anticipate that we will pick up about three three.

Nick Westfall: As Kevin mentioned, we crossed the 19,000 ADC mark in September of 2023 at 19,047 patients. This compares to our September 22 ADC of 17,325 for a net increase of 17,022 patients. VTAS has generated quarterly sequential ADC growth over the last four quarters. In the third quarter of 23, total VTAS admissions were 15,774. This is a 7.5 percent increase when compared to the third quarter of 22. In the quarter, our nursing home admissions increased 2.8%, assisted living facility admissions expanded 17.1%, hospital directed admissions increased 6.5%, and our home based patient admissions expanded 9.2% when compared to the prior year period.

<unk> that way and then the other ratio we're looking at as Nick and his team are still actually monetizing all of it done a substantial piece of that the huge growth rate in labor in Q2, the 302 increase in debt side Ftes.

As well as he is digesting the $1 57, and we are getting leverage on central support costs relative.

Monetizing this huge capacity increase as well as admission increases which are expensive, but when we get 24 guidance, it's going to moderate from the fourth quarter obviously.

Nick Westfall: Our average length of stay in the quarter was 103.1 days, this compares to 106.2 days in the 3rd quarter of 22, and 99.5 days in the 2nd quarter of 2023. Our median length of stay was 17 days in the quarter, and compares to 17 days in the 3rd quarter of 22, and 16 days in the 2nd quarter of 23. To recap what our team has accomplished, we've now generated 5 quarters of sequential growth and licensed healthcare workers, and 4 quarters of sequential growth in ADC.

Thank you that's very helpful.

Moving quickly to <unk>.

Roto Rooter.

Can you talk about the water restoration trends it looks like the revenues a little softer than what we've seen in.

Past quarters.

A minus of any seasonality that goes into that number and kind of how that business is bearing amid some of the broader consumer headwinds.

In terms of seasonality there is not much but.

Nick Westfall: We've developed what I believe is a very sustainable path to methodically build our clinical capacity and patient base to pre-pandemic levels and beyond. These accomplishments were a result of the unwavering commitment, dedication, and focus each BITOS team member has towards fulfilling our mission in every community we serve.

Nick Westfall: I want to take this opportunity to thank our entire BITOS team for what we've done to get us here today, and I look forward to what we will accomplish going forward.

So from that standpoint, there could be a modest amount of seasonality beyond that every water restoration job is largely <unk> bulk is triggered from a small plummeted rang cleaning job then that result, and do you want this water and humidity removed so from that standpoint, it generally tracks plumbing.

Kevin Mcnamara: With that, I'd like to turn this call back over to Kevin. Thank you, Nick.

Unknown Executive: It's now appropriate time to entertain any questions people might have. Okay, thank you. At this time, we will conduct the question and answer session, and as a reminder, to ask a question, you will need to press Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1-1 again. Please stand by while we compile the Q&A roster.

And Soren drain work. However, we are still doing a great job of responding quickly to jobs that have a high probability of water restoration in capturing that business. So for right now because of our speed of response, we're actually outperforming and water restoration that growth and sewer drain, but we eventually expect that to be.

Totally correlated within a couple of years.

Ben Hendrix: A first question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open. Okay, thank you very much.

Kevin Mcnamara: Just on the BITOS in terms of the new revised guidance, I wanted to get your thoughts on how you're factoring in the hiring that you saw in this quarter into your revised estimates, and if you remind us kind of what you're expecting in terms of pull through in 4Q from some of the new hires that you noted, I think you noted about 150 some odd new nurses. Thank you. Yep, sounds good.

I would just say obviously there is a.

There is going to talk about a little bit of a change given the overnight rate.

But we get on our money, but it's still we're still going to be buying in stock base once.

Kevin Mcnamara: So in terms of forecasting for the fourth quarter, it obviously takes, you know, we have previous five quarters of experience around what we believe to be the translation from a census growth standpoint. So, you know, it's obviously factored into our fourth quarter guidance for this year, and as alluded to in the comments, feel very good about our methodical approach while it was 157 net bedside headcount expansion in the third quarter. There's no reason to believe that can't continue and won't continue throughout the end of the year, which will launch us into 24, and we'll include that in our 2024 guidance when we discuss that in February of next year.

Before I mean in past years, when we were getting what was only 18 months ago, we were getting 20 basis points and overnight money.

Kevin Mcnamara: And Ben, what you probably noticed if you kind of do the math on the three quarters of actual to get to our full year guidance, we're anticipating a pretty big sequential pop from Q3 to Q4 in our adjusted even dot margin, XCAP, and that's primarily due to three factors, one of which is all of the price increases going to drop down to our EBITDA line, or really all of it. And geographically we came out what 20 basis points ahead of a national average of 3.3% is where we anticipate.

Other ways to risk adjusted increase our returns.

Thank you.

Alright. Thank you one moment for our next question.

Kevin Mcnamara: So we'll pick up about 3.3 points that way. And then the other issue we're looking at is, Nick and his team are still actually monetizing, although they've done a substantial piece of that. The huge growth rate in labor in Q2, the 32 increase in bedside FTEs, as well as he's digesting the 157. And we are getting leverage on central support costs relative to the marginal revenue growth. So that's just a long way of saying is we are going to have a very, very nice path around to about 21% in fourth quarter of just the EBITDA margin.

Our next question comes from the line of Joanne <unk> of Bank of America. Your line is open.

Okay.

Thank you good morning, Thanks for taking my question. So I guess, if I can the first follow up on the.

The discussion around the desk Morgans.

<unk>.

The Q4 guidance implies pretty high margin.

Of 21% that's not good.

Assumptions for next year, obviously because of the seasonality and how.

The Medicare radar business too, but is it fair to assume.

Kevin Mcnamara: But certainly that is not the go forward margin for 24, or obviously working on a very good, very positive tailwind in terms of how we're monetizing this huge capacity increase, as well as his admission increases, which are expensive. But when we give 24 guidance, it's going to moderate from the fourth quarter obviously. Thank you. That's very helpful.

Your full year margin guidance, excluding the 180 basis points headwind from the pension program. So I guess when you do that math, because you're guiding now 15 portfolio, but excluding that headwind I guess at 17 point to 275.

Alberto margins or is that a good starting point for for next year. Because also the other way I guess to look at banks would be maybe second half. So combine Q4 and Q3. So that's a good 19% margin.

Kevin Mcnamara: Moving quickly to rotor, rotor. Can you talk about the water restoration trends? It looks like the revenue is a little softer than what we've seen in past quarters. Remind us of any seasonality that goes into that number and kind of how that business is faring amid some of the broader consumer headwind. In terms of seasonality, there's not much but rarely like, hey, we don't like to talk about weather. But for example, in the first quarter of this year, we had extremely cold weather that contributed to frozen pipes.

It's fair to kind of think about margins into next year in that.

Neighborhood.

We're getting tail end of the pandemic. So even last year I think Nick Kevin and I were talking about VITAS margins, there's no retention program or anything else. We said, we'll return to that 17, 518% adjusted EBITDA margin ex cap, that's what we've been saying as we're working our way through the pandemic.

Kevin Mcnamara: Frozen pipes tend to have a lot of water restoration work because they burst and there's water in certain parts of a structure. So from that standpoint, there could be a modest amount of seasonality. Beyond that, every water restoration job is largely bespoke. It's triggered from a small plumber to drain cleaning job, then that result in do you want this water and humidity removed. So from that standpoint, it generally tracks plumbing and sewer and drain work.

Now as we look at the overall mix, we look at the efficiencies Nick and his team out of necessity created during the pandemic.

Kevin Mcnamara: However, we are still doing a great job of responding quickly to jobs that have a high probability of water restoration and capturing that business. So for right now because of our speed of response or actually outperforming in water restoration, the growth in sewer and drain. But we eventually expect that to be totally correlated within a couple of years.

But whatever that margin turns out to be maybe it turns out to be 19, maybe turned out to be 90 million app, but whenever it settles out at once we normalize our hospital admissions.

Unknown Executive: Great. Thank you.

Length of stay kind of the mix of where our patients come from whatever margin. We ended up settling out probably in our 24 guidance. That's pretty much is going to be static there'll be minimal opportunity to improve that margin. So again, whether it's 1919, 520% whatever it settles out at.

David Williams: Just one last question. Can you just talk about any changes and thoughts around your capital deployment priorities, kind of amid the current industry environment and expectations for rates to stay higher for longer? Thanks. Obviously, there's a base going to talk about a little bit of a change given the overnight rate of what we get on our money, but we're still going to be buying in stock. In past years, when we were getting what was only 18 months ago, we were getting 20 basis points on overnight money.

For our go forward mix post pandemic.

It's going to be then pretty flat hard to grow that margin.

So we're still trying to guessing.

When things settle out.

But it is going to be sometime in 'twenty four has a high high high probability we're going to be above our pre pandemic sensors.

Early in the first quarter of 'twenty four if we don't put if we don't publish that in the fourth quarter of this year.

David Williams: Kevin and I certainly felt a strong urge to put that to work quickly and that was Sherry purchased primarily on dollar average. Now that we actually can get a good rate of 5.2%, which in an after tax basis about equals our free cash flow yield per share, there isn't an economic cost if we try to time this. Thanks. So from that standpoint, that's why you're seeing our interest income increasing as we put that cash to work on an overnight basis.

Alright.

Which would be confined.

So pre pandemic fourth quarter marginal contribution prints at that point, that's exactly right right, usually the highest margin right I agree.

David Williams: And then we'll be opportunistic when the stock corrects, you know jumping on share repurchase. But that clearly will be a continued part of our way to return capital to shareholders until we can find some nice juicy acquisitions or other ways to risk adjusted increase our returns. Thank you.

And then I guess.

And.

Unknown Executive: All right. Thank you. One moment for our next question.

In terms of you mentioned on sensus.

<unk> reached at 19.

Mike and the outlook was raised it sounds like yes.

Do you expect in Q4 to sequentially improve from Q3, so how should so my question I guess, a housekeeping a lot next year. So for this year I guess, you're talking about revenues growing 9%. This year largely on back on that census grew really.

Okay can you grow high single digits on top of that number again that creates a tougher comp I guess any framework for how we should think about things.

Joanna Gajuk: Our next question comes from the line of Joanne Gajuk of Bank of America. Your line is open. Thank you.

So just from an operational standpoint, I think the sequential component that youre seeing illustrative and built in and baked into some of the.

Joanna Gajuk: Good morning. I think for the question. So I guess if I can the first follow up on the discussion around the death margins. So you alluded, you know, the two four guidance implies pretty high margin of 21% that's not a good, you know, assumption for next year, obviously, because of the seasonality and how, you know, the my the medical rate of this was true. But is it fair to assume, you know, you're against for your margin guidance, excluding the 180 basis points that went from the retention program.

My comments earlier, we feel very good about the sustainability of sequential ADC growth Johanna on a go forward basis in terms of the overall rate of course, we don't want to comment about what we think 24 will be until we get into talking about 2024 guidance, but my comment is really just to reinforce the AUM.

They're all confidence we have in our ability to continue to methodically build clinical capacity that will continue to translate into admissions growth in ADC growth and it's a different way of saying the pandemic is behind US we feel great around we're hitting on all cylinders, including just as importantly.

Joanna Gajuk: So I guess, you know, when you do that math, because you're guiding now 15.4 to 15.7. But excluding that headwind, I guess it's 17.2 to 70.5. I'll present margin. So is that a good starting point for for next year, because also the other way I guess to look at things would be maybe second half to combine Q4 and Q3. So that's like a 19% margin. So it's fair to kind of think about margins into next year, you know, in that in the kind of neighborhood.

Everything we're investing from a human capital and cultural standpoint back at our individual locations and so we're on a run of good path and trajectory, but in terms of range of ADC and guidance, we will talk about it when we get into 'twenty four but just from an overall confidence standpoint, we sit here very confident based upon the results were printing and <unk>.

Joanna Gajuk: What I would say on margin and you're asking an interesting question, we're going to be cagey, but not only because we're looking, we don't know how things are going to smooth out post pandemic. So before, as we're getting tail end of the pandemic, even last year, I think Nick Kevin and I were talking about Vitas margins. There's no retention program or anything else. We said, we'll return to that 17.5, 18% adjusted EBITR margin X cap.

Dissipate continuing to produce on a go forward basis.

The answer to your question also probably lives in it.

Factor that's outside of our control as Dave indicated.

It's kind of an unusual situation as things were tough in the hospice arena.

Our competitors, who are smaller less well capitalized.

Joanna Gajuk: That's what we've been saying as we're working away through the pandemic. Now, as we look at the overall mix, we look at the efficiencies Nick and his team out of necessity created during the pandemic. Again, doing probably more high acute, less high acute care on a go-forward basis than we're doing pre pandemic. All of that leads to, I think our margins are going to be higher than that 17.5 to 18% that we posted in calendar year 2019.

Maybe less professionally managed.

Joanna Gajuk: But whatever that margin turns out to be, maybe it turns out to be 19, maybe it turns out to be 19.5, but whatever it settles out at once we normalize our hospital admissions, length of stay kind of the mix of where our patients come from. Whatever margin we end up settling at probably in our 24 guidance, that's pretty much is going to be static. There'll be minimal opportunity to improve that margin.

Struggled more widely than we've had in <unk>.

So.

A lot of our improvement was there some of our improvement was based on taking business away from those struggling competitors. So to the extent that our ADC in the quarter was up nine 4% Thats a historically high number.

To the extent that you talk about where is that going to settle in some of that comes out to.

Due to our competitors some of the competitor, especially in Florida.

Come back to.

Kind of a cut or recovered rate of doing business. I mean, they were they have been struggling we continue to see them struggle.

But that so I guess, what they're really saying is some of those factors are certainly in the category of the unknown, but again.

Joanna Gajuk: So again, whether it's 19, 19.5, 20%, whatever it settles out at, for our go-forward mixed post-pandemic. It's going to be then pretty flat, hard to grow that margin. So we're still trying to guessing when things settle out, but it's going to be sometime in 24 is a high, high, high probability. We're going to be above our pre-pandemic census, you know, early in the first quarter of 24 if we don't put, if we don't post it in the fourth quarter of this year.

As we sit here, we see them continuing to struggle.

That's good news for us.

Okay I appreciate it and before I guess I ask my question and the last thing on VITAS.

So let me know.

The rate update us which is.

Pretty good I guess and it sounds like you actually have.

A little bit higher than average rate, but there is also some provisions in the hospital, but also in that home health proposal.

Joanna Gajuk: But that just a long, winded way of saying, Joanna, yes, we think we have a tailwind on pre-pandemic margin increasing it, just not quite sure where it's going to settle out yet. But the fourth quarter isn't going to be representative of a go-forward annual guidance. It might be representative of an annual fourth quarter guidance though, all right. Which would be consistent with all pre-pandemic fourth quarter marginal contribution prints at that point.

Hospice classes.

Alright.

So there is a medical with yourself hospice space that are longer than 90 days.

Special focus program.

And I guess they talk about.

Selecting some providers put for that additional review.

So can you talk about what does it mean for your business in terms of.

Any impact how you operate or any impact to the cost associated with just dealing with this increased.

Joanna Gajuk: That's exactly right. Right, usually the highest margin, right? No, I agree. And then I guess to that end, in terms of you mentioning on census, you kind of reached that 19 mark and, you know, the outlook was raised to sound like, yeah, you're expecting Q4 to sequentially improve from Q3. So how should it be a similar question? Because how should you think about the next year? So for this year, I guess you talking about revenues growing 9% this year, largely on that census grew really.

Joanna Gajuk: So can you grow high single digits on top of that number? Again, or that creates a perfect column? I guess any framework for how we should think about things. So just from an operational standpoint, I think the sequential component that you're seeing illustrative in built-in and baked into some of my comments earlier, you feel very good about the sustainability of sequential ADC growth, Johanna on a go-forward basis. In terms of the overall rate, of course, we don't want to comment about what we think 24 will be until we get into talking about 2024 guidance.

With this increase over time.

Yes, so John if we take your comments sort of break it into two different parts of your comment around any potential desire to look at patient records.

For any length of stay I think its something where as you might imagine.

Jen.

We are constantly in half.

We're constantly able to successfully defend those things.

And with the research studies that I know many are aware of that.

Illustrating longer length of stays in the hospice benefit actually have a larger outsized return for the Medicare Trust fund in terms of total cost of care reduction, we will see if the appetite.

To look at those things now aligns with the best interests of the Medicare Trust fund as well.

Regarding the special focused program proposed rule and provisions.

There'll be some semblance of that'll be finalized here over the next coming days, but the one item that I would point to regarding it is when you look at.

Comment letters that are all public from the for trade associations that are representative of large providers small providers for profit providers nonprofit providers as well as bipartisan letters.

Congressional leadership, all of those things point to and help to illustrate some of the concerns of the construct of the special focused program embedded inside of the proposed rule along with recommendations that CMS has been listening to unable to collaborate with for consideration of things.

Joanna Gajuk: And so we're on a good path in trajectory, but in terms of range of ADC and guidance, you know, we'll talk about it when we get into 24, but just from an overall confidence standpoint, we sit here very confident based upon the results we're printing. And anticipate continuing to produce on a go-forward basis. And what the answer, you know, also, Johanna, probably lies in a factor that's outside of our control. As days indicated, it's kind of an unusual situation.

Can and should do within the SSP to be able to achieve their goal, which is identifying poor performing hospices in particular, those that with the vast explosion in the last four years of hospice licenses in California, Texas, Nevada, and Arizona, So just as an illustration some of those construct.

Comments are that need to normalize for.

<unk>.

Joanna Gajuk: As things were tough in the hospice arena, our competitors who are smaller, less well capitalized, maybe less professionally managed, struggle more mightily than we did. And so, you know, a lot of our improvement was, there's some of our improvement was based on taking business away from those struggling competitors. So to the extent that our ADC in the quarter was up 9.4%, that's an historically high number. To the extent that you talk about where is that going to settle in, some of that comes down to, you know, do our competitors, some of the competitors, especially in Florida, come back to a kind of recovered rate of doing business.

Providers related to condition level deficiency, so they don't treat a provider with a $4 50 and 25% exactly the same there are also highlighting 40% of hospice provider numbers haven't had a survey in three years over half don't have a cap score and so we think there is.

Continued work to do in the industry and all the providers are rowing in the same direction to provide that insight. So that the government can achieve what their objective is but speculating around something that is proposed that should have some either significant modifications or a pause too.

<unk> been able to get it right and achieve that objective that everybody believes in I think is going to be key and critical and we'll see how that plays out over.

The next week or two and then over the coming years.

Joanna Gajuk: I mean, they were, they've been struggling, continue to see them struggle. But that, so I guess what they're saying is some of those factors are certainly the category of the unknown. But, again, if he asks us, as we sit here, we see them continue to struggle. That's good news for us. Okay, I appreciate it. And before I guess I ask my little question, at the last thing on Vitas, you know, so we know what the rate update is, which is pretty good, I guess, and from the queue, actually a little bit higher than average, right?

No in fact, if I guess, we'd have to see where we're at.

Alright, it sounds when it's finalized but if I can last question on the bottom right.

<unk> is tracking a little bit better it sounds like you're conservative in Q4.

But still you raise your guidance it sounds like maybe a little bit more than that.

The Q3.

It gives you confidence I guess.

Doing better.

And can you talk about maybe trends exiting Q3, and so far in October.

There's really not much to talk about there is nothing that stood out in October seasonality Joanna it kicks in about mid November.

Joanna Gajuk: But there's also, you know, some provisions in the hospital thread, but also in the home health proposal around the hospitals, which is cost is oversight, right? So there's the medical reviews of cost displays are longer than 90 days. There's a special focus program at, and I guess they talk about, you know, selecting some providers, you know, for that additional review. So can you talk about what does it mean for your business in terms of, you know, an impact to how you operate or an impact to the cost associated with just, you know, dealing with this increase, with this increase oversight?

Really through the end of the year. So it's too early to see what kind of seasonality we have you.

Look at the exact change we did to the guidance that we issued at the end of Q2 versus the end of Q3 now we really just tightened everything up to the higher rent on roto Rooter side effectively so it's better margin improvement, which is also an example of expense control at the <unk> level and it's those that are really.

Resulting in about a $3 million pop in an EBITDA for roto rooter in the second half of the year than we were a first initially anticipated so it's really coming down our margin performance.

Joanna Gajuk: Yeah, so John, if we take your comments, sort of and break it into two different parts, you're comment around any potential desire to look at patient records for any length of stay. I think it's something, you know, we're, as you might imagine, we're constantly and have, we're constantly able to successfully defend those things. And, you know, with research studies that I know many are aware of, that are illustrating longer length of stays than the hospice benefit actually have a larger outsized return for the Medicare trust fund in terms of total cost of care reduction.

And just slightly better revenue trend lines.

Still not up to where we think it should be.

And I guess that leads me to my question I had on Vida.

To think about next year.

Well I guess.

We will continue to sell I guess I understand it's probably the answer depends on where that lands, but any kind of framework or things you would be looking at is the leading indicators for how to think about.

Next year in Nevada.

Okay, and roto Rooter, VITAS to China or both.

Yes Walter.

Joanna Gajuk: You know, we'll see if the appetite to look at those things now aligns with the best interests of the Medicare trust fund as well. Regarding the special focus program proposed rule and provisions, you know, there'll be some semblance of that. I'll be finalized here over the next coming days. But the one item that it would point to regarding it is when you look at comment letters that are all public from the four trade associations that are representative of large providers, small providers, four profit providers, non-profit providers, as well as bipartisan letters from congressional leadership, all those things point to and help to illustrate some of the concerns of the construct of the special focus program embedded inside of the proposed rule, along with recommendations, the CMS has been listening to and able to collaborate with for consideration of things they can and should do within the SFP to be able to achieve their goal, which is, you know, identifying poor performing hospices in particular, those that with the vast explosion in the last four years of hospice licenses in California, Texas, Nevada, and Arizona.

About <unk> I mean.

Pete.

We only thing.

I'll give you an example ferguson supply huge.

The supplier of a lot of devices, but including.

Repair plumbing devices pipes, and what have you.

Last year, they broken it out so we can track the people who buy those are people like roto Rooter go to a stored by the by the pipes in the plumbing materials do it yourself versus rival plumbing companies.

They recently indicated their sales of those in that sector.

Are down about 12% for the year to date.

Last year, they were up 22% in other words the point I'm, making is first of all it's very broad that's an indication that.

It's consumer driven it's not we're not losing business to competitors.

Sure.

The point there is that it changed very quickly.

On the downward.

Syed.

That suggests to me that it could improve very quickly.

On the positive side.

As far as.

What causes consumers to put off these less an emergency jobs and.

Joanna Gajuk: So, you know, just as an illustration, some of those constructive comments are the need to normalize, you know, for providers related to condition level deficiencies, so they don't treat a provider with 450 and 25 exactly the same. They're also highlighting, you know, 40 percent of hospice provider numbers haven't had a survey in three years, over half don't have a cap score, and so we think there's, you know, continual work to do in the industry and all the providers are rowing in the same direction to provide that insight so that the government can achieve what their objective is, but, you know, speculating around something that is proposed that should have some either significant modifications or a pause to just be able to get it right and achieve that objective that everybody believes in, I think is going to be, you know, key and critical, and we'll see how that plays out over the next week or two, and then over the next week or two, and then over the next week or two, and then over the Andrew Lang.

So that's an unknown, but I would say that I have some confidence that.

What we're looking.

Looking at it as a cyclical economic problem that has indications to me that it could improve as quickly as it evolved so.

We make are those are the kind of issues. When we go through the budget for Roto Rooter.

We're going to try and analyze it.

A little bit unknowable, but youll get a lot you'll get our best thinking when we give our guidance for February for next year, but.

I wouldn't rule out.

<unk>.

Some improvement, but when you see our guidance youre going to see a.

Good luck.

If something changes significantly between now and let's say the middle of January with regard to consumer demand you're going to see.

Joanna Gajuk: No, exactly, I guess we have to see where it stands when it's finalized, but if I can't left question on the on the broader right, things tracking a little bit better, sounds like you've considered on Q4, but still you raise your guidance, it sounds like maybe a little bit more than now, the Q3. So what gives you confidence, I guess, in the role of doing better, and can you talk about maybe trans exiting Q3 and so far in October?

Relative some conservatism, but at the same time, some some optimism because they'll say it looks like we've already kind of hit bottom on that and have normalized.

If you think about it Joanna we really want to see what the fourth quarter turns out to be to the impact.

On Roto Rooter from what I'd call softened consumer demand to the extent that we really achieve a soft landing in 2024, I suspect roto Rooter will have a very very good year in 'twenty four if consumer headwinds kind of nag spending throughout next year I think we're set up for an incredible 2025 because of.

Joanna Gajuk: There's really not much to talk about. There's nothing that stood out in October. Seasonality, Joanna, kicks in about mid-November, really through the end of the year. So it's too early to see what kind of seasonality we have. If you look at the exact change we did to the guidance that we issued at the NQ2 versus the NQ3 now, we really just tightened everything up to the higher end on rotor order side effectively.

Kevin keeps reminding people. These jobs that are not coming in for the industry as well as for us, they're not going away theyre getting deferred.

Problems don't fix themselves you might delay it might push some think logs down the line, but all of those work eventually has to be done and we're positioned for it.

Joanna Gajuk: So it's better margin improvement, which is also an example of expense control at the rotor order level, and it's those that are really kind of resulting in about a $3 million pop in EBITDA for rotor order in the second half of the year than we were first initially anticipated. So it's really coming down to margin performance and just slightly better revenue trend lines, but still not up to where we think it should be.

I have a fair amount of optimism on 2024, but it really just comes down to.

How much extra cash consumers have and how much longer they can defer some of these jobs, but we anticipate there'll be growth next year with one caveat, David Rota is going to have.

A very difficult comparison in the first quarter first quarter was before the slowdown.

They have excellent and it had good weather and some excellent first quarter.

Joanna Gajuk: And I guess I think to some of the question I had on VDA to know how to think about next year, can you grow, I guess, I'll continue to grow, I guess I understand it's probably, it depends on what they're calling in the lens, but any kind of framework or things you would be looking at as leading indicators for how to think about the next year in rotor. There were VTOSTA, China, or both.

What would be the numbers, we're talking about are for the year.

Not in the first quarter Q1 will be challenging and I love the margin that we're pulling out right now so yes.

Yes, without a doubt the hardest quarter to lap is going to be Q1 of 2023 after that action I guess.

The barghest easier to hurdle.

Thank you that's a lot of detail.

Just a follow up on that so you mentioned the kind of industry level trends are indicating yunnan, losing share but also if we think about the two different businesses. So you can talk about like the water restoration.

Joanna Gajuk: There were, yeah, but there were. Okay, about rotor order, I mean the, you know, we're the only thing, you know, I'll give you an example, Ferguson supply, huge, you know, supplier of a lot of devices, but including repair plumbing devices and pipes and what have you. First year they've broken it out so we can track this as the people who buy those are people like rotor order go to a store and buy them by the pipes and they plumbing materials do it yourself as rival plumbing companies.

And you gave us the job count down, but then I guess as we think about our commercial versus residential any any difference in behavior. There were similar and I guess to that end.

Are you exposed to like the building activity slowing down or are you kind of your commercial business is more diverse.

You don't rely I guess on a new at the housing stock. Thank you.

The commercial business tends to be what I would say less discretionary because we're trying to keep things open the number one commercial cohort. We have is actually multifamily housing than the number two turns into restaurants.

Joanna Gajuk: They recently indicated their sales of those in that sector are down about 12% for the year today. Last year they were up 22%. In other words, the point I'm making is, first of all, that's very broad, that's a dedication that, you know, it's a consumer driven, it's not, we're not losing the business, the competitors. The point there is that it changed very quickly on the downward side. That suggests to me that it could improve very quickly, you know, on the positive side.

The restaurants are exactly volume driven and if theyre getting a lot of in.

In in restaurant dining, that's where our volume comes from from there. So it's not really <unk> on the commercial side. He is comes down to how often they are using their equipment and their drains and their plumbing systems that triggers our repairs.

And actually commercial right now is what I would say is slightly outperforming residential.

Joanna Gajuk: You know, as far as what causes consumers to put off these less than emergency jobs and, you know, so that's an unknown, but I would say that I have some confidence that what we're dealing looking at is a cyclical economic problem that has indications to me that it could improve as quickly as it evolved. So, you know, when we make our, those are the kind of issues when we go through the budget for rotor rudder, you know, we're going to try and analyze.

Thank you for all the color. Thank you.

Yes, all right. Thank you.

Alright. Thank you for your questions I am showing no further questions at this time.

I would now like to turn it back to Kevin Mcnamara for closing comments comments.

The only comment I have is we were gratified.

<unk> that.

We had what we thought.

Great operating quarter.

<unk>.

Joanna Gajuk: It's a little bit unknowable, but you'll get a lot, you'll get our best thinking, you know, when we give our guidance for the February for next year, but, you know, I wouldn't rule out, you know, some improvements, but I bet when you see our guidance, you're going to see a, uh, Goodlest that if that's something changes significantly between now and we'll say the middle of January, we've got a consumer demand, you can see, you know, relative, you know, some conservatism, but the same time some, some optimism, because they say it looks like we've already kind of hit bottom on that and have normalized. Yeah, if you think about it, Joanna, we really want to see what the fourth quarter turns out to be to the impact on rotor order from what I call soft and consumer demand.

No.

It was gratifying to see the.

Tension program bearing fruit.

Group.

Roto Rooter.

Were you happy that we've kind of normalized.

The activity.

Gratified that to the extent that we have.

Our close rates.

Indicate and expense control indicate good excellent field.

<unk> level management and.

We look forward to.

The good close during the year, but with that I'd like to thank everyone for their attention.

<unk>.

I guess, we'll have another one of these in February at which time, we report on the fourth quarter and our guidance for next year. Thank you.

Joanna Gajuk: To the extent that we really achieve a soft lane in 2024, I suspect rotor order will have a very, very good year in 24. If consumer headwinds kind of nag spending throughout next year, I think we're set up for an incredible 2025 because as Kevin keeps reminding people, these jobs that are not coming in for the industry, as well as for us, they're not going away, they're getting deferred. These problems don't fix themselves, you might delay it, you might push some big clogs down the line, but all this work eventually has to be done and we're positioned for it.

Alright. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Joanna Gajuk: I have a fair amount of optimism on 2024, but it really just comes down to how much extra cash consumers have and how much longer they can defer some of these jobs, but we anticipate they'll be grown next year. With one copy, I say that rotor is going to have a very difficult comparison of the first quarter, first quarter was before the slowdown, and so they had excellent and had good weather.

Joanna Gajuk: It's an excellent first quarter. You know, we're talking about our for the year, not the first quarter. We want to be challenging, and I love the margin that we're pulling out right now. So yeah, it's, yeah, it's without a doubt, the hardest quarter to lap is going to be one of 2023 after that. Actually, I guess the bar gets easier to hurtle. Thank you. There's a lot of videos, but you might just laugh so up on that.

Joanna Gajuk: So you mentioned the kind of that industry level trends are indicating, you know, losing sure. But also, if we think about the two different businesses, so you talk about like the water restoration, and you gave us the job count down. But then I guess, as we think about like commercial versus residential, any any difference in behavior there, where I guess similar and I guess to that end, you know, are you exposed to like the building activity slowing down or you kind of your commercial business is more diverse.

Joanna Gajuk: And you don't rely, I guess on new ads, the housing stock. Thank you. The commercial business tends to be, you know, what I'd say less discretionary because they're trying to keep things open. The number one commercial cohort we have is actually multi family housing. Then the number two turns into restaurants. The restaurants are exactly volume driven and if they're getting a lot of in in restaurant dining, that's where our volume comes from from there.

Joanna Gajuk: So it's not really deferrable on the commercial side. It just comes down to how often they're using their equipment and their drains and their plumbing systems that triggers our repairs. And actually commercial right now is what I would say is slightly outperforming residents. Mitchell. Thank you for your questions.

Unknown Executive: I'm showing no further questions at this time.

Kevin Mcnamara: I would now like to turn it back to Kevin McNamara for closing comments. The only comment I have is, you know, we were gratified that, you know, we had what we thought for the, you know, great operating quarter, you know, really was gratifying to see the, you know, the retention program bearing such fruit, the VTAS, rudder, very happy that we've kind of normalized, you know, the activity, very gratified that to the extent that we have, you know, our close rates in rudder indicate that and expense control indicate, you know, good feel, actual feel level management and, you know, we look forward to the good close in the year.

Unknown Executive: But without I'd like to thank everyone for their attention. And I guess we'll have another one of these in February, at which time we'll report on the fourth quarter and our guidance for next year. Thank you. All right, thank you for your participation in today's conference.

Unknown Executive: This does conclude the program. You may now disconnect.

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