Q2 2025 Chemed Corp Earnings Call

Hello, and welcome to Kimmet Corporation second quarter, 2025 earnings conference call.

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Michael Witzeman: Morning. Our conference call this morning will review the financial results for the second quarter of 2025, ended June 30, 2025. Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of July 29 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.

I will now like to turn the conference over to Holly Schmidt. You may begin.

Good morning. Our conference call this morning will review the financial results for the second quarter of 2025 and in June 30th 2025. Before we begin, let me remind you that the Safe Harbor provisions of the private Securities. Litigation Reform, Act of 1995 applied to this conference call.

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

Actual results May differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news, release of July 29th, and in various other filings with the SEC.

Michael Witzeman: In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated July 29, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today: Kevin McNamara, President and Chief Executive Officer of Chemed Corporation, and Mike Witzeman, Chief Financial Officer of Chemed. I will now turn the call over to Kevin McNamara.

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

In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization, or EBITDA, and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated July 29th, which is available on the company's website at kmed.com.

Kevin Mcnamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's Q2 2025 conference call. I will begin with highlights for the quarter, then Mike will follow up with additional details. I will then open the call for questions. While the performance of both operating units did not meet our expectations for Q2 2025, we remained confident in the overall fundamentals, growth potential, and strategic direction of both businesses. Admissions and fee tests during the quarter totaled 17,545, which equates to a 1.2% improvement from the same period of 2024. However, it is important to remember that over 600 patients transferred into VITAS in Q2 2024 as a result of our April 2024 acquisition of Covenant Health. Excluding those transfers, admissions increased 4.9% in Q2 2025. Our average daily census, or ADC, expanded to 22,318, an increase of 6.1% when compared to the prior year quarter.

I would now like to introduce our speakers for today. Kevin mcnamera president and chief executive officer of Kemet Corporation and Mike Woodsman Chief Financial Officer of Kemet, I will now turn the call over to Kenneth to Kevin mcnamera.

Thank you, Holly.

Good morning. Welcome to kmed corporations second quarter, 2025 conference call.

I will begin with highlights for the quarter.

Then Mike will follow up with additional details. I will then open the call for questions.

While the performance of both operating units did not meet our expectations of the second quarter of 2025, we remain confident in the overall fundamentals growth potential and strategic direction of both businesses.

Admissions and details during the quarter total of 17,545, which equates to a 1.2% improvement from the same period of 2024. However, it is important to remember that over 600 patients transferred into Vitas in the second quarter of 2024. As a result of our April 2024, acquisition of Covenant Health,

Excluding those transfers admissions, increased 4.9% in the second quarter of 2025.

Kevin Mcnamara: In the quarter, hospital-directed admissions increased 9.1%. Home-based patient admissions declined 6.2%. Nursing home admissions declined 2.9%, and assisted living facilities admissions declined 1.4% when compared to the prior year period. We currently estimate that the Consolidated Florida Program will end the 2025 Medicare cap year with a $19 million billing limitation. As was discussed in our June 27th press release, we were on track to mitigate the Florida Medicare billing limitation risk as of the end of Q1 2025. Admissions in Florida were weaker than anticipated in April and May. Accordingly, our Medicare cap projection was revised. June and July admissions in Florida are within our expected range, but will not be enough to offset the overall billing limitation for the 2025 cap year. Management does not expect a significant level of Medicare cap billing limitation in our Florida program for the 2026 cap year.

Our average daily census, or ADC, expanded from 22,000 to 22,318, an increase of 6.1% compared to the prior year quarter.

In the quarter Hospital directed admissions increased, 9.1%.

Homebased patient admissions declined 6.2% nursing home. Admissions declined 2.9% and assisted living facilities. Admissions declined 1.4% would compared to the prior year period.

We currently estimate that the Consolidated Florida program will end the 2025 Medicare cap year with a $19 million billing limitation.

As was discussed in our June 27th, press release. We were on track to mitigate the Florida Medicare billing.

Limitation risk. As of the end of the first quarter of 2025 admissions in Florida, were weaker than anticipated in April and May accordingly our Medicare cap projection was revised.

June and July admissions in Florida, are within our expected range, but will not be enough to offset. The overall billing limitation for the 2025 cap year.

Kevin Mcnamara: There are a number of initiatives underway that contribute to that expectation, including continued efforts on admitting short-stay patients, mainly through higher hospital admissions, quick ramp-up of the CON startup locations in Mary and Antonellus counties, and other cap management strategies. The current projection for the 2026 cap year assumes that the rate differential that occurred for the 2025 cap year does not recur. The detailed rate information related to the reimbursement increase in Florida for the 2026 cap year will become available during Q3. We intend to update our assumptions regarding rates and overall outlook for the 2026 Medicare cap year in Florida in the third quarter earnings release. Now let's turn to Roto-Rooter revenue. Roto-Rooter revenue increased 0.6% in the second quarter of 2025 compared to the same period of 2024, falling short of our internal expectations.

Management does not expect a significant level of Medicare cap billing limitations in our Florida program for the 2026 cap year.

including,

Continued efforts on admitting short-stay patients, mainly through higher hospital admissions, quick ramp-up of the co and startup locations in Mary and Tanella counties, and other CAP management strategies.

The current projection for the 2026 cap year assumes that the rate differential that occurred for the 2025 cap year, does not recur.

The detailed rate information related to the reimbursement increase in Florida for the 2026 cap year will become available during the third quarter. We intend to update our assumptions regarding rates and overall outlook for the 2026 Medicare cap beer in Florida in the third quarter earnings release.

Now, let's turn to row.

Row, row, revenue increased 610% of 1% in the second quarter of 2025 compared to the same period of 2024.

Kevin Mcnamara: Branch revenue, in particular, was softer than anticipated, with less than a 1% growth compared to the prior year. We continue to execute on the strategies implemented in 2024 that resulted in improved fourth quarter of 2024 and the first quarter of 2025 revenue trends. Despite these efforts, April and May were particularly weak. Other large consumer-facing companies have discussed the chilling effect that the Liberation Day tariff announcement had on consumer confidence and consumer spending in April and May. We believe that Roto-Rooter revenue suffered from that issue as well. June and July residential revenue has rebounded to a level that is much closer to our internal expectations. Total leads were down 7.2% in the second quarter of 2025 compared with the same period of 2024. This is a slight improvement compared to the trend we saw in the first quarter of 2025.

Falling short of our internal expectations.

Branch Revenue in particular, was softer than anticipated.

With less than a 1% growth compared to the prior year.

we continue continue to execute on the strategies you implemented in 2024 that resulted in improved fourth quarter of 2024, and the first quarter of 2025 Revenue trends,

Despite these efforts April and May were particularly weak.

Other large consumer-facing companies have discussed, the chilling effect that The Liberation day tariff announcement. Had on consumer confidence and consumer spending in April and May

we believe that Roar suffered from that issue as well. June and July residential Revenue, has rebounded to a level that is much closer to our internal expectations

Total leads were down 7.2% in the second quarter of 2025 compared with the same period of 2024.

Kevin Mcnamara: While the second quarter of 2025 resulted in disappointing operating results, we remain optimistic about the overall prospects for both businesses. VITAS Healthcare is in the process of adjusting their patient mix in Florida to ensure Medicare cap issues do not persist past 2025. This will cause some disruption in VITAS Healthcare's operating metrics, but positions them to return to a consistent higher growth rate for the long term. Roto-Rooter remains the most recognized brand in the plumbing and drain cleaning industry. We remain confident that the competitive advantages enjoyed by Roto-Rooter will return its financial performance to a steadier growth trajectory. With that, I would like to turn the teleconference over to Mike Witzeman.

This is a slight Improvement compared to the trend. We saw in the first quarter of 2025,

While the second quarter of 2025 resulted, in disappointing operating results. We remain optimistic about the overall prospects for both businesses.

Vos is the process of adjusting. Their patient. Mix in Florida to ensure. Medicare cap issues. Do not persist past 2025.

This will cause some disruption in vasas operating me metrics, but positions them to return to a consistent higher growth rate for the long term.

Road Remains the most recognized brand in the plumbing and drain cleaning industry. We remain confident that the competitive advantages enjoyed by Rotary will return its financial performance to a steadier growth trajectory

Mike Witzeman: Thank you, Kevin. VITAS net revenue was $396.2 million in the second quarter of 2025, which is an increase of 5.8% when compared to the prior year period. This revenue increase is comprised primarily of a 6.1% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 4.2%. The acuity mix shift negatively impacted revenue growth 71 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare cap and other contra-revenue changes negatively impacted revenue growth by approximately 379 basis points. The $16.4 million Medicare cap billing limitation accrued in the second quarter of 2025 is comprised of three components.

With that, I would like to turn this teleconference over to Mike.

Thank you. Kevin.

Vtos, net revenue was 396.2 million in the second quarter of 2025, which is in an increase of 5.8% when compared to the prior year period.

This Revenue increase is comprised primarily of a 6.1% increase in days of care and a geographically weighted, average, Medicare reimbursement rate, increase of approximately 4.2%.

The Acuity mix shift, negatively impacted Revenue, growth 71 basis points in the quarter when compared to the prior year revenue and level of care. Mix.

The combination of Medicare cap and other Contra Revenue changes negatively impacted Revenue growth by approximately 379 basis points.

Mike Witzeman: First, a catch-up entry of $9.5 million was required to recognize the Medicare cap billing limitation in Florida related to the first six months of the 2025 Medicare cap year, which includes our fourth quarter of 2024 and first quarter of 2025. Second, $4.8 million was recorded related to the Medicare cap billing limitation for the current quarter of 2025 related to our Florida combined program. Third, $2.1 million was recognized for the current quarter of 2025 related to all other VITAS programs, mainly in California. The amount recognized for all other VITAS programs is in line with the historical run rate for these programs and our original projections for 2025. Average revenue per patient per day in the second quarter of 2025 was $207.03, which is 350 basis points above the prior year period.

The 16.4 million Medicare cap billing. Limitation acred in the second quarter of 2025 is comprised of 3, po components.

First, a catch-up entry of 9.5 million was required to recognize the Medicare cap billing. Limitation in Florida related to the first 6 months of the 2025 Medicare cap here, which includes our fourth quarter of 2024, and first quarter of 2025,

Second 4.8 million was recorded related to the Medicare cap billing. Limitation for the current quarter of 2025 related to our Florida combined program.

Third. 2.1 million was recognized for the current quarter of 2025 related to all other vas programs mainly in California.

The amount recognized for all other vas, programs is in line with the historical run rate for these programs and our original projections for 2025.

Mike Witzeman: During the quarter, high acuity days of care were 2.5% of total days of care, a decline of 15 basis points when compared to the prior year quarter. Average length of stay in the quarter was 137.1 days. This compares to 100.6 days in the second quarter of 2024. It is important to remember that length of stay statistics are calculated based on discharged patients, not active patients. This increase in average length of stay between quarters represents the effect of the patients admitted during our community access initiative, which was designed to identify appropriate patients earlier in their disease trajectory being discharged. Our median length of stay was 20 days in the second quarter of 2025 compared to 18 days in the same period of 2024. Adjusted EBITDA, excluding Medicare cap, totaled $66.8 million in the quarter, which is essentially flat with the second quarter of 2024.

Average revenue per patient per day in the second quarter of 2025 was $207.3, which is 350 basis points above the prior year period.

During the quarter High, Acuity days of care were 2.5% of total days of care. A decline of 15 basis points will compared to the prior year quarter.

Was 137.1 days.

This compares to 100.6 days in the second quarter of 2024.

It is an important to remember that length of stay statistics, are calculated based on discharged patients, not active patients.

This increase in average length of stay between quarters represents the effect of the patients admitted during our community access initiative which was designed to identify appropriate patients, early in their disease, trajectory being discharged.

The immediate length of stay was 20 days in the second quarter of 2025, compared to 18 days in the same period of 2024.

Mike Witzeman: Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 16.2%, which is 163 basis points below the prior year period. The lower EBITDA margin in the quarter reflects the impact of admitting more short-stay patients. While this is the right thing to do to mitigate Medicare cap billing limitations, it has the effect of slowing revenue growth and reducing overall margin. VITAS Healthcare management is currently reviewing expenses at all levels of the organization to reduce costs wherever possible to help offset the lower EBITDA margin. Now let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $156.4 million, an increase of 0.9% from the prior year period. The residential revenue increase was driven by a 16.9% increase in water restoration, offset by declines in drain cleaning, plumbing, and excavation revenue.

Adjusted IBA, excluding Medicare cap totaled 66.8 million in the quarter which is essentially flat with the second quarter of 24.

Adjusted ebit on margin in the quarter. Excluding Medicare cap was 16.2%, which is 163 basis points below the prior year period.

The lower ebita margin in the quarter reflects the impact of admitting more short. Stay patients.

While this is the right thing to do to mitigate Medicare cap billing limitations.

It has the effect of slowing Revenue growth and reducing overall margin.

Vas management is currently reviewing expenses at all level of the organization to reduce costs wherever possible to help offset the lower evad on margin.

Now, let's turn to Roto-Rooter.

Rooter Branch residential revenue in the quarter totaled $156.4 million, an increase of 9/10 of 1% from the prior year period.

The residential Revenue increase was driven by a 16.9% increase in water restoration.

Offset by declines, in drain, cleaning plumbing and excavation Revenue.

Mike Witzeman: Roto-Rooter branch commercial revenue in the quarter totaled $53.2 million, an increase of 4.4% from the prior year. The commercial revenue increase was driven by a 24.4% increase in excavation and an 11.7% increase in water restoration, offset by slight declines in plumbing and drain cleaning revenue. Revenue from our independent contractors declined 4.4% in the second quarter of 2025 as compared to the same period of 2024. Our independent contractors are generally smaller operations in middle-market cities. In most instances, they do not have the capability to perform the add-on business that is currently the primary driver of revenue growth at Roto-Rooter branches. Adjusted EBITDA at Roto-Rooter in the second quarter of 2025 totaled $48.6 million, a decrease of 18.7% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 21.8%.

Motor Branch commercial Revenue in the quarter totaled 53.2%, 53.2 million, and increase of 4.4% from the prior year.

The commercial Revenue increase was driven by a 24.4% increase in excavation and an 11.7% increase in water restoration.

Offset by slight declines, in plumbing and drain cleaning Revenue.

Revenue from our independent contractors declined. 4.4% in the second quarter of 25 as compared to the same period of 2024.

Our independent contractors are generally smaller operations in Middle Market cities.

In most instances, they do not have the capability to perform the add-on business. That is currently the primary driver of Revenue growth at Roto-Rooter branches.

Adjusted Eva Roto-Rooter in the second quarter of 2025 totaled. 48.6 million a decrease of 18.7% compared to the prior year quarter.

Mike Witzeman: The second quarter adjusted EBITDA margin represents a 517 basis point decline from the second quarter of 2024. The EBITDA and EBITDA margin decline was the result of a number of factors. Based on the improved revenue results seen in late 2024 and early 2025, Roto-Rooter began to selectively increase its productive workforce in certain high-performing branches. With the sudden weakness in residential revenue seen in April and May, margins suffered from inefficiencies within the labor force. Technicians were sitting idle more than expected. This has a few effects in addition to the impact of inefficient labor use. First, when a technician knows they may only have one or two opportunities for commission on a daily basis, they are more likely to provide discounts to secure the paying job. Second, Roto-Rooter routes jobs to its highest performing technicians first. The highest performing technicians generally have higher commission rates.

The adjusted ebit on margin in the quarter was 21.8%.

The second quarter adjusted Eva down margin represents a 517 basis. Point decline from the second quarter of 2024,

The EBA and EBA margin decline, was the result of a number of factors.

Based on the improved revenue results seen in late 2024 and early 2025.

Rotor began to selectively increase its productive workforce in certain high-performing branches.

with the sudden weakness in residential Revenue seen in April and May

Margins suffered from inefficiencies within the labor force.

Technicians were sitting idle more than expected.

this is a few effects, in addition to the impact of inefficient labor use,

First, when a technician knows, they may only have 1 or 2 opportunities for commission on a daily basis.

They are more likely to provide discounts to secure the paying job.

The second rotor routes jobs to its highest-performing technicians first.

Mike Witzeman: As a result, commissions as a percent of total revenue were higher than they have historically run. These issues should moderate as revenue rebounds in the third quarter. Higher casualty and workers' compensation costs negatively impacted margins by approximately 220 basis points, due mainly to actuarial estimates, assuming significantly increasing costs of settling claims. Finally, as discussed in prior quarters, our cost per click for internet marketing leads has continued to decline. However, a much greater percentage of our leads are currently coming from paid searches as compared to unpaid searches. Paid searches in the second quarter of 2025 represent over 50% of all leads during the quarter. Paid searches have historically represented closer to 40% of all leads. This has the effect of increasing costs as a percentage of revenue for our internet marketing program.

The highest-performing technicians generally have higher commission rates.

As a result, commissions as a percent of total revenue were higher than they have historically run.

These issues should moderate as Revenue rebounds in the third quarter.

Higher casualty and workers compensation costs negatively impacted margins by approximately 220 basis points due mainly to Actuarial estimates assuming significantly increasing costs of settling claims.

Page searches in the second quarter of 2025 represent over. 50% of All Leads during the quarter.

Paid searches have historically represented closer to 40% of All Leads.

Mike Witzeman: Roto-Rooter management is also reviewing expenses at all levels of the organization to reduce costs wherever possible to help improve EBITDA margins going forward. Now let's turn to the revised guidance for the remainder of 2025. VITAS Healthcare's full-year 2025 revenue prior to Medicare cap is estimated to increase 7.5% to 8.5% when compared to 2024. Full-year adjusted EBITDA margin prior to Medicare cap is estimated to be 18.2% to 18.7%. We are currently estimating $28.2 million in Medicare cap billing limitations in calendar 2025. This is comprised of $19 million related to the Florida combined program and $9.2 million for all other VITAS Healthcare programs. There's no Medicare cap billing limitation in the fourth quarter included in the guidance related to the Florida combined program. This expectation assumes that the rate differential that occurred for the 2025 cap year does not recur in 2026.

This has the effect of increasing costs as a percentage of revenue for our internet marketing program.

Rotary management is also reviewing expenses at all levels of the organization to reduce costs.

Wherever possible to help improve. Evidam margins, going forward?

Now, let's turn to the revised guidance for the remainder of 2025.

VAS full year 2025 revenue prior to the Medicare cap is estimated to increase 7% to 8.5% when compared to 2024.

full year, adjusted ebit on margin prior to Medicare cap is estimated to be 18.2% to 18.7%

We are currently estimating $28.2 million in Medicare cap billing limitations for calendar year 2025.

This is comprised of 19 million dollars related to the Florida combined program and 9 9.24%.

There's no Medicare capitoline limitation in the fourth quarter included, in the guidance related to the Florida combined program.

Mike Witzeman: The detailed rate and information related to the reimbursement increase in Florida for 2026 will become available during the third quarter. We intend to update our assumptions regarding rates and the overall outlook for the 2026 Medicare cap in Florida in the third quarter earnings release. Roto-Rooter is forecasted to have a 1.25% to 1.75% revenue increase in 2025 compared to 2024. Roto-Rooter's adjusted EBITDA margin for 2025 is expected to be 23.5% to 24.5%. Based on the above, full-year 2025 earnings per diluted share, excluding non-cash expenses for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items, is estimated to be in the range of $22 to $22.30. This guidance assumes an effective tax rate of 25.3% and a diluted share count of 14.7 million shares. Chemed's previously issued 2025 guidance range was $24.95 to $25.45.

This expectation assumes that the rate differential that occurred for the 2025 cap year does not recur in 2026.

The detailed rate information related to the reimbursement increase in Florida for 2026 will become available during the third quarter.

We intend to update our assumptions regarding rates and the overall outlook for the 2026 Medicare cap in Florida in the third-quarter earnings release.

Roto-Rooter is 4 case. Forecasted to have a 1.25% to 1.75% revenue increase in 2025 compared to 2024

Rotators adjusted. Ebit on margin for 2025 is expected to be 23.5% to 24.5%.

Based on the above full year 2025 earnings per diluted share excluding non-cash expenses for stock options tax benefits from stock option, exercises costs related to litigation and other discrete items is estimated to be in the range of 22 to $22.30.

This guidance assumes an effective tax rate of 25.3% and a diluted share count of 14.7 million shares.

Mike Witzeman: Chemed's 2024 reported adjusted earnings per diluted share was $23.13. I will now turn this call back over to Kevin.

Keds previously, issued 2025 guidance range was $44.95 to $545.

Km meds 2024, reported adjusted earnings per diluted. Share was 23.13 cents.

Kevin Mcnamara: Thank you, Mike. I will now open this teleconference to questions.

I will now turn this call back over to Kevin.

Holley Schmidt: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brian Tanquille with Jeffries. Your line is open.

Thank you, Mike. I will now open this teleconference to questions.

Thank you.

Ladies and gentlemen, as a reminder, to ask a question, please press star 1 on your telephone. Then wait for your name to be announced to withdraw your question. Please press star 1 again.

Please stand by while we compile the Q&A roster.

Brian Tanquille: Hey, good morning, guys. Mike's first question is, I think about your comments on the cap, right? It sounds like we shouldn't see any impact or carryover of that after Q3. So if you can walk us through the levers you're pulling to ensure that that happens, and then maybe how you're thinking about the carryover impact of that in 2026 on margins and the growth rate in VITAS Healthcare revenues. Thanks.

Our first question comes from the line of Bryant Tankette with Jeffrey. Your line is open.

Hey, good morning guys. Um,

Kevin Mcnamara: Mike, why don't you start with some of the technical aspects?

Maybe Mike first question is I think about your comments on the cap, right. It sounds like we shouldn't see any impact or carry over of that after Q3. So if you can walk us through the levers you're pulling to ensure that that happens. And then maybe how you're thinking about the carry over impact of that in 2026 when margins and the growth rate in Vitas uh revenues thanks.

Mike Witzeman: Sure. From a levers standpoint, we're still emphasizing hospital admissions, short-stay patients over long-stay patients. That's, I think, job number one in the levers we're pulling. I think the other thing to keep in mind is the community access program that we ran in 2022, 2023, and some part of 2024 has created a bubble of long-stay patients. Those patients will, just by definition of what we do, will attrit over time. So that bubble is going to moderate just with the passage of time as well. I think shorter-stay patients, I think, the moderation of the bubble we essentially created with the community access program will certainly help over time. As far as EBITDA margins, I think probably, and we haven't put pen to paper, so I'm speculating a little bit, but they're going to be below, say, what we were in 2024, which is a little over 19%.

Like why don't you start with some of the technical aspects? Sure. So from a lever standpoint, we're um we're still emphasizing Hospital admissions, long short, you know, short stay patients, over long, stay patients.

Um, that's that's I think job number 1 in the levers, we're pulling. I think the other thing to keep in mind is the Community Access program that we ran in 22, 2022 2023, in. Some part of 2024 has created a bubble of long, stay patients. And those patients will, um, just by definition of of what we do, will a trip over time so that bubble is going to moderate as just with the passage of time as well. So I think shorter stay patients, I think um,

You know, if the moderation of the bubble week essentially created with the uh, Community Access program will certainly help over time.

Mike Witzeman: So I'm guessing, and again, we haven't really put pen to paper, but I would suggest maybe 17.5% to 18.5% is probably a pretty good range for 2026. But again, we're coming up with those numbers as we speak.

Margins. I think probably and we haven't put pen to paper, so I'm speculating a little bit, but they're going to be below. Say what we were in 2024, which is a little over 19%.

So I'm guessing and again we haven't really put pen to paper but I would suggest maybe 17 1/2 to 18. 1/2 percent is probably a pretty good range for 26. Um but again we're you know, we're we're

Kevin Mcnamara: I would just like to reiterate some of the things Mike Witzeman said with regard to why it was that we have a cap problem this year. It started with the fact that the national rate for hospice went up approximately a little over 2% last year. That is what the cap limitation, the cap goes percentage goes up to that number. The differential is 3%. I said 2%. 2% delta. We got 5% in Florida. That 2% delta is about $22 million. In other words, we started the year with the fact that the same reimbursement, the rate of reimbursement we were currently getting then was going to be $22 million higher than the cap limitation that we were going to face in the 2025 cap year. We started last year, 2024, with a cushion of about $15 million, a little over $15 million.

You know, coming up with those numbers as we speak. Yeah, I just like the, you know, just reiterate some of the things like I said that with regard to, you know,

Why is it that we have a cap problem this year? I mean, it started with the fact that the national rate for hospice went up, you know, approximately a little over 2% last year. That's what the cap limitation is. The cap goes up by that percentage number. Okay, so the differential or 3%, I said, 2%, 2% Delta, we got 5% in Florida.

That 2% Delta is about 22 million. In other words, we started the year with

the fact that the same reember the rate of reimbursement, we were currently get getting then was going to be 22 million higher than the capital limitation um, that we we're going to face in the 2 5

Kevin Mcnamara: So we said, we have to make some changes. It turns out that we were on fire to make those changes. Two terrible months with regard to admissions for whatever reason occurred in April and May. That was enough to knock us off the trend that we were on. Given the fact that we were starting with an approximately $22 million hole to get out of, that explains why 2025 is so unusual. The other point that I was going to make with regard to this bubble of patients that we are going through, the bubble is getting smaller at this point. I think, and this is going into something very subjective, but during the pandemic, we saw a change in the type of, we are talking about super elderly patients. A lot of those super elderly patients with COVID perished.

Cap your. We started the you know last year 2024 with about, you know, a cushion of about 15 million a little over 15 million so we said okay we've got to make some you know we have to make some changes

Yeah, and it turns out that, you know, we, we were on power to make those changes, uh, 2 terrible months, with regard to admissions, for whatever reason, occurred in April and May, um, that that was enough to, to knock us off the trend that we were on. And again, given the fact that we were starting with a, a practically 22 million hole to get out of, um, that, you know, that explains why 2025 is so, you know, is so unusual. Um, and the other point that I was going to make with regard to this bubble of employee of, uh, patients that, um,

We're going through the, the buzz bubble is getting smaller at this point, but I mean I think and this is this is going into something very subjective. But during the pandemic we saw a change in our in the type of we're talking about super elderly patients.

Kevin Mcnamara: The ones that came out the other end were a little bit hardier, and tended to have, for us, a very long length of stay. Our average length of stay went up substantially, particularly in Florida. Those conditions are abating. So those are two significant levers. The other thing not to be discounted, is something that VITAS Healthcare is spending night and day working on, is getting a good running start on the new CON properties for our programs. I think that almost alone is enough to carry the day. Be that as it may, yes, we are very confident that on a run rate basis, we are not looking at any, we are projecting a surplus next year. Let us put it that way. I would also say that we've always been attuned to cap in Florida, but we've never had a cap in Florida.

A lot of those super elderly patients um with Co perished. Okay, the ones that came out the other end were a little bit hardier. Okay. And uh you know tended to have a for us a very long. Like I say our average length of stay when up substantially particularly in Florida. Um

Those conditions are abating. Um, so I mean that's that's those are 2 significant levers but the other thing is, we, you know, not to be discounted is something that, um, vest is spending night and day. Working on is getting a good running. Start on the new Co property properties for our programs. And, uh, again, I think that that's, uh,

You know, that should that, that almost alone is enough to carry the day but be that as it may, yes we are very confident that on a run rate basis. Um,

You know, we you know we're not looking at any, we're projecting a surplus bacterial, let's put it that way. Um, I would also say that um,

Kevin Mcnamara: So, I mean, yes, the organization starting at the Chemed level has got to change its orientation and its attention levels to this issue, and we're confident we will keep it under control. I mean, in other words, when internally we say it's 19 going to zero, not 19 going to 40. And we're pretty confident on that.

You know, the we've always we've always been attuned to camp in Florida but we've never had a cap in Florida. So I mean, yes, the organization starting at the chem, add level is going to, you know, it's changed its orientation. It's in its attention levels to this issue and we're confident we will keep it under control. I mean in other words, 1 internally we say it's 19 going to zero not 19 going to 40.

Brian Tanquille: That makes sense. Maybe Kevin, just to follow up on that comment you made about the COVID impact. Is that what's driving the relative underperformance or even kind of like this trend below average on admissions? A 4.9, pretty good number, but still below trend. Just curious what your thoughts are. Is that just the flow-through of hospital admissions being soft as we look at the HCAs and tenants of the world putting up lower admissions?

And we're, we're pretty confident on that.

Kevin Mcnamara: Well, I think it is possible, but I think the biggest issue in that is remember, all of Florida, basically all of Florida, averaged this 5% increase for this plan year. That put pressure on hospices everywhere in Florida to avoid a cap. Okay. Some of the dynamics for attracting particularly short-stay patients changed. Here it is, the answer to your question is, why do we, why is it 4.9 instead of 6.9 as far as increase? You might say, well, a little bit harder fight on the short-stay patients. Again, we do not have the community access orientation. We are not pushing to, we could admit a lot more patients and have a lot more revenue. But the number one thing we are trying to avoid is providing service for free and not getting any reimbursement for it.

That makes sense. Maybe Kevin just to follow up on that comment, you made about, you know, the co, uh, impact. I mean is that you think what's driving the relative underperformance? Or like just Trend below average on admissions. I mean, 4.9, pretty good number, but still below Trend, uh, just curious what your thoughts are. I mean, is that just a flow through of Hospital admissions being soft as we look at, you know, the hcas and tenants of the world putting up lower admission? Well I I think it's it's possible but I think the biggest issue in that is remember

Is it for? Why is it 4.9 instead of 6.9 as far as the increase? You might say, well,

You know, a little bit, you know, a little bit harder. Fight on the short, stay patient. And you again, we're, we're.

Mike Witzeman: The proof in the pudding is that, as Kevin McNamara made in his prepared remarks, hospital admissions in the quarter were up over 9%. The thing that brings that down is that we are admitting fewer patients from all the long-stay pre-admission locations like ALFs. That's intentional for the Medicare cap. So in total, in aggregate, you're right, the 4.9% is a little bit less than the admissions we've had in the past. But there's some intentionality to that because the hospital admissions are the ones we're really focused on. We have to take in fewer admissions from those long-stay things to right-size the patient mix in our portfolio in Florida.

We don't have the Community Access, uh, orientation. We're not pushing to we could, we could admit a lot more patience and have a lot more Revenue, um, there. But the number 1 thing, we're trying to to avoid is providing service for free and not getting any any, any reimbursement for it. So, when the, the, um, I think the, the proof in the pudding is that as, as Kevin made, in his prepared, remarks Hospital admissions in the quarter were up 9 over 9%.

Brian Tanquille: Yeah, it makes a lot of sense. Thank you so much. Appreciate it.

The thing that brings that down is that we are admitting fewer patients from all the long. Stay pre-mission locations, like alfs and that's intentional for the Medicare cap. So in total in aggregate, you're right. The 4.9 is a little bit less than the admissions we've had in the past but there's some intentionality to that because the Hospital admissions are the ones we're really focused on. And we have to we have to take in fewer admissions from those long. Stay things to right size, the patient mix in our portfolio in Florida.

Holley Schmidt: Thank you. Please stand by for our next question. Our next question comes from the line of Ben Hendricks with RBC Capital Markets.

Makes a lot of sense. Thank you so much, appreciate it.

Thank you.

Please stand by for our next question.

Ben Hendricks: Great. Thank you very much. I appreciate the commentary around those post-COVID demographic factors that point to a more stable cap environment next year. I wanted to talk a little bit about the assumption you made for Q4 this year and into next about the spread between the wage-adjusted or wage-indexed rates and the cap and your assumption that that does not persist. Can you talk a little bit about how you are thinking about that ahead of the final rate and what is informing your view that that might not persist?

Our next question comes from the line of Ben Hendricks with RBC Capital Markets.

Kevin Mcnamara: Well, no, here, Ben, let me start by saying it's a good thing if it's higher. As far as we're concerned, we want it to be as high as possible. We will manage the business as though it was the same as the national average. In other words, if it comes in at 5, and I mean, if the national average comes in at 2.1 and it comes at 4.1 for Florida, that would be a good thing. We would, all we're saying that probably the first month or the first quarter, the first numbers you'll see, we'll probably assume that there'll be a cap in Florida equal to that difference. But we will manage the business as though, you know, we were just getting a 2.1% increase. In other words, we'd have it in a sense of reserve. We would reserve anything over that national average.

Great, thank you very much. Uh, appreciate the commentary around those postco demographic, uh, factors that point to a more stable cap environment next year. But I wanted to talk a little bit about the Assumption you made for 4 q this year. And into next about the, uh, spread between the, uh, wages adjusted or wage index rates, and the cap. Um, and, and your assumption that that doesn't persist, can you talk a little bit about, you know, kind of how you're thinking about that ahead of the, uh, the final rate and, uh, and and kind of what what what, what's informing your view, that, that, that that, that might not persist.

well here, but let me start by saying

It's a good thing if it's higher, okay, you know, as far as we're concerned, we're we want it to be as high as possible, okay? We will manage the business as though it was the same as the national average. In other words, if it comes in at 5 and I mean, if the national average comes in at 2.1, this comes at 4.1 for 4 to, that would be a good thing. Okay. We would all we're saying that probably the first month or the first quarter. The first number is you'll see, we'll probably assume that there'll be cap in Florida equal to that.

Difference, but we will manage the business as though we were just going to get a 2.1% increase. In other words, we have it in the sense of reserve, okay? We would reserve anything over that.

Kevin Mcnamara: And to the extent the admissions then, in fact, came in, they would all fall to the bottom line. I mean, it would, but we wouldn't get in the position we're in this year, which is being dependent on a continuation of positive trends, for instance. It's a good thing if it's higher. To be answered to your question, I think it will be a little bit higher just because you look at, you know, the factors that we look at that are informative on a prediction of rate suggest that Florida is higher than the national average. It'll be a good thing if it's higher, but we'll manage differently this year than last year. Does that make sense?

That, uh, national average and to the extent, the admissions, then in fact came in, okay? They would all fall to the bottom line. I mean, it was, it would, but we wouldn't get in the position, we're in this year, which is being dependent on a continuation of of positive trends, for instance, I mean, so it's a good thing. Um, if it's higher and to be answered your question, I think it will be a little bit higher. Okay. Just because you, you look, you know, the factors that we look at that are informative on a prediction of race suggests that Florida is higher than national average. So but we'll, we'll just, it'll be a good thing if it's higher.

Um, but we'll manage differently this year than last year.

Ben Hendricks: Absolutely. That's very helpful. I appreciate that color. On the Roto-Rooter side, I think you noted in your mention in recent quarters that there were some local management issues at some of the locations that had driven some weakness. I was just wondering if there's any linkage between efforts you've made or initiatives you have at the local management level and some of the recovery you've seen in June and July.

Does that make sense? Okay, absolutely. That's very helpful. I appreciate that color. Um, on the road to reuter side, uh, I think you'd noticed in you're mentioned in in recent quarters that there were some local management issues at some of the at, some of the locations. Uh, that had driven some weakness. I was just wondering if there's any linkage between efforts you've made or initiatives you have at the at the local management level and some of the recovery you've seen in June and July

Mike Witzeman: I do not think, I think we are pretty much past the management issues that we have talked about in the past. I think a lot of those were caused by people, particularly private equities poaching some of our management, not only General Managers, but also the next level down where we have water restoration managers. I think that is pretty much abated. I do think that in general, if you look at our management team in the field, not at the corporate level, but at the field, the tenure is a lot less than it would have been, say, pre-pandemic. I do not think, I think we are past that now.

You know, I don't think I, I think we're pretty much past the management issues that we've talked about in the past. I think a lot of those were caused by. Um,

Mike Witzeman: We are, there is always going to be, we have 51 branches, all with General Managers, all with excavation managers. There is always going to be a subset of those that are going to be on some sort of performance improvement kind of plan. But I think we are more in a normal cycle as it relates to managers. So I do not think that is a huge factor.

Kevin Mcnamara: No, I would say if I was to summarize, just for the sake of brevity, to answer your question, if I saw two issues currently at Roto-Rooter, they would be, and they are not small. The small one is that what Mike mentioned is, we had a new insurance program for basically general casualty last year. It also covered workers' comp and whatnot, but workers' comp costs tend to go higher as revenue goes down. Employees are more likely to take time off for injuries, that type of thing. That was a little bit higher than it is usually a credit for us because we are pretty conservative in our accounting for that.

There's always going to be, we have 51 branches, all with general managers, all with excavation managers. There's always going to be a subset of those that are going to be on some sort of performance improvement plan. But I think we're more in a normal cycle as it relates to manager. So, I don't think that's a huge factor. No, I would say, if I was to summarize just to think of revenue, you know, to answer your question, if I saw two issues.

currently at rotor, they'd be

Kevin Mcnamara: So it is usually a credit when they did the, and on the casualty side, it came as a surprise because if you look at the number of car accidents and the severity of car accidents, they were reduced. They were lower than the expectation. So you might say when we expected the outside firm to analyze our exposure, given the fact that there were some differences in our ultimate coverage for those accidents, we were expecting a credit. It came out to a big negative. It was half of our decline of the margin at Roto-Rooter. Do we expect that to reoccur? No. We are continuing to work on the safety and our actual results with regard to the number of accidents and severity is getting better. So I think that, but that is an issue that whiffed the second quarter in many respects for Roto-Rooter.

And they're not small, the small 1 is that my what Mike mentioned is, you know, we had a new insurance program for basically General casualty last year. I mean it was it also covered workers comp and whatnot but workers comp 10 costs tend to go higher as as Revenue goes down employees are more likely to take time off for injuries that type of thing and that was a little bit higher than it. It's usually a credit for us because we're pretty conservative in our accounting for that. So it's usually a credit.

um,

when they did the and, and, and on the casualty side, um, we had it it came as a surprise because, um, you look at the number of car accidents and the severity of car accidents. Um, they were reduced, they were lower than the expectation. So, you might say, when we expected the outside firm to analyze, um,

Analyze our our exposure. Um, give the fact that there there, there were some differences in our um, in our

Kevin Mcnamara: Their sales were, aside from the fact that they also had a bad April and May, no question about it. But I would put all the other issues as one other, what is the problem at Roto-Rooter? Why is it underperforming? It is not management. It is not the labor force. The labor force has good close rates. We have good retention. It is our, as Mike said, the outflow of managers at the private equity firms, if anything, is reversing. They are realizing trees do not grow to heaven and they are coming back or attempting to come back, some of the managers. But the biggest issue is the phone is not ringing like it did in the past. One answer for that, and that is that most, it currently, and this is changing, we are in the process of making some groundbreaking changes with AI and whatnot.

Ultimate coverage for the, for those accents. We were we expecting a credit it came out to a big negative was half of our decline of the, of the margin rotor. So, do do we expect that to reoccur know? Okay, I mean we're, we're we're continuing to work on the safety and our actual results with regard to number of accidents or severity, you know, is getting better. So, I, I think that, but that's an issue that, you know, wrecked the second quarter in many respects for rotor. Um, you know, their sales, you know, were aside from the fact that that, you know, they also had, you know, a bad April and May know no question about it, they're there. But I would put all the other issue is what other

What's the problem? It wrote a root or why, why is it? Underperforming; it's not management. It's not the labor force. The labor force has good close rates. Um, we have good retention. I mean, that's our man. As Mike said, the outflow of managers, the private equity firms, if anything is reversing. I mean, they're realizing trees don't grow to heaven, and they're coming back or attempting to come back. So the managers, but,

The biggest issue is the phone is not ringing.

Like it like it did in the past and 1 answer for that and that is that most it currently. And this is changing. We're in the process of of making of uh, some

Kevin Mcnamara: But the phone is not ringing as much. Potential customers go, they go to the internet, they go to Google. If you were to type in Roto-Rooter Plumbing in Google, before you even see the word Roto-Rooter, there would be probably four other advertisements for rival plumbing. It is just, Google does an excellent job monetizing that monopoly position. It is changing. We are making adjustments. Mike made a reference to the fact that we used to get 60% basically of, or I will put it this way, we used to get 40% of our calls from paid search. Now it is 50%. The reason that is, is because the free ones, where we used to appear on maps on the Google, the Google entries, we do not appear anymore.

Groundbreaking changes with AI and whatnot. But I mean, the phone's not ringing as much the we're we're

Potential customers go. They go to the Internet. They go to Google.

if you, if you were to type in

Roto Rooter plumbing and you know, in in Google before you even see the word, Roto Rooter to be probably 4. Other advertisements for rival Plumbing. I mean it's just they're Google. Does an excellent job monetizing that Monopoly position. It's changing. We're making adjustments. Mike made a reference that, you know, to the fact that we used to get, you know, 60% basically, um,

of over output as we used to get 40% of our, uh,

calls from, uh,

Paid search.

Now, it's 50. And the reason it's that is because the free ones where we used to appear on maps on the Google

Kevin Mcnamara: They do not, they are saying if we can get money from making them pay for advertisements, we will make sure they do not show up in the free areas. We deal with it. It is a bit of a judgment for us. I think we ultimately will win that battle. We are doing better, I think, at this point every month. But it all relates to, what is the problem with Roto-Rooter, the phone is not ringing as much as we would like it to. Plain and simply, we have got the workforce. We have, our development of water restoration and the continued refinement of our excavation business. We are as much of an excavation and water restoration business as we are plumbing and drain cleaning at some point. It is one business feeds the other. But a lot of our services are those ancillary services.

The Google entries. Um, we don't appear anymore. They they don't, you know, they're they're they're saying if if we can get money from making them pay for advertisements, we'll make sure they don't show up in the, uh, free areas. We deal with it. It's a bit of adjustment for it for us. I think we ultimately will win that battle. We're doing better. I think at this point every month but it all relates to, you know, what's the problem with rotor? The phone isn't ringing as much as we'd like it to plain and simple. We've got to work force. Um, we've, you know, we've our development of, uh,

Water restoration and the continued refinement of our excavation business. I mean, we're as much of an excavation and water restoration business as we are.

Kevin Mcnamara: But we have no worry with regard to the long-term persistence of success at Roto-Rooter. A bit of a problem right now, no question about it. We have to say that we really had some tough issues at Roto-Rooter, but it is not nearly as many on the horizon. Mike, anything? What do you?

Plumbing and drain cleaning at some point. I mean, it's it's, uh, 1 business fee to the other but I mean, we, a lot of our services are those ancillary services, but we have no worry with regard to the long term. Um,

Persistence of success at road but bit of a problem right now. No question about it. We have to say that we've really had some tough issues that rotor but uh

it's um,

Mike Witzeman: Yeah.

Kevin Mcnamara: Off the top of my head, but what is your reaction to that?

Mike Witzeman: Yeah, I would say there's no doubt, as we've talked about, Ben, in the past, that the private equity competition is hurting us, particularly on the drain cleaning and the plumbing side. The number of jobs we do in those two segments are continuing to decline slightly. We would love to see those increase, but we're doing everything we can to combat that. One of the things you see in the results specifically is, as Kevin McNamara mentioned, we are doing a much better job at identifying and converting add-on sale opportunities. So we've really supported the revenue at Roto-Rooter with water restoration and excavation, which a lot of our private equity competitors do not do. We're never going to be in a place where we offer $77 or $88 drain cleaning.

The Horizon by anything. What is what? Yeah, that's off the top of my head. But what do you, what's your reaction to that? Yeah, I would say.

um, there's no doubt as as we've talked about and

Mike Witzeman: That's just, we view that as a race to the bottom, and we're not going to engage in that.

Kevin Mcnamara: is a loss leader. They are doing that for air conditioning business, really, is why they are offering that.

Mike Witzeman: We are doing everything we can then to combat that, get around that. We have talked a lot about the app. We have talked about the service agreements that we have started selling. Then, like I said, our conversion rate is higher now than it has ever been. In Q2, we converted almost 50% of our leads to paying jobs, which is significantly higher than the historical average. I think we are doing a great job when the calls come in. We would like to have more calls, but I think, you know, from an operating standpoint, I think we are doing a really good job at Roto-Rooter making sure that every opportunity is converted to a paying job.

You know, the private Equity competition is hurting us, particularly on the drain cleaning and the plumbing side, you know, those those the number of jobs we do on in those 2, segments are continuing to, you know, decline slightly. We would love to see those increase, but we're doing everything we can to combat that and 1 of the things you see in the results specifically is, as Kevin mentioned, we we are doing a much better job at identifying and converting add-on sales opportunities. So we've really, um, supported the revenue at at, uh, Roto-Rooter with water restoration and excavation which a lot of our private Equity competitors, do not do. Um and so we're never going to be in a place where we offer $777 or 88 drain cleaning. Um that's just we view that as a race to the bottom and we're not going to engage in that. There's a loss leader, they're doing that for air conditioning business. Really is, why is why they're offering that

But we're doing everything we can then to combat that get a get around that. Um, we've talked a lot about the app. We've talked about the service agreements that we've started selling, um, and then, like I said, we're, we're our conversion rate is higher now than it's ever been. Um, in the second quarter, we converted almost 50% of our leads to paying jobs, which is, which is

Significantly higher than the historical average. So I think we're doing a great job when the calls come in.

We would like to have more calls, but I think, um, you know, we're, we're, we're uh,

From an operating standpoint. I think we're doing a really good job at rotor. Making sure that every opportunity is converted to a paint job.

Ben Hendricks: I appreciate that color, guys. Last thing for me, if you could comment on the tax rate favorability you saw in Q2. I just want to see if that's a timing issue or what was behind that. Looks like about 120 bps sequential decline in effective tax rate. That's it for me. Thank you.

Mike Witzeman: is a bit of an accounting thing, but we get a credit when people exercise stock options. The company gets essentially a larger tax deduction when the stock option with what they realize compared to what we have recorded as the expense. It is just a function of how the accounting works. Obviously, with where our stock price is, we have not had too many stock option exercises in the quarter. That really drives the change in the rate. When we get a credit in our expense, when we have a lot of exercises, it drives down the rate. We did not have as many exercises in the second quarter. That is really the big driver.

I appreciate that color guys. Uh, last thing for me just if you could comment on the tax rate favorability, you saw on the second quarter. I just want to see if that's a timing issue or what was behind. That looks like about 120 basis points. Sequential uh decline in effective tax rate um and just uh that's it from me, thank you.

we it it's a

You know, is it a bit of an accounting thing? But we get a credit when people um,

when people exercise stock options,

The company gets essentially a larger tax deduction when the stock option. Um,

with what they realize compared to, what we've recorded as the expense and it's

You know, it's just a function of how the accounting works.

Obviously, with where our stock price is, we haven't had too many stock option exercises in the quarter, and so that really drives the changes in the rate. When we get a credit in our expense, when we have a lot of exercises, it drives down the rate, and we didn't have as many exercises in the second quarter, and that's really the big driver.

Holley Schmidt: Thank you. Please stand by for our next question. Our next question comes from the line of Joanna Gadjo with Bank of America. Your line is open.

Thank you.

Please stand by for our next question.

Joanna Gadjo: Hey, good morning. Thanks so much for taking the question. So, I guess first on VITAS Healthcare, the comment around the weaker admissions, right, especially the short stay in Florida. Why, I guess, that came at that time versus earlier, if you are saying that everyone was chasing, so to speak, the shorter stay patients? So, why did it show up kind of later versus, say, you know, when the COP situation started already in October of 2024? What gives you confidence in being able to get, you know, this higher mix of short stay patients going forward?

Our next question comes from the line of Joanna. Good job with Bank of America. Your line is open,

Hey, good morning. Thanks so much for taking the question. So, I guess here's some thoughts.

The comment around the uh, weaker admission, so, especially the, the, the short stay in Florida. Um, why? I guess the team at that time versus earlier, if you saying that everyone was chasing, so to speak the shortest day, patience. Uh, so like why did it show up kind of later versus say, you know, when the, when the cop situation started already in October of 2, 4 4.

Going forward.

Mike Witzeman: Joanna, I think the, you know, our confidence in the higher things going forward is really that we've seen a trend. April and May were pretty bad. Before that, I think we were on track. June and July seemed to be back on track. I cannot tell you exactly why April and May were not that strong. What I can tell you is when we model out the current operating statistics that we have for June and July, we are pretty confident in the $19 million number for 2025. We are also pretty confident, excluding the impact of the rate issue, that 2026 will not have a cap problem.

And I think, um,

The, you know, our confidence in the higher.

Things going forward is really that we've seen a trend April and May were were pretty bad. Um, before that I think we were on track and June and July seemed to be back on track. Um, I can't, I can't tell you exactly why April May warrant weren't that. Well, that, that strong. Um, what I can tell you is when we model out the current operating, um, statistics that we have for June and July

Kevin Mcnamara: Let's say this. We like admits, number one. We like all admits. We want the mix to be right. How do you get a lot of admits? You have a good reputation. You keep doing what we've been doing. We could get, I'm picking a number, we could probably have 5% higher admits right now if there was no Medicare cap limitation just by snapping our fingers. It's more than doable. How do you get the right mix is really your question, Joanna. The answer is, it's by what we've historically said, pulling the right levers. It's emphasis. It's where your salespeople are calling. It's how fast you respond to a lead, where somebody has expressed an interest in having a meeting or a discussion. You make sure that with regard to the hospital referral, you make sure you're there within an hour.

We are pretty confident in the 19 Million number for 2025 and we are also pretty confident. Excluding the impact of the rate issue that 2026 will not have a cap. Um, problem.

We need, we like admits number 1. We like all admits. You know, we want the mix to be, right? Um, how do you get the how do you get? You know, a lot of admins. Well, you have a good reputation. You keep doing what we've been doing. We could we could get

I I'm picking a number. We could probably have 5% higher admits right now. Um, if there was no Medicare cap, limitation just by snapping our fingers. I mean, it's more than doable. How do you get the right? Mix is really your question, Joanna. And the answer is well, it's by, you know, what? We've historically said, pulling the right levers and and uh, it's but it's emphasis it's it's where your sales people are calling. It's how fast you respond to. Um,

How how fast you respond to a? Um,

yeah.

Kevin Mcnamara: It's that type of emphasis which can put this over the top. Just so you know what we're talking about, we're talking about small changes. We're talking about small, small improvements affecting the results by 1% or 2%, which is more than what we're talking about as far as the issues we're facing. I'll just say that it won't, one of the things that the point that I made during the point is the type of things we've done in the past when we wanted to emphasize more short-stay admissions, were a little less, they were a little more unavailing just because other people were doing the same thing. They were following our lead. We just had to refine our efforts. As Mike suggested, the results of those refined efforts are suggested to be more than adequate. We'll continue those, and we'll continue to refine them.

You know a a lead you know where somebody has expressed a a interest in having a meeting or discussion, you make sure that with regard to the hospital. Referral you make sure you're there with an hour, you know? You you just it's that type of emphasis which

Could put this over the top and just so, you know what we're talking about. We're talking about small changes. We're talking about small small improvements, affecting the results by 1 or 2%, which is, you know, more than what we're talking about. As far as the, the issues we're facing, um, I'll just say that it won't, you know, 1 of the things that

the point that I made to the point is,

the type of things we've done in the past when we wanted, you know, to emphasize a more short State, um,

uh,

Admissions were a little less, they were a little more unavailing, just because other people were doing the same thing. You know, they were following our lead and you know so we just had to refine our efforts. Um and as Mike suggested, the results of those refined efforts, you know, are suggested to be, you know, more than that.

And we'll continue those, and we'll continue to refine them.

Joanna Gadjo: All right. Then the other piece, right, when you were talking about your confidence in not having the comp issue, is the new counties that you are entering in Florida. Can you talk about the ramp-up there? Is there a way to think like how much offsets could come from that growth in Florida?

Kevin Mcnamara: Well, let's put it this way. We think it's tough. Because we, you know, we're new in one, and it's been a big success. Pinellas County is one that we got most recently. It's big. I'll just give you an order of magnitude. Mike, what do you say? There's 8,800 admits?

All right. And then the other piece, right? When you were talking about the, your confidence in not having the comp issue, right? Uh, is the the new counties that you entering in Florida? So, can you talk about the ramp up there? And is there a way to think of how much offsets could come from? Uh, from that growth in Florida?

Well, let's put it this way. We think?

Mike Witzeman: Yeah, 8,600 admits in 2024.

Kevin Mcnamara: If you multiply that number by $36,000, you see that that's, you know, maybe $350 million for, you know, for coverage for Medicare cap billing. The opportunity is there. Now, with regard to, let's say, Pinellas County, we just have awarded it. There's elements of finalization and dealing with appeals that we have to do. In our projections, where I said we're projecting no cap in the fourth quarter or any significant cap next year, that does not depend on Pinellas County.

It, it's tough. I mean because we, you know, we're new in 1 and it's been a big success. Panelist county is is 1 that we got most recently. It's big. I mean I just give you an order of magnitude like, what do you say? There's to 8,000 ad 8,800 admits. Yeah. 8,600 admits in 2024 and if you multiply that number by 36,000, you see that that's, you know, maybe 350 million dollars for, you know, you know, for coverage for

Uh, Medicare cap billing. I mean it's

Mike Witzeman: None of our projections include any projection for Pinellas County.

Kevin Mcnamara: Now, if you ask me, will we be operating and thriving in Pinellas County in the next government plan year? I have no doubt we will. That is not the basis. Our basis is just making slight improvements in the state as well as a whole. But those are, we mention those regularly for the next, it begs the question, what about the next year? The answer is Pinellas County, for one, should be booming by then. Let us put it that way.

The opportunity is there now with regard to, let's say, Palace County. We just have awarded it; there's elements of finalization and dealing with appeals that we have to do in our projections. Where I said, well, we're projecting no cap in the fourth quarter or any significant cap next year, that does not depend on Pendelis County. Okay, none of our projections include any projection for Pendelis County. Now, if you ask me, will we be...

operating and thriving in pelis County next, in the next government plan year, I have no doubt we will

Mike Witzeman: Yeah, ultimately, the new CONs will buy us a little bit of extra time to right-size the patient mix, which is what we're doing and which is what we've talked about for, you know, the second half of 2025 and all of 2026.

But, uh, that's not the basis. Our basis is just making slight improvements in the state as well as a whole. But those are we mentioned those regularly for the next. It begs the question. Well, what about the next year? You know, in the, the answer is panelist is panelist County for 1 should be, you know, booming, buy them. Let's put it that way.

Yeah, I mean ultimately the new coins will buy us a little bit of extra time to right-size the patient mix, which is what we're doing and which is what we've talked about for, you know, the second half of 2025 and all of 2026.

Joanna Gadjo: Right. You alluded to the idea that you do not know for sure in the Florida rate update yet, because we did not see the details yet. But it sounds like, based on some other data points, you are thinking that it is likely that it is going to be some of that issue repeat, but it sounds like you think it is smaller, right? So you are saying that by the fact that you think that there is a consideration that there could be the gap that there is.

Holley Schmidt: enough of these other things you could do in terms of the mix. Then potentially, that's not even a considerate the new counties, right?

Michael Witzeman: Our current models would show that we have somewhere in the, we are projecting $15 million to $20 million cushion next year in Florida. That does not include any potential credit we could get in Pinellas, but it also does not include any of the rate differential. I think, you know, we have done some analysis on what we think the hospital wages look like in Florida. We think it is going to be above the national average. Having said that, what we saw in 2025 was a wider spread than we have ever seen in the 20 years we have owned VITAS Healthcare.

Right. So right. So, um, our current models would show that we have somewhere in the we are projecting 15 to 20 million dollar cushion next year in Florida.

Um, but that does not include any potential credit. We could get in panelist.

it, but it also doesn't include any of the rate, differential. I think the, you know, we've done some analysis on what we think, the hospital wages look like in Florida, we think it's. It is going to be above the national average.

Kevin Mcnamara: Keep anchored.

Having said that, what we saw in Q2 was a wider spread than we've ever seen in the 20 years we've owned Vitas.

Michael Witzeman: Know that we would expect that to continue, but even if it does, we will manage to that number either way.

Kevin Mcnamara: We want it to be as high as possible. We would like it to, we would like a 3% delta. Give us, but we would reserve it. In other words, all we are saying in that case, if they get, if there was a 2% delta, if we got, we got 4% in Florida and 2% nationwide, that Medicare cap limitation went up 2%. The first month, what we would do in our results, until proven otherwise, we would take, we would then say we have quote Florida Medicare billing limitation until we, and we would take the money that we got from the government. We would set it aside knowing we were probably going to have to give it back unless we, unless the admits, came in the door, the additional admit.

Um, but but keep, I don't know that we would expect that to continue but even if it does, we will manage to that. Number either way, we want it to be as high as possible, okay? We we'd like it to we'd like a 3%, Delta, you know, I mean, and give us, but we would reserve it. In other words, all we're saying in that case, if they get, if there was a 2%, Delta, you know, if we got

We got 4% in Florida and 2% Nationwide. That Medicare cap. Limitation went up 2%

the first month, what we would do in our results until proven otherwise

Kevin Mcnamara: So it is a, it is a heads, you win tails, you do not lose situation if the cap is high. If the, if the increase in reimbursement is higher than for the national average, it is good.

Michael Witzeman: Ultimately what we're trying to say, Joanna, is that our current operating model and the current trends that we're on will not result in any cap in 2026. There's an unknown with the rate differential. We'll deal with that when that comes. We'll let you know what it is when it comes. But our current operating model will suggest that we will not have any cap.

We would take, we would then say we have quote, Florida, Medicare billing, limitation until we, you know, and we take the money. We've got from the government, we'd set it aside, knowing we're probably going to have to give it back unless we, uh, uh, unless the admits you know, came in the door, the additional admin. So, it's a, it's a heads, you win, tails. You don't lose situation. If the cap is high, if the, if the increase in reimbursement is higher in Florida, the national average is good.

Ultimately, what we're trying to say, Johanna, is that...

our current operating model and the current trends that we're on.

Kevin Mcnamara: It's a little bit like.

Michael Witzeman: If we tried to put into the model some sort of rate differential, it would be, it would purely be a swag. We don't think that that makes sense to do, when we're trying to essentially portray that the 19 is going to zero, not 19 to 50, as Kevin McNamara mentioned.

Will not result in any cap in 2026. There's an unknown. What the rate? Differential, we'll deal with that. When that comes, we'll let you know what it is when it comes, but our current operating model will suggest that we will not have any cap. It's a little bit like if we try to put into the model some sort of rate differential, it would be it would.

Surely be a.

And we don't we don't think that that makes sense to do um when we're trying to essentially portray that the 19 is going to zero.

Kevin Mcnamara: What you will see next year, and I am putting myself in your position, you say, okay, what should we do for estimates and expectations? Just for Florida, you should assume that the Medicare cap limitation will go up in a sense, the national average. Anything above that, ignore. This will be like California for us. In other words, we know right now California is very profitable on that. We make all our estimates, we say, you know, okay, there is going to be about $8 million of cap in the state. If we got an increase of, if it was 2% higher than the national average, we would say, well, technically we are going to come in exactly where we thought, but we will have a Medicare cap reporting of, in Florida, in that case, all things being equal, let us say $20 million. Okay.

Um, not 19 to 50. That's Kevin mentioned. And I guess what you'll see next year, and I'm putting myself in your position, you say, okay, what should we do for estimates and expectations?

Just for Florida, you should assume that the Medicare cap, limitation will. Um,

Go up in a sense, the national average, anything above that, ignore because we will, it'll be like California for us. In other words, we know right now, California is very profitable and whatnot. We make all our estimates, we say, you know, it's okay. There's going to be about 8 million dollars of cap in the state. If we got to increase of it was, if it was 2%.

Kevin Mcnamara: We would know that, we would state that on the day that we had the information from the Florida reimbursement, you know, what it was. My, we will ignore that internally. We suggest analysts kind of ignore that and just say it, you know, they may have to give $20 million back to the state of Florida, but there is a good chance they will do better than that and have to give less or none back to the federal government. It, so we will see how it comes, but it is not a big issue to us. Our view is, we are not holding our breath waiting for that number.

If it was 2% higher than national average, we'd say well technically we're going to come in exactly where we thought, but we will have a you know, a a Medicare cap reporting of uh in Florida. In that case all things being equal but let's say 20 million dollars. Okay, we we would know that we would state that on the day that we had the information from the Florida reimbursement. You know what, what it was, and I the my we will ignore that internally. We suggest analysts kind of ignore that and just say it, you know, they may have to give 20 million dollars back to uh, the State of Florida. But there's a good chance, they'll do better than that and have to give less or none back to the to the federal government. I mean it so we'll see how it comes, but it's not a big issue to us. Our, our, our view is

Kevin Mcnamara: The bigger it is, the better upside for us, but we are going to try and make it next year for everyone, for people whose job it is to predict and analyze the results of the company, a non-entity, something that does not affect the ultimate task that you are doing. Does that make sense, Mike? I have a, yeah, I mean, it is kind of a tough one because we, it sounds like a bogeyman, Medicare cap, but that would not surprise me at all if it is different. I mean, what are the odds it is going to be exactly the same?

Um, we're not holding our breath waiting for that number.

The bigger it is the better upside for us, but we're going to try and make it next year for everyone. For people whose job it is to predict uh and analyze the results of the company, a non-entity a n, a something that does not affect the ultimate uh tasks that you're doing is that does that make sense? Mike. I have a I mean it's kind of I a tough 1 because we it sounds like a bogeyman Medicare cap but

Michael Witzeman: Right.

That wouldn't it wouldn't surprise me at all if it's different. I mean what are the odds? That's going to be exactly the same, right?

Holley Schmidt: All right. Thanks for that. And maybe just quickly on the other business, just to clarify. So, you called out this higher insurance, I guess, accrual in the Florida, but then you said something about you do not think it is going to persist, but you did raise your, or sorry, lowered your margin for that segment, for the broader segment by 200 bps. Right. So do you assume that the issues you are saying Q2 persists for the rest of the year?

Right.

All right, thanks for that. And maybe just quickly on the other business. Um,

To clarify. So,

Kevin Mcnamara: Here's what the point. First of all, there's a catch-up element to it. The expense we took is more than what we took in the, you know, effectively a quarter. It is more than one quarter's result impact, number one. Number two, the point that if Roto-Rooter can continue to do a good job reducing the number of accidents and the severity of them, it's got nowhere to go but down. Let me start by saying that we had a new, you know, based on the insurance market, we have a new policy, different deductible, different elements. There's some adjustments we have to make as far as managing it. We don't expect big surprises, you know, on the Roto-Rooter expense side of that regard. When I say don't persist, there's no magic bullet other than it was a lot to take in in one quarter, number one.

Meant by 200 basis points. But if you assume that the issues, uh, you know, you send to purchase for the rest of the year.

Well, here's here's what, what? The point first of all there, there's a catch up element to it. I mean, there there's more than that, the expense we took is more than what we took in the, you know, the fact that the quarter is more than 1 quarter's result, impact number 1, and number 2, the point that if rotor can continue to do a good job, reducing the number of accidents and the severity of them.

You know.

If it's got nowhere to go but down. Now let me start by saying that we had a new, you know,

Based on the insurance Market. There were that we have a, a new policy different deductible different elements. There's some adjustments. We have to make as far as managing it but no we don't expect big surprises, you know, in the uh,

on the, uh,

Kevin Mcnamara: Number two, we're going to do a better job managing and predicting it. Ultimately, the answer to your question, Joanna, is just that. Our emphasis on safety and reducing those types of expenses, doing a much better job monitoring the insurance adjusters who are settling these claims, that type of thing, that's where we're going to see the improvement. If you combine it with good experience and much more emphasis on what happens after the accident occurs, there's a lot of confidence on our part that that level of expense you saw and the level of deterioration in the margin that you saw in the second quarter will not persist.

Road, you know, expense side of that regard. And so when I say don't persist, there's no magic bullet other than it was a it was a a lot to take in and and 1 quarter number 1 and number 2 we're

Good. You know, we do a better job managing and predicting it, but ultimately the answer to your question.

Joanna is just that, um,

Our emphasis on safety and reducing those types of expenses is doing a much better job. We're monitoring the insurance adjusters who are settling these claims, that type of thing. That's where we're going to see the improvement. So if you combine it with good experience and much more emphasis on what happens after the accident occurs, um,

there's, there's

Michael Witzeman: As Kevin mentioned, in the almost $5 million extra hit we took, there's at least some of that that is out of period. Just so you know, when you're doing your model, Joanna, we did include an increase in those costs to $4 million in total for the second half of the year. We didn't want to be cut short again, not at least considering those costs in the guidance we put out.

A lot of confidence that our part that you know, that level of of uh expense you saw and the level of deterioration in the margin that you saw in the second quarter will not persist and as as uh Kevin mentioned in in the in the almost 5 million dollar. Um,

Kevin Mcnamara: The fluid that I am talking about will take some time to take some time to put in.

Michael Witzeman: In the guidance that we've put out, Roto-Rooter has baked in $4 million, so $2 million each quarter of additional expense for this issue. Could it be better than that? We think it could be, but it is hard to say, but we did not want to get cut short.

Extra uh hit we took is probably there's at least there's some of that that is out of period. But just so, you know, when you're doing your model Joanna, we did include an increase in those costs to dollars in total for the second half of the year, we didn't want to be caught short again. Um, not not at least, um, considering those costs in the guidance. We put out. So, but if you prove, it's not talking about, we'll take some time to take some time to put in. So, in, in the guidance that we put out, uh, Roto-Rooter has baked in 4 million dollars. So 2 million each quarter of additional expense for this issue. Um,

Kevin Mcnamara: We won't have hard data until the next report by the outside auditing firm.

Holley Schmidt: All right. That's helpful. Any final messages? Last one on capital deployment. Cash flow is pretty good. Note that there are issues in one business and the other. Do those things change your view of things? I want to say you did this hospital acquisition, and at that time, you were alluding that there could be more like that. Can you refresh your commentary around that? Is there any change in that thought process around maybe there is some consolidation in hospice to be done? Thank you.

Could it be better than that? Uh, we we think it could be but it's hard hard to say, but we didn't want to get caught short of that. We won't have a hard data until the next, you know, report by the outside auditing firm.

All right, that's helpful. And if I make this last 1 on um, Capital deployment, raise the cost so pretty good. I know that. Um,

Michael Witzeman: There's no change in strategy, Joanna. We would love to make acquisitions that are at the right valuation and on the VITAS side in the right location. We continue to monitor and have those conversations. It's a bit of a long lead time because we're contacting people, we're contacting organizations, essentially cold calling them in some instances to see their appetite for making such a transaction. So there's a bit of a long lead time for those, but there's no change in the direction of what we would like to do. Having said that, regardless of the cash or what's on, you know, no debt on the balance sheet, we're not going to just buy things to grow. They have to be at the right valuation. They have to be at the right place, in the right location.

Yes, there are, you know, issues in one business and the other. Um, those things change your view of things because I want to say, you know, you have to just hospice that position. And at that time, you kind of were alluding that, you know, there could be more like that. So, can you kind of have a fresh, your, uh, you know, commentary around that? Like, is there any, um, changing that thought process around? Maybe there's some consolidation in the house but, uh, to be done. Thank you.

There's no change in strategy, Joanna. We would love to make um,

Acquisitions that are at the right valuation. And, and on the VTO, uh, side in the right location, um, we continue to, to Monitor and, and have those conversations. It's a, it's a bit of a long lead time because we're contacting people. Uh, we're contacting organizations, essentially cold, calling them in some instances to, to see their appetite for making such a, a, a transaction. And so, there's a, a bit of a, long lead time for those but there's no change in the direction of what we would like to do. Um,

Michael Witzeman: I would also tell you, there's no change in the idea that because of our strength of our balance sheet, significant share buybacks and acquisitions are not mutually exclusive. We can do both. That's why we've kept the balance sheet the way it is. So I would expect some movement in the third quarter, probably on a share buyback perspective, but otherwise, there's no change to our overall strategy.

Having said that, regardless of the cash or what's on, you know, no debt on the balance sheet. We're not going to just buy things to grow; they had to be at the right valuation. They had to be at the right place in the right location.

And I would also tell you there's no change in the idea that, because of the strength of our balance sheet.

uh,

significant share BuyBacks and Acquisitions are not mutually exclusive. We can do both.

Holley Schmidt: Great. Thank you. Thank you. As a reminder, ladies and gentlemen, that's star one one to ask the question. I'm showing no further questions in the queue. I would now like to turn the call back over to Kevin for closing remarks.

Great. Thank you.

Thank you.

As a reminder, ladies and gentlemen, that's *star 111* to ask a question.

Kevin Mcnamara: I just want to thank everyone for their kind attention. It was going to be a tough quarter for our operating units. I think we're well on the way to improving the outlook. We'll see in our next report three months from now. Thank you.

I'm showing no further questions in the queue. I would now like to turn the call back over to Kevin for closing remarks.

Well, I just want to thank everyone for their kind attention and, uh,

you know, it's going to

Tough quarter for operating units. And uh, I think we're well on the way to improving the Outlook and um,

We'll see.

Holley Schmidt: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

In our next report, three months from now. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect