Q1 2026 Chemed Corp Earnings Call

April 24, 2026

Operator: Good day, and thank you for standing by. Welcome to the Chemed Corp Q1 2026 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, we'll open up for questions. To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Holley Schmidt, Assistant Controller. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the Chemed Corp Q1 2026 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, we'll open up for questions. To ask a question during the session, you will need to press star 1 1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Holley Schmidt, Assistant Controller. Please go ahead.

Speaker #1: Good day, and thank you for standing by. Welcome to the CHEMED CORP first quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode.

Speaker #1: After the speaker's presentation, we'll open up for questions. To ask a question during the session, you will need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded.

Speaker #1: I would now like to hand it over to our first speaker, Holley Schmidt, assistant controller. Please go ahead.

Speaker #2: Good morning. Our conference call this morning will review the financial results for the first quarter of 2026 ended March 31, 2026. Before we begin, let me remind you that the State Harbor Provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for Q1 2026, ended 31 March 2026. 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 23 April 2026 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.

Speaker #2: 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 April 23 and in various other filings with the SEC.

Speaker #2: 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.

Speaker #2: 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.

Holley Schmidt: 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 23 April, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today, Kevin J. McNamara, President and Chief Executive Officer of Chemed Corporation, Michael D. Witzeman, Chief Financial Officer of Chemed, and Joel L. Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin J. McNamara.

Speaker #2: A reconciliation of these non-GAAP results is provided in the company's press release dated April 23, which is available on the company's website at chemed.com.

Speaker #2: I would now like to introduce our speakers for today: Kevin McNamara, President and Chief Executive Officer of CHEMED Corporation; Mike Witzeman, Chief Financial Officer of CHEMED; and Joel Wherley, President and Chief Executive Officer of CHEMED's VITAS Healthcare Corporation subsidiary.

Speaker #2: I will now turn the call over to Kevin McNamara.

Speaker #3: Thank you, Holley. Good morning. Welcome to CHEMED Corporation's first quarter 2026 conference call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details.

Kevin McNamara: Thank you, Holly. Good morning. Welcome to Chemed Corporation's Q1 2026 conference call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. VITAS performance during the quarter exceeded even the high end of our expectations. We believed that Q1 2026 would be a tough comparison as we continued to transition to balance our patient mix between short stay and long stay patients. VITAS management was able to add ADC through accelerated admissions from non-hospital pre-admission locations while also maintaining a high level of hospital-based admissions. This was achieved while also keeping hospice labor costs lower than budgeted. These factors combined to allow VITAS to achieve higher than expected revenue growth and EBITDA margins while continuing to add cushion to the Medicare cap position in our Florida combined position program.

Speaker #3: I will then open the call for questions. Vitas performance during the quarter exceeded even the high end of our expectations. We believed that the first quarter of 2026 would be a tough comparison as we continued to transition to balance our patient mix between short-stay and long-stay patients.

Speaker #3: Vitas management was able to add ADC through accelerated admissions from non-hospital pre-admission locations while also maintaining a high level of hospital-based admissions. This was achieved while also keeping hospice labor costs lower than budgeted.

Speaker #3: These factors, combined, to allow Vitas to achieve higher-than-expected revenue growth and EBITDA margins while continuing to add cushion to the Medicare cap position in our Florida combined position.

Speaker #3: Program. Admissions at Vitas during the quarter totaled 19,394, which equates to a 6.9% improvement from the same period of 2025. Hospital admissions as a percent of total admissions for our Florida combined program was 43.8% during the first quarter of 2026.

Kevin McNamara: Admissions at VITAS during the quarter totaled 19,394, which equates to a 6.9% improvement from the same period of 2025. Hospital admissions as a percent of total admissions for our Florida combined program was 43.8% during Q1 2026. As we have discussed previously, an appropriate balance for the sustained long-term stability in the Florida patient base, given the current mix of referral sources, is that between 42% and 45% of total admissions that come from hospitals. Equally as important, as Joel will discuss in greater detail, admissions from all other pre-admission locations increased 8.4% compared to Q1 2025 in our Florida combined program.

Speaker #3: As we have discussed previously, an appropriate balance for the sustained long-term stability in the Florida patient base given the current mix of referral sources is that between 42% and 45% of total admissions that come from hospitals.

Speaker #3: Equally as important, as Joel will discuss in greater detail, admissions from all other pre-admission locations increased 8.4% compared to the first quarter of 2025 in our Florida combined program.

Speaker #3: Improved admissions led Vitas to outperform our expectations while also adding over 32.5 million dollars to cap cushion in the Florida combined program in the first quarter of 2026.

Kevin McNamara: Improved admissions led VITAS to outperform our expectations while also adding over $32.5 million to cap cushion in the Florida combined program in Q1 2026. 31 March 2026 represents the halfway point in the government fiscal year. We are more confident than ever that VITAS has put the Florida cap issue of 2025 behind us and has returned to a normalized rate of growth. Now let's turn to Roto-Rooter. Over the past two years, we have talked about the many headwinds that have persisted at Roto-Rooter, which has made for a difficult operating environment. While we believe that Roto-Rooter will continue to face some of those headwinds, Q1 2026 also showed some signs of improvement across multiple fronts. For the first time since Q4 2022, residential plumbing and residential sewer and drain revenue both increased during the quarter.

Speaker #3: March 31 represents the halfway point in the government fiscal year. We are more confident than ever that Vitas has put the Florida cap issue of 2025 behind us and has returned to a normalized rate of growth.

Speaker #3: Now let's turn to Rotovert. Over the past two years, we have talked about the many headwinds that have persisted at Rotovert, which has made for a difficult operating environment.

Speaker #3: While we believe that Roto-Rooter will continue to face some of those headwinds, the first quarter of 2026 also showed some signs of improvement across multiple fronts.

Speaker #3: For the first time since the fourth quarter of 2022, residential plumbing and residential sewer and drain revenue, both increased during the quarter. We consider these Rotovert's core services, which drive the add-on revenue from excavation and water restoration.

Kevin McNamara: We consider these Roto-Rooter's core services, which drive the add-on revenue from excavation and water restoration. We see this as a very positive development for the company. Driving the increase in core residential service revenue was an increase in total leads of 3.3%. Paid leads during Q1 2026 increased 18.7% compared to Q1 2025. Continuing the same trend as past quarters, 53.4% of those leads were the result of paid advertisements. In Q1 2025, we paid for 46.5% of the leads. The change of approximately 7% required Roto-Rooter to increase marketing spend by almost $3 million in the quarter compared to Q1 2025. The centralization of water restoration billing and collections continues and has resulted in improved collections.

Speaker #3: We see this as a very positive development for the company. Driving the increase in core residential service revenue was an increase in total leads of 3.3%.

Speaker #3: Paid leads during the first quarter of 2026 increased 18.7% compared to the same quarter of 2025. Continuing the same trend as past quarters, 53.4% of those leads were the result of paid advertisements.

Speaker #3: In the first quarter of 2025, we paid for 46.5% of the leads. The change of approximately 7% required Rotovert to increase marketing spend by almost $3 million in the quarter, compared to the first quarter of 2025.

Speaker #3: The centralization of water restoration billing and collections continues, and has resulted in improved collections. These improvements resulted in a $1.5 million improvement in overall write-offs, compared with the first quarter of 2025.

Kevin McNamara: These improvements resulted in a $1.5 million improvement in overall write-offs compared with Q1 2025. Weather patterns in the first quarter of any given year are positive for Roto-Rooter. However, in Q1 2026, unusual ice and snowstorms across large parts of the country led to significant service disruptions due to road conditions. 24 Roto-Rooter branches experienced some level of service disruption for a period of time across five days of the quarter. We estimate that these service disruptions resulted in a net loss in revenue of between $3 and $4 million during the quarter. On 31 March 2026, Roto-Rooter purchased the territory and assets of the franchises operating in San Francisco, California, and Fort Worth, Texas, in two separate transactions. The aggregated combined purchase price of these transactions was approximately $20.6 million. Collectively, these Roto-Rooter locations serve a population of approximately 3.3 million people.

Speaker #3: Weather patterns in the first quarter of any given year are positive for Roto-Rooter. However, in the first quarter of 2026, unusual ice and snowstorms across large parts of the country led to significant service disruptions due to road conditions.

Speaker #3: 24 Rotovert branches experienced some level of service disruption for a period of time across five days of the quarter. We estimate that these service disruptions resulted in a net loss revenue of between $3 and $4 million during the quarter.

Speaker #3: On March 31, 2026, Rotovert purchased the territory and assets of the franchises operating in San Francisco, California, and Fort Worth, Texas, in two separate transactions.

Speaker #3: The aggregated combined purchase price of these transactions was approximately $20.6 million. Collectively, these Rotovert locations serve a population of approximately 3.3 million people. This purchase is part of Rotovert's ongoing strategy of acquiring franchises to boost productivity market share and profitability.

Kevin McNamara: This purchase is part of Roto-Rooter's ongoing strategy of acquiring franchises to boost productivity, market share, and profitability. These two acquisitions are anticipated to add between $5 and $5.5 billion of revenue for the remainder of 2026. These acquisitions are immediately accretive to earnings. However, initially, growth, gross margins, EBITDA margins, pricing, and mix of service offerings tend to be below the average of our existing Roto-Rooter portfolio. We are happy with the performance of VITAS for the quarter and its prospects for the remainder of 2026 and beyond. In our February conference call, we described this as a year of transition for Roto-Rooter. Q1 clearly demonstrated this transition. We feel very positive that the initiatives we have discussed over the last few quarters are beginning to take hold. With that, I would now like to turn the teleconference over to Mike.

Speaker #3: These two acquisitions are anticipated to add between $5 million and $5.5 million of revenue for the remainder of 2026. These acquisitions are immediately accretive to earnings; however, initially, growth, gross margins, EBITDA margins, pricing, and mix of service offerings tend to be below the average of our existing Roto-Rooter portfolio.

Speaker #3: We are happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond. In our February conference call, we described this as a year of transition for Roto-Rooter.

Speaker #3: The first quarter clearly demonstrated this transition. We feel very positive that the initiatives we have discussed over the last few quarters are beginning to take hold.

Speaker #3: With that, I would now like to turn the teleconference over to Mike.

Speaker #4: Thanks, Kevin. VITAS' net revenue was $420 million in the first quarter of 2026, which is an increase of 3.1% when compared to the prior-year period.

Michael Witzeman: Thanks, Kevin. VITAS net revenue was $420 million in Q1 2026, which is an increase of 3.1% when compared to the prior year period. This revenue increase is the result of a 2.2% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. The acuity mix shift negatively impacted revenue growth 120 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 47 basis points. In Q1 2026, VITAS accrued $2.4 million in Medicare cap billing limitation. This is in line with our expectations. No Medicare cap billing limitation was recorded in Q1 2026 for the Florida combined program, and none is anticipated for the 2026 fiscal period.

Speaker #4: This revenue increase is the result of a 2.2% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%.

Speaker #4: The acuity mix shift negatively impacted revenue growth 120 basis points in the quarter when compared to the prior year revenue and level of care mix.

Speaker #4: The combination of the Medicare cap and other contra-revenue changes negatively impacted revenue growth by approximately 47 basis points. In the first quarter of 2026, VITAS accrued $2.4 million in Medicare cap billing limitation.

Speaker #4: This is in line with our expectations. No Medicare cap billing limitation was recorded in the first quarter of '26 for the Florida combined program, and none is anticipated for the 2026 fiscal period.

Speaker #4: Average revenue per day in the first quarter of 2026 was $210.62, which is a 146 basis point improvement from the prior year period. During the quarter, high acuity days of care were 2.3% of total days of care, a decline of 28 basis points when compared to the prior year quarter.

Michael Witzeman: Average revenue per day in Q1 2026 was $210.62, which is a 146 basis points improvement from the prior year period. During the quarter, high acuity days of care were 2.3% of total days of care, a decline of 28 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $70.8 million in the quarter, an increase of 0.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 16.8%. Now let's turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $56.5 million, a decrease of 1.9% from the prior year period. Commercial revenue was negatively impacted by the weather events discussed earlier by Kevin. However, for the 13 branches that had commercial business managers coming into 2026, commercial revenue was up approximately 10%.

Speaker #4: Adjusted EBITDA, excluding Medicare cap, totaled $70.8 million in the quarter, an increase of 0.6% when compared to the prior-year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 16.8%.

Speaker #4: Now let's turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $56.5 million, a decrease of 1.9% from the prior year period. Commercial revenue was negatively impacted by the weather events discussed earlier by Kevin.

Speaker #4: However, for the 13 branches that had commercial business managers coming into 2026, commercial revenue was up approximately 10%. We added 18 new commercial business managers during the first quarter of 2026.

Michael Witzeman: We added 18 new commercial business managers during Q1 2026. We expect commercial business revenue to accelerate as these 18 new commercial business managers complete their training and begin to become productive sales leaders in their locations. Roto-Rooter branch residential revenue in the quarter totaled $166.3 million, a decrease of 1.5% over the prior year period. All lines of service increased from Q1 2025, with the exception of water restoration. Demand for water restoration services continues to be strong, and our conversion rates remain high. During the transition to a centralized billing and collection model, we anticipated some disruption to the day-to-day billing processing function. In Q1 2026, the average revenue per water restoration job declined by roughly 13%.

Speaker #4: We expect commercial business revenue to accelerate as these 18 new commercial business managers complete their

Speaker #1: Their training and begin to become productive . Sales leaders in their locations Roto-Rooter branch residential revenue in the quarter totaled $166.3 million , a decrease of 1.5% over the prior year period All lines of service increased from the first quarter of 2025 , with the exception of water restoration Demand for water restoration services continues to be strong , and our conversion rates remain high during the transition to a centralized billing and collection model , we anticipated some Point decline from the first quarter of 25 .

Michael Witzeman: We anticipate that this issue will improve as the year progresses with the centralized staff gaining experience and proficiency. Revenue from our independent contractors declined 3.3% in Q1 2026 compared to the same period of 2025. Our independent contractors are generally smaller operations in middle-market cities. Because they are independent contractors, they tend to operate more like a small mom-and-pop business than our owned and operated branch locations. We are actively working with the contractor group to help mitigate the issues in this segment of our business to get it back to a growth trajectory. Adjusted EBITDA in Q1 2026 totaled $53.5 million, a decrease of 9.6% when compared to Q1 2025. The adjusted EBITDA margin in the quarter was 22.5%, which represents a 218 basis points decline from Q1 2025.

Speaker #1: Rotary gross margin of 51% was in line with our expectations, as discussed by Kevin. The decline in adjusted EBITDA margin was mainly caused by increased internet marketing costs. Finally, let's discuss the revised guidance for fiscal 2026.

Michael Witzeman: Roto-Rooter's gross margin of 51% was in line with our expectations. As discussed by Kevin, the decline in adjusted EBITDA margin was mainly caused by increased internet marketing costs. Finally, let's discuss the revised guidance for fiscal 2026. Historically, we do not give quarterly updates to guidance. Due to the materially improved performance of VITAS, coupled with the level of share repurchases in Q1 2026, we believe updating guidance is appropriate in this instance. As a result of the better-than-anticipated Q1 for VITAS, we have increased projections for the remainder of 2026. Full year ADC growth for 2026 is updated to a range of 4.5% to 5.5%, compared to the original guidance of 3.5% to 4%. Anticipated revenue growth, excluding the impact of the Medicare cap, improves from the original guidance of 5.5% to 6.5% to a revised range of 6.5% to 7.5%.

Speaker #1: Historically , we do not give quarterly updates to guidance due to the materially improved performance of Vitas , coupled with the level of share repurchases in the first quarter of 2026 .

Speaker #1: We believe updating guidance is appropriate in this instance . As a result of the better than anticipated first quarter for Vitas . We have increased projections for the remainder of 26 full year ADC growth for 2026 is updated to a range of 4.5% to five , and a half percent compared to the original guidance of three and a half to 4% .

Speaker #1: Anticipated revenue growth excluding the impact of the Medicare cap , improves from the original guidance of five and a half to 6.5% to a revised range of six and a half to 7.5% .

Speaker #1: Finally, revised EBITDA margin, excluding the impact of the Medicare cap, is anticipated to be 18% to 18.5% compared to the original guidance of 17.5% to 18.5%.

Michael Witzeman: Finally, revised EBITDA margin, excluding the impact of the Medicare cap, is anticipated to be 18% to 18.5%, compared to the original guidance of 17.5% to 18.5%. When factoring all the gives and takes within the expected Roto-Rooter performance for the remainder of fiscal 2026, anticipated revenue growth remains unchanged at 3% to 3.5%. Estimated adjusted EBITDA margin is lowered slightly to 21.5% to 22.5%, compared to the original guidance of 22.5% to 23%. This is primarily due to elevated marketing costs now expected to persist above our original guidance for the remainder of the year. Based on the above, full year 2026 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 $24 to $24.75.

Speaker #1: When factoring all the gives and takes within the expected Roto-Rooter performance for the remainder of fiscal 2026, anticipated revenue growth remains unchanged at 3% to 3.5%.

Speaker #1: Estimated adjusted EBITDA margin is lowered slightly to 21.5 to 22.5% , compared to the original guidance of 22.5 to 23% . This is primarily due to elevated marketing costs .

Speaker #1: Now expected to persist above our original guidance . For the remainder of the year Based on the above , full year 2026 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 .

Speaker #1: Is estimated to be in the range of $24 to $24.75 . The midpoint of the revised guidance represents a 13% increase from 2025 .

Michael Witzeman: The midpoint of the revised guidance represents a 13% increase from 2025 adjusted earnings per diluted share of $21.55. The revised 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.6 million shares. The original 2026 guidance was for adjusted earnings per diluted share to be between $23.25 and $24.25. I will now turn the call over to Joel.

Speaker #1: Adjusted earnings per diluted share of $21.55 . The revised 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.6 million shares , the original 2026 guidance was for adjusted earnings per diluted share to be between $23.25 and $24.25 .

Speaker #1: I will now turn the call over to Joel.

Speaker #2: Thanks, Mike. In the first quarter of 2026, our average daily census was 22,723, an increase of 2.2% in the quarter. Hospital-directed admissions increased 13.6%.

Joel Wherley: Thanks, Mike. In Q1 2026, our average daily census was 22,723, an increase of 2.2%. In the quarter, hospital-directed admissions increased 13.6%, home-based patient admissions increased 0.2%, assisted living facility admissions increased 2.9%, and nursing home admissions declined 5.4% when compared to the prior year period. The continued high level of hospital admissions allows us to quickly transition in the quarter and start emphasizing admissions from other pre-admission locations that generate a longer length of stay patient. This resulted in ADC growth that was ahead of the original projections. We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. Our average length of stay in the quarter was 102.7 days. This compares to 118.7 days in Q1 2025.

Speaker #2: Home based patient admissions increased 0.2% . Assisted living facility admissions increased 2.9% , and nursing home admissions declined 5.4 . When compared to the prior year period .

Speaker #2: The continued high level of hospital admissions allows us to . Quickly transition in the quarter and start emphasizing admissions from other pre-admission locations that generate a longer length of stay patient This resulted in ADC growth that was ahead of the original projections .

Speaker #2: We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. Our average length of stay in the quarter was 102.7 days.

Speaker #2: This compares to 118.7 days in the first quarter of 2025. Our median length of stay was 15 days in the first quarter of 2026, a decline of one day from the first quarter of 2025.

Joel Wherley: Our median length of stay was 15 days in Q1 2026, a decline of one day from Q1 2025. The new starts in Florida continue to grow at a very rapid pace. Marion, Pasco, and Pinellas Counties combined had 526 admissions in Q1 2026, exceeding our expectations. ADC for each new start continues to exceed our expectations, and we anticipate opening Manatee County in late Q2 or early Q3. We intend to aggressively grow Manatee as we have in our other three new starts. I believe the opportunity for growth at VITAS has never been better. We have put the difficulties of the 2025 cap circumstance behind us. We are looking forward to continue executing our strategies for the remainder of 2026 and beyond.

Speaker #2: The new starts in Florida continue to grow at a very rapid pace. Marion, Pasco, and Pinellas counties combined had 526 admissions in the first quarter of 2026, exceeding our expectations. ADC for each new start continues to exceed our expectations, and we anticipate opening Manatee County in late second quarter or early third quarter.

Speaker #2: We intend to aggressively grow Manatee as we have in our other three new starts I believe the opportunity for growth at Vitas has never been better .

Speaker #2: We have put the difficulties of the 2025 cap circumstance behind us. We are looking forward to continuing to execute our strategies for the remainder of 2026 and beyond.

Speaker #2: That will translate into high sustainable growth . While providing the best possible care to our patients and families . And with that , I'll turn the call back to Kevin .

Joel Wherley: That will translate into high, sustainable growth while providing the best possible care to our patients and families. With that, I'll turn the call back to Kevin.

Speaker #3: Thank you, Joel. I will now open this teleconference to questions.

Kevin McNamara: Thank you, Joel. I will now open this teleconference to questions.

Speaker #4: Thank you . As a reminder to ask a question , you will need to press star one one on your telephone and wait for your name to be announced .

Operator: Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment for our first question. The first question comes from the line of Brian Tanquilut from Jefferies. Your line is open.

Speaker #4: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment for our first question. The first question comes from the line of Brian Tanquilut from Jefferies.

Speaker #4: Your line is open

Speaker #5: Good morning . This is Megan Houlton from Brian Tanquilut . Congrats on the quarter , guys . And and the guidance raised for the year First on the Vita side , margins looked good in the quarter .

Megan Holton: Good morning. This is Megan Holton for Brian Tanquilut. Congrats on the quarter guys and the guidance raise for the year. First, on the VITAS side, margins looked good in the quarter. How much of that was headcount reduction that contributed to it? Since you're raising the ADC guidance, do you expect to expand labor capacity to support their growth for the remainder of the year? Just lastly, on the VITAS side, speak to any fraud enforcement you're seeing in Southern California given the CMS scrutiny.

Megan Holtz: Good morning. This is Megan Holtz for Brian Tanquilut. Congrats on the quarter guys and the guidance raise for the year. First, on the VITAS side, margins looked good in the quarter. How much of that was headcount reduction that contributed to it? Since you're raising the ADC guidance, do you expect to expand labor capacity to support their growth for the remainder of the year? Just lastly, on the VITAS side, speak to any fraud enforcement you're seeing in Southern California given the CMS scrutiny.

Speaker #5: How much of that was headcount reduction that contributed to it? And then, since you're raising the ADC guidance, do you expect to expand labor capacity to support their growth for the remainder of the year?

Speaker #5: And then just lastly, on the Vita side, speak to any fraud enforcement you're seeing in Southern California, given the CMS scrutiny.

Speaker #1: I can start with the margin discussion, Megan, and then I'll let Joel talk about the fraud stuff. But we averaged roughly 100 FTEs below our budget in the quarter.

Michael Witzeman: I can start with the margin discussion, Megan, and then I'll let Joel talk about the fraud stuff. We averaged roughly 100 FTEs below our budget in the quarter. We were able to efficiently serve the increased ADC at that level. I think to your point, that's not something that we view as something sustainable for the rest of the year. I think our original budget was adding 30 to 40 FTEs a month. We've increased that to closer to 60 per month for the remainder of the year. We feel very good that if we add those 60, we can achieve the level of ADC growth we have currently budgeted, and maybe a little better than that. Joel, fraud stuff.

Speaker #1: We were able to , you know , efficiently serve the increased ADC with at that level . But I think to your point , that's not something that we view as something sustainable for the rest of the year .

Speaker #1: We intend to—I think our original budget was adding 30 to 40 FTEs a month. We've increased that to closer to 60 per month for the remainder of the year.

Speaker #1: So we feel very good that if we add those 60 , we can achieve the level of ADC growth . We have currently budgeted , and maybe a little better than that Joel .

Speaker #1: Fraud stuff .

Speaker #2: Yeah . So we certainly are very sensitive to the national campaign to root out fraud , waste and abuse within the health care system Certainly the hospice Concerns in in California have been very public There were just Senate or congressional hearings on Tuesday speaking specific to it .

Joel Wherley: Yeah. We certainly are very sensitive to the national campaign to root out fraud, waste, and abuse within the healthcare system. Certainly, the hospice concerns in California have been very public. There were just congressional hearings on Tuesday speaking specific to it. We are very supportive of the efforts. However, we also want to avoid direct implications associated with the fraudsters, and ensure that that does not limit access for patients in need in those counties, not only in California, but across the United States, for legitimate providers to impact the quality of that patient and their loved one's final journey.

Speaker #2: We are very supportive of the efforts. However, we also want to avoid direct implications associated with the fraudsters and ensure that that does not limit access for patients in need in those counties, not only in California but across the United States, for legitimate providers to impact the quality of that patient and their loved ones' final journey.

Speaker #5: Got it . Thank you . And then on the Roto-Rooter side , it looked like you guys had some additional marketing expense in the quarter .

Megan Holton: Got it. Thank you. Then on the Roto-Rooter side, it looked like you guys had some additional marketing expense in the quarter. Is that now the right run rate going forward? You started seeing some pressure on the customers this time last year, given the macro backdrop, and we're facing a similar headwind in terms of the economy right now and whatnot. Are you seeing that similar trends as we're a month into Q2 now?

Megan Holtz: Got it. Thank you. Then on the Roto-Rooter side, it looked like you guys had some additional marketing expense in the quarter. Is that now the right run rate going forward? You started seeing some pressure on the customers this time last year, given the macro backdrop, and we're facing a similar headwind in terms of the economy right now and whatnot. Are you seeing that similar trends as we're a month into Q2 now?

Speaker #5: Is that now the right run rate going forward ? And you started seeing some pressure on the customers this time last year , given the macro backdrop .

Speaker #5: And we're facing a similar headwind in terms of the economy right now, and whatnot. So are you seeing similar trends as we're a month into Q2 now?

Speaker #3: Well , let me just start with on the marketing costs . You know , marketing costs , you know , proxy for Google costs .

Kevin McNamara: Well, let me just start with that on the marketing costs. Marketing costs, it's proxy for Google costs. As we indicated, our leads were up 3%. However, to get that 3%, we had to battle with the fact that due to changes in the Google algorithm, our leads from the natural or free side of the search spectrum were down almost 16%. Okay? Those were down 16%. Nothing Roto-Rooter could do. We expect that to basically continue. We have several efforts afoot to increase our visibility on the natural side. In the short term, it's going to be something approaching that. We hope to improve our position, but through the models, I would say that we expect to see some tough sledding on the natural side of the search with Google.

Speaker #3: And , you know , as , as we indicated , I mean , our leads were up 3% . However , you know , I mean , to get that 3% , we had to battle with the fact that due to changes in the in the Google algorithm , our leads from the natural or free side of the search spectrum were down Almost 16% .

Speaker #3: Okay . So those were down 16% . Nothing . Nothing . Rollover could do . We expect that to basically continue . We have several efforts , you know , afoot to increase our visibility .

Speaker #3: You know , on the natural side . But I mean , in the short term , it's going to be something approaching that we hope to , you know , improve our position .

Speaker #3: But for your models, I would say that that's kind of what we expect—to see some tough sledding on the natural side of the search with Google.

Speaker #3: And , you know , the positive side , without increasing the amount we bid , you know , in the various domains , we've been getting a lot more clicks .

Kevin McNamara: On the positive side, without increasing the amount we bid in the various domains, we've been getting a lot more clicks. Our clicks on the paid side went up over 18%. I guess what I'm saying is, in order to keep our business where it is and basically our sales where we budgeted, we've got to pay for more of the leads, and that means more marketing costs and kind of inexorable in the short and midterm. To answer your question, yes, we expect that to continue.

Speaker #3: I mean , our our clicks on the on the paid side , you know , went up . 80/18 percent , you know , so I guess what I'm saying is in order to keep our business where it is and , you know , basically our sales where we budgeted , we've got to pay for more of the leads .

Speaker #3: And that means more marketing costs and kind of inexorable in the , in the short and mid-term . And so to answer your question , yes , we expect that to continue .

Speaker #1: Yeah . Megan from a from a specific number standpoint , I can walk you through it a little bit , but we were from a year over year comparison , $3 million above last year in marketing costs .

Michael Witzeman: Yeah, Megan, from a specific number standpoint, I can walk you through it a little bit. We were from a year-over-year comparison, $3 million above last year in marketing costs. We had budgeted or guided. Included in the guidance was an increase of $1 million. We basically spent about $2 million in the quarter, higher than what we had budgeted. Of that, we think that roughly $1 million of it was related to some of the weather things we talked about. When we couldn't get on the road, we were still getting calls, probably at a much higher volume than we would, as we've talked about. That kind of weather is good for us, but we couldn't serve it. We were paying for calls that ultimately we couldn't serve.

Speaker #1: We had budgeted our guided . Included in the guidance was an increase of a million . So we basically spent about $1 million , $2 million in the quarter , higher than what we had budgeted .

Speaker #1: Of that , we think that roughly 1 million of it was related to some of the weather things we talked about . We were , when we couldn't get on the road , we were still getting calls .

Speaker #1: You know, probably at a much higher volume than we would, as we've talked about. Weather is good; that kind of weather is good for us.

Speaker #1: But we couldn't serve it . And so we were paying for calls that ultimately we couldn't serve . We expect . We thought that was probably about $1 million additional expense .

Michael Witzeman: We thought that was probably about $1 million additional expense that shouldn't be really considered in the run rate. All in all, we spent about, on a run rate basis, we spent about $1 million more in the quarter than we anticipated, and the entire change in the EBITDA margin in the guidance is us adding $1 million per quarter of marketing costs for the next three quarters.

Speaker #1: That shouldn't be really considered in the run rate . So all in all , we spent about on a run rate basis . We spent about $1 million more in the quarter than we anticipated .

Speaker #1: And the entire change in the EBITDA margin in the guidance is us adding $1 million per quarter of marketing costs for the next three quarters .

Speaker #5: Thanks. And then just any trends you can speak to so far in Q2?

Megan Holton: Thanks. Just any trends you can speak to so far in Q2.

Megan Holtz: Thanks. Just any trends you can speak to so far in Q2.

Speaker #1: It's real early in Q2 . I think things continue to to progress the way we expect them to

Michael Witzeman: It's real early in Q2. I think things continue to progress the way we expect them to.

Speaker #5: Got it. Thank you, guys.

Megan Holton: Got it. Thank you, guys.

Megan Holtz: Got it. Thank you, guys.

Speaker #1: Thanks , Megan

Michael Witzeman: Thanks, Megan.

Speaker #4: Thank you. One moment for our next question. The next question comes from the line of Joanna Gajek from Bank of America. Your line is open.

Operator: Thank you. One moment for our next question. Next question will come from the line of Joanna Gajuk from Bank of America. Your line is open.

Speaker #6: Oh , hi . Good morning . Thanks so much for taking the question . So maybe first on the broader business So you just talk about the marketing and the weather disruption .

Joanna Gajuk: Oh, hi. Good morning. Thanks so much for taking the question. Maybe first on the broader Roto-Rooter business. Clay, you just talked about the marketing cost higher and the weather disruption. I guess I want to tie the quarter to the full year outlook. Now the full year outlook includes, call it $5 million from these two franchises that you acquired. There's some EBITDA contribution in there too. I guess you still expect the same revenue growth. Was there some sort of bad guy that offsets the good guy, so to speak, in the guidance that you can walk us through?

Speaker #6: And I guess I want to tie the quarter to the to the full year outlook . So now the full year outlook looks includes 5 million from these two franchises that you acquired .

Speaker #6: So there's some IRA contribution in there too . And I guess you still expect the you know , the same revenue growth . So , you know , was there some sort of bad guy , you know , that after the good guy , so to speak , in the guidance that you can walk us through

Speaker #1: Yeah . So what I mean , what we talked about , Joanna , was that there are within the , the guidance and with even in the first quarter , there are some there are some positives , but there's also continued headwinds .

Michael Witzeman: Yeah. What we talked about, Joanna, was that there are, within the guidance and what's even in the Q1, there are some positives, but there's also continued headwinds. The contractor operations still perform slightly below our expectations. The water restoration revenue, particularly on a price per job, is still a little bit below our expectations. Those gives and takes sort of offset the acquisition revenue we anticipated. Revenue stays in line with where we thought it would be at the beginning of the year, just maybe the underlying components might be slightly different than what we anticipated, but ultimately, the revenue continues to grow as we expected.

Speaker #1: The contractor operations still perform slightly below our expectations . The water restoration revenue , particularly on a price or cost price per job , is still below a little bit below our expectations .

Speaker #1: So, those gives and takes sort of offset the acquisition revenue we anticipated. But revenue stays in line with where we thought it would be at the beginning of the year.

Speaker #1: Just maybe the underlying components might be slightly different than what we anticipated , but the ultimately the revenue continues to , to grow as we expected

Speaker #6: Thanks for that . And if I may . So on the collection rate . So did I hear right ? I guess maybe there was some improvement , but I guess you did not expecting .

Joanna Gajuk: Thanks for that. If I may, so on the collection rate, so, did I hear right? I guess maybe there was some improvement, but I guess you did not expect in Q2. I guess I just want to make sure, are you still expecting to improve collection by $4 to $6 million for the year?

Speaker #6: So I guess I just want to make sure you're still expecting to improve collection by a 4 to $6 million for the year

Speaker #1: Yeah , we were slightly better than that than our expectations in the first quarter . Having said that , part of that obviously comes from the idea that we're billing less per job .

Michael Witzeman: Yeah, we were slightly better than that, our expectations in Q1. Having said that, part of that obviously comes from the idea that we're billing less per job. We anticipate both of those things improving as we finalize the centralization and those centralized employees get more experience, and we can bring up the revenue per job while still maintaining a higher collection rate.

Speaker #1: So we anticipate both of those things improving as we finalize the centralization and those centralized employees get more experience and we can bring up the revenue per job while still maintaining a higher collection rate .

Speaker #6: Okay , that makes sense . And would this acquisitions , like you mentioned , they usually just come with somewhat lower margins , obviously accretive to making money .

Joanna Gajuk: All right. That makes sense. With these acquisitions, like you mentioned, they usually just come with somewhat lower margins. Obviously, Accretive is still making money, right? The goal is still to improve over time. Do you anticipate doing more of these this year? Are there some maybe other assets you would consider acquiring for that business?

Speaker #6: Right . And the goal is to , to improve over time . Do you anticipate doing more of these this year ? And are there some maybe other assets you would consider , you know , acquiring for that business

Speaker #3: Well , I would just say , Joanna , that , you know , it's hard . It's hard to say . But yes , I would given the operating environment out there , we've noted that there are a number of franchise holders that have held the franchise for a couple generations , and they're they're saying , boy , this is tough .

Michael Witzeman: Well, I would just say, Joanna, that it's hard to say, but yes, given the operating environment out there, we've noted that there are a number of franchise holders that held the franchise for a couple of generations, and they're saying, Boy, this is tough. Maybe I will consider selling to you. We're considering a number of possibilities. I would say that the two that we mentioned this quarter, San Francisco and Fort Worth, are kind of unusual. They're real plums. The ones that are generally available tend to be groups of smaller franchisees that are very likely going to be participants in our independent contractor portfolio. Yeah, there's no question we anticipate continuing to add additional locations for Roto-Rooter. It's a good acquisition environment for us at this time.

Kevin McNamara: Well, I would just say, Joanna, that it's hard to say, but yes, given the operating environment out there, we've noted that there are a number of franchise holders that held the franchise for a couple of generations, and they're saying, Boy, this is tough. Maybe I will consider selling to you. We're considering a number of possibilities. I would say that the two that we mentioned this quarter, San Francisco and Fort Worth, are kind of unusual. They're real plums. The ones that are generally available tend to be groups of smaller franchisees that are very likely going to be participants in our independent contractor portfolio. Yeah, there's no question we anticipate continuing to add additional locations for Roto-Rooter. It's a good acquisition environment for us at this time.

Speaker #3: Maybe I will consider selling to you . And we're considering a number of possibilities . I would say that the two that we mentioned this quarter , San Francisco and Fort Worth are kind of , you know , unusual .

Speaker #3: They're real plums . I mean , the ones that are generally available tend to be groups of smaller franchisees that are very likely going to be participants in our independent contractor portfolio .

Speaker #3: But yeah , there's no question we anticipate continuing to add additional locations for Roto-Rooter . It's it's a good acquisition environment for us in this , you know , at this time

Speaker #6: And I guess, any progress—you mentioned you're making some traction with Google, Argos, and stuff. And I guess you had this new SEO partner.

Joanna Gajuk: I guess any progress, you mentioned, you're making some traction with Google ads and stuff, and I guess you had this new SEO partner, so can you give us an update there?

Speaker #6: So can you give us an update there ?

Speaker #3: Well , well , I hate to get too far in the weeds , but let me just say this . We immediately saw an improvement in what we call visibility .

Michael Witzeman: Well, I hate to get too far off the weed, but let me just say this. We immediately saw an improvement in what we call visibility. By visibility, the best way to do that is you look at how often you appear in the map section. That's where you get the natural, it's the biggest driver of the natural leads or free leads. As we indicated previously, at the end of 2024, we were appearing nationwide 72% of the time. Halfway through Q1 of last year, we dropped like a rock to the mid- to low-20% of the time showing up on those maps.

Kevin McNamara: Well, I hate to get too far off the weed, but let me just say this. We immediately saw an improvement in what we call visibility. By visibility, the best way to do that is you look at how often you appear in the map section. That's where you get the natural, it's the biggest driver of the natural leads or free leads. As we indicated previously, at the end of 2024, we were appearing nationwide 72% of the time. Halfway through Q1 of last year, we dropped like a rock to the mid- to low-20% of the time showing up on those maps.

Speaker #3: And by visibility , the best way to do that is you look at how often you appear in the map section . That's where that's part of the that's where you get the natural .

Speaker #3: Its biggest driver of the natural leads or free leads . And , you know , as we indicated previously , you know , at the end of 2024 , we were appearing nationwide , 72% of the time .

Speaker #3: And halfway through the first quarter of last year , we dropped like a rock to the mid to low 20% of the time .

Speaker #3: Showing up on that on those maps . What we saw in the first quarter of this year was , you know , working with our outside contractor and improvement , you know , basically a ten percentage point improvement in our visibility .

Kevin McNamara: What we saw in Q1 of this year was, working with our outside contractor, an improvement. Basically, a 10 percentage point improvement in our visibility. In March, we saw a change in the algorithm again, which knocked us back a bit as far as visibility. Again, working, doing their magic, we've been able to improve that almost back to the previous run rate of earlier this year. It's a constant battle, Joanna, but yes, we're looking for, certainly, to stabilize the percentage of leads we get that are free. As I indicated, we are winning the battle in a major way on the paid search. We are getting substantially more leads without increasing the amount we're offering per lead. The private equity firms that have come and kind of upended the Google market for leads, I don't know if they're pulling back.

Speaker #3: And then in March , we saw a change in the algorithm again , which , you know , knocked us back a bit as far as visibility and again , working , you know , doing their magic , we've been able to , you know , improve that almost back to the previous run rate of , you know , earlier this year .

Speaker #3: So it's a constant battle . Joanna . But yes , we're looking for , you know , certainly to stabilize the percentage of leads we get that are , you know , that are free .

Speaker #3: I mean , as I indicated , I mean , we are winning the battle in a major way on the paid search . I mean , we are getting substantially more leads without increasing the amount we're offering , you know , per lead .

Speaker #3: So the , the , the private equity firms that have come and kind of upended the Google market for leads , I don't know if they're pulling back .

Speaker #3: I don't know if they're not quite as scientific as we have become . As far as , you know , our bidding process .

Kevin McNamara: I don't know if they're not quite as scientific as we have become as far as our bidding process, but that's a real success story. The only problem is if you're comparing it to a prior period where you were paying nothing for the lead, it's a tough comparison. In any event, Joanna, it's a constant battle. Do we anticipate improving on our position? No question about it. Now, if you said, will Google change their algorithm again? They tend to do it in a significant way once a year. Maybe we're past that at this point, but we'll see.

Speaker #3: But that's a real success story. The only problem is if you're comparing it to a prior period where you were paying nothing for the lead, you know, it's a tough comparison.

Speaker #3: But in any event , the , you know , it's a constant battle . Do we anticipate improving on our position ? No question about it .

Speaker #3: Now , if you said , you you will Google change their algorithm again , they tend to do it in a significant way .

Speaker #3: Once a year . So , I mean , I don't maybe we're past that at this point , but we'll see .

Speaker #6: Okay. Thank you for that. And switching to Vytas then, just want to make sure because we're hearing from other companies calling out the weather disruption in healthcare services.

Joanna Gajuk: Okay. Thank you for that. Switching to VITAS then. Just want to make sure, because we hear other companies calling out the weather disruption in hospice services. Sounds like it wasn't material because you guys didn't call it out in the hospice business.

Speaker #6: So it sounds like it wasn't material because you guys didn't call it out in the hospice business.

Speaker #1: We get we get paid on a per day basis . Joanna . So , so , you know , we don't do fee for service .

Michael Witzeman: We get paid on a per day basis, Joanna. We don't do fee for service. There could be a disruption in a location where we can't get to patients for a day, but that doesn't really impact our revenue.

Speaker #1: So there could be a disruption in a location where we can't get to patients for a day, but that doesn't really impact our revenue.

Speaker #3: It might affect admissions , you know , but not not if it's disruption . It's a day or two .

Kevin McNamara: It might affect admissions, but not if a disruption is just a day or two.

Speaker #2: On a specific day . That is correct . So no , Joanna , to answer your question , we did not have any weather disruption in our business model .

Joel Wherley: On a specific day.

Joel Wherley: On a specific day. That is correct. No, Joanna, to answer your question, we did not have any weather disruption in our business model.

Kevin McNamara: Yes.

Joel Wherley: That is correct. No, Joanna, to answer your question, we did not have any weather disruption in our business model.

Speaker #6: Okay , perfect . I just want to confirm , but yeah , that's outperformed . So things are going pretty , pretty good there .

Joanna Gajuk: Okay, perfect. I just want confirmation. Yeah, that segment outperformed, so things are going pretty good there. Thanks for the update on the Florida, I guess, cushion. That increased. Now we've got the proposal for 2027 year, right? The rate increase is going to increase and the cut's going to increase, call it 2.4%. I know you don't have all the details yet, but any indication on your kind of initial estimate in terms of the proposed increase in Florida versus the cut for 2027?

Speaker #6: And thanks for the update on the Florida . I guess , cushion . So that increase . So now we got the proposal for 27 years .

Speaker #6: Right . And the rate of that is going to increase in the cup's going to increase 2.4% . And I know you don't have all the details yet , but any indication on your kind of initial estimate in terms of the , you know , proposed , you know , increase in Florida versus the cup for 27 ,

Speaker #1: At a very high level , very high level . We think that the the revenue , the rate increase might be slightly lower in Florida than the national average , but we're still , you know , we're still crunching the numbers and we don't have the details .

Michael Witzeman: At a very high level, we think that the rate increase might be slightly lower in Florida than the national average. We're still crunching the numbers and we don't have the details. They don't come out until sometime in the summer.

Speaker #1: They don't come out until sometime in the summer .

Speaker #2: Yeah. Keeping in mind that this is the proposed wage rule, we're still in the comment period. And a final wage rule typically is not put into place until the late part of the third quarter.

Joel Wherley: Yeah. Keeping in mind, that is the proposed wage rule. We're still in the comment period, and a final wage rule typically is not put into place until the late part of Q3.

Speaker #6: Right . So that's when we we will find out . But as of now , there are no indication there's some outside dynamic that you experience .

Joanna Gajuk: Right. No, exactly. That's when we will find out. As of now, there's no indication there's some outside dynamic that you experienced, I guess, last year, with that increase being high in Florida than overall. Sounds like maybe that's the opposite. That should be manageable there. There was a couple of other items in that proposal, including this new scoring system, the index SSVI. When we look at some of the data that was posted by CMS, VITAS was actually screening above average, but seems like there was one of these measures that was penalizing the large providers because it was essentially capturing just the total number, not per patient. Any thoughts about any of these efforts or anything that was discussed by CMS in that proposal? How could that impact your operations?

Speaker #6: You know, I guess last year with that increase being high in Florida, then overall it sounds like maybe that's the opposite. So that should be manageable there.

Speaker #6: And there was a couple of other items in that proposal , including this new scoring system . The index , SVI . So when we look at some of the data that was posted by CMS , Vitas was actually screening above average , but seems like there one of these measures there was like penalizing the larger providers because it was essentially , you know , capturing just the total number , not per patient .

Speaker #6: So, any thoughts about any of these efforts or anything that was discussed by CMS in that proposal? Or how could that impact, you know, your operations?

Speaker #2: Yeah , thanks , Joanna . And as I said previously , we are very supportive of the efforts to eliminate any waste , fraud and abuse from the hospice environment .

Joel Wherley: Yeah. Thanks, Joanna. As I said previously, we are very supportive of the efforts to eliminate any waste, fraud, and abuse from the hospice environment. You have to keep in mind, over 50% of patients needing hospice don't have access or receive that end-of-life care today. We want to ensure any efforts to weed out fraudsters, which again, we are very supportive of, don't in any way impact legitimate providers to be able to provide care to those in need. Now, specific to your question about the proposed potential additional scrutiny that is listed in the wage rule. We're continuing to evaluate what the potential impact that might be on VITAS.

Speaker #2: But you have to keep in mind, over 50% of patients needing hospice don't have access to or receive that end-of-life care today.

Speaker #2: So we want to ensure any efforts to weed out fraudsters , which again , we are very supportive of , don't in any way impact legitimate providers to be able to provide care to those in need .

Speaker #2: Now , specific to your question about the proposed potential additional scrutiny that is listed in the wage rule , we're continuing to evaluate what the potential impact that might be on Vitas , but again , I'll go back to this is in the comment period , and we will be providing comments to ensure that we have communicated our guidance to ensure that that scoring and that oversight is aligned with what legitimate providers want to be evaluated on on a day to day basis across the country .

Joel Wherley: Again, I'll go back to this is in the comment period, and we will be providing comments to ensure that we have communicated our guidance to ensure that that scoring and that oversight is aligned with what legitimate providers would it be evaluated on a day-to-day basis across the country. Weed out the fraud, focus on improved quality and access for those in need.

Speaker #2: And so we doubt the fraud, focus on improved quality and access for those in need.

Speaker #3: And Joanna , just to give you just very generally speaking , when we hear about , you know , fraud in the hospice and whatnot , especially with a focus on California , you have to remember they're in two buildings in Los Angeles County .

Kevin McNamara: Joanna, just very generally speaking, when we hear about fraud in the hospice and whatnot, especially with a focus on California, you have to remember, in two buildings in Los Angeles County, there are more hospices located in those two buildings than there are in the whole state of Florida. The fraud that we're talking about, it's real fraud. That is, almost fake business, mailbox offices for hospices, no real patients, no real care. Totally different situation from what historically has been, quote, fraud in the hospice field, which tends to be highly specialized arguments between doctors, whether a six-month terminal prognosis is indicated or not. It's of a different magnitude. Again, we'll continue to watch it. We don't want to be a dolphin swept into a tuna net accidentally. As Joel says, we're watching it very carefully.

Speaker #3: There are more hospices located in those two buildings than there are in the whole state of Florida . I mean , the fraud that we're talking about is it's it's real fraud .

Speaker #3: That is almost fake business . You know , you know , mailbox , you know , offices for hospices . No real patients , no real care , totally different situation from what historically has been , you know , quote , fraud in the hospice field , which tends to be highly specialized arguments between doctors , whether a prognosis , whether a six month terminal prognosis is , you know , indicated or not .

Speaker #3: I mean , it's a it's a different magnitude . But again , we continue to watch it . We don't want to be swept .

Speaker #3: We don't want to be , you know , a dolphin swept into a tuna net , you know , in the accidentally . But so , as Joel said , we're watching it very carefully .

Speaker #6: So should I . We just ask you don't think like this new scoring system that they propose is going to be finalized . Because , you know , there were some other things that they CMS proposed , but they never really enforced it because they couldn't really figure out how they're going to measure things .

Joanna Gajuk: Should I read this as, you don't think like this new scoring system that they proposed is going to be final? Because there were some other things that the CMS proposed, but they never really enforced it because they couldn't really figure out how they're going to measure things. Is it a similar situation with this particular one?

Speaker #6: So is it a similar situation with this, this particular one?

Speaker #2: Yeah, we want to make sure that the criteria and the algorithms used to evaluate the scoring with SVI make sense and are accurate.

Joel Wherley: Yeah. We want to make sure that the criteria, the algorithms used to evaluate the scoring with SSVI makes sense, and is accurate, and does not include data that has been infiltrated by fraudulent claims processing from these providers. They've got to be able to filter all of that out and focus on legitimate providers and the measurement of the care and services provided from those.

Speaker #2: And does not include data that has been infiltrated by fraudulent claims processing from these providers. They've got to be able to filter all of that out.

Speaker #2: And focus on legitimate providers, and the measurement of the care and services provided from those.

Speaker #6: And to that end , when you mentioned making sure that these are legitimate providers , but the other effort right out there . So doctor , Otto , one of these meetings talk about these efforts .

Joanna Gajuk: To that end, when you mentioned making sure that these are legitimate providers, the other effort right out there, so, also in one of these meetings, they talk about these efforts they want to put in place where states would have to revalidate all providers within 30 days. Have you seen any of this starting? I don't know if that, I assume that meant things like hospice in California, but yeah, have you seen anything in your operations where the states are starting to do that?

Speaker #6: They want to put in place where states would have to revalidate or providers within 30 days . Have you seen any of the starting .

Speaker #6: And I don't know if that that I assume that meant things like , hospice in California , but have you seen anything in your operations where there's states are starting to do that ?

Speaker #2: We have not seen it to that level. There is in place a higher degree of evaluation on new locations and the review of their claims on a regular basis to ensure that these new providers are legitimate and providing actual care.

Joel Wherley: We have not seen it to that level. There is in place a higher degree of evaluation on new locations, and the review of their claims on a regular basis to ensure that these new providers are legitimate in providing actual care. Again, if you think about where the focus has been in LA County, the expansion from 400-plus providers to nearly 1,500 providers in LA County alone. Those companies received licenses. We are very supportive of an improved surveying environment to ensure that they're legitimate and that their patients are legitimate.

Speaker #2: I mean , again , if you think about where the focus has been in L.A. County , the expansion from 400 plus providers to nearly 1500 providers in L.A.

Speaker #2: County alone, those individuals, those companies received licenses, and we are very supportive of an improved surveying environment to ensure that they're legitimate and that their patients are legitimate.

Kevin McNamara: Joanna, let me-

Speaker #3: Joanne, thanks so much. One reason.

Kevin McNamara: Joanna, let me-

Joanna Gajuk: Thanks so much for

Kevin McNamara: One reason.

Speaker #6: Yeah, sure. Go ahead.

Joanna Gajuk: Yeah, sure, go ahead.

Speaker #3: One reason Joel's a little perturbed on this is We we attempted to get a license in San Francisco . It took us about six years dealing with this , you know , a number of surveys , you know , kind of , you know , kind of that where people didn't understand what hospice was .

Kevin McNamara: One reason Joel's a little perturbed on this is, we attempted to get a license in San Francisco. It took us about six years dealing with a number of surveys, where people didn't understand what hospice was. We got it through. We got it after six years. Joel's sitting here saying, "How could 1,100 fake hospices get a license in 18 months, whereas it took us six years with a legitimate." That's the kind of stuff that's hard to explain. Now, it's different. A state issues a license, not the federal government, so you're talking about different silos. Still, they got to coordinate their activities.

Speaker #3: But we got it through . We got it , we got it . After six years , Joel's sitting here saying , how could , how could 100 fake hospices get a license ?

Speaker #3: You know , in 18 months , you know , whereas it took us six years with legitimate . I mean , that's the that's the kind of stuff that's hard to explain .

Speaker #3: Now . It's different . A state issues a license , you know , not the federal government . So you're talking about , you know , different silos , but still , you know , they got to coordinate their activities .

Speaker #3: But I guess what I'm saying is if you put any type of scrutiny on the type of scrutiny we're used to on licensing , if they put anywhere a percentage of that , a small percentage of that , it would knock out about 95% of these fake hospices

Kevin McNamara: I guess what I'm saying is, if you put any type of scrutiny on the type of scrutiny we're used to on licensing, if they put anywhere a percentage of that, a small percentage of that, it would knock out about 95% of these fake hospices.

Speaker #6: Right. Exactly. All right. Thank you so much for the additional color and for taking the questions.

Joanna Gajuk: Right. Exactly. All right. Thank you so much for additional clarification and for taking the question.

Speaker #1: Thanks , Joanna .

Kevin McNamara: Thanks, Joanna.

Speaker #4: Thank you . Okay , that start for questions . Star one one . Our next question comes from Michael Murray from RBC Capital Markets .

Operator: Thank you. Once again, that's star one one for questions. Star one one. Our next question comes from the line of Michael Murray from RBC Capital Markets. Your line is open.

Speaker #4: The line is open .

Speaker #7: Hey, thanks for taking my question for VITAS. I think you're probably seeing a higher mix of admissions from hospitals in your new Florida markets.

Michael Murray: Hey, thanks for taking my question. For VITAS, I think you're probably seeing a higher mix of admissions from hospitals in your new Florida markets. Just given your current cap situation in the state, how are you thinking about community-based admissions in these markets?

Speaker #7: Just given your current cap situation in the state, how are you thinking about community-based admissions in these markets?

Speaker #2: So thanks for the question . And as we have talked previously , we're managing the balance in those pre admitted environments . And we look at that on a daily basis specific to where we're focusing or where our resources are deployed .

Joel Wherley: Thanks for the question. As we have talked previously, we're managing the balance in those pre-admit environments, and we look at that on a daily basis, specific to where we're focusing or where our resources are deployed. We feel that our community-based initiatives are responsibly growing back from where we needed to be in H2 2025. We feel really good about the balance between hospitals as a pre-admit and all of our other or community-based type admissions.

Speaker #2: And we feel that our community-based initiatives are responsibly growing back from where we needed to be in the last half of 2025.

Speaker #2: So we feel really good about the balance between hospitals as a pre admit and all of our other or community based type admissions .

Speaker #2: .

Speaker #1: And Michael, keep in mind that, with the— you specifically mentioned the new starts. When we have a new start there, there is not, by definition, an existing base of long-stay patients.

Michael Witzeman: Michael, keep in mind that you specifically mentioned the new starts. When we have a new start there is not, by definition, an existing base of long-stay patients. Regardless of where in the new starts only, regardless of where the pre-admission location is, for some period of time, they're all short-stay patients because we don't have a base of existing long-stay patients.

Speaker #1: So regardless of where in the new starts , only regardless of where the Pre-admission location is for some period of time , they're all short .

Speaker #1: Stay patients because we don't have a base of existing long stay patients .

Speaker #3: Do they have legacy patients from passed from past government plan years .

Kevin McNamara: You have legacy patients from past government plan years.

Speaker #1: Right . So when you're talking specifically about the new starts , think of them all as short stay patients for at least a period of time , six months

Michael Witzeman: Right. When you're talking specifically about the new starts, think of them all as short-stay patients for at least a period of time.

Kevin McNamara: At least six months.

Speaker #7: Okay . And then , you know , these , these new markets are pretty sizable . How should we think about the volume opportunities longer term ?

Michael Murray: Okay. Then these new markets are pretty sizable. How should we think about the volume opportunity longer term? What's your typical market share in Florida, and how should we think about the rank markets?

Speaker #7: What's your typical market share in Florida, and how should we think about the markets?

Speaker #3: Well , I mean , again , if you look at , you , our historical market in in some of these markets where we're we're the original hospice , I mean , the numbers are staggering .

Kevin McNamara: Well, again, if you look at our historical market in some of these markets where we're the original hospice, the numbers are staggering. Joel, jump in here, but we're a dominant provider in almost any county that we have the license to operate in.

Speaker #3: Joel , jump , jump in here . But I mean , we're a dominant provider in almost , you know , any county that we have the license to operate in .

Speaker #2: We are . And we don't see a significant change in our outlook specific to our ability to grow into a market . And our last three new starts that we talked specifically about have demonstrated that .

Joel Wherley: We are. We don't see a significant change in our outlook specific to our ability to grow into a market. Our last three new starts that we talked specifically about have demonstrated that. We feel really good about the long-term outlook on our ability to continue effectively grow those markets as we have in the past.

Speaker #2: So, we feel really good about the long-term outlook on our ability to continue to effectively grow those markets, as we have in the past.

Speaker #7: All right. And then just one more on Roto-Rooter. So I just wanted to get a sense of what your current mix of paid leads versus organic leads is, and what are your expectations embedded in your guidance?

Michael Murray: All right. Just one more on Roto-Rooter. Just wanted to get a sense for your current mix of paid leads versus organic leads is, and what are your expectations embedded in your guidance?

Speaker #1: Paid leads are roughly 53 to 54% of our total leads at the moment . We we anticipate that mix to continue . We don't we have not anticipated a deterioration or a significant improvement .

Michael Witzeman: Paid leads are roughly 53% to 54% of our total leads at the moment. We anticipate that mix to continue. We have not anticipated a deterioration or a significant improvement. That's why, again, we took our guidance and added $3 million of additional marketing costs for the rest of the year. We haven't projected a significant deterioration in that from Q1.

Speaker #1: And that's why , again , we took our guidance and added , $3 million of additional marketing costs , marketing costs for the rest of the year .

Speaker #1: But we don't—we haven't projected a significant deterioration in that from the first quarter.

Speaker #3: I mean , it's hard , as I indicated , you know , it's a constant battle . We the first quarter , we had two months of improving visibility on maps and then a change in a change in March where we had a deterioration and then we go to April to fight the battle and improve our visibility .

Kevin McNamara: It's hard, as I indicated, it's a constant battle. In Q1, we had two months of improving visibility on maps, and then a change in March where we had a deterioration, and then we go to April to fight the battle and improve our visibility. Mike is just saying as far as a prognosticator, there's going to be some ins, there's going to be some outs. Our hope, of course, is that we have improvement there, but it remains to be seen. We've been through a period where you go back just less than three years, our percentage of leads from free sources were 55%, not 47%. That's an expensive, significant shift.

Speaker #3: So it's Mike is just saying , as far as a prognosticator , let's , you know , there's going to be some ends , there's going to be some outs .

Speaker #3: Our hope , of course , is that we have improvement there . But that remains to be seen . I mean , we've been through a period where , you know , you go back just just less than three years , you know , our percentage of leads from free sources were 55% .

Speaker #3: Not not 47% , you know , I mean , that's a , that's an expensive , significant shift . Now , having said that , you know , rover's been through something similar and that is , you know , when we when we went through the change from the importance of Yellow pages , where Yellow Pages was all and Roto-Rooter had a dominant position in virtually every directory to the internet .

Kevin McNamara: Now, having said that, Roto-Rooter's been through something similar, and that is when we went through the change from the importance of Yellow Pages, where Yellow Pages was all, and Roto-Rooter had a dominant position in virtually every directory to the internet. That was tough. Roto-Rooter had a tough marketing situation where we went from a dominant, the first two pages in almost every major metropolitan directory to just one of 50 listings on the natural side. It was tough, but Roto-Rooter developed into the dominant position nationwide on the internet side. Now the internet's changing. I have confidence that Roto-Rooter will be able to transition to the new normal better than our competitors. If you look at the growth we've had on the paid search side, that is as far as our 18%+ increase in leads on the paid search, I think that's a demonstration of that.

Speaker #3: That was tough . I mean , rotor had a tough marketing situation where we . You know , we went from a dominant .

Speaker #3: The first two pages in almost every major metropolitan directory to just one of 50 listings , you know , in on the natural side , it was tough , but rotary developed into in the dominant position nationwide on , on the internet side .

Speaker #3: Now the internet's changing. I have confidence that Roto-Rooter will be able to transition to the new normal better than our competitors.

Speaker #3: And if you look at the growth we've had on the , you know , the paid search side , that is as far as our our 18% plus increase in leads on the paid search , I think that's a demonstration of that .

Speaker #3: But again , as we go , there's a cost to the transition . And we're prepared to , you know , we're prepared .

Kevin McNamara: Again, there's a cost to the transition and we're prepared, I think, to deal with it, and Roto-Rooter's done it in the past.

Speaker #3: I think we're prepared to deal with it, and we've done it in the past.

Speaker #7: All right . Thank you

Michael Murray: All right. Thank you.

Speaker #4: Thank you. I'm not showing any further questions in the queue. I'd like to turn it back over to Kevin for any closing remarks.

Operator: Thank you. I'm not showing any further questions in the queue. I'd like to turn it back over to Kevin for any closing remarks.

Speaker #3: Thank you everyone . I we're happy we had what we thought was was a good a good quarter , excellent quarter at Vitas .

Kevin McNamara: Thank you, everyone. We're happy that we had what we thought was a good quarter, excellent quarter at VITAS, and some good trends at both companies, and we look forward to reporting on the results for the current quarter in due course. Thank you very much.

Speaker #3: And some good trends at both companies, and we look forward to reporting on results for the current quarter in due course. Thank you very much.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a great rest of your day.

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