Q2 2026 Chemed Corp Earnings Call

July 29, 2026

Speaker #2: I've never seen this screen. It's just a screen that will change.

Kevin McNamara: Never seen the screen. It's just the screen's not change.

[Analyst]: I'm having issues with my computer, so I'll fix it when I get it then. It keeps kicking me out, I have to go back in every time.

Speaker #1: I'm having issues with my computer, so I'll fix it when I go sit down. It keeps kicking me out, so I have to go back in every time.

Operator: Thank you for standing by. Welcome to Chemed Corporation's Q2 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Holley Schmidt, Assistant Controller. Please go ahead.

Speaker #3: Thank you for standing by, and welcome to CHEMED CORP's second quarter 2026 earnings conference call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Speaker #3: To ask a question during the session, you will need to press *11 on your telephone. To remove yourself from the queue, you may press *11 again.

Speaker #3: I would now like to hand the call over to Holley Schmidt, Assistant Controller. Please go ahead.

Speaker #4: Good morning. Our conference call this morning will review the financial results for the second quarter of 2026, ended June 30, 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.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the Q2 2026 ended June 30, 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 July 28 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.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the Q2 2026 ended 30 June 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.

Speaker #4: 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 28 and in various other filings with the SEC.

Holley Schmidt: 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 28 July 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 #4: Your caution 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 #4: 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 release dated July 28, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation, Mike Witzeman, Chief Financial Officer of Chemed, and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Speaker #4: A reconciliation of these non-GAAP results is provided in the company's release dated July 28, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today.

Holley Schmidt: 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. I will now turn the call over to Kevin McNamara.

Speaker #4: Kevin McNamara, President and Chief Executive Officer of Chemed Corp; Mike Witzeman, Chief Financial Officer of Chemed; and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary.

Speaker #4: I will now turn the call over to Kevin McNamara.

Speaker #5: Thank you, Holley. Good morning. Welcome to CHEMED CORP's second 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, Holley. Good morning. Welcome to Chemed Corporation's Q2 2026 conference call. I will begin with highlights for the quarter, Mike and Joel will follow up with additional details. I will open the call up for questions. VITAS's performance during the quarter exceeded even the high end of our expectations. VITAS continues 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 program. Admissions at VITAS during the quarter totaled 19,125, which equates to a 9% improvement from the same period of 2025.

Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's Q2 2026 Conference Call. I will begin with highlights for the quarter, Mike and Joel will follow up with additional details. I will open the call up for questions. VITAS's performance during the quarter exceeded even the high end of our expectations.

Speaker #5: I will then open the call up for questions. Vitas's performance during the quarter exceeded even the high end of our expectations. Vitas continues to add ADC through accelerated admissions from non-hospital pre-admission locations while also maintaining a high level of hospital-based admissions.

Kevin McNamara: VITAS continues 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 program.

Speaker #5: 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 program.

Speaker #5: Admissions at Vitas during the quarter totaled 19,125, which equates to a 9% improvement from the same period of 2025. Hospital admissions has a percent of total admissions for our Florida combined program, where 42.9% during the second quarter of 2026.

Kevin McNamara: Admissions at VITAS during the quarter totaled 19,125, which equates to a 9% improvement from the same period of 2025.

Kevin McNamara: Hospital admissions as a percent of total admissions for our Florida combined program were 42.9% during the Q2 2026. As we've previously discussed, an appropriate balance for a 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 come from hospitals. Equally as important, as Joel will discuss in greater detail, admissions from all other pre-admission locations increased 8.1% compared to the Q2 2025 in our Florida combined program. Improved admissions led VITAS to outperform our expectations, while also adding $8.9 million to cap cushion in the Florida combined program in the Q2 2026. This strong performance makes us 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. Let's turn to Roto-Rooter.

Kevin McNamara: Hospital admissions as a percent of total admissions for our Florida combined program were 42.9% during the Q2 of 2026. As we've previously discussed, an appropriate balance for a 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 come from hospitals.

Speaker #5: As we've previously discussed, an appropriate balance for a sustained long-term stability in the Florida patient base given the current mix of referral sources is that between 42 and 45 percent of total admissions come from hospitals.

Speaker #5: Equally as important as Joel will discuss in greater detail admissions from all other pre-admission locations increased 8.1% compared to the second quarter of 2025 in our Florida combined program.

Kevin McNamara: Equally as important, as Joel will discuss in greater detail, admissions from all other pre-admission locations increased 8.1% compared to the Q2 of 2025 in our Florida combined program. Improved admissions led VITAS to outperform our expectations, while also adding $8.9 million to cap cushion in the Florida combined program in the Q2 of 2026. This strong performance makes us 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. Let's turn to Roto-Rooter.

Speaker #5: Improved admissions led Vitas to outperform our expectations, while also adding 8.9 million to cap cushion in the Florida combined program in the second quarter of 2026.

Speaker #5: This strong performance makes us 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 #5: Now let's turn to Roto-Reader. In the second quarter, Roto-Reader performed as we anticipated. Commercial sales and water restoration collection succeeded our expectations for the quarter, while marketing costs and the independent contractor business continued to be a challenge.

Kevin McNamara: In the second quarter, Roto-Rooter performed as we anticipated. Commercial sales and water restoration collections exceeded our expectations for the quarter, while marketing costs and the independent contractor business continue to be a challenge. Our commercial business manager program continues to perform at a high level. Total commercial revenue in the second quarter of 2026 increased 6.8% compared to the second quarter of 2025. There were 30 productive commercial business managers in place for the entire quarter, resulting in a commercial revenue increase of approximately 13% in their respective branches. This compares to a commercial revenue in branches without a commercial business manager, which saw a decline of 1%. We continue to evaluate the ability of the remaining branches to add a commercial business manager, which will drive additional growth. Centralization of water restoration billing and collections function continues and has resulted in improved collections.

Kevin McNamara: In the Q2, Roto-Rooter performed as we anticipated. Commercial sales and water restoration collections exceeded our expectations for the quarter, while marketing costs and the independent contractor business continue to be a challenge. Our commercial business manager program continues to perform at a high level. Total commercial revenue in the Q2 of 2026 increased 6.8% compared to the Q2 of 2025.

Speaker #5: Our commercial business manager program continues to perform at a high level. Total commercial revenue in the second quarter of 2026 increased 6.8% compared to the second quarter of 2025.

Speaker #5: There were 30 productive commercial business managers in place for the entire quarter, resulting in a commercial revenue increase of approximately 13% in their respective branches.

Kevin McNamara: There were 30 productive commercial business managers in place for the entire quarter, resulting in a commercial revenue increase of approximately 13% in their respective branches. This compares to a commercial revenue in branches without a commercial business manager, which saw a decline of 1%. We continue to evaluate the ability of the remaining branches to add a commercial business manager, which will drive additional growth.

Speaker #5: This compares to commercial revenue in branches without a commercial business manager, which saw a decline of 1%. We continue to evaluate the ability of the remaining branches to add a commercial business manager, which will drive additional growth.

Kevin McNamara: Centralization of water restoration billing and collections function continues and has resulted in improved collections.

Speaker #5: Centralization of the water restoration billing and collections function continues and has resulted in improved collections. Total write-offs improved by $1.3 million during the second quarter of 2026 compared to the second quarter of 2025.

Kevin McNamara: Total write-offs improved by $1.3 million during the second quarter of 2026 compared to the second quarter of 2025. Additionally, the centralization effort has resulted in a reduction of approximately 20 employees compared to the second quarter of 2025. Lead generation and the resulting cost of customer acquisition remained a challenge in the second quarter. Total leads during the second quarter of 2026 were down 1.6% compared to the second quarter of 2025. Continuing the same trend as the past quarters, free leads generated from internet searches declined 13.1%, while paid leads increased 7.3%. Of all leads generated during the quarter, approximately 59% were paid, compared to the 54% in the second quarter of 2025. This change resulted in increased marketing spend of about $3.1 million in the quarter compared to the second quarter of 2025.

Speaker #5: Additionally, the centralization effort has resulted in a reduction of approximately 20 employees compared to the second quarter of 2025. Lead generation and the resulting cost of customer acquisition remained a challenge in the second quarter.

Speaker #5: Total leads during the second quarter of 2026 were down 1.6% compared to the second quarter of 2025. Continuing the same trend as the past quarters, free leads generated from internet searches declined 13.1%, while paid leads increased 7.3%.

Kevin McNamara: Continuing the same trend as the past quarters, free leads generated from internet searches declined 13.1%, while paid leads increased 7.3%. Of all leads generated during the quarter, approximately 59% were paid, compared to the 54% in the second quarter of 2025. This change resulted in increased marketing spend of about $3.1 million in the quarter compared to the second quarter of 2025.

Speaker #5: Of all leads generated during the quarter, approximately 59% were paid compared to the 54% in the second quarter of 2025. This change resulted in increased marketing spend of about 3.1 million dollars in the quarter compared to the second quarter of 2025.

Speaker #5: In June, Roto-Reader purchased the territory and assets of franchises operating at South Texas, including Corpus Christi. The purchase price was approximately 12 million dollars.

Kevin McNamara: In June, Roto-Rooter purchased the territory and assets of franchises operating in South Texas, including Corpus Christi. The purchase price was approximately $12 million. This territory will be an independent contractor and represents a significant new population base to incorporate into the contractor portfolio. It is not expected to add a material amount of revenue or income in the last half of the year, but represents a nice growth opportunity for 2027 and beyond. Through the first six months of 2026, we have spent an aggregate total of $33.5 million repurchasing four franchises in strategically advantageous locations. Additional opportunities exist to purchase desirable Roto-Rooter franchises, and we intend to continue to take advantage of those opportunities. We are very happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond.

Speaker #5: This territory will be an independent contractor and represents a significant new population base to incorporate into the contractor portfolio. It is not expected to add a material amount of revenue or income in the last half of the year, but represents a nice growth opportunity for 2027 and beyond.

Speaker #5: Through the first six months of 2026, we have spent an aggregate total of 33.5 million dollars, repurchasing four franchises in strategically advantageous locations. Additional opportunities exist to purchase desirable Roto-Reader franchises and we intend to continue to take advantage of those opportunities.

Kevin McNamara: Through the first six months of 2026, we have spent an aggregate total of $33.5 million repurchasing four franchises in strategically advantageous locations. Additional opportunities exist to purchase desirable Roto-Rooter franchises, and we intend to continue to take advantage of those opportunities. We are very happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond.

Speaker #5: We are very happy with the performance of Vitas in the quarter, and its prospects for the remainder of 2026 and beyond. Roto-Reader is building positive operating momentum while being in a great position to take advantage of franchise acquisition opportunities as they arise.

Kevin McNamara: Roto-Rooter is building positive operating momentum while being in a great position to take advantage of franchise acquisition opportunities as they arise. The combination of the two business units drove an increase in total Chemed revenue of 8.8% and an increase in adjusted diluted earnings per share of 41.9% in the second quarter of 2026 as compared with the same period of 2025. Additionally, the consolidated business generated cash flow from operations in excess of $173 million in the second quarter, which, along with minimal leverage, allows us to pursue accretive acquisitions, aggressive share repurchases as those opportunities present themselves. With that, I would like to turn this teleconference over to Mike.

Speaker #5: The combination of the two business units drove an increase in total ChemEd revenue of 8.8% and an increase in adjusted diluted earnings per share of 41.9% in the second quarter of 2026 as compared with the same period of 2025.

Speaker #5: Additionally, the consolidated business generated cash flow from operations in excess of $173 million in the second quarter, which, along with minimal leverage, allows us to pursue accretive acquisitions and aggressive share repurchases as those opportunities present themselves.

Kevin McNamara: Additionally, the consolidated business generated cash flow from operations in excess of $173 million in the second quarter, which, along with minimal leverage, allows us to pursue accretive acquisitions, aggressive share repurchases as those opportunities present themselves. With that, I would like to turn this teleconference over to Mike.

Speaker #5: With that, I would like to turn this teleconference over to Mike.

Speaker #4: Thanks, Kevin. Vitas net revenue was 443.3 million dollars in the second quarter of 2026, which is an increase of 11.9% when compared to the prior year period.

Mike Witzeman: Thanks, Kevin. VITAS net revenue was $443.3 million in Q2 2026, which is an increase of 11.9% when compared to the prior year period. This revenue increase is the result of a 6.1% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.4%. Acuity mix shift negatively impacted revenue growth 115 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 positively impacted revenue growth by approximately 455 basis points. In Q2 2026, VITAS accrued $500,000 in Medicare cap billing limitation. This is below our original expectations, due mainly to improved admission performance in California.

Speaker #4: This revenue increase is the result of a 6.1% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.4%.

Speaker #4: Acuity mix shift negatively impacted revenue growth 115 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 positively impacted revenue growth by approximately 455 basis points. In the second quarter of 2026, VITAS accrued $500,000 in Medicare cap billing limitation.

Mike Witzeman: The combination of Medicare cap and other contra revenue changes positively impacted revenue growth by approximately 455 basis points. In Q2 2026, VITAS accrued $500,000 in Medicare cap billing limitation. This is below our original expectations, due mainly to improved admission performance in California.

Speaker #4: This is below our original expectations, due mainly to improved admission performance in California. No Medicare cap billing limitation was recorded in the second quarter of 2026 for the Florida combined program, and none is anticipated for the 2026 fiscal period.

Mike Witzeman: No Medicare cap billing limitation was recorded in Q2 2026 for the Florida combined program, and none is anticipated for the 2026 fiscal period. This compares to a Florida Medicare cap billing limitation recorded in Q2 2025 of $16.4 million. Average revenue per patient day in Q2 2026 was $209.98, which is 143 basis points above the prior year period. During the quarter, high acuity days of care were 2.2% of total days of care, a decline of 24 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $80.6 million in the quarter, an increase of 20.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 18.2%. Now let's turn to Roto-Rooter.

Speaker #4: This compares to a Florida Medicare cap billing limitation recorded in the second quarter of 2025 of 16.4 million dollars. Average revenue per patient day in the second quarter of 2026 was 209 dollars and 98 cents, which is 143 basis points above the prior year period.

Speaker #4: During the quarter, high acuity days of care were 2.2% of total days of care a decline of 24 basis points when compared to the prior year quarter.

Mike Witzeman: During the quarter, high acuity days of care were 2.2% of total days of care, a decline of 24 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $80.6 million in the quarter, an increase of 20.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 18.2%. Now let's turn to Roto-Rooter.

Speaker #4: Adjusted EBITDA excluding Medicare cap totaled 80.6 million dollars in the quarter, an increase of 20.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter excluding Medicare cap was 18.2%.

Speaker #4: Now let's turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $56.8 million, an increase of 6.8% from the prior year period.

Mike Witzeman: Roto-Rooter branch commercial revenue in the quarter totaled $56.8 million, an increase of 6.8% from the prior year period. All lines of business in the commercial sector had increasing revenue during the quarter. Roto-Rooter branch residential revenue in the quarter totaled $159.1 million, an increase of 1.7% over the prior year period. Similar to Q1 2026, all lines of service increased with the exception of water restoration. Water restoration revenue declined 6.7%. 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 bill processing function. In Q2 2026, the average revenue per water restoration job declined by roughly 3.5%.

Speaker #4: All lines of business in the commercial sector had increasing revenue during the quarter. Roto-Reader branch residential revenue in the quarter totaled 159.1 million dollars an increase of 1.7% over the prior year period.

Speaker #4: Similar to the first quarter of 2026, all lines of service increased with the exception of water restoration. Water restoration revenue declined 6.7%. Demand for water restoration services continues to be strong and our conversion rates remain high.

Mike Witzeman: 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 bill processing function. In Q2 2026, the average revenue per water restoration job declined by roughly 3.5%.

Speaker #4: During the transition to a centralized billing and collection model, we anticipated some disruption to the day-to-day bill processing function. In the second quarter of 2026, the average revenue per water restoration job declined by roughly 3.5%.

Speaker #4: This is a sequential improvement compared to the approximate 13% decline in average revenue per water restoration job in the first quarter of 2026. We anticipate that this challenge will continue to improve as the year progresses with centralized staff gaining experience and proficiency.

Mike Witzeman: This is a sequential improvement compared to the approximate 13% decline in average revenue per water restoration job in Q1 2026. We anticipate that this challenge will continue to improve as the year progresses with centralized staff gaining experience and proficiency. Revenue from our independent contractors declined 1.9% in Q2 2026. Our independent contractors are generally smaller operations in middle-market cities. Because they are independent, 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 challenges in this segment of our business to get it back to a growth trajectory. Adjusted EBITDA for Roto-Rooter in Q2 totaled $48.5 million, essentially flat when compared to Q2 2025.

Speaker #4: Revenue from our independent contractors declined 1.9% in the second quarter of 2026. Our independent contractors are generally smaller operations in middle market cities. Because they are independent, they tend to operate more like a small mom-and-pop business than our owned and operated branch locations.

Mike Witzeman: Because they are independent, 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 challenges in this segment of our business to get it back to a growth trajectory. Adjusted EBITDA for Roto-Rooter in Q2 totaled $48.5 million, essentially flat when compared to Q2 2025.

Speaker #4: We are actively working with the contractor group to help mitigate the challenges in this segment of our business and to get it back on a growth trajectory.

Speaker #4: Adjusted EBITDA for Roto-Rooter in the second quarter totaled $48.5 million, essentially flat when compared to the second quarter of 2025. The adjusted EBITDA margin in the quarter was 21.1%, which represents a 77 basis point decline from the second quarter of 2025.

Mike Witzeman: The adjusted EBITDA margin in the quarter was 21.1%, which represents a 77 basis point decline from Q2 2025. Roto-Rooter's gross margin of 50.4% was in line with our expectations and 135 basis points better than Q2 2025. As discussed by Kevin, the decline in adjusted EBITDA margin was mainly caused by increased internet marketing costs. With that, I will turn the call over to Joel.

Speaker #4: Roto-Rooter's gross margin of 50.4% was in line with our expectations and 135 basis points better than the second quarter of 2025. As discussed by Kevin, the decline in adjusted EBITDA margin was mainly caused by increased internet marketing costs.

Speaker #4: With that, I will turn the call over to Joel.

Speaker #5: Thanks, Mike. In the second quarter of 2026, our average daily census was 23,687 patients. This represented an increase of 6.1%. By the end of the second quarter, our total patient census exceeded 24,000 for the first time in Vitas history.

Joel Wherley: Thanks, Mike. In Q2 2026, our average daily census was 23,687 patients. This represented an increase of 6.1%. By the end of Q2, our total patient census exceeded 24,000 for the first time in VITAS history. In the quarter, hospital-directed admissions increased 9%. Home-based patient admissions increased 9%. Assisted living facility admissions increased 13.5%, with nursing home admissions declining 8.6% when compared to the prior year period. The continued high level of hospital admissions allows us to also take a high number of admissions from other pre-admission locations. This allows us to continue to build Medicare cap cushion while growing ADC more quickly than our original projections. We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. With respect to the workforce, we continue to run full-time equivalents below our estimated totals.

Speaker #5: In the quarter, hospital-directed admissions increased 9%. Home-based patient admissions increased 9%. Assisted living facility admissions increased 13.5%, with nursing home admissions declining 8.6% in the period.

Speaker #5: The continued high level of hospital admissions allows us to also take a high number of admissions from other pre-admission locations. This allows us to continue to build our Medicare cap cushion while growing ADC more quickly than our original projections.

Joel Wherley: The continued high level of hospital admissions allows us to also take a high number of admissions from other pre-admission locations. This allows us to continue to build Medicare cap cushion while growing ADC more quickly than our original projections. We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. With respect to the workforce, we continue to run full-time equivalents below our estimated totals.

Speaker #5: We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter. With respect to the workforce, we continue to run full-time equivalents below our estimated totals.

Speaker #5: We monitor each location very carefully and ensure that staffing is adequate to provide high-quality care for our patients and their families. As well as maintaining a healthy work-life balance for our caregivers.

Joel Wherley: We monitor each location very carefully and ensure that staffing is adequate to provide high-quality care for our patients and their families, as well as maintaining a healthy work-life balance for our caregivers. The current level of staffing does not reflect any issues with our ability to hire or retain qualified caregivers, and it does not impede our current growth expectations. Our average length of stay in the quarter was 101.2 days. This compares to 137.1 days in Q2 2025. Our median length of stay was 16 days in Q2 2026, a decline of four days from Q2 2025. The new starts in Florida continue to grow at a very rapid pace. Marion, Pasco, and Pinellas counties combined had 594 admissions in Q2 2026. ADC for each new start continues to exceed our expectations.

Speaker #5: The current level of staffing does not reflect any issues with our ability to hire or retain qualified caregivers, and it does not impede our current growth expectations.

Speaker #5: Our average length of stay in the quarter was 101.2 days. This compares to 137.1 days in the second quarter of 2025. Our median length of stay was 16 days in the second quarter of 2026, a decline of 4 days from the second quarter of 2025.

Joel Wherley: Our average length of stay in the quarter was 101.2 days. This compares to 137.1 days in Q2 2025. Our median length of stay was 16 days in Q2 2026, a decline of four days from Q2 2025. The new starts in Florida continue to grow at a very rapid pace. Marion, Pasco, and Pinellas counties combined had 594 admissions in Q2 2026. ADC for each new start continues to exceed our expectations.

Speaker #5: The new starts in Florida continue to grow at a very rapid pace. Marion Pascoe and Pinellas Counties combined had 594 admissions in the second quarter of 2026.

Speaker #5: ADC for each new start continues to exceed our expectations. Manatee County admitted their first patient in the second quarter, and we are happy with the progress of that program to date.

Joel Wherley: Manatee County admitted their first patient in Q2, and we are happy with the progress of that program to date. VITAS has never been in a better position to take advantage of growth opportunities. We have put the difficulties of 2025 behind us, and we are looking forward to executing strategies for the remainder of 2026 and beyond that will translate into high sustainable growth while providing the best possible care to our patients and their families. With that, I'll turn the call back over to Mike.

Speaker #5: Vitas has never been in a better position to take advantage of growth opportunities. We have put the difficulties of 2025 behind us and we are looking forward to executing strategies for the remainder of 2026 and beyond that will translate into high, sustainable growth while providing the best possible care to our patients and their families.

Speaker #5: With that, I'll turn the call back over to Mike.

Speaker #4: Thanks, Joel. In a slight break from tradition, we decided to cover the revised guidance at the end of our prepared remarks. Although historically we do not give quarterly updates, our guidance was revised in conjunction with the first quarter of 2026 due to the materially improved performance of Vitas coupled with the levels of the high level of sherry purchases.

Mike Witzeman: Thanks, Joel. In a slight break from tradition, we decided to cover the revised guidance at the end of our prepared remarks. Although historically we do not give quarterly updates, our guidance was revised in conjunction with Q1 2026 due to the materially improved performance of VITAS, coupled with the high level of share repurchases. We have updated the guidance again in Q2, mainly to continue our normal historical cadence of updating expectations at the mid-year earnings release. Barring any unusual developments, updating guidance once per year in conjunction with our Q2 press release is our ongoing expectation. VITAS' initiatives to return to a normal growth pattern after managing the 2025 Medicare cap issue progressed more quickly than anticipated and continued to provide higher than expected growth in the business. These results led us to raise full year guidance for VITAS as follows.

Speaker #4: We have updated the guidance again in the second quarter mainly to continue our normal historical cadence of updating expectations at the mid-year earnings release.

Speaker #4: Barring any unusual developments, updating guidance once per year in conjunction with our second quarter press release is our ongoing expectation. VITAS's initiatives to return to a normal growth pattern after managing the 2025 Medicare cap issue progressed more quickly than anticipated and continued to provide higher-than-expected growth in the business.

Mike Witzeman: Barring any unusual developments, updating guidance once per year in conjunction with our Q2 press release is our ongoing expectation. VITAS' initiatives to return to a normal growth pattern after managing the 2025 Medicare cap issue progressed more quickly than anticipated and continued to provide higher than expected growth in the business. These results led us to raise full year guidance for VITAS as follows.

Speaker #4: These results led us to raise full-year guidance for Vitas as follows. Full-year ADC growth for 2026 is updated to a range of 5.75% to 6.25% compared to the previous guidance range of 4.5% to 5.5%.

Mike Witzeman: Full year ADC growth for 2026 is updated to a range of 5.75% to 6.25%, compared to the previous guidance range of 4.5% to 5.5%. Anticipated revenue growth, excluding the impact of the Medicare cap, improves from the previous guidance range of 6.5% to 7.5% to a revised range of 8.25% to 9.25%. Finally, revised EBITDA margin, excluding the impact of the Medicare cap, is anticipated to be 19% to 19.5%, compared to the previous guidance of 18% to 18.5%. Our anticipated full year Medicare cap billing limitation is reduced to $7 million from our previous guidance of $9.5 million. As previously discussed, Roto-Rooter performed in line with our expectations and reflects stable earnings, very positive cash flow, and a continued emphasis on investment and growth opportunities. Therefore, full year guidance for the segment remains unchanged.

Speaker #4: Anticipated revenue growth, excluding the impact of the Medicare cap, improves from the previous guidance range of 6.5% to 7.5% to a revised range of 8.25% to 9.25%.

Speaker #4: Finally, revised EBITDA margin excluding the impact of the Medicare cap is anticipated to be 19 to 19.5% compared to the previous guidance of 18 to 18.5%.

Speaker #4: Our anticipated full-year Medicare cap billing limitation is reduced to $7 million from our previous guidance of 9.5. As previously discussed, rotators performed in line with our expectations and reflects stable earnings very positive cash flow and a continued emphasis on investment in growth opportunities.

Mike Witzeman: Our anticipated full year Medicare cap billing limitation is reduced to $7 million from our previous guidance of $9.5 million. As previously discussed, Roto-Rooter performed in line with our expectations and reflects stable earnings, very positive cash flow, and a continued emphasis on investment and growth opportunities. Therefore, full year guidance for the segment remains unchanged.

Speaker #4: Therefore, full-year guidance for the segment remains unchanged. Full-year anticipated revenue growth is 3% to 3.5% for Rotators, with an estimated adjusted EBITDA margin of 21.5% to 22.5%.

Mike Witzeman: Full year anticipated revenue growth is 3% to 3.5% for Roto-Rooter, with an estimated adjusted EBITDA margin of 21.5% to 22.5%. 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, are estimated to be in the range of $25 to $25.75. The midpoint of the revised guidance represents a 17.8% 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 13.5 million shares. I will now turn the call back to Kevin for his closing remarks.

Speaker #4: 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 are estimated to be in the range of $25 to $25.75.

Speaker #4: The midpoint of the revised guidance represents a 17.8% 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 13.5 million shares.

Mike Witzeman: The midpoint of the revised guidance represents a 17.8% 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 13.5 million shares. I will now turn the call back to Kevin for his closing remarks.

Speaker #4: I will now turn the call back to Kevin for his closing remarks.

Speaker #1: Thank you, Mike. I will now open this teleconference to questions.

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

Speaker #6: As a reminder, to. Question you will need to press phone to remove yourself from the queue please press stop star 11 again. Please stand by while we compile the Q&A roster.

Operator: As a reminder, to ask a question, you will need to press. To remove yourself from the queue, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open.

Speaker #6: Our first question comes from the line of Ben Hendricks of RBC Capital Markets. Your line is open.

Ben Hendrix: Great. Thank you very much. Maybe start with a question for Joel. Just wanted to touch on your long-term growth outlook for VITAS. We get a lot of questions on the growth capacity. When we think about the overall demand in the market versus your ability to sustain that 42% to 45% mix of short stay patients, how sustainable is this level of growth? What should we assume for a long-term growth outlook for ADC and revenue? Thanks.

Speaker #7: Great, thank you very much. Maybe I'll start with a question for Joel. I just wanted to touch on your long-term growth outlook for VITAS. We get a lot of questions on the growth capacity.

Speaker #7: When we think about the overall demand in the markets versus your ability to sustain that 42% to 45% mix of short-stay patients, how sustainable is this level of growth, and what should we assume for a long-term growth outlook for ADC and revenue?

Speaker #7: Thanks.

Speaker #5: Yeah. Thanks, Ben. We absolutely believe it is very sustainable. We feel like the strategies we put in place and the KPI management associated with those strategies helps us much better understand how to react to market changes and adjust resources accordingly.

Joel Wherley: Yeah. Thanks, Ben. We absolutely believe it is very sustainable. We feel like the strategies we put in place and the KPI management associated with those strategies helps us much better understand how to react to market changes and adjust resources accordingly. We have no concerns whatsoever about that ability. As we mentioned in the transcript, we believe VITAS has returned to normal growth rates. We fully expect to continue to generate those growth rates as we look at the short and middle future as we look at going into 2027.

Speaker #5: So we have no concerns whatsoever about that ability. As we mentioned in the transcript, we believe Vitas has returned to normal growth rates and we fully expect to continue to generate those growth rates as we look at the short and middle future as we look at going into 27.

Kevin McNamara: Let me just remind the listeners, I guess, that what that means to me is if you look at the 21-year period up to 2025 that Chemed owned VITAS grew their net income at about 11% per annum. I guess my point is we're talking about double digit. What we consider traditional growth rates is in the double digits. It's in the low double digits, but it's a good block-and-tackle, very reliable, kind of grinded out service industry. We look forward to achieving the results that Joel has articulated.

Speaker #1: And let me just remind the listeners, I guess, that what that means to me is if you look at if you look at the 21-year period up to 2025 that CAMED owned Vitas I mean, Vitas grew their net income at about 11% per annum.

Speaker #1: I mean, so I guess my point is we're talking about double-digit what we consider traditional growth rates is in the double digits is a low double digits but it's a good block and tackle very reliable very reliable kind of grind it out service industry.

Speaker #1: So, we look forward to achieving the results that Joel has articulated.

Ben Hendrix: Great. Thank you. If we can move to Roto-Rooter for a quick one there. Looks like, I think your EBITDA came in just maybe marginally shy of our estimate. Just wanted to see what you guys are seeing on the SG&A side in terms of mix of paid versus non-paid leads, kind of how that's evolving and what we can expect that to stabilize. Thanks.

Speaker #7: Great. Thank you. If we can move to rotators for a quick one there. Looks like our I think our your EBITDA came in just maybe just marginally shy of our estimate.

Speaker #7: Just wanted to see what you guys are seeing on the SP&A side in terms of mix of paid versus non-paid leads kind of how that's evolving and kind of where what we can expect where we can expect that to stabilize.

Speaker #7: Thanks.

Speaker #4: Yeah. Ben, this is Mike. I think we believe it's not going to deteriorate from here even though we have really not a lot of insight as to what exactly might happen in the future with internet marketing and the main provider of our net marketing services.

Mike Witzeman: Yeah, Ben, this is Mike. I think we believe it's not going to deteriorate from here, even though we have really not a lot of insight as to what exactly might happen in the future with internet marketing and the main provider of our internet marketing services. Having said that, I don't believe that free leads will go to zero. We're working on strategies to get around Google, honestly, to get leads through commercial business managers is one strategy. We've talked a lot about the app in the past. We're trying to minimize our reliance on Google. I would say that we think that the situation is stable. It's not deteriorating from here. I would also really hesitate to say that we think it's going to significantly improve from here either.

Speaker #4: Having said that, I don't believe that free leads will go to zero. We're working on strategies to get around Google honestly, and getting leads through commercial business managers is one strategy.

Speaker #4: We've talked a lot about the app in the past. So we're trying to minimize our reliance on Google but I would say that we think that the situation is stable.

Mike Witzeman: We've talked a lot about the app in the past. We're trying to minimize our reliance on Google. I would say that we think that the situation is stable. It's not deteriorating from here. I would also really hesitate to say that we think it's going to significantly improve from here either.

Speaker #4: It's not deteriorating from here, but I would also really hesitate to say that we think it's going to significantly improve from here either.

Speaker #1: No. It's hard to see improvement. I mean, it's one thing that it's probably clear to surmise that at this point Google hates the idea of free leads.

Kevin McNamara: No, it's hard to see improvement. It's probably clear to surmise that at this point, Google hates the idea of free leads. Initially, it grew its audience and its users by saying, "Here's a treasure trove of free information." Once they built that allowed them to start charging for what they built. They've systematically tried to drive their users away from the free aspects of service providers. That just goes without saying. At the very least, we're at a new normal, and it has largely stabilized. The kind of thing that we're constantly looking at is. I don't want to go in too much detail. Google's not done. AI is rapidly gaining on them, and they know it. They have their own AI product as well, obviously.

Speaker #1: I mean, initially it grew its audience and its users by saying, here's a treasure trove of free information. And once they built that, it allowed them to start charging for what they built, and they've systematically tried to drive their users away from the free aspects of the service providers.

Speaker #1: I mean, that just goes without saying. If you were—at the very least, we're in a new normal, and it has largely stabilized. But I mean, the kind of thing that we're constantly looking at—I mean, I don't want to go into too much detail, but we don't—Google's not done.

Kevin McNamara: The kind of thing that we're constantly looking at is. I don't want to go in too much detail. Google's not done. AI is rapidly gaining on them, and they know it. They have their own AI product as well, obviously.

Speaker #1: I mean, AI is rapidly gaining on them and they know it. They have their own AI product as well obviously. And our view is we just it's like when the internet was coming in and Yellow Pages was losing its dominance.

Kevin McNamara: Our view is it's like when the internet was coming in and Yellow Pages was losing its dominance. It's just that's the way it is. I think Roto-Rooter has done a pretty good job of dealing with it. We're living with the biggest issue that we'll continue to deal with to some extent is leakage on the marketing expenses. We want to do jobs. Every job we do at Roto-Rooter is profitable. To the extent that we have to pay for those leads, increasingly that's what we do. As Mike said, the real win here is getting leads outside of the paid Google search. There's no question about it. That's really what we're trying to do. We can't kid anybody. We're going through a transition where free leads are. Paid leads have gone from 44% a year and a half ago to 59%.

Speaker #1: It's just that's the way it is. I think Rotator's has done a pretty good job of dealing with it. I mean, the biggest issue that we're still living with—and that we'll continue to deal with to some extent—is leakage on the marketing expenses.

Speaker #1: So, what we want to do is make sure every job we do at Roto-Rooter is profitable. And to the extent that we have to pay for those leads, that's increasing— that's what we do.

Speaker #1: But as Mike said, the real win here is getting leads outside of the paid Google search—there's no question about it. And that's really what we're trying to do.

Kevin McNamara: As Mike said, the real win here is getting leads outside of the paid Google search. There's no question about it. That's really what we're trying to do. We can't kid anybody. We're going through a transition where free leads are. Paid leads have gone from 44% a year and a half ago to 59%.

Speaker #1: But we can't kid anybody. We're going through a transition where free leads have—they've gone from 40%. I mean, paid leads have gone from 44% a year and a half ago to 59%.

Kevin McNamara: It's kind of an inexorable change, and it's going to be a continued battle for Roto-Rooter. Again, the reason that they've been, I think, more successful than certainly our franchisees or the other companies we're familiar with is that they're fortunate to have, in this case, what we call our ancillary services, excavation, water restoration. The sales we get from those actually are expected to slightly exceed sales from all other sources in Roto-Rooter. We have additional services that we charge for these jobs that we do get through the internet. It still all makes sense to us. As we said, the momentum that we're starting to see in the last several months is something that we're taking to the bank.

Speaker #1: It's kind of an inexorable change, and I don't — it's going to be a continued battle for rotators. Again, the reason that they've been, I think, more successful than certainly our franchisees or the other companies we're familiar with is that they're fortunate to have, in this case, what we call our ancillary services: excavation or water restoration sales. We get from those actually now are expected to slightly exceed sales from all other sources in rotators. So we have additional services that we charge for, for these jobs that we do get through the Internet.

Kevin McNamara: We have additional services that we charge for these jobs that we do get through the internet. It still all makes sense to us. As we said, the momentum that we're starting to see in the last several months is something that we're taking to the bank.

Speaker #1: So it still all makes sense to us, and as we said, the momentum that we're starting to see over the last several months is something that we're taking to the bank.

Mike Witzeman: Ben, I think it might make sense also to point out, I think inherent in your question is: Where do we see margins going from here, and what are our thoughts on that? I would tell you that the 21.5% to 22.5% margin that we've estimated for the full year at Roto-Rooter this year is right in line with where our margins were pre-pandemic. Obviously, they spiked some during the pandemic, but it hasn't caused a huge deterioration in our margins overall from a long-term standpoint. I think we would love at Roto-Rooter to see margins in the 23% or 24% range, but ultimately, even at the, call it 22% range, that's pretty healthy for a home services business.

Speaker #4: Ben, I think it might make sense also to point out I think inherent in your question is where do we see margins going from here and what are our thoughts on that.

Speaker #4: I would tell you that the 21 and a half to 22 and a half percent margin that we've estimated for the full year at rotators this year is right in line where our with where our margins were pre-pandemic.

Speaker #4: Obviously, they spiked some during the pandemic, but it hasn't caused a huge deterioration in our margins overall from a long-term standpoint. And I think we would love, at Roto-Rooter, to see margins in the 23 or 24 percent range, but ultimately, even at the, call it, 22 percent range, that's pretty healthy for a home services business.

Mike Witzeman: I think we would love at Roto-Rooter to see margins in the 23% or 24% range, but ultimately, even at the, call it 22% range, that's pretty healthy for a home services business.

Speaker #4: So we're doing everything we can in marketing, but I think we've done a lot of other things in other areas to try and overcome some of those higher expenses.

Mike Witzeman: We're doing everything we can in marketing, but I think we've done a lot of other things in other areas to try and overcome some of those higher expenses.

Ben Hendrix: That's helpful. Thank you very much.

Speaker #7: That's helpful. Thank you very much.

Operator: Thank you. Our next question comes from the line of Brian Tanquilut of Jefferies. Your line is open, Brian.

Speaker #6: Thank you. Our next question comes from the line of Brian Tankwillow of Jefferies. Your line is open, Brian.

Brian Tanquilut: Hey, good morning, guys. Congrats on the quarter. Maybe for Joel and Mike, as I think about the margins at VITAS, obviously pretty good in the quarter. The guidance adjustments solid. How do we think about, number one, the drivers of that, and then the sustainability of those margins as we look beyond 2026?

Speaker #8: Hey. Good morning, guys. And congrats in the quarter. Maybe for Joel and Mike, as I think about the margins of Vitas obviously pretty good in the quarter and then the guidance adjustments solid.

Speaker #8: How do we think about, number one, the drivers of that, and then the sustainability of those margins as we look beyond 2026?

Speaker #9: Yeah. So the biggest driver associated with that is our ability to expand our length of stay and appropriately balance from a pre-admission perspective the types of patients that are coming on service, i.e., balancing our hospital pre-admit environment which typically drives a shorter length of stay patient with our community-based or home-based patients with typically drive a longer length of stay.

Joel Wherley: Yeah. The biggest driver associated with that is our ability to expand our length of stay, and appropriately balance from a pre-admission perspective, the types of patients that are coming on service, i.e. balancing our hospital pre-admit environment, which typically drives a shorter length of stay patient with our community-based or home-based patients would typically drive a longer length of stay. That allows us and has allowed us, and as we had previously talked about, would allow us to expand our margin through the end of the year. That certainly has come to fruition.

Speaker #9: That allows us, and has allowed us, and as we had previously talked about, would allow us to expand our margin through the end of the year.

Joel Wherley: That allows us and has allowed us, and as we had previously talked about, would allow us to expand our margin through the end of the year. That certainly has come to fruition.

Speaker #9: And that certainly has come to fruition. As we look at sustainable longer-term margins, we absolutely believe that the strategic management of the resources that we have in the field our labor force as well as our controllable costs associated with the care of those patients all is in line with expectations and allows us to continue to drive at that margin level.

Joel Wherley: As we look at sustainable longer term margins, we absolutely believe that the strategic management of the resources that we have in the field, our labor force, as well as our controllable costs associated with the care of those patients, all is in line with expectations and allows us to continue to drive at that margin level.

Mike Witzeman: The only thing I would add to that, Brian, is one thing that we certainly are comfortable with the sustainability of is, we've always had an internal benchmark at VITAS that back office, essentially SG&A costs, grow at half the rate of our revenue growth. There are years we hit that, and there are years we don't if we're doing something specific. If we're going to grow top line in the high single digit range, we can certainly gain leverage on our back office costs year over year methodically. I think that the EBITDA ranges we're talking about now are very sustainable going forward.

Speaker #4: The only thing I would add to that, Brian, is one thing that we certainly are comfortable with— the sustainability of— is we've always had an internal benchmark at VITAS that back-office, essentially SG&A, costs grow at half the rate of our revenue growth.

Speaker #4: And there are years we hit that and there are years we don't if we're doing something specific. But if we're going to grow top line in the high single-digit range we can certainly gain leverage on our back office costs year over year methodically.

Mike Witzeman: If we're going to grow top line in the high single digit range, we can certainly gain leverage on our back office costs year over year methodically. I think that the EBITDA ranges we're talking about now are very sustainable going forward.

Speaker #4: And so I think that the EBITDA ranges we're talking about now are very sustainable going forward.

Brian Tanquilut: No, I appreciate that. Maybe Kevin, as I think about Roto here, obviously there are some investors who believe that more investments need to be made there and service line expansions are probably strategically appropriate. Just curious how you're thinking about where Roto stands today. I know you mentioned in your prepared remarks buying franchisees out, but how are you thinking about expanding the service offerings? Thanks.

Speaker #8: No, I appreciate that. And maybe Kevin, as I think about roto here obviously there is some investors who believe that more investments need to be made there and service line expansions are probably strategically appropriate.

Speaker #8: Just curious how you're thinking about where Roto stands today. I know you mentioned you prepared your marks buying franchisees out, but how are you thinking about expanding the service offerings?

Speaker #8: Thanks.

Speaker #1: Okay. I mean, what we say, what we've thought about, first of all, is colored by our past history, and the first issue, I mean, what has worked very well for Roto-Rooter, certainly, is that to the extent we can provide additional services to customers that call for our main line of service—that is, plumbing or drain cleaning—the cost of acquisition for that additional business is near zero.

Kevin McNamara: Okay. Let me say, what we've thought about, first of all, is colored by our past history. What has worked very well for Roto-Rooter certainly is to the extent that if we can provide additional services to customers who call for our main line of service, that is plumbing or drain cleaning, the cost of acquisition for that additional business is near zero. Not surprisingly, that's always been where when Roto-Rooter added plumbing to drain cleaning, that's what made that a success. They added excavation to drain cleaning and plumbing, of course, that was at issue then. A few years ago, we added water restoration. Again, it was to that same customer base. Roto-Rooter historically has tried basically every service that you can imagine that involves putting a person in a truck and going to your house.

Speaker #1: So, not surprisingly, that's always been where — when Roto-Rooter added plumbing to drain cleaning, that's what made that a success. When they added excavation to drain cleaning and plumbing, of course, that was that issue. Then, a few years ago, we added water restoration, and again, it was to that same customer base.

Kevin McNamara: Not surprisingly, that's always been where when Roto-Rooter added plumbing to drain cleaning, that's what made that a success. They added excavation to drain cleaning and plumbing, of course, that was at issue then. A few years ago, we added water restoration. Again, it was to that same customer base. Roto-Rooter historically has tried basically every service that you can imagine that involves putting a person in a truck and going to your house.

Speaker #1: Rotor Router historically has tried basically every service that you can imagine that involves putting a person in a truck and going to your house.

Speaker #1: And again, it generally speaking that's a different type of customer. It comes with an acquisition cost. We would like to try and we've tried repeatedly to use the fantastic service mark that is rotor router to drive the growth of those businesses and we've been unsuccessful historically.

Kevin McNamara: Again, generally speaking, that's a different type of customer. It comes with an acquisition cost. We would like to try, and we've tried repeatedly to use the fantastic service mark that is Roto-Rooter, to drive the growth of those businesses. We've been unsuccessful historically. Does that mean that we've then foreclosed all thought of those additional service lines? No. That just gives you the background. We're dealing with the fact that we have tried it. We tried Roto-Rooter air conditioning. We tried it under the Roto-Rooter service mark. We tried it under our own mark. We tried it under businesses we bought that kept their old service name. It doesn't mean we've given up on air conditioning. It just means we made a pretty big investment in that in the 1990s, and for a six or seven year period, just weren't happy with the results.

Speaker #1: Now, does that mean that we've then foreclosed all thought of those additional service lines? No. I'll tell you that the answer so that just gives you the background.

Speaker #1: I mean, we're dealing with the fact that we have tried it. We've tried Roto-Rooter air conditioning. We tried it under the Roto-Rooter service mark.

Kevin McNamara: We tried Roto-Rooter air conditioning. We tried it under the Roto-Rooter service mark. We tried it under our own mark. We tried it under businesses we bought that kept their old service name. It doesn't mean we've given up on air conditioning. It just means we made a pretty big investment in that in the 1990s, and for a six or seven year period, just weren't happy with the results.

Speaker #1: We tried it under our own mark. We tried it under businesses we bought that kept their old service name. It doesn't mean we've given up on air conditioning.

Speaker #1: It just means we've made a pretty big investment in that in the 1990s and for six or seven-year period just one half we were the result.

Kevin McNamara: That colors our thinking with regard to additions to the service line. But I'll give you a specific example. You might say, what are we thinking we're doing that might be a hybrid that we can sell to our existing customer base and people who don't have a plumbing problem as well? Through the middle of last year, we had, from our perspective, fairly aggressive inroad into water quality. That is, both drinking water and the hardness and softness of water, the overall quality of water, which is a huge industry. As I said, made an investment, had the water quality business up and running in the majority of our branches. It was losing money. We just weren't gaining quite the foothold we wanted, and given the other problems at Roto-Rooter last year, we suspended the program.

Speaker #1: So that colors our thinking with regard to additions to the service line. But I won't say I mean, I'll give you but I'll give you a specific example.

Speaker #1: And you might say, "What are we thinking we're doing that might be a hybrid that we can sell to our existing customer base and people who don't have a plumbing problem as well?" And through the middle of last year, we had a fairly aggressive—from our perspective, fairly aggressive—inroad into water quality.

Speaker #1: That is both drinking water, and the hardness and softness of water—the overall quality of water, which is a huge industry. We, as I said, made an investment, had the water quality business up and running in the majority of our branches, but it was losing money.

Kevin McNamara: As I said, made an investment, had the water quality business up and running in the majority of our branches. It was losing money. We just weren't gaining quite the foothold we wanted, and given the other problems at Roto-Rooter last year, we suspended the program.

Speaker #1: We just weren't gaining quite the foothold we wanted, and given the other problems in Rotor Router last year, we suspended the program. But that just gives you an example of, yes, we're constantly looking at additions to the service line.

Kevin McNamara: That just gives you an example of, yes, we're constantly looking at additions to the service line. For this forum, I guess I'd say there's nothing really at this point, other than say, yes, we're investigating. We have investigated in the past. There's nothing really that has risen to the level that probably requires any discussion in this type of forum.

Speaker #1: But say for this forum I guess I'd say there's nothing really at this point other than say yes, we're investigating we have investigated in the past but there's nothing really that has risen to the level that probably requires any discussion at this in this type of forum.

Speaker #2: Got it. Thank you.

Brian Tanquilut: Got it. Thank you.

Speaker #3: Thank you again. To ask a question, please press star 11 on your telephone. Our next question comes from the line of Joanna Gadget of Bank of America.

Operator: Thank you. Again, to ask a question, please press star 11 on your telephone. Our next question comes from the line of Joanna Gajuk of Bank of America. Your question please, Joanna.

Speaker #3: Your question please, Joanna.

Joanna Gajuk: Hi, good morning. A couple questions. Maybe first on the Roto-Rooter business. Here, again, we talk about the higher marketing costs again, but the guidance is the same, and you're talking about this margin is sustainable. How exactly are you thinking about this in terms of, are there some offsets that you're expecting? Is this coming maybe from buying these franchisees, or there's something else there, I guess, that's helping you sustain that margin?

Speaker #5: Hi. Good morning. A couple of questions. So maybe first on the rotor router business. So here right again we talked about the higher marketing costs again but the guidance is the same.

Speaker #5: You're talking about this margin as sustainable. So how exactly are you thinking about this, in terms of, are there some offsets that you're expecting?

Speaker #5: Is it coming maybe from buying these franchisees, or is there something else there, I guess, that's helping you kind of sustain that margin?

Speaker #1: Well, here, I'll turn it over to Mike, but let me just say, Joanna, from my perspective, to the extent that we do, I mean, when we talk about our excavation business and water restoration business, okay.

Kevin McNamara: Well, here, I'll turn it over to Mike, but let me just say, Joanna, from my perspective, when we talk about our excavation business and water restoration business, okay, we talk internally. It has a relatively low hit rate. Have we been getting, and do we expect more improvement in the conversion of those opportunities? The answer is always yes. To the extent that improvement in that area continues, you can see if the average price of a job continues to go up because there's more services, I'm kind of adjusting for inflation here. If the price is going up, not by inflation, price increase, but by the fact that we're doing a higher conversion rate on water restoration or excavation, you can see how that makes the marketing costs less of an issue. Again, you have a service that has no acquisition cost to getting the job.

Speaker #1: We talk internally. We don't it has a relatively low hit rate. I mean, is there do we have we been getting and do we expect more improvement in the conversion of those opportunities?

Speaker #1: The answer is always yes. And to the extent that that improvement in that area continues you can see if we have for each if the average price of a job continues to go up because there's more services I mean, I've kind of adjusting for inflation here if the price is going up not by inflation or price increase but by the fact that we're doing it higher conversion rate on water restoration or excavation you can see how that makes the marketing costs less of an issue gives you not again, you have a service that has no acquisition cost to getting the job.

Kevin McNamara: To the extent that improvement in that area continues, you can see if the average price of a job continues to go up because there's more services, I'm kind of adjusting for inflation here. If the price is going up, not by inflation, price increase, but by the fact that we're doing a higher conversion rate on water restoration or excavation, you can see how that makes the marketing costs less of an issue. Again, you have a service that has no acquisition cost to getting the job.

Kevin McNamara: Basically, we said over the last 9 months, to the extent that the successes that Roto-Rooter has had, largely has been in the fact that the ancillary services have seen that type of improvement. It's an advantage that Roto-Rooter has. I have a hard time believing. We have a lot of competitors, and I think a lot of them are running plumbing and drain cleaning at a loss leader if they're not also offering excavation and water restoration. It's too tough. We see that ourselves with small independent contractors or small franchisees that aren't in those ancillary services, and they're saying things are tough. They don't have a 21% margin. They have a 5% margin. That's a tough way to go. I guess turn it over to Mike. Mike, that's my off the top of my head response.

Speaker #1: Success and that's and basically we said over the last nine months to the extent that the successes that rotor router has had largely has been in the fact that the ancillary services have seen that type of improvement.

Speaker #1: So it's an advantage that Roto-Rooter has. I mean, I don't know. I have a hard time believing we have a lot of competitors, and I think a lot of them are running plumbing and drain cleaning at a loss leader if they're not also offering excavation and water restoration.

Speaker #1: It's too tough. I mean, we see that ourselves with small independent contractors or small franchisees that aren't in those ancillary services and they're saying things are tough.

Kevin McNamara: We see that ourselves with small independent contractors or small franchisees that aren't in those ancillary services, and they're saying things are tough. They don't have a 21% margin. They have a 5% margin. That's a tough way to go. I guess turn it over to Mike. Mike, that's my off the top of my head response.

Speaker #1: They don't have a 21% margin. They have a 5% margin. That's a tough way to go. But I guess turning over to Mike. Mike, that's my off the top of my head response.

Speaker #3: Yeah, Joanna, at a high level, in the second quarter, Roto-Rooter missed their EBITDA by roughly $1 million from our point estimate. That was all marketing costs.

Mike Witzeman: Yeah, Joanna, at a high level, in the Q2, Roto-Rooter missed their EBITDA by roughly $1 million from our point estimate. That was all marketing costs. I would tell you that we didn't think that that was material enough to change our forward thoughts on where they could be. As Kevin said, there's plenty of things that can happen at Roto-Rooter to offset a $1 million elevated expense. One is the add-on services Kevin talked about. Water restoration collections continues to improve. We didn't need to exceed our expectations in that by not very much in order to make up that $1 million. In the grand scheme of Roto-Rooter, an extra $1 million of marketing costs is not enough to change our current or long-term outlook for where we think their margin and where the business is going.

Speaker #3: I would tell you that we didn't think that was material enough to change our forward thoughts on where they could be. And as Kevin said, there's plenty of things that can happen at Roto-Rooter to offset a $1 million elevated expense.

Speaker #3: One is the add-on services Kevin talked about. Water restoration collections continues to improve. We didn't need to exceed our expectations in that by not very much in order to make up that million dollars.

Mike Witzeman: We didn't need to exceed our expectations in that by not very much in order to make up that $1 million. In the grand scheme of Roto-Rooter, an extra $1 million of marketing costs is not enough to change our current or long-term outlook for where we think their margin and where the business is going.

Speaker #3: So in the grand scheme of rotor router an extra million dollar of marketing costs is not enough to change our current or long-term outlook for where we think their margin and where the business is going.

Speaker #5: Okay. That's great. Thanks for that. And I guess in terms of these acquisitions talking about buying franchisees are there still some larger ones that are potentially available?

Joanna Gajuk: Okay. That's great. Thanks for that. I guess in terms of these acquisitions, talking about buying franchisees, are there still some larger ones that are potentially available? To that end, what's the level of interest in adding, I guess, HAS systems assets, and how does the moratorium on new centers and the related provisions there impact your ability to add HAS systems assets?

Speaker #5: And to that end, what's the level of interest in adding, I guess, hospice assets? And how does the moratorium on new centers and the related provisions there impact your ability to add hospice assets?

Speaker #1: Okay. I'll start with the rotor router side. There's a few Joanna. Yeah. I would be very surprised if before the end of the year we don't let's say the opportunity is there.

Kevin McNamara: Okay. I'll start with the Roto-Rooter side. There's a few. Joanna, yeah, I would be very surprised if before the end of the year, we don't. Like I say, the opportunity is there. I'd be surprised if we don't make a nice Roto-Rooter acquisition before the end of the year of some size, internal, from in our franchise network. With regard to VITAS, I got to turn it over to Joel. Say, it really breaks down in two. There's a couple, or there's a few counties left, a couple counties in Florida, that we're not in. We'd probably love to do an acquisition or something in Florida. We're almost everywhere in Florida. There's a few real nice counties left to go. The acquisitions really go to kind of CON states other than Florida. Joel, what do you see in that regard?

Speaker #1: I'd be surprised if we don't make a nice Roto-Rooter acquisition before the end of the year—of some size—from internal, I'm talking about in our franchise network.

Speaker #1: With regard to VITAS, I've got to turn it over to Joel. But, say, it really breaks down in two. There are a couple—or there's a few—counties left, a couple counties in Florida that we're not in.

Kevin McNamara: There's a couple, or there's a few counties left, a couple counties in Florida, that we're not in. We'd probably love to do an acquisition or something in Florida. We're almost everywhere in Florida. There's a few real nice counties left to go. The acquisitions really go to kind of CON states other than Florida. Joel, what do you see in that regard?

Speaker #1: We'd probably love to do an acquisition or something in Florida. But we're almost everywhere in Florida. I mean, there are a few real nice counties left to go.

Speaker #1: But so the acquisition is really good to kind of see a wedded state other than Florida. But Joel, what do you see in that regard?

Speaker #4: Yeah. Joanna, our targeted acquisition interest remains in areas where there's a barrier to entry in the market. The moratorium does influence our ability to apply for new CONs in states that have that of which the timing the moratorium is due to end in November it could be extended.

Joel Wherley: Yeah. Joanna, our targeted acquisition interest remains in areas where there's a barrier to entry in the market. The moratorium does influence our ability to apply for new CONs in states that have that, of which the timing, the moratorium is due to end in November. It could be extended. We don't know that. We will be in the next 60 days. As far as acquisitions, the moratorium does not prevent us from moving forward with a potential acquisition as long as that existing provider had been in service for 3 years and billing to the federal government for 3 years. We're still actively reviewing any of those opportunities, again, with markets that have a barrier to entry. That has our first interest. We're continuing to look at what other opportunities could potentially exist out there.

Speaker #4: We don't know that. That will be in the next 60 days. But as far as acquisitions, the moratorium does not prevent us from moving forward with a potential acquisition as long as that existing provider has been in service for three years.

Joel Wherley: As far as acquisitions, the moratorium does not prevent us from moving forward with a potential acquisition as long as that existing provider had been in service for 3 years and billing to the federal government for 3 years. We're still actively reviewing any of those opportunities, again, with markets that have a barrier to entry. That has our first interest. We're continuing to look at what other opportunities could potentially exist out there.

Speaker #4: And billing to the federal government for three years. So we're still actively reviewing any of those opportunities. Again, with markets that have a barrier to entry that has our first interest.

Speaker #4: But we're continuing to look at what other opportunities could potentially exist out there.

Speaker #5: And if I may, on the Medicaid comp—so here in Florida, where it sounds like you're building a cushion there and you're growing census.

Joanna Gajuk: If I may, on the Medicare cap, here in Florida, where it sounds like you're building a cushion there and you're growing census. I'm thinking, how much of that kind of building the cushion is coming from these de novos? I guess, is there a risk that you could get into trouble, so to speak, over the cap, when somehow these de novos slow down, or you don't have incremental de novos or markets to add to kind of manage that Medicare cap?

Speaker #5: So, I'm thinking, how much of that kind of building the cushion is coming from these de novos? And I guess, is there a risk that you could get into trouble, so to speak, over the top when somehow these de novos slow down, or you don't have incremental de novos or markets to add to kind of manage that Medicaid comp?

Speaker #4: Yeah. Thanks, Joanna. The metrics that we put in place to strategically manage where we deploy our resources balancing out the admissions and the pre-admit environment are separate from the growth strategies we have in de novo markets.

Joel Wherley: Yeah. Thanks, Joanna. The metrics that we've put in place to strategically manage where we deploy our resources, balancing out the admissions and the pre-admit environment, are separate from the growth strategies we have in de novo markets. There's no question those markets have contributed significantly to our ADC growth, but they're also contributing significantly to admissions. The opportunities we have in those markets as well as all across Florida to continue to balance that admission mix gives us no concern going forward specific to cap management and having that re-emerge as a significant concern for us at any time in the near future.

Speaker #4: There's no question those markets have contributed significantly to our ADC growth, but they're also contributing significantly to admissions. And so, the opportunities we have in those markets, as well as all across Florida, to continue to balance that admission mix gives us no concern going forward specific to cap management and having that re-emerge as a significant concern for us at any time in the near future.

Joel Wherley: The opportunities we have in those markets as well as all across Florida to continue to balance that admission mix gives us no concern going forward specific to cap management and having that re-emerge as a significant concern for us at any time in the near future.

Kevin McNamara: Let me say, add on that, the cap cushion that VITAS has has been helped by the new starts, but it's not all of it. Frankly, at an average length of stay, as we mentioned, of 101 days, which is driven by having the mix of between 42% and 45% of hospital-based admissions, that's very sustainable. You're not going to run into a problem with that, assuming reimbursement is within a acceptable range, which we see as like 1% above the national average or 1% below the national average. We're there, Joanna, I guess what I was saying. That's our run rate, where we are. What you're talking about is certainly theoretical, but that would be absent a big change, like a 10% increase in reimbursement in Florida or another 5% increase in Florida, with the national average going up 2% or 3%.

Speaker #1: And let me say, add on to that, that we're not— the cap cushion that VITAS has has been helped by the new starts, but it's— it's not— it's not all of it.

Speaker #1: I mean, the frankly at an average length of stay as we mentioned of 101 days with your which is driven by having the mix of between 42 and 45 percent of hospital-based admissions.

Speaker #1: That's very sustainable. You're not going to run into a problem with that, assuming reimbursement is within an acceptable range—which we see as like 1% above the national average or 1% below the national average.

Speaker #1: I mean, and we're there, Joanna. I guess what I was saying— I mean, that's our run rate, where we are. So, what you're talking about is certainly theoretical, but that would be absent a big change, like a 10% increase in reimbursement in Florida, or another 5% increase in Florida with the national average going up 2 or 3%.

Kevin McNamara: We're there, Joanna, I guess what I was saying. That's our run rate, where we are. What you're talking about is certainly theoretical, but that would be absent a big change, like a 10% increase in reimbursement in Florida or another 5% increase in Florida, with the national average going up 2% or 3%.

Speaker #1: I mean, absent something like that Vitas is sailing right in the perfect channel. For not worrying about cap in the shorter mid-term long run of course we're all dead.

Kevin McNamara: Absent something like that, VITAS is sailing right in the perfect channel for not worrying about cap in the shorter midterm. Long run, of course, we're all dead, as they say. Again, that's not a major concern under these circumstances.

Speaker #1: But as they say. But again, that's not a major concern under these circumstances.

Speaker #2: One of the things I think that gives us the most comfort Joanna we love Florida for many reasons. The CON is probably the main one.

Mike Witzeman: One of the things I think that gives us the most comfort, Joanna, we love Florida for many reasons. The CON is probably the main one. But another significant reason is the availability of hospital-based admissions to hospice is very high, continues to grow with the demographics over the next eight to 10 years. The demand for hospital-based admissions into hospice is very much there. As long as Joel said, like Joel said, as long as we continue to focus on that, we will garner our share of that demand, and we should not run into any problems with Medicare cap going forward in Florida.

Speaker #2: But another significant reason is the availability of hospital-based admissions to hospice. Is very high. Continues to grow with the demographics over the next 8 to 10 years.

Speaker #2: And so the demand for hospital-based admissions into hospice is very much there. And, as Joel said, as long as we continue to focus on that, we will garner our share of that demand, and we should not run into any problems with the Medicare cap going forward in Florida.

Mike Witzeman: As long as Joel said, like Joel said, as long as we continue to focus on that, we will garner our share of that demand, and we should not run into any problems with Medicare cap going forward in Florida.

Speaker #1: And let me give you one other comment. One other comment about the new starts. How early are we in our development of those programs?

Kevin McNamara: Let me give you one other comment about the new starts, how early are we in our development of those programs? If it goes to kind of historical averages, we still have a very small % of the admits in each of those new starts. Again, if the past is prologue to the future, to the extent that we get something like 40% to 60% growth or a market share of that, we're just in the very germinal stages of the development of these new starts.

Speaker #1: I mean, if it goes to kind of historical averages, we still have a very small percent of the admits in each of those new starts.

Speaker #1: I mean, and again, if you look at if the past is prologue to the future I mean, to the extent that we get something like 40 to 60 percent grow to a market share of that we're just in the very germinal stages of that of the development of these new starts.

Speaker #4: Yeah, I'll add one more thing, Kevin. Joanna, as part of our overall strategic management of cap mitigation—especially in the Florida CCN—that is also part of expanding additional new relationships for high-acuity, short-lived stay patients.

Joel Wherley: Yeah. I'll add one more thing, Kevin. Joanna, as part of our overall strategic management of CAP mitigation, especially in the Florida CCN, that is also part of expanding additional new relationships for high acuity, short length of stay patients. We've just recently broke ground on two new inpatient units that will come online in 2027, with two additional relationships that will be lifted up in 2027, that will be inside of other facilities. That is a extremely strategic part of our CAP mitigation, and we'll continue to manage that as needed going forward.

Speaker #4: We've just recently broken ground on two new inpatient units that will come online in 2027, with two additional relationships that will be lifted up in 2027 that will be inside of other facilities.

Speaker #4: So, that is an extremely strategic part of our cap mitigation, and we'll continue to manage that as needed going forward.

Speaker #5: All right, this is great. And actually, on that note, because we didn't get the final hospice record, but we do have the proposal, right?

Joanna Gajuk: All right. This is great. Actually, on that note, because we didn't get the final hospice reg yet, we do have the proposal. In that proposal, the rate update for Florida didn't seem like it was an issue versus where the CAP is increasing. Any updated thoughts on based on the proposal, what the rate update will be Florida versus the CAP for 2027?

Speaker #5: In that proposal the rate update for Florida didn't seem like it was an issue versus that with a cap is increasing. So any updated thoughts on what based on the proposal what the rate update would be Florida versus the cap for 2027?

Speaker #4: Yeah. So, national average, 2.4% in the proposed rule. That'll be final in the next couple of weeks. VITAS specifically, 1.9%. Florida is a little over 1% of an increase.

Joel Wherley: Yeah. National average 2.4% in the proposed rule. That'll be final in the next couple of weeks.

Joanna Gajuk: Right.

Joel Wherley: VITAS specifically, 1.9%. Florida is a little over 1% of an increase against the national average.

Speaker #4: Against the national average.

Speaker #2: That's based on our current mix in Florida.

Mike Witzeman: That's based on our current mix in Florida.

Speaker #4: Yes.

Joanna Gajuk: Right. All right. That's manageable there. To that end, you had a $0.5 million accrual for Medicare CAP in Q2, because I guess you're running better, I guess, in California. What do you assume for Q4 2026 in your guidance for Medicare CAP?

Speaker #5: Right. All right, so that's manageable there. And to that end, you had a $0.5 million accrual for the Medicare cap in the second quarter because, I guess, you're running better in California. What do you assume for fourth quarter 2026 in your guidance?

Speaker #2: Yeah. Joanna, so we've talked about in the first quarter, Joel talked some about a little bit of activity increase in California as a result of VITAS being a big, trusted provider.

Mike Witzeman: Yeah. Joanna, We've talked about, in Q1, Joel talked some about a little bit of activity increase in California as a result of VITAS being a big, trusted provider, and some of the referral sources are sort of fleeing to safety and referring to the big trusted providers during the time when people are talking about fraud and abuse with smaller providers. That's given us a lift this year in California with the Medicare CAP situation. Over the last four or five years, on average, we've run roughly $9.5 million in Medicare CAP. We kept our forecast for 2027 at that $9.5 million. So baked into the guidance in Q4 is one fourth of that $9.5 million. I think it's $2.3 or $2.4 million.

Speaker #2: And some of the referral sources are sort of fleeing to safety and referring to the big trusted providers during the time when people are talking about fraud and abuse with smaller providers.

Speaker #2: That's given us a lift this year in California with the Medicare cap situation, but over the last four or five years, on average, we've run roughly $9.5 million in Medicare cap.

Mike Witzeman: Over the last four or five years, on average, we've run roughly $9.5 million in Medicare CAP. We kept our forecast for 2027 at that $9.5 million. So baked into the guidance in Q4 is one fourth of that $9.5 million. I think it's $2.3 or $2.4 million.

Speaker #2: And so we kept the our forecast for 2027 at that 9 and a half million dollars. So baked into the guidance in the fourth quarter is one-fourth of that 9 and a half million dollars I think it's 2.3 or 2.4 million dollars.

Mike Witzeman: We're a little early in the sort of that fraud and abuse and how that's going to all shake out in California to really want to change our run rate expectations. It certainly has helped us in this calendar year or in this CAP year.

Speaker #2: We're a little early in the sort of that fraud and abuse and how that's going to all shake out in California to really want to change our run rate expectations, but it certainly has helped us in this calendar year, or in this cap year.

Speaker #5: Great. If I may since you mentioned the moratorium and kind of focus on fraud and abusing in hospice and obviously we've heard you talk about you're supportive of that and getting rid of fraud in the industry would help everyone.

Joanna Gajuk: Great. If I may, since you mentioned the moratorium and kind of focus on fraud and abuse in hospice. Obviously, we've heard you talk about you're supportive of that and getting rid of fraud in the industry would help everyone. There were a couple of other things that came out. There was the OIG report, and then there was the GAO report. Different issues being discussed and such. Is there something building in the background? Do you expect CMS respond to these reports in some ways? Do you essentially expect any changes to reimbursement, say, for 2028? Because obviously we know it's not possible for 2027. Any thoughts on these reports and kind of where CMS might land in the end after getting those? Thank you.

Speaker #5: But there were a couple of other things that came out. There was the OIG report and then there was the GAO report. Right. Different issues being discussed and such.

Speaker #5: But is there something building in the background? Do you expect CMS to respond to these reports in some way? Do you essentially expect any changes to reimbursement, say, for 2028, because obviously we know it's not possible for 2027.

Joanna Gajuk: Do you expect CMS respond to these reports in some ways? Do you essentially expect any changes to reimbursement, say, for 2028? Because obviously we know it's not possible for 2027. Any thoughts on these reports and kind of where CMS might land in the end after getting those? Thank you.

Speaker #5: But any thoughts on these reports and kind of where CMS might land in the end after getting those? Thank you.

Speaker #4: Yeah, Joanna, we have no reason to believe at this point that there would be an unbundling of the hospice benefit. There is legislation out there testing the waters specific to an MA carve-in plan.

Joel Wherley: Joanna, we have no reason to believe at this point that there would be a unbundling of the hospice benefit. There is legislation out there testing the waters specific to an MA carve-in plan. That has been shelved for 2027. Whether that is resurrected at some point in the future, I think is yet to be seen. We have no reason to believe there would be significant or material reimbursement changes to the current structure. What we do know is that the final rule is going to come out for 2027 in a couple weeks. We do expect there to be some elevated degree of program integrity oversight i.e., the SSVI or Service and Spending Variation Index. We don't know the components of a final integrity plan, we do believe that there's going to be a increased focus on quality.

Speaker #4: That has been shelved for 2027. Whether that is resurrected at some point in the future, I think is yet to be seen. But we have no reason to believe there would be significant or material reimbursement changes to the current structure.

Speaker #4: What we do know is that the final rule is going to come out for 2027 in a couple of weeks. We do expect there to be some elevated degree of program integrity oversight.

Joel Wherley: What we do know is that the final rule is going to come out for 2027 in a couple weeks. We do expect there to be some elevated degree of program integrity oversight i.e., the SSVI or Service and Spending Variation Index. We don't know the components of a final integrity plan, we do believe that there's going to be a increased focus on quality.

Speaker #4: I.e., the SSVI, or service spend variation index—we don't know the components of a final integrity plan, but we do believe that there's going to be an increased focus on quality. What that quality is measured by is yet to be determined.

Joel Wherley: What that quality is measured by is yet to be determined. We do not see necessarily a indication of reimbursement change at this point.

Speaker #4: But we do not necessarily see an indication of reimbursement change at this point.

Speaker #5: Thank you.

Joanna Gajuk: Thank you.

Speaker #2: Thank you. I would now like to turn the conference back to Kevin McNamara for closing remarks. Sir.

Operator: Thank you. I would now like to turn the conference back to Kevin McNamara for closing remarks. Sir?

Speaker #6: Well, I'd just like to say that, yes, we were gratified with the results of the quarter, and thank everyone for their questions and their attention.

Kevin McNamara: Well, I'd just like to say that, yes, we were gratified with the results of the quarter, and thank everyone for their questions and their attention, and we'll reconvene in about three months. Thank you.

Speaker #6: And we'll reconvene in about three months. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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