Thank you for joining the B of A Healthcare Conference and for sticking around. It's been a long day for me, and I assume for you too. Thanks so much. Now this session, I'm pleased to present or have a discussion with Chemed. I guess before I do that, my name is Joanna Gajuk. I cover healthcare facilities and managed care at B of A. Chemed, one of the largest hospice providers, but also owning some other business. We will talk about that. Today with us, we have the entire team. Kevin McNamara, who's the CEO; Nicholas Westfall, who's the CEO of the VITAS business; and Mike Witzeman, who's the CFO. I guess we're going to go right into Q&A, right? Since this is a healthcare conference, I want to start with VITAS, right? Because that business continues to really grow nicely. This year seems like Medicare cap is somewhat limiting that growth. I guess you're slowing down the census a little bit, still growing pretty nicely, right? There's some worry, right, that this cap can become a major issue. I guess some people have longer memory, and maybe they've seen things play out not really nicely for some companies decades ago. Maybe we should address that. Can you talk about what's different now versus back then, and what gives you confidence that this is not going to blow up in your face? Sounds good. Yeah, for referential point, a few people have asked this question today. We're really talking Vistacare and Odyssey about 20 years ago inside of the space, coincidentally about the same time in which Chemed bought in the full ownership of VITAS. Not to state the obvious, a lot has changed in that 20-year period. As we think about it on an overall basis, Medicare cap is something that's been in since the benefit was enacted in 1983, and it's one in which we're constantly looking at, reviewing, and have been since I can speak to it only directly since 2012 when I took over operations. It's one we look at daily, weekly, and monthly on a site-by-site basis. It's not new. From 20 years ago until today for the overall industry, and the same translates to VITAS, what we're really proud of for the team is we've made a lot of investments around not only our analytical capabilities that help the forecasting, but really understand the benefit and the trajectory associated with it. What that allows us to do when we couple it with building out our go-to-market strategy around what's the value proposition of the hospice benefit? What does it mean to different referral sources? What does it mean from a disease state standpoint? It's for us to go into a market and really identify opportunities. In a market where we're forecasting a Medicare cap cushion over the next 12 months that is a few percentage points lower or inside of a realm of what we want, we're able to say, "Let's do things where we're going to dial up the time in which our team spends with hospital-based pre-admitted segments and/or disease-specific components." That allows us to balance spending time responding to all referral sources, but getting more referrals from traditional partners that may have shorter disease trajectories. That helps generate Medicare cap cushion in those markets on a go-forward basis. It is not new at all to us organizationally. We're just talking about it a little bit more, trying to proactively answer as we were in the middle of last year, understanding the success we've had for two and a half years of sequential volume growth that growing at a 15% clip on a same-store basis from an ADC standpoint in certain markets wasn't the sustainable range. It goes into why we're very comfortable on the 8-10% ADC growth forecast for this year as well as for the foreseeable future. Helping people understand, well, why can't it be 15%? One aspect of that is the balance of Medicare cap, which has existed since 1983, and one in which we have a real good handle on. Let me just add, again, it's a capsule commentary, but think of it this way. For the last, I can't remember how many years, we've had Medicare cap in California. That's driven by the fact that the reimbursement is so much higher than the national average, 70% higher than for Mississippi. The cap is the same for Mississippi and California. We build that into our strategy. We try and do the best we can. Because of the nature of California, that is our biggest referral source. Almost every market is some healthcare system that has its own hospice that we just get their spillover referrals, not something we can control. We live with it. We make a lot of money. It's still a very good profit margin. There's Medicare cap in the range of, over the last several years, $6 million-$9 million. So what's changed? I'll focus mostly on, we don't really like to talk about programs, but let's state the obvious, Florida. The whole state of Florida is one program, very unusual. It's good. We like it that way. We're dominant. It's more than half our business. It's great. During the pandemic, when 20% of our healthcare staff retired, disappeared, VITAS was in the position where they just didn't have the staff to deal with a lot of short-stay patients. It wasn't a, it was a conscious decision, but we just said, "Well, we'll do the best we can." What doing the best we can at the time meant that we looked at the historical breakdown of hospital admissions. Hospital admissions equals short stay. And community access, doctors' offices, nursing homes, took a look at the breakdown. Historically, we ran 51%-52% hospital admissions. We just did not have the ability to service that many short-stay patients. We still took short-stay patients. That number fell to about 44%, 44%, 45%. It was still very substantial. The net effect is that our average length of stay would go up, okay, in, let's say, that market. We knew that. We figured, what do we do now that we have full staff? Change our sales perspective. That is, make more hospital contacts. See if we cannot drive our hospital admissions up to the same range. That is, 50% or higher. Actually, VITAS has already accomplished that. I mean, we are doing that. We have a legacy of the period where we were not able to do that. We had this cohort of longer length stay patients, okay, that largely were in our system, are still in our system. Okay? We knew that. We're planning on that. Not really an issue. Still very unlikely to result in as much discussion about Medicare cap as we've had this year and today, particularly. It's something that we deal with in the normal course. An additional factor, though, is the rate increase. Keep in mind that the Medicare cap total goes up based on the national average. Our programs, each locale gets a different reimbursement. For the state of Florida, when we finally got their final number in the late summer, early fall, we saw that the good news was that it was much higher for Florida than we anticipated. In fact, it was a couple, 200 basis points higher than the national average, which meant that our reimbursement for the same amount of service as we projected was going to be 2% higher. Obviously, good news. It meant that our carefully planned plan to dovetail into dealing with the Medicare cap in the government plan year was thrown a little bit out of kilter. Again, I'm just describing a little bit of change in our planning, okay? We're still not projecting Medicare cap in Florida. I'm just saying that the Medicare cap cushion, which does not do you any good to have a bigger cushion rather than those lower cushions when you get to the end of the year. You want to use one that has as little cushion as possible. It just changed our calculus a little bit. Again, we over-disclose on it. I think one of the reasons that people today asked us about it and Joanna's asking about it is when we released our earnings, again, we're fully transparent. We just said, "Yeah, we've got less cap cushion than we were initially anticipated." Nothing to see here. We still have done a lot of discussion about it because it's an often, it's a program, it's a policy that doesn't make a lot of sense. You can't use logic to understand some of the driving factors of it. You just accept it. You take the total amount of qualified admissions per program in a year. You multiply by a number between $35,000 and $36,000. It goes up every year based on the rate of increase. You take that number, you multiply it. If that number for a program equals $21 million, that's fine. You take a look at the end of the plan year of what your total bills were. If the total bills were $22 million, no one's done anything wrong. No one has the wrong. You just send a million dollars back three years later to the federal government. It is something that is a cost of doing business. It is day in, day out what VITAS does. We have had to make some more changes really by the combination of the pandemic and the greater than expected increase in Florida. Nothing has changed in the underlying nature of our service offering. Nick has already made this point. Keep in mind, the reason you might say, "It seems like you are shooting yourself in the foot. Why are you talking about so much?" The answer is when people say, "Hey, you were running at a 15%-16% ADC growth average. Has something happened to the business?" The answer is, "Yes, we've intentionally said that was unsustainable as we have less cushion." We're going back to our historic perception of the market, which is have 51% of your admissions come from hospitals. You'll go back to what we're projecting our historical very solid growth rate at VITAS. Nothing untoward has happened to the business. Maybe just two last things to wrap a bow on it. First one is if you go back the last five to eight years, we forecast out what our 12-month liability is. And we've come in almost spot on every single one of those years. We haven't made any modifications. It's a $9.5 million liability. And as in many of those Northern California locations that are just a cost of doing business at the end of the day. The second one, as compared to say 20 years ago, and I can solely speak specifically at VITAS, is when we think about going back to that go-to-market strategy, right? We We have time allocation. We have analytics of where referrals come from, what our market share opportunity looks like. If you even get to things like we just became the first accredited hospice organization with the American Heart Association for a cardiac program. We deploy that very intentionally across every market. We have disease-specific value-add propositions. We'll lean more heavily into certain ones of those, like say sepsis in cap-specific markets because it resonates and has a better, bigger value proposition to hospital-based referral systems. We have become much more intentional around where we're providing emphasis and can modify those things on a market-by-market basis. Joanna, one thing just from a financial perspective to keep in mind. As long as we're managing the Medicare cap appropriately, it is not a financial disaster. The $9.5 million that we have in Northern California, those are still some of our most profitable, highest-margin businesses. It is just a matter of managing it so it does not get out of control. VITAS has done a great job doing that. If we ignored it, it'd be potentially a big issue. We are far from ignoring it. Our only debate over the last 10 years was whether we should be not as, because everyone else in the industry just says cost of doing business, we're going to stop talking about it. When we have a liability, it's just a hit to EBITDA. And we chose to stick with the course of being transparent. I guess staying on the Medicare cap, any indication for any changes? I know MedPAC stopped recommending the change. They had this 20% cut to cap and whatever. That did not happen. It was taken out. Now, is there something to be said about you guys kind of asking for the change and you're trying to lobby something there? Yeah. We have conversations with MedPAC on a regular basis, both ourselves and through the National Association that I'm on the board of. It might be coincidental, might be not. We met with them and helped to educate about when you start thinking about what Kevin was alluding to. Medicare cap was put in in 1983 to help the government get comfortable with what the cost would be because they believed the benefit was going to be so greatly desired and successful like it has been. Now when you look at it and say a patient that accesses the benefit earlier in their disease trajectory, meaning they're on hospice for longer, actually accelerates the total cost of care savings to the Medicare Trust Fund, you don't really want to have policies in place that limit that. Medicare cap is one of those policies that limit it. That is a 47-year-old approach. As the new administration settles in, and I believe based on all commentary, they understand hospice and understand the benefit to it, maybe we will have an opportunity to discuss should that policy continue or are there other alternatives to try to advocate for the industry to have fiduciary responsibility for the overall Medicare Trust Fund and still provide really high-quality care out in patients' home throughout the country. I think we will. I do not know when it will happen, though. There are halfway steps that would be very beneficial to make more sense. That is, yes, we could say abolish it. Here are some dollar trade-offs or something like that. Or we could just say, look, there were changes made as recently as 2019 that meant that the increase does not track with the reimbursement increase. It decoupled the local increase compared to the national average. Right. To the extent that we can just have that type of. Realignment. Realignment and small issues that would make more sense. Okay? That is really what we are shooting for. Again, there are some people who would say that it has positives and negatives, for we think that the Medicare cap stops some bad actors. Okay? For instance, if you get away with, if you controlled the referral sources, you would not want any short-stay patients. Okay? Medicare cap stops that type of bad actor. Okay? Our view is just saying, look, give an example in California. Our largest referral source is a health, largely, depending on the program, a healthcare system that has its own hospice. We get the patients that somehow they do not want for whatever reason. If they have a Medicare cap, they keep the short-stay patients. If it is a problem patient, they refer to us. We take them. Okay? Let's say we could be the best hospice in California and have a Medicare cap. The healthcare system may or may not have one. They're not operating necessarily in the best interest of the patient, arguably, based on their referrals. In any event, it's nothing we're holding our breath for. We don't need a change. We'll deal with it. There's some good that comes from it as well. Being an independent provider has forced us to mature all of our offerings to have a sustainable not only business, but being a mission-focused provider that is so key and critical for all of our team members, right? We're at about 11 quarters of growing net clinical capacity with 10 quarters of ADC growth. Those two things are not coincidental, right? You have to have the ability to retain and grow your workforce. One of the primary drivers has nothing to do with Medicare cap. It's the fact, hey, you allow us to go care for patients irrespective of their ability to pay. You want them to respond. You provide an open formulary. We're able to provide care in the right way. That only helps us continue to retain and attract talent and be a wonderful partner to all the healthcare entities that are referring patients to us because they know we'll be there for them in a timely fashion. Nothing's changed regarding our business model or the approach related to it. I guess another recent development in VITAS is the acquisition of Covenant. That was the first one since, I do not know how many years, right? Is it also an indication of maybe changing strategy a little bit as in there are more assets to be acquired and you guys are also more kind of open to it? Maybe walk us through. I've always been open to it. I know, but you've never really done anything, so. I don't. From my perspective, kind of what was going on at Covenant more than what was going on with our attitude towards it. No, I'll tell you, we've always been super interested in any acquisition of any size in Florida for the county that we didn't have a certificate of need. Okay? We always have been. We're not necessarily in other areas of the country, that is, that aren't CON states, we've been very not interested in really companies that would have a lot of really small hospice programs that didn't have maybe weren't in a locale that was likely to provide enough patients to ever grow into a large hospice program. Those are kind of off the table. I think we always were interested in Florida. Covenant was a possibility. It was a great one. It's worked out great for us. There are other hospice companies in Florida that have certificates of need in counties that we're not in. We remain interested in those. It is interesting. There are different ways to get that ability, and that is by applying for it and getting the CON from the state. VITAS, one of the best things you can say about Nick and the staff at VITAS is they've been, I think, incredibly successful in building out those other counties and getting those admins. Nick, why don't you just talk about some of the recent developments that are guided? I think it is underappreciated by the market. They are very significant for us. A few recent ones. We opened Pasco County in October of last year. We'll be taking our first patient in Marion County on Thursday of this week, which for those of you familiar with Florida, that's where The Villages is located. We're really excited about that opportunity and our ability. We have another application in for the St. Petersburg area in Florida. Just to pivot as well to everything outside of Florida because we're spending a lot of time in those opportunities as well. It's public. We filed for an application to enter North Carolina. We'll see if we get awarded that. There are 12 other states in particular. We are dialed in and engaged in various forms in the cycle of talking about acquisitioning and entering the market. The one thing in which Covenant really represented to our industry, right? Covenant was a long-standing mission-focused nonprofit provider where we had a light culture. The acquisition and the integration and the support from the community has been phenomenal. The feedback from the team members, all of which who came over to us, has been phenomenal. Their surviving old foundations board, very positive as well. It helped represent to the industry that, look, we're a similarly like-minded mission-focused provider, one of the largest in the country, but we can do things the right way. It has opened up other opportunities for nonprofits in other states that maybe would not have thought about us that way. We are very excited. Our overall philosophy hasn't changed. We've always been interested in acquisitions in the right location at the right valuation, which Covenant certainly became that. The other thing I would say, more on a practical basis, Nick and the VITAS team have started really reaching out to Covenant-sized providers that we would be interested in talking to about an acquisition. I think our historical, what we did was more wait for people to call us. We are being a little more proactive, particularly based on how well Covenant went for us. Yeah. And it's all relationship-based. Covenant's launched one from four years prior to that. It may sound smaller, but it was 12 different counties in Florida, was the same setup and situation. We like to think we're a great option for many agencies and organizations out there. We have been much more proactive in making sure they understand we'd like to be a phone call and dialogue about it. I think there's more to come. We have the capital on the balance sheet to do it. It's just comparing that against all the other alternatives, whether it's share buyback or anything else. Just a few questions on the other business. Maybe the first one, we ask you about company in terms of exposure to tariffs. Can you walk us through how you're thinking about this? If there were to be tariffs on certain countries, what's your exposure specifically to things coming from China? Very low. Yeah, walk us through this. I think this is probably a higher exposure than on the VITAS side. Yeah, sure. For Roto-Rooter, obviously, to the extent we have to buy plumbing supplies, there would be certainly higher costs. For the most part, we pass the cost along to customers directly through our billing. On that side, we would not have a big issue from a tariff perspective for Roto-Rooter at all. I would expect almost minimal, if no real impact for Roto-Rooter. For our base business, we carry very little inventory. Okay? If a customer says, "I need a new bathroom fixture," we do not carry 10,000 bathroom fixtures. I mean, we say, "Okay, I will go to Home Depot. I will purchase it. By the way, here is the bill for it." That passes through with regard to ones that we do have. Yeah. What we do have is we build the machines essentially that are used to clean the drains. That requires we do buy steel. Of course, that would be potentially a significant tariff. We saw kind of which way the wind was blowing. We currently have approximately a year's worth of supply on hand already for steel. To the extent that we need to start buying steel again, that would not be until 2026. I guess another question on Roto-Rooter since we're running out of time. I guess we saw some nice improvement in this latest quarter in Q1 when the revenues actually grew very nicely sequentially and year over year, which was surprising, right? It sounds like you're making some progress with the commercial business, right? The residential sort of there. Maybe any updates since the quarter, how things are going in residential or commercial for that matter? Let me just say that the—and I'll try to short circuit it. On the commercial side, we have a very small percentage of market. We said, "Look, during the pandemic, we've allowed commercial to slip a little bit because it's harder business to maintain and get a little bit lower margin." And we had more business than we could take on the residential side. We went back to blocking and tackling. And we're very confident that the inroads we made are sustainable. It's business that in many respects can be conducted and grown without being reliant on Google. Okay? That's why it's great. We love it. We're looking to continue to put a lot of effort in growing it. On the residential side, as far as efficiently, we like what we're seeing. We have sufficient workforce. The calls that we're getting, we have a very high, one of our highest close rates at the dispatch side in taking the job. With regard to when the service van goes to the customer's home, we have one of the highest close rates we've ever had as far as closing that business. The problem is that we're not getting the number of calls we'd like to get. Why is that? It's largely maybe the overall demand is a little bit lower. Overall, we're looking at Google and Google placement and Google marketing. There are a lot of aspects. I know we're over the time. We can talk about it. It's basically we're dealing with Google, who's tough to deal with, increasingly expensive. The real push in companies like Roto-Rooter is how do you grow the business and be less dependent on Google? I think I'll just make one last comment. This was a small part of it. You've heard us talk about our app. We started January 1 from a standing start. Since that time, we've had just about 15,000 people a month download that app, which means that if they want Roto-Rooter, they push the button. We don't pay a Google fee. More importantly, they don't see 10 other competing businesses vying for the business. I mean, it could be daunting. For instance, if you were to put in Roto-Rooter Las Vegas plumbing in your phone, you'd probably get four other plumbing companies that appear before our listing. I mean, it's tough to deal. Our big approach is how do we grow the business without a dependence on Google? Easier to do on the commercial side, but we're making headway on the residential side. I know we're over the time. Thank you so much. Thanks, Joe.