America Healthcare Conference. My name is Joanna Gajuk. I cover healthcare providers at Bank of America. This session we have planned is with Chemed. It's a very interesting company 'cause it's partially healthcare, but partially not healthcare, so we try to hit on these other topics as well. Today with us, we have the entire team. We have Kevin McNamara, who's the CEO. We have Michael Witzeman, who's the CFO. Looking at Joel Wherley, who's the CEO of VITAS. We're gonna talk about VITAS first to put you on the spot. I wanna touch base on the other business as well, 'cause there are a lot of questions still floating around that business. I guess when it comes to the hospice operations, Florida cap was an issue. Sounds like you guys, you know, doing much better on that front. You know, you did raise your census growth outlook for the year. Kind of, you know, the question is: What gives you confidence you can grow census and manage the Medicare cap in Florida given the, you know, the prior experience? Yeah. As we talked about in the fourth quarter of last year, first quarter of the Medicare cap year, we really wanted to see how that first quarter played out. We came out of that quarter in an extremely strong position, exceeding our expectations. We've put metrics in place to manage our referral balance so that we can see real time if we are leaning one way or another in a pre-admit environment, i.e., short length to stay, long length to stay patients, and respond accordingly. We've established a bandwidth that we wanna maintain for hospital referrals as a pre-admit environment, and we manage to that every month. We can redirect our selling resources to specific types of pre-admit environments. We can't control length to stay of patients, but we can control where we spend our time. Our selling resources have been very effective in delivering our strategy to mitigate Cap, especially in the state of Florida, which we put completely behind us and have no concerns whatsoever. I guess, when it comes to reimbursement, the fiscal 2027 proposal that comes out was kind of benign, when it comes to not including any major changes, right? There were some, you know, little things here and there, so maybe can you flesh out the things you focus on in the reg? I know this is just preliminary. Yeah You know, proposal, just kinda walk us through the things you kinda look at and say, "Hey, this is good," or, "This is bad," or, "This is where we, like, you wanna push back or maybe ask CMS to look at things differently. The comment period is still open. To, to your point, that'll close June second, and then we'll await in August the final rule. The rate increase for 2027 is proposed nationwide at 2.4%. As we look at specifically Florida, we have on a preliminary basis identified that Florida's probably gonna come in on the low side of that 2.4, probably in the 1.9%-2.0% range. Or nationwide, we're gonna come in in the 1.9%-2.0% range. Florida will come in a little bit lower than that, closer to the 1% range. Unlike what happened when we had the significant Medicare cap concern, the nationwide average was around 3%, and Florida came in at 5%. We feel good where we're at. Would we like it a little bit higher? Sure. We feel we'll be able to manage to that and feel good about where it's at. We will deliver our comments back to government. And there's many things in the wage roll, Joanna, as you know, that we'll comment back on, that's one of those. Some of the things that were included in this proposal were around some incremental oversight measures. Like, there was this index. You know, we kind of tried to look at this, and then CMS took down the data that we were using. I know there were some questions about, you know, how they were coming up with this index. Any comments on that, how you think about this becoming a reality and what it would mean for the company? Yeah. it's the Service and Spending Variation Index. SSVI. That's still in a, as we understand it, a preliminary phase. We anticipate some recommendations coming out before long that will provide additional oversight specific to the hospice industry. Waste, fraud, and abuse has been at the forefront of national communication. Dr. Oz specifically held hearings in California, of which we participated in. They had congressional hearings two weeks ago, of which we provided input to the representatives who testified. Look, in reality, when L.A. County grew from the high four hundreds of providers to nearly 1,500 providers, totaling 30%-40% of the national total of hospice providers, there was an issue. The government has identified that. They are very serious about improving that oversight. What we wanna guard against is that the patient sitting out there and their loved one, medically eligible for the Medicare hospice benefit, doesn't have restricted access because of overzealous oversight. We want the fraudulent providers out of the industry, and we support every bit of that. We also wanna make sure access is not restricted for those in need. Just following up on that comment, so you worried about access being restricted for the patients and, would this be opportunity for you to take some of these patients, or this actually could end up not being such a bad situation for VITAS in particular? Yeah, we certainly do not see that as a headwind. We see it as an opportunity. You know, in reality, almost half of the individuals who pass away in the United States. who could access the Medicare hospice benefit, end up receiving that benefit. There is a lot of opportunity of individuals out there through education, through expanded access. You know, one of the things that was floated out there was a national moratorium on new hospice licenses. There are many areas throughout the country that are very underserved. We don't wanna see, again, an overzealous oversight, be a restriction to patients being able to gain access. In regards to VITAS, we do see it as an opportunity. You know, we are one of the top providers of end-of-life care in the nation, and I can speak specifically to the state of California. Just in recent weeks, we've seen an increase in referral activity from providers who, or from referral sources who are concerned about who they may have been sending patients to in the past, and they've went with a trusted brand, a trusted provider, as VITAS is the largest provider of end-of-life care in the state of California. The other element, when it comes to the guidance for that segment, you raised the margin outlook as well. It's gonna walk us through kinda what's driving that improvement, and is that sustainable, and how we should think about, you know, even going forward. Yeah in terms of the margin in that segment. Our margin expansion, look, when we've talked about the mitigation strategies we needed to employ to reverse the Medicare cap situation in the state of Florida, that was to focus on hospitals as a pre-admit environment, which has a tendency to drive a higher number of short length of stay patients. Short length of stay patients have a tendency to be more expensive, more complex, more critical. As we begin now to balance that admission volume, throughout all the pre-admit environments, but certainly non-hospital opportunities, we know that's going to deliver a longer length of stay patient, will allow us to balance that cost over their span of care. Our teams have done a great job, from labor management to prudent operational management, to work through the concerns we have. It's nice to put that behind us. As we look at then expanding ADC throughout the end of the year, and as we said, we restated guidance for ADC, in total days of care, that'll allow us to expand that. Joanna, we were a little conservative at the beginning of the year with our guidance because we weren't sure how quickly Joel and his team could, you know, reverse the trend and start taking in those longer stay patients. So we were a little conservative when we issued the original guidance in February. Joel and his team, as he said, have done a spectacular job of really accelerating the growth of that segment of the business. That's evidenced by our first quarter, we had guided to essentially zero ADC growth or flat ADC. We actually grew at 2.2%. That actually builds on itself as the year goes on with the long stay patients. So that's why we felt pretty comfortable not only expanding the top line in our guidance, but also the margins as well. I guess it ties to my other question around how we should think about VITAS' growth outlook, say, you know, beyond 26? Is there some things that changed how you're looking at things? 'Cause obviously, there was a period of very fast growth in that segment when it comes to census at some point growing, you know, high single digits to, you know, double digits. Can you get back to that, or should we think more about kinda like mid-single to high single digits census growth being the kinda normal target growth? I think, I mean, Joel, I'm sure he has comments as well. I think purely from a demand standpoint or from the market standpoint, we could certainly grow the business double digits in the near future with the, with the demographics of the country and the things, the people who are gonna need access to hospice over the next three to five years. The Medicare cap is what really limits that growth. We think really a sustainable, responsible way to grow the top line is more in the 8%-10% range. Of that, of course, 6%-8% comes from ADC, the rest comes from reimbursement. You covered that well. Thank you. You know, national data is that by 2030, one in five Americans is gonna be over the age of 65. The growth opportunity is there, and specifically in the state of Florida, that number drops to one in four. There is gonna be a lot of opportunity to impact the quality of a patient and their loved one's final journey. Long that journey might be, whether it's a short length of stay or long length of stay, and we're well-positioned to be able to handle that increased capacity. Another, I guess, piece of the growth story, could be external growth around just acquisitions. You guys did something, you know, feels like a while ago, right? Since then you've been adding these de novo and CON approvals in Florida. Kind of, you know, what's the latest thinking around just doing maybe more acquisitions in that segment? Yeah. We're, I mean, we're continuing to evaluate opportunities. They come across our desk just about every single week. The valuations and the multiples required to get those deals done had reached a very high, unrealistic number. We're seeing those numbers begin to come back down. We will still be very aggressive in CON markets where there's a barrier to enter the market. We were awarded our latest CON in the state of Florida in Manatee County. We go live with that new start next month, so very excited. Our last four in the last 18 months were three or four in the state of Florida, and they are all exceeding expectations beyond what we could have imagined. It speaks to the need of the patients and their loved ones in those areas. They have all done extremely well. It'll continue to look, as Joel said, at M&A opportunities, it'll have to be in the right location. It'll have to be at the right valuation. We're gonna be very selective. If you think about in a hospice business, what are you really buying? You're buying a referral network. You're not really buying patients, you're buying an employee base, they're not contractually obligated to you in, you know, neither the referral network or the employee base. What you're buying is, you have to be careful. You have to be careful on valuation. We like really the de novo route. It's a much more efficient use of our capital. We- There, there's- Oh, go ahead. In the, uh- It's on. There's acquisitions in the state of Florida and outside of the state of Florida for VITAS and, you know, any county that we don't have, we're an active participant in. In any other state, as there's a few exceptions for a few CON opportunities, but any other state, we're looking at acquiring businesses that, as Mike says, there's, you know, not a lot of bricks and mortar. There's, you know, the most valuable item referral network you can't tie up legally. They're also, you have to look at, you know, the expectation of how large they could be. VITAS is a full-service hospice with four level layers of care, has a higher break even. I mean, we, our break even in a hospice program might be higher than their largest, you know, the largest program in some of the acquisition opportunities that are out there. Just, you know, it's. I'm not demeaning their efforts. It's just one thing to be in a major metropolitan area and another to be on the periphery or even in a rural area that you can't have the expectation of the costs associated with a full-service hospice. People ask us about acquisitions, you know, over the decades, you know, saying that, "Here's one." We say, "Yes, that We were interested in three of their programs, but not the other 17." You know, we'd lose money on the other 17. That's the nature of the game. We do have three pending CONs in other states, two in North Carolina, one in the state of Washington, that we'll find out later this year. When it comes to these CONs, it sounds like you executing pretty well in Florida, in these markets, and like Kevin alluded, you know, the deals are kinda like not guaranteeing you employees. I'm just curious, like how are you able to staff in those CON states? You're essentially able to kinda take over some of these nurses and others from your competitors or? We have not experienced staffing concerns in our ability to open up and begin an operation in other locations. You know, we do have a different model as we approach and it's been one of the, especially in the state of Florida, one of the significant benefits is we come in fully staffed and we go all in. As compared to some of the competition that kind of pays as they go. They add staff as they grow. We come in with our full staffing model so that there aren't any unmet expectations from day one. I was thinking before we switch to one of the segment, there was something else I wanna ask you, but I guess maybe it will come back to me. Maybe switching on, 'cause I guess we have 10 minutes left. In the other segment, right, a lot of disruption the last, I guess, couple of years really, right? The first quarter seems like, you know, things may be, you know, kind of looking a little bit better, but still, you know, if you exclude, you know, there's some weather disruption and such. If you do that, like revenues barely grew really, right? Even if you exclude that disruption and you're, you know, talking about 3%-3.5% growth, right, for the year. The obvious question is like, how are you gonna get there from like just, you know, barely growing in Q1 or on the report of full, you know, considering all the things, it was actually decline, right? How are you gonna ramp it up to get to your full year guidance? I think if you think about the weather issue we had in the first quarter, we would've been up slightly in the first quarter, otherwise in the top line. The first quarter behaved the way we expected it to. There's a few things that I know we've talked about is our commercial business. We're implementing commercial business managers. We hired 19 in the first quarter. They take anywhere between 30 and 60 days to get up to speed and start producing sales. We expect that business to improve. As you know well, we've talked about it a number of times, but the water restoration business saw some disruptions, mainly due to some things that we needed to improve in our documentation and our billing and collection procedures. We're sort of in the middle of that. We knew that the first quarter was probably gonna show some disruption in that business as we essentially centralized 51 branches. That again, it behaved the way we expected. It wasn't good results, we wouldn't say that, but it was as expected. Again, we expect that to improve over the rest of the year. As I say, a bridge, not an insignificant part of the bridge is related to just the improved collection percentage. Sure. Sure. Historically in water restoration, we wrote off 9.5% of the revenue in that business. Late, for all the reasons we've talked about, in late 2025, that spiked to about 16%. We knew that we were gonna improve that through the centralization effort. It's now back to about 12.5% or 13%. Not quite back to the 9.5, but it is on its way back, as we expected, to where it's a better sustainable level. I guess there's also the acquisitions you did, right? There's two franchises that you bought, so there's gonna be also incremental growth. Yes for the rest of the year. Yeah. Right? That's about $5 million over the last three quarters. Maybe like a percentage point or so of that growth from this. All right. Maybe I will ask a question, I don't know if you're willing to answer, but in terms of what are you seeing right now? Sounds like, you know, early in Q1, very disruptive, then sounds like March looked better. Just curious, any update on like where things are, you know, April or May? I think April performed about as we anticipated. I don't think there's any big surprises as we sit here at this point in the quarter. Right. You know, you talk about the collections, the water restoration, I guess the other part of the equation here is around the Google search engine optimization. I guess you try to kind of fight the, you know, Google which is hard. Maybe kind of give us an update where you stand on the new, I guess, third party that you hired to help you with that process. Well, let me just start by saying that, you know, we improved. We saw through their efforts and some of our internal efforts, visibility on the, let's call it the map section, which is the most significant part of the free search, as it were, on Google. We saw our visibility improve from the end of the third quarter of 2025. It was sitting at about 23% visibility. In other words, nationwide, we'd show up on the map 23% of the time. That's down from 72% about 12 months before that, but so it's a little over 23. In December, January, and February, we grew that to a level of about 35% visibility. With again, where our expectation was we're continuing to make progress. It's our understanding that Google, the first week of March changed their algorithm, and we almost immediately fell to 23% as far as visibility, which is something we track on a daily basis. Basically went to work on making adjustments to, you know, what changes Google made in their algorithm. By the first week in April, we were back up to a 33%-34% visibility factor. You know, the issue is it's a battle. Google does not change their algorithm all that often. I mean, it's not like we anticipate doing this every month. We look to stay on top of the situation. It's a tough one. As you said, Google's big. They're the 800 pound gorilla, you know, on the subject. We don't ignore them. You know, from our perspective, the biggest issue we'd say with regard to Google is that we're kind of winning the war on paid search. In other words, the last three quarters, the quarters have shown that we've increased the number of paid search leads or calls or telephone calls by double digits, including 18%, 18.5% in the most recent quarter, without increasing substantially the amount we're paying per click. We're seeming to make great strides in that. Our results would have been spectacular, I suppose, if our natural search leads hadn't fallen 15.5%. Again, we're order of magnitude where we showed 3% net gain, but we're still fighting that battle on the natural search. Again, Google's not gonna go away. We don't ignore it. I think there, you know, we have elements of our arsenal. That is our app, you know, where we're where customers can get us directly without going, clicking on Google. We have AI platforms, which are basically, if somebody's searching for a plumber on the AI platforms, that's essentially at this point, a natural search. No, no fee associated with that. You know, the fees aren't, are not insubstantial per job. We're continuing to fight that battle. It's not the first time Roto-Rooter went through a major transformation like this. When Roto-Rooter went from being the number one entrant in the Yellow Pages for plumbing for the first two pages of virtually every metropolitan directory to just a single line, you know, on the internet, that was a tough transformation. I don't think the one we're going through now is as tough necessarily, but it still has very significant elements As Kevin said, I mean, it's a cat and mouse game, right? We do things to improve our positioning, then Google changes something, and we have to respond to that. I think the big change or the big difference between, say, this time last year and where we're at now is we're much in a better position to respond quickly. Our new SEO is really focused on the underlying Google engineer and the engine versus sort of, you know, the traditional marketing. They're looking at to see how quickly to change things. They use AI to change our underlying structure on the internet to respond as quickly as possible. I think we're in a better position today to respond than maybe we have been in the past. Okay, great, 'cause that was my follow-up question. Like, what exactly is done differently? All right. I guess they take different approach. Not for the m arketing side of things, but just actually the back end. Yeah, the new SEO are actually they're mainly engineers. They reverse engineer what Google has done, and then we respond appropriately. I guess you mentioned Kevin, around the paid leads, right? The cost of that. I guess what comes with that, with that growth was the higher costs, right? The margins obviously suffer because of that. As we think about going forward outlook for that segment, you know, is it sort of like this is the new base or, you know, there's more risk that actually the margins, you know, could decline? Do you expect kind of reversal? Mike could jump in here. I mean, I think that this is largely the new normal as far as on the marketing side. I mean, we think we're gonna fight and scrap, and there's no reason to believe that we're not gonna make slight improvements. Still, Google is a substantial expense. It's necessary. It's where we get 80% of our leads, natural or otherwise. We just play the game until other elements outstrip them. We'll need to drive top line with the additional marketing spend. We can normalize margins a little more with efficiencies in other places, covering fixed costs. As long as we're driving the top line, the margin will be fine. The one thing that I would suggest, even at our current margins, are at or slightly above our pre-pandemic margins. It hasn't been a disaster in any fashion, but it is, you know, causing, I'd call it 100 basis point compression on where we think the margins really should be. You're saying from here, this is a good base? Yes To think about the margins. The very last question, so it's almost on time. The company has no leverage very much, pretty much. I mean, there's a little bit debt now maybe on the balance sheet, but not really that material. How should we think about that? That's why I was asking you about acquisitions, because I don't know if there's anything in the, on the Roto-Rooter side in terms of capital deployment or, you know, you're just gonna buy back stock. I think as you mentioned, since we have a completely clean balance sheet, we can do both. We have no, we have no restriction on buying back shares at an opportunistic price where we think we are now, for instance. That doesn't prohibit us from doing anything on an M&A front that we think makes sense, either on the VITAS side or on the Roto-Rooter, acquisition of franchise side. All right. Great. Thank you so much, everyone. Thanks for your time. I appreciate it. Thanks, Joanna.