Chemed Corporation (CHE) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Chemed Corporation Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to one of your speakers today, Ms. Sherri Warner with Investor Relations. Ma'am, please go ahead.

Good morning. Our conference call this morning will review the financial results for the third quarter of 2020 ended September 30, 2020. 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 October 29 and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated October 29, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today. Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Dave Williams, Executive Vice President and Chief Financial Officer of Chemed; and Nick Westfall, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherry. Good morning. Welcome to Chemed Corporation's third quarter 2020 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow-up with additional operating detail. I will then open up the call for questions. When we reported our second quarter 2020 operating results, I noted that the pandemic and related economic lockdown severely impacted our April 2020 operating results. Since April, both VITAS and Roto-Rooter have reengineered their operating procedures to safely care for our patients and customers during the pandemic. These operational changes have allowed Chemed to generate sequential operational improvement starting in May 2020, and this improvement has continued and has, in fact, accelerated throughout the third quarter and continued into October. David will provide updated earning guidance later in the call. Our hospice segment operations continued to be impacted by the pandemic. Fortunately, the federal government, specifically HHS and CMS have been exceptionally supportive in terms of relaxing regulations, allowing the use of telehealth where appropriate and providing pragmatic flexibility in caring for our 19,000 patient census. The severe initial disruption within our patient referral and admission patterns we noted in the second quarter has noticeably dissipated throughout the third quarter. This improvement is reflected in our third quarter admissions. Our July 2020 admissions increased 4.3%, August increased 5.9% and September admissions expanded 4%. Overall, our third quarter 2020 admissions increased 4.7%. Our average daily census did decline two-tenths of 1 percentage point in the quarter. The slight decline in census is a result of soft admissions from the second quarter as well as supressed referrals from nursing homes and assisted-living facilities. We anticipate admissions to normalize when these types of facilities return to their pre-COVID occupancy levels. Nick will provide additional census and admissions detail later in this call. As I discussed last quarter, we made the strategic decision for Roto-Rooter to maintain full staffing and operating capacity early in the pandemic. This strategic decision to maintain full capacity was designed to capitalize on any snapback in commercial and residential demand, both to protect existing market share as well as to maximize on opportunities to grow market share. I believe this has proven to be the correct strategic course. Roto-Rooter services demand began to show weekly improvement beginning in the later part of April and has strengthened unabated throughout the second and third quarters of 2020. This is reflected in our monthly performance. Roto-Rooter unit-for-unit commercial revenue declining 38.6% in April, improving to a 31.8% decline in May and a decline of 19.7% in June. Third quarter 2020 unit-for-unit commercial demand did decline 11.6% when compared to the prior year quarter. This third quarter commercial demand is a significant improvement when compared to the 29.1% decline in the second quarter 2020 commercial revenue. On a sequential basis, third quarter 2020 unit-for-unit commercial revenue totaled $39.5 million, an increase of 26.8% when compared to the second quarter of 2020. Our residential services have proven to be exceptionally resilient with our unit-for-unit residential revenue declining a modest 1.6% in April, increasing 11.7% in May and 18.7% in June. The third quarter residential demand set all-time records with July 2020 unit-for-unit residential revenue expanding 22.8%, August revenue increased 24.1%, and September 2020 residential unit-for-unit revenue increased 26.6%. This translated into Roto-Rooter on a unit-for-unit basis having third quarter 2020 commercial revenue declining 11.6% and residential revenue increasing 24.6%. Total Roto-Rooter third quarter unit-for-unit revenue increased 12.9% when compared to the prior year. Including acquisitions, Roto-Rooter generated consolidated third quarter 2020 revenue growth of 20.4%. I anticipate continued strong operational and financial results for both VITAS and Roto-Rooter, as we operate during the pandemic. With that, I would like to turn this teleconference over to David.

Thanks, Kevin. VITAS' net revenue was $337 million in the third quarter of 2020, which is an increase of 4.8% when compared to the prior year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 5.7%, a 0.2% decline in days-of-care and acuity mix shift, which then reduced the blended average Medicare rate increase 242 basis points. In addition, a favorable reduction in our Medicare Cap liability increased our third quarter 2020 revenue growth 162 basis points. Our average revenue per patient per day in the third quarter of 2020 was $194.10, which, including acuity mix shift, is 3.2% above the prior year period. Reimbursement for routine home care and high acuity care averaged $166.51 and $971.71, respectively. During the quarter, high acuity days-of-care were 3.4% of our total days-of-care, 57 basis points less than the prior year quarter. This 57 basis points mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.7% to 3.2% in the quarter. In the third quarter of 2020, VITAS reversed $4.1 million in Medicare Cap billing limitations recorded in earlier quarters. This compares to the prior year third quarter Medicare Cap billing limitation of $1.3 million. At September 30, 2020, VITAS had 30 Medicare provider numbers, 4 of which have an estimated fiscal 2020 Medicare Cap billing limitation liability that totaled $8.7 million. This compares favorably to the full year fiscal 2019 Medicare Cap billing limitation liability of approximately $11.4 million. VITAS' third quarter 2020 adjusted EBITDA, excluding Medicare Cap, totaled $68.2 million, which is an increase of 25.6%. Adjusted EBITDA margin, excluding Medicare Cap, was 20.5% in the quarter, which is a 367 basis point improvement when compared to the prior year period. Now let's take a look at Roto-Rooter. Roto-Rooter generated quarterly revenue of $191 million in the third quarter of 2020, which is an increase of $32.3 million or 20.4% over the prior year. On a unit-for-unit basis, which excludes the Oakland and HSW acquisitions completed in July of 2019 and September of 2019, respectively, Roto-Rooter generated quarterly revenue of $173 million, which is an increase of 11.4% over the prior year quarter. Total commercial revenue, excluding acquisitions, did decline 11.6% in the quarter. This aggregate unit-for-unit commercial revenue decline consisted of drain cleaning declining 13%, commercial plumbing and excavation declining 11.2% and commercial water restoration declining 1.6%. This was more than offset by the residential activity. Total residential revenue, excluding acquisitions, increased 24.6%. This aggregate residential revenue growth consisted of residential drain cleaning increasing 22%, plumbing and excavation expanding 31.2% and residential water restoration increasing 16.1%. Now let's talk about our 2020 guidance. Over the past 7 months, our operating units have been able to successfully navigate within a rapidly changing environment and produce operating results that we believe provides us with the ability to issue guidance for the remainder of the calendar year. However, this guidance should be taken with the recognition that pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could have an immediate and material impact upon our ability to achieve this guidance. Within this context, revenue growth for VITAS in 2020 prior to Medicare Cap is estimated to be 4%. Our average daily census in 2020 is estimated to expand approximately 1.3%. And VITAS' full year 2020 adjusted EBITDA margin prior to Medicare Cap is estimated to be 21%. We are currently estimating $8.6 million for Medicare Cap billing limitations for calendar year 2020. Roto-Rooter is forecasted to achieve full year 2020 revenue growth of 12.5% to 13%. This full year revenue growth assumes 2.7% of seasonal sequential revenue growth from the third quarter to the fourth quarter of 2020. Over the past 5 years, excluding water restoration and the impact from acquisitions, this Q3 to Q4 seasonal sequential revenue growth has averaged between 4% to 11%. Based upon the above, Chemed's full year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits for stock options, costs related to litigation and other discrete items, is estimated to be in the range of $18 to $18.15. This compares to our previous guidance of $16.20 to $16.40. This 2020 guidance assumes an effective corporate tax rate of 25.8%. And for comparison purposes, Chemed's 2019 reported adjusted earnings per diluted share was $13.95. I'll now turn this call over to Nick Westfall, our President and Chief Executive Officer of VITAS Healthcare.

Thanks, Dave. In the third quarter, our average daily census was 19,045 patients, a slight decline of 0.2% over the prior year. This decline in average daily census is a direct result of the disruptions across the entire healthcare system, which started in March that impacted traditional admission patterns into hospice. While certain healthcare sectors have shown improvement in admission patterns in the third quarter, the long-term care market, specifically nursing homes and assisted-living facilities continue to be impacted as they work to safely navigate serving their residents during the pandemic. ADC growth is expected to normalize over the coming quarters as we return to pre-pandemic referral patterns across all sectors of the healthcare industry. In the third quarter of 2020, total admissions were 17,943. This is a 4.7% increase when compared to the third quarter of 2019. In the third quarter, our admissions increased 18.3% for our home-based pre-admit patients. Hospital directed admissions expanded a positive 6.2%, nursing home admits declined 22.6% and assisted-living facility admissions declined 13.5% when compared to the prior year quarter. Our average length of stay in the quarter was 97.1 days. This compares to 92.6 days in the third quarter of 2019 and 90.9 days in the second quarter of 2020. Our median length of stay was 14 days in the quarter, which is 3 days less than the 17 day median in the third quarter of 2019 and equal to the second quarter of 2020. Median length of stay continues to be a key indicator of our penetration into the high acuity sector of the market. Before I turn this call back over to Kevin, I wanted, again, to thank our VITAS team for their continued commitment and perseverance to provide high-quality care in every community we serve across the country. Additionally, I want to acknowledge the work our team has done to ensure, as an organization, we are well prepared to continue to navigate this pandemic, no matter how long it lasts. As we sit here today, we're confident in our ability to support all of our team members and their ability to deliver care by prioritizing their safety with sufficient PPE inventory, education and clinical protocols. Additionally, we'll continue to utilize the resources and testing supplies we've acquired to comply with federal, state and local requirements to safely access the health facilities in our markets. Lastly, our entire team will continue to be out in the communities we serve, collaborating safely with our local healthcare partners to successfully identify and navigate patients and their families onto the hospice benefit during this unprecedented time. As we've internally discussed throughout the pandemic, we'll get through this by continuing to support one another and the patients and families we serve, all while focused on continuing to deliver the results we have thus far throughout the pandemic. With that, I'd like to turn this call back over to Kevin.

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

[Operator Instructions] Our first question comes from the line of Joanna Gajuk with Bank of America.

So first, I guess, on the VITAS segment. So you mentioned the last comment here about, obviously, the limitations that nursing homes and assisted-living facilities are having in terms of visitation, and I guess the census. So can you remind us how big is that business for you? And also you said that you expect ADC to normalize as you return to pre-pandemic referral patterns. But do you already expect this part of the healthcare system to kind of return next year? Or kind of what is your view on that part of business?

This is Dave Williams, Joanna. I'll just say, right, nursing homes are not a critical part of our census total. We're not overly dependent. I think about 14% of our census is in nursing homes, a 14% to 15%. It's also worth noting that of our patients in our nursing homes, over 80%, we only have 3, 2 or 1 patients in that facility. So we don't have a large concentration under any single row. So that's a starting point. Although by location of patient, nursing homes have the second longest length of stay statistically. But with that, I'll turn it over to Nick in terms of what he's seen on those type of facilities.

Yes. And Dave alluded to, when we think about overall nursing home volume as well as assisted-living, it's a definite component, and we've seen it decline on a year-over-year basis, like other providers have as it relates to total days-of-care. To your question related to do we really anticipate that coming back to pre-pandemic levels and when, it's a little bit of a nuanced answer in the fact that none of us can predict when patient flow into nursing homes is going to come back to pre-pandemic levels or if it would ever. However…

There could be some pent-up demand.

Correct. And that's exactly where I was going to go. Between the pent-up demand for accessing nursing homes and the assisting -- ALF market but also pent-up hospice demand. The one thing I think we found inside of the pandemic are nursing homes and ALFs are really now more than ever, paying attention to their hospice partners in the local communities, and they really want to provide access to those that have scale, have the ability to provide care in a safe manner consistent with all the CMS regulations, and that's what we're able to do and have set ourselves up to be able to do throughout the pandemic, whether it's compliance with testing requirements or ensuring that we -- our staff have sufficient PPE and telehealth capabilities to really provide care to the residents.

Right. That makes sense. And then because, I guess, the other piece of the more important piece, right, is the hospitals, also your referral source. So I guess there's improvement there. So I guess that's what you were referring, saying that you expect the volumes to kind of come back to normal. So that's probably the one area where we're seeing that. And I guess thinking about those comments, because the guidance for revenue for VITAS, you lowered it, so now it implies revenues for Q4 down from Q3. Is there some sort of seasonality? Or are you just kind of saying that ADCs will be sort of still flattish? Or any kind of comments there on kind of the sequential revenue for us VITAS implied by the guidance?

Yes. Joanna, I'd say sequentially from Q3 to Q4, no, we're anticipating revenue growth. But if you want to look at where you want to talk about the revenue from the prior year Q4, it could be down up to a fraction of 1%, up to 1%. So that's -- so we're talking sequential. There'll be growth is our expectation. If you want to compare it to the prior year that I had a much higher acuity mix, then we could be down ever so slightly. But it's acuity mix shift that's driving that more than anything.

Joanna, one thing I would just add, one way you can track this is or understand this is say -- look, and I'll focus on one state, Florida, which is very important to us. Florida's nursing homes, particularly and hospitals have been disrupted. And people are -- their admissions into nursing homes, people say, well, oh, that could be a place filled with coronavirus. So they've had their admissions disrupted. Hospitals just have had -- they are operating -- and those are -- that's our most significant referral source, hospitals. They've been disrupted. The net effect of this is you get more patients, relatively speaking, with shorter stays. Our median length of stay for instance was 17 last year and 14 this year. This basically says more short-stay patients, relatively speaking. That is -- that affects your ADC, that's the revenue. So I'm just saying, to the extent that the other factors come into, what we say, normalcy, we expect to see -- first thing we expect to see is our median length of stay go up and then gradually the ADC hitting against normal levels for their contribution per patient. So that's just one way to look at it in a broad sense.

And 1 last piece, Joanna, just to highlight. You noticed 6-plus percent increase on a year-over-year basis from hospital admissions. That's both up year-over-year as well as sequentially Q2 to Q3. However, also pay attention to the home-based component, which are primarily a lot of the physician office pieces. And when we think about referral patterns inside a healthcare system, we've seen more patients accessing, whether it's primary care or other specialty physician offices and avoiding other settings throughout the pandemic, which is not a surprise. And that being up 18% in the quarter on a year-over-year basis as well as up sequentially gives me great confidence in the strength of our education and awareness out in the communities to really have a diverse referral mix that really allows us to identify and be a good partner for all hospice appropriate patients in the community, regardless of where they're choosing to access the healthcare system, whether that's physician offices, hospitals or assisted-living. And that's why we prioritize the diverse referral stream.

Right. No, that definitely makes sense. And I guess to just close it, I guess on the VITAS segment, the margins there were very high. So how should we think about -- and obviously, you raised guidance, so I guess you're expecting this to be reflective in Q4 as well, but how should we think about next year's margins? I mean, are these margins sustainable? Clearly, you've got the [indiscernible 25:47] -- from the sequestration left, which we don't know where it's going to go, but let's assume it goes away. How should we think about these other drivers of ADCs coming back, does it mean that costs will come out because then you need more labor. So any kind of dynamics you can walk us through how we think about margins, let's say, for next year given the strength this year?

Well, let me start by saying, we're going through our budgeting process, and we don't really want to talk about next year. But as you make the point, I mean we will budget that the relaxation of sequestration ends December 31st. That's 2%, which obviously is -- that's a tough comparison. But as far as the other aspects of the business, the things that I don't think are going to go away is effective use of telehealth and the acceptance of telehealth by the patients. This is becoming the new normal. I mean, to the extent that the labor component is low on a comparative basis, I think, is the new normal. So we don't want to talk too much about the budgeted or projected margin for next year, other than to say, will be planned sequestration returning to its previous level.

Just to piggyback on Kevin's comments, Joanna, what we’ve really tried to focus on at VITAS internally is we've learned a lot throughout the course of the pandemic, whether it is -- what's the appropriate balance of telehealth if we were prepared for the pandemic, obviously accelerated that into the norm. But how that works combined with just normal plan of care, the physical plan of care component of it and really narrowing in on what patients and families prefer and how they prefer to have that care developed. I think we're focused on continuing to improve quality overall, and we'll incorporate that, obviously, into our 2020 budget numbers, but we're going to not lose the opportunity to learn and capture the things that we've experienced over the last 7 months and incorporate that into our care delivery model going forward.

But Joanna, what we definitely expect in 2021 is what I'd call a slow and hopefully, methodical return to pre-pandemic admissions, the type of admission. So hospitals return to normal nursing homes, assisted-living facilities, we normalize. So hopefully, by December 31 of 2021, we'd be probably gotten back to where we need to. And we do expect to return to providing more high acuity care as appropriate based upon our patient mix. So yes, that certainly could reflect somewhat on margins. But only because we're going to have more revenue for care with a higher cost, we expect the overall profitability of VITAS to continue. So we don't view the absolute profitability of VITAS as just pandemic-related by getting the extra 2% for relax in sequestration. What we think is margins have been a little more volatile to the positive in this case. But the fact of the matter is, the growth in VITAS is going to continue. Census growth is going to normalize again to about a 4% level is what we anticipate, high acuity care will return, so revenue will go up, but at a lower margin, but still the same dollar of profitability for day-of-care. But 2021 is going to be kind of hopefully a mirror image of the disruption we saw in 2020. And by 2022, we're running as normal as possible post-pandemic.

Right. And if I may, on Roto-Rooter, 1 question here. Because these margins there all-time high. I mean, 26% for this year? I mean, how sustainable is that, I guess? Because I mean, you talked about in the past because of the condemning and the shift in the business mix, right, towards residential risk, commercial. How should we think about a similar question in terms of next year, as you expect potentially commercial growing, how would that impact margins? Or have you done something differently on the cost structure that's kind of sustainable into next year?

I would say, no, with regard to Roto-Rooterm, it's business would be usual. It's just very strong residential demand, improving commercial. When you look at the -- when you look at say, what -- within it, what's driving margin? What's the type of thing that's changing the business a little bit? Excavation and water restoration, I mean they've been very strong. It's an ongoing process. We're trying to determine is it pent-up demand for those services? Is it market share taking? Is it a little bit change in the dynamic of providing the service that is more people are home, more decision-makers are home, when the service man calls making a 1 step process. We're still getting to the bottom of those questions. But generally speaking, I'd say no. Roto-Rooter is -- the pandemic response is just -- I mean, the aspect of the business is minor. Or again, it's these factors that we don't really understand yet. That is the pent-up demand versus market share taking. We've been very active with the marketing, our Internet marketing in a time when maybe others are pulling back a little bit. But it's -- and that might be pandemic-related, but generally speaking now, we think Roto-Rooter is just relative -- given their advantages in marketing compared to the competitors and having the men available to do the work, it's just in a good place. And it's -- as Dave indicated, we continue to see that. That's -- when we raised guidance for the fourth quarter, a driving factor in that is Roto-Rooter.

Yes. Our expectation, Joanna, I mean, VITAS is more exposed to government intervention, changes in reimbursement. There's a lot of pressure points that impact VITAS. Roto-Rooter, we've taken share. We've increased our penetration on existing customers. We're definitely getting great utility of our three, 24/7/365 call centers. So we really just see this as momentum that Roto-Rooter is going to hang on to. I can't say that we clearly don't anticipate we're going to do the same growth rate in residential in 2021 as 2020, it might even soften quite a bit by continued growth. But then commercial, which has been hobbled, we fully expect to have above-average activity in 2021. It's just a long way of saying is the Roto-Rooter business is the gift that keeps on giving. As long as water and raw sewage is going someplace, it shouldn't be going, have an army of technicians and trucks waiting to respond immediately, that is not going away. So our positioning has been enhanced by the pandemic, very similar to how it was enhanced with a great recession. And we've picked up share. We've expanded the awareness of our brand. Because the way we respond to jobs, we're in very, very good position on a go-forward basis for maintaining the momentum we've captured this year.

And our next question comes from the line of Frank Morgan with RBC Capital Markets.

You just answered my Roto-Rooter question. But I guess just to jump back over to VITAS, I know you commented about the reduction in the cap accrual. I'm just curious, is that more likely to happen in the future given this whole dynamic about the patient mix shift and the lower length of stay and you're seeing in median and average length of stays? I guess, first question, any color there, any thoughts about that?

I'll turn it over to Nick. But let me -- Frank, let me just say, generally speaking, because of the reimbursement levels in California, we continue to anticipate good profitability but not in substantial cap. In other words, it's just -- we've talked about it in the past, the differentials in reimbursement are $130 compared to $260. I mean it's -- with the same cap. I mean -- so until that's changed, what we will be budgeting for next year, I'm sure, is because we're conservative is going to be kind of similar budget levels of cap for this year even though we did -- Nick did a great job in substantially reducing that number. But it's an ongoing battle. That's not going away. And we'll just always try and stay ahead of it with regard to our projections. Nick, anything to say on that?

Well, I mean, Frank, I think it really goes back to the experience we've seen with a shorter length of stay patient or said differently, a patient accessing the hospice benefit, a day or 2 later than they typically would have as a result of the disruption of the pandemic. How long that continues is beneficial as it relates to Medicare cap management, but not beneficial as it relates to growth of ADC in total days of care over time. And that's really the ongoing balancing act with it. So we'll just continue to be fiscally responsible continuing to drive some of the strategic initiatives we had to help us navigate California cap market, just given the dynamics Kevin referenced to. And we're making headway even in spite of the pandemic with where we believe will put us on even a more positive short, mid and long-term trajectory just to navigate the realities of that calculation basically.

Understand. Yes, I just was trying to find a silver lining to it. But just to be clear, I...

We want our media to go up. We want ADC to go up. And we'll then -- we'll just give what cap with other measures.

That's right. But Frank, the 1 thing I want to ensure, particularly for my -- the team members that are on the call listening to this is the team did an excellent job over the last 12 months in the Medicare Cap year, really managing and navigating that in the California markets. It turned out better than we anticipated.

Much better.

Much better than we anticipated it. And how much of that is implication of the pandemic versus the normal blocking and tackling that we've been laser-focused on, I can't put an exact number on it. But overall, we're really happy with the approach in the -- by our leadership in those markets and our local operators.

Got you. And just to go back to the ADC growth, if you -- make sure I understand this correctly. If this mix shift that you've seen with the declines in the referral sources from SNFs in IL/AL, if that mix shift has stabilized and the admission trends overall continue at where they are, then that's when you see this flip back to getting ADC growth again. I mean, do you think you're there in terms of that mix shift?

If we look at it and if you go back and take a look at even on the sequential Q2 versus Q3 growth component, admissions from nursing homes and assisted-living facilities have really stabilized and flat-lined, which we see as a positive. The hospital-based admissions, the physician office admissions have grown. And as we see access in bed capacity being opened back up across the markets in which we operate in the long-term care community, more patients will come on service, reside in those facilities. And as Dave alluded to, for the entire industry, those patients tend to have a longer length of stay based upon their primary disease and some of the trajectory components that come along with it. So we feel good and optimistic that we've captured share across the board. And as the long-term care market comes back, we'll be able to -- keep a preferred or have an elevated preferred status to care for those patients while continuing our success with the physician offices and the hospital systems.

Got you. Is there a particular state where SNF based referrals and IL/AL referrals are higher? Or is it generally the same across all your states of operation?

It's -- there is variability on a market-by-market basis. But the variability is heavily predicated on what the other hospice providers are competition in that market, whether or not they're freestanding standalone or if they're owned by, say, a major hospital system inside of the market. So the market dynamics tend to drive the mix shift of where we're getting that patient flow from. But overall, it remains a pretty generic blend.

Got you. One final and I'll hop off. Obviously, there's a lot of talk about just the recovery of the same-store business here. But I'm just curious to get your thoughts about growth initiatives, whether it's de novo agencies. Kind of how do you think about growing the business externally beyond just the same-store story?

So as Kevin alluded to, we're going into our budgeting process for next year. Part of that goes towards us discussing not only our internal metrics, but other markets that we may be very interested in entering, and it gets down to what's the best entrant strategy, whether that's de novo or whether that is through an acquisition, but as other providers have alluded to, valuations on those acquisitions in the hospice market given the appetite or continue to be at all-time highs. And so we really have to be fiscally responsible around whether those things make sense.

And Frank, we look at -- I look at this is basically Florida and everywhere else. Anything we get in Florida has been a home run, okay? Because generally, the brand name, VITAS, throughout the state is helpful with the state regulators. I mean everything has been a home run. There are territories in Florida we'd love to be in. We fight for every CON. We look at acquisitions. We're a voracious potential acquirer or builder in Florida. Everywhere else with me, before I even get it further and look at valuation, I look at what's the -- I mean, what's the potential size of the various institutions. Is it going to be a group of 50 census hospices in 10 locations? Or is it going to be 2 with 250 census? I mean it's -- that's the first wall. That's the biggest impediment that I look when I look at acquisitions. With regard to new starts, new starts anywhere other than Florida tend to be a long-range program and that’s proven hitting this with us. We still do it. They'll still be on the planning stage for, as I say, for when we set our priorities during our budgeting process, but it's largely Florida and everywhere else.

Got you. And I guess, meanwhile, cash flow continues to be very good. And kind of gets us back to the issue around stock repurchases. So maybe color and thoughts about longer-term outlooks and remaining authorizations and likelihood for future stock buys in the absence of acquisitions?

Yes. And what I would say is as long as the Fed is doing what they're doing, and we see very, very low interest rates, heck on a real rate they're negative, we think that will keep us out of the acquisition market, except for some unique [animals]. Regarding our use of free cash flow, we've spent -- we've used a little over $150 million for the first 9 months of this year on share repurchase. We are targeting about $200 million. I don't see any reason why we're not going to be close to that, coupled with our $20 million to $24 million a year annualized dividend, we think that's very sustainable on a go-forward basis. So we would anticipate utilizing our free cash flow for share repurchasing as well as acquisitions, if they materialize, they have good value, but it's primarily going to be share repurchasing and our continued dividend.

If it continues with our earnings growing like they have, it continues to be very accretive.

Yes. I mean right now, I think we're going to be pushing $1.5 billion now on share repurchases and dividends since we started the share repurchasing program in mass.

[Operator Instructions]. I'm showing no further questions at this time. And I would like to turn the conference back over to Kevin McNamara for any further remarks.

Thank you. Thanks for everybody's questions. I hope we've answered them. It was a great quarter for us. Thanks for your attention. And we will be back in February with a report on how this all turned out and what we expect for next year. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.