Chemed Corporation (CHE) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to Chemed Corporation's Second Quarter 2026 Earnings Conference Call. 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 1 on your telephone. To remove yourself from the queue, you may press star 1 again. I would now like to hand the call over to Holley R. Schmidt, Assistant Controller. Please go ahead.

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. During the course of this call, the company will make various remarks concerning management's 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, 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. 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, 2026, which is available on the company's website at Chemed.com. I would now like to introduce our speakers for today, Kevin J. McNamara, President and Chief Executive Officer of Chemed Corporation, Michael D. Witzeman, Chief Financial Officer of Chemed and Joel L. Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin J. McNamara.

Thank you, Holley. Good morning. Welcome to Chemed Corporation's second quarter 2026 conference call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call 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-preadmission 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 in 2025. Hospital admissions as a percent of total admissions for our Florida combined program were 42.9% during the second quarter of 2026. As we have 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 preadmission locations increased 8.1%. Compared to the second quarter 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 second quarter 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. Now let's turn to Roto-Rooter. 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. Total write-offs improved $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, 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 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. 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. 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 in 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 and aggressive share repurchases, as those opportunities present themselves. With that, I would like to turn this teleconference over to Mike Witzeman.

Thanks, Kevin. VITAS net revenue was $443.3 million in the second quarter of 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 by 115 basis points in the quarter 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 the second quarter of 2026, VITAS accrued $500,000 in Medicare cap billing limitation. 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 as anticipated for the 2026 fiscal period. This compares to a Florida Medicare cap billing limitation recorded in the second quarter of 2025 of $16.4 million. Average revenue per patient day in the second quarter of 2026 was $209.98, which is 1.43% 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% 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. 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 million, an increase of 1.7% over the prior year period. 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. 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%. 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. 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. 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 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. 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. With that, I will turn the call over to Joel.

Thanks, Mike. 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. 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 preadmission 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. 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 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. The new starts in Florida continue to grow at a very rapid pace. Marion, Pasco, and Pinellas Counties combined had 594 admissions in the second quarter of 2026. 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. 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 will turn the call back over to 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 the first quarter of 2026 due to the materially improved performance of VITAS coupled with the levels of the high level of share repurchases. We have updated the guidance again in the second quarter mainly to continue our normal historical cadence of updating expectations at the midyear earnings release. Barring any unusual developments, updating guidance once per year in conjunction with our second quarter press release is our ongoing expectation. VITAS's initiative 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. 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 19.0% 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. 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 $25.00 to $25.75. The midpoint of the revised guidance represents a 7.8% increase from 2025 adjusted earnings per diluted share of $20.21. The revised 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5%, a diluted share count of 13.5 million shares. I will now turn the call back to Kevin for his closing remarks.

Our first question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open.

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 markets versus durability, this staying at 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?

Yes. Thanks, Benjamin. 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. 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 2027.

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 Chemed owned VITAS, I mean, VITAS grew their net income at about 11% per annum. I mean, so I guess my point is we are talking about double-digit. You know, what we consider traditional growth rates is in the double-digits, in the low double-digits. But it is a good, you know, block-and-tackle, you know, very reliable very reliable, kinda grind it out, you know, service industry. So, we look forward to achieving the results that Joel has articulated.

Great. Thank you. If we can move to Roto-Rooter for a quick one there. Looks like, 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 is evolving. And kind of where we what we can expect, you know, where we can expect that to stabilize? Thanks.

Yeah. This is Mike. I think we believe, you know, it is 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, you know, I do not believe that free leads will go to zero. We are working on strategies to get around Google honestly, for you know, to get leads through commercial business managers is one strategy. We have talked a lot about the app in the past. We are trying to minimize our reliance on Google, but I would say that we think that the, you know, the situation is stable. It is not deteriorating from here. But I would also really hesitate to say that we think it is gonna significantly improve from here either.

No. It is hard to see improvement. I mean, one thing that it is probably clear to surmise that at this point, Google hates the idea of free leads. I mean, initially, it grew its audience You know? Its users by saying, here's here's a treasure trove of free information. And you know, that allowed once they built that, they allowed them to start charging for what they built. And they have systematically you know, tried to drive their users away from the free aspects of, service providers. I mean, that just goes without saying. If you know, I we are at the very least we are the new normal. And it is it has largely stabilized. But, I mean, the kind of thing that we are we are constantly looking at, I mean, is do not wanna go too much detail, but we do not we do not Google's done. 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 is like when, yeah, when the internet was coming in, and Yellow Pages was losing its dominance. It is just that is the way it is. I think Roto-Rooter has done a pretty good job of, dealing with it. I mean, we are living with the biggest issue that we are still that we will continue to deal with to some extent is leakage on, you know, on the marketing expenses. Know? So we you have to we want to do jobs Every job we do at Roto-Rooter is profitable. And, you know, to the extent that we have to pay for those leads, that is that increasingly, that is what we do. But as Mike said, you know, the real win here is getting leads outside of the paid Google search. There is no question about it. And you know, that is really what we are trying to do. But we cannot kid anybody. We are going through a transition where free leads are--you know, they have gone from 40% I mean, really, it is a paid leads have gone from 44% a year and a half ago to 59%. that is you know, it is it is kind of an inexorable change, and I do not you know, it is it is gonna be continued battle for Roto-Rooter. And, you know, again, the reason that they have been I think, more successful than certainly our franchisees or the other companies we are familiar with is that they are they are fortunate to have, in this case, there are what we call our ancillary services, excavation, water restoration, Sales we get from those actually is now are expected to slightly exceed sales from all other sources in Roto-Rooter. So, you know, we have additional services that we charge for these jobs that we do get through the internet. So it is you know, it still all makes sense to us. And, you know, as we said, the momentum that we are starting to see, in the last several months is something that, you know, we are we are taking to the bank.

And I think, you know, 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 have we have estimated for the full-year at Roto-Rooter this year is right in line where our with where our margins were pre-pandemic. Obviously, they spiked some during the pandemic, but it has not caused a huge deterioration in our margins overall, from a long-term standpoint. And I think we would we would love that Roto-Rooter to see margins in the 23 or 24% range but ultimately, even at the, call it, 22% range, that is pretty healthy for a home services business. So we are doing everything we can in marketing, but I think we have done a lot of other things in other areas to try and overcome some of those higher expenses.

that is helpful. Thank you very much.

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

Hey. Good morning, guys, and congrats on 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. How do we think about, number one, the drivers of that? And then the sustainability of those margins as we look beyond 2026?

Yeah. So the biggest driver is associated with that is our ability to expand our length-of-stay And appropriately balance from a preadmission perspective the types of patients that are coming on service, i.e., balancing our hospital preadmit 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. And that certainly has come to fruition. As we look at 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.

The only thing I would add to that, Brian, is one thing that we certainly are comfortable with the sustainability of If we have always had an internal benchmark. At VITAS that back office, essentially, SG&A costs grow at half the rate of our revenue growth. And, you know, there are there are years we hit that, and there are years we do not if we are doing something specific. But, if we are gonna grow top-line, you know, in the high-single-digit range. We can certainly gain leverage on our back office cost year-over-year methodically. So I think that you know, I think that the EBITDA ranges we are talking about now are very sustainable going forward.

I appreciate it. And maybe, Kevin, as I think about Roto-Rooter 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 are thinking about where Roto-Rooter stands today. I know you mentioned in your prepared remarks buying franchisees out, but how are you thinking about expanding the service offerings? Thanks.

Okay. I mean, what we say, what we have thought about you know, first of all, is colored by our past history. And, you know, the first issue I mean, what has worked very well for Roto-Rooter certainly is to the extent that if we can provide additional services to customers to call for our main line of, you know, service that is plumbing or drain cleaning. The cost of acquisition for that additional business, you know, is near zero. So that is always not surprisingly, that is always been where when Roto-Rooter added plumbing to drain cleaning, that is what made that a success. When they added excavation, you know, to drain cleaning and plumbing, Of course, that was that issue. Then, you know, 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 up a person in a truck and going to your house. And, again, those generally speaking, that is a different type of customer. It comes with an acquisition cost. We would like to try. We have tried repeatedly to use the fantastic service mark that is Roto-Rooter. To drive you know, the growth of those businesses and we have been unsuccessful historically. Now does that mean that we have been foreclosed on all thoughts of those additional service-lines No. I will tell you that, you know, the answer--so that just gives you the background. I mean, we are dealing with the fact that we have tried it. We tried Roto-Rooter air conditioning. You know, 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 you know, service name. It does not mean we have given up on air conditioning. It just means you know, we have we have made a pretty big investment in that in the 1990s, and for a six- or seven-year period, just one that we--one half of the results. So that colors our thinking with regard to additions to the service-line. But I will not and, I mean, I will give you but I will give you a specific example. You might say, what are we are we thinking we are doing that might be a hybrid that we can sell to, our existing customer base and people who do not have a plumbing problem as well. And through the middle of last year, we had, from our perspective, a fairly aggressive inroad into water quality. That is both drinking water and, you know, the hardness and softness of water, the overall quality of water, which is a huge industry. We, as said, made an investment, had a you know, the water quality business up and running in the majority of our branches. But it was losing money. We just were not getting quite the foothold we wanted given the other problems we had over the last year, you know, we suspended the program. But that just gives you an example of, yes, we--you know, we are constantly looking at additions to the service-line. But I say, if for this forum, I guess I would say, there is nothing really at this point other than to say yes, we are investigating. We have investigated in the past. there is nothing really that has risen to the level that probably requires any discussion at this in this type of forum.

Got it. Thank you.

Thank you. Our next question comes from the line of Joanna Gajuk of Bank of America. Your question, please, Joanna.

Hi. Good morning. Couple of questions. So maybe first, on the Roto-Rooter business. So here, right, again we talk about the higher marketing cost. Again, but the guidance is the same. You are talking about the margin is sustainable. So how exactly you are thinking about this in terms of, like, are there some offsets that you are expecting? Is it coming maybe from buying these franchisees, or there is something else there, I guess, that is helping you kind of, you know, sustain that margin?

Well, here, I will turn it over to Mike, but let me just say, Joanna, from my perspective, to the extent that you know, we do a bet I mean, when we talk about our, you know, ex excavation business and water restoration business, Okay? We are you know, we talk internally. We do not it has a relatively low hit rate. I mean, you know, is there do we ex have we been getting and do we expect more improvement in the conversion of those opportunities? The answer is always yes. And to the extent that you know, improvement in that area continues, you can see if we have you know, for each you know, if the average price of a job you know, continues to go up, because there is more services. I mean, I have been kind of adjusting for inflation here. If the price is going up, not by inflation, price increase, but by the fact that you are would you are doing, you know, higher conversion rate on water restoration or excavation. You can see how you know, that makes the marketing costs, you know, less of an issue Gives you an again, you have a service that has no acquisition cost to getting the job. success. And that is and, basically, we said, you know, over the last you know, 9 months to the extent that the successes Roto-Rooter has had largely has been in the fact that the ancillary services have, you know, have seen that type of improvement. So, it is an advantage that Roto-Rooter has. I mean, I do not know. I have a hard time believing You know, we have a lot of competitors. I think a lot of them are running plumbing and drain cleaning at a loss leader if they are not also offering excavation and water restoration.

It is too tough. I mean, we see that ourselves with, you know, small independent contractors or small franchisees that are not in those ancillary services, and they are saying, you know, things are tough. They do not have a 21% margin. They have a 5% margin. That is a tough way to go. But I guess--I will turn it over to Mike Witzeman. That is off the top of my head response.

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. I would tell you that we did not think that was material in material enough to change our forward thoughts on where they could be. As Kevin said, there is plenty of things that can happen at Roto-Rooter to offset you know, a million-dollar elevated expense. One is, you know, the add-on services Kevin talked about. Water restoration, collections continues to improve. We, you know, we did not need to exceed our expectations in that by not very much. In order to make up that million. So in the grand scheme of Roto-Rooter, an extra 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.

Okay. That is great. Thanks for that. And I guess, in terms of these acquisitions, talking about buying franchisees, are there still some larger ones that, you know, that are potentially available? And to that end, you know, with the level of interest in adding, I guess, hospice assets and how does the moratorium on new centers and the related provisions there impact, you know, your ability to have access hospice assets?

Okay. I will start with that, the Roto-Rooter side. there are a few. You wanna yeah. I would be very surprised if before the end of the year, we do not you know? Let's say that the opportunity is there. I would be surprised if we do not make a nice Roto-Rooter acquisition before the end of the year. Of some size. From a in you know, internal from I am talking about in our franchise network. With regard to VITAS, I have to turn it over to Joel. But, say, it really breaks down in two. there is a couple there are a few counties left, a couple counties in Florida. You know, that we are not in. We probably love to do an acquisition or something in Florida. But we are almost everywhere in Florida. I mean, there are a few real nice counties left to go, but and so the acquisitions really go to you know, kind of CON states other than Florida.

Joel, what do you see in that regard?

Yeah. Joanna, you know, our targeted acquisition interest remains in areas where there is 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, you know, the timing, moratorium is due to end in November. It could be extended. We do not know. That, we will be in the next 60 days. But as far as acquisitions, the moratorium does not prevent us from moving forward with potential acquisition. As long as, that existing provider had been in service for three years and billing to the federal government for three years. So we are still actively reviewing any of those opportunities. Again, with markets that have a barrier to entry. That has our first interest. But we are continuing to look at what other opportunities could potentially exist out there.

And if I may, on the Medicare cap, so here in Florida, right, it sounds like you are building a cushion there and, you know, you are growing a census. So I am thinking you know, how much of that kind of building, the cushion is coming from these de novos And I guess, is there a risk, you know, that you could get, you know, into trouble, so to speak, you know, over the cap when, you know, somehow these de novos slow down or you do not have incremental de novos or markets to add to kind of manage that, you know, Medicare cap.

Yeah. Thanks, Joanna. The metrics that we put in place to strategically manage where we deploy our resources, balancing out the admissions and the preadmit environment, are separate from the growth strategies we have in de novo markets. There is no question those markets have contributed significantly to our ADC growth, but they are 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 reemerging as a significant concern for us at any time in the near future.

And let me say, add-on that, you know, we are--you know, we are--if the cap cushion that we that VITAS has, has been helped by the new starts. But it is you know, it is it is not you know, it is it is not all of it. I mean, there the frankly, at an average length-of-stay, as we mentioned, of 101 days, with your which is driven by having, you know, the mix of, you know, between 42% and 45% of hospital-based admissions. that is very sustainable. You are 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--I mean, and we are there, Joanna, I guess what I am saying. I mean, that is our run rate. Where we are, So what you are talking about is certainly theoretical but that would be absent a big change, like a 10% increase in reimbursement in Florida. For another 5% increase in Florida. The national average going up 2% or 3%. I mean, absent something like that, VITAS is sailing right in the perfect channel, you know, for not worrying about cap in the short or midterm. Long run, of course, we are all dead. But as they say. But again, that is not--that is not a major concern under these circumstances.

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. 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 ten years. And so the demand for hospital-based admissions into hospice is very much there. And 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.

And let me let me give you one other comment. One other comment about the new starts. How early are we in our development of those programs? I mean, if it goes to kind of historical averages, you know, we still have a very small percent of the admits in each of those new starts. I mean, and again, if you could look at if the past is prologue to the future, I mean, to the extent that you know, we get something like 40 to 60% grow to a market share of that. You know, we are just in the very germinal stages of that of the development of these new starts.

Yes. I will 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 have 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. So that is an extremely strategic part of our cap mitigation, and we will continue to manage that, as needed going forward.

Alright. This is great. And, actually, on that note because we did not get the final hospice rule, but we do have the proposal, right? In that proposal, the rate update for Florida did not seem like it was an issue versus the cap increase. So any updated thoughts on, like, what based on the proposal, what the rate update will be for Florida versus the cap for 2027?

Yeah. So national average is 2.4% in the proposed rule. That will be final in the next couple of weeks. Right. VITAS specifically, 1.9%. Florida is a little over 1% of an increase. Against the national average. That is based on our current mix in Florida. Yeah, right. All right. So that is manageable there.

And to that end, so you had a $500,000 accrual for Medicare cap in the second quarter because, I guess, it is running better, I guess, in California. So what do you assume for the fourth quarter of 2026 in your guidance?

Yeah. Joanna, so we have talked about in the first quarter, Joel talked some about you know, a little bit of activity, increase in California as a result of, you know, VITAS being a big trusted provider and some of the referral sources are, you know, sort of fleeing to safety and referring to the big trusted providers during the time when they are talking about fraud and abuse with smaller providers. That has given us a lift this year in California with the Medicare cap situation over the last 4 or 5 years, on average, we have run roughly $9.5 million in Medicare cap. And so we kept the our forecast for 2027 at that $9.5 million. So baked into the guidance in the fourth quarter is, you know, one-fourth of that $9.5 million I think it is $2.3 million or $2.4 million. We were a little early in the, you know, sort of that fraud and abuse and how that is gonna all shake out in California, to really wanna change our run rate expectations but it certainly has helped us in this calendar year or in this cap year.

Great. If I may, since you mentioned, you know, the moratorium, I am kinda focused on fraud and abuse in hospice. And, obviously, you know, we have heard you talk about, you know, you are supportive of that and, you know, getting rid of fraud in the industry would help everyone. But there were a couple of other things that came up, you know, that was the OIG report, and then there was the GAO report. Right? Different issues being discussed and such, but you know, is there something building in the background? Like, do you expect CMS to respond to these reports in some ways? Like, do you essentially expect any changes to reimbursement, say, you know, for 2028? Because obviously, we know it is not possible for 2027. But any thoughts on these reports and kind of where CMS might land in the end after, you know, getting those. Thank you.

Yeah. Joanna, we have no reason to believe at this point that there would be an unbundling of the hospice benefit You know, 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. But we have no reason to believe there would be significant or material reimbursement changes to the current structure. What we do know is that final rule is gonna 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 spend variation index. We do not know the components. Of a final integrity plan. We do believe that there is gonna be an increased focus, on quality, What that quality is measured by is yet to be determined. But, we do not see necessarily an indication of reimbursement change at this point.

Thank you.

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

Well, I would just like to, you know, say that, yes, it was we were gratified with the results of the quarter. And thank everyone for their questions and their attention. And we will reconvene in about three months. Thank you.

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