Please ensure Javascript is enabled for purposes of website accessibility

Chemed Corporation (CHE) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Oct 29, 2021 at 5:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

CHE earnings call for the period ending October 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Chemed Corporation (CHE 0.14%)
Q3 2021 Earnings Call
Oct 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, thank you for standing by and welcome to Kevin Corporation Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your speaker host today Sherri Warner with Investor Relations. Please go ahead.

10 stocks we like better than Chemed
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Chemed wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

Sherri L. Warner -- Investor Relations

Good morning. Our conference call this morning will review the financial results for the third quarter of 2021, ended September 30 2021. 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 28 and in various other filings with the SEC.

You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. 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 28, which is available on the company's website at Chemed.com.

I would now like to introduce our speakers for today. Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; 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.

Kevin J. McNamara -- President And Chief Executive Officer

Thank you. Sherry. And thank you, Sherri, for your services over the years. Sherri is retiring at the end of the year, and this is her last introduction to our quarterly conference call. But we do want to thank her for all her efforts.

Good morning, welcome to Chemed Corporation's Third Quarter 2021 Conference Call. I will begin with highlights for the quarter. And David and Nick will follow up with additional operating detail. I will then open the call up for questions. Our third quarter 2021 operating results released last night, reflect very solid performance for both VITAS and Roto-Rooter. On a go-forward basis, I would like to share with you some of the macro issues we are dealing with as we approach the end of the second year of the pandemic. For VITAS, the most important issue, we are managing labor. Staffing of license professionals has been exceptionally challenging to ensure adequate mix of license healthcare workers on a market by market basis. This is particularly challenging during the pandemic, as we deal with dynamic fluctuations in patient census in every market. Turnover within our license staff remains above our pre-pandemic rates, but we are seeing indications of normalization, as we continue to expand our hiring and retention initiatives in many markets.

Beyond managing our staffing levels, we are observing increasing pressure on salaries and wages. To date, we've managed these pressures with increased paid time off or PTO, we view it as inevitable that healthcare wages will increase if we continue to have a nationwide systemic imbalance in supply and demand for license healthcare professionals. Fortunately, for VITAS and the hospice industry, there is a natural hedge against the inflationary pressures on costs, specifically labor.

The annual increase in the Medicare and Medicaid hospice reimbursement rates is based primarily on inflation in the hospital wage index basket, as measured by the federal government's Bureau of Labor Statistics. Typically, the annual inflation measured as of March 31 is used to determine the following October 1 reimbursement increase. This should give the hospice industry reasonable stability in operating margins in an inflationary environment, albeit with a six month lag from the inflation measurement to the actual reimbursement increase.

The second critical challenge for VITAS is the continued disruption to senior housing occupancy and the latest hospice referrals. A recent admission data suggests senior housing is in the process of recovery pre-pandemic nursing home base patients represented 18% of our total average daily census or ADC. The nursing of ADC ratio hit a low of 14.3% in the first quarter of 2021. In the second quarter of 2021 nursing home base patients increased 60 basis points to 14.9%. And then, the third quarter of 2021, our nursing home patients represented 15.6% of our total ABC. Our updated 2021 guidance anticipates sequential improvement in senior housing base patients in the fourth quarter of 2021 with acceleration in senior housing admissions anticipated in 2022.

For Roto Rooter, our must significant challenge has been to increase manpower. We've expanded technician manpower by 8% in 2021. However, based on our current demand levels, we continue to remain understaffed in many of our markets.

Technician compensation plays a role in recruiting new employees as well as retention of our existing employee base. Our average 2021 technician and field sales force compensation is over $81,000 per year. Most of our technicians are paid out on a commission basis of revenue generated. As a result, pricing for our services is a critical component in increasing technician wages. We're anticipating passing to inflationary price increases in all our markets in the fourth quarter of this year.

Demand for plumbing, drain cleaning, excavation, and water restoration services remain at record levels. I want to give additional color on the depth and breadth of this increase in demand. Let's compare Q3 2021 revenue to Q3 2019. Excluding the HSW acquisition, which was completed in September 2019, under this unit for unit comparison, residential services have experienced incredible growth. In aggregate, residential branch revenue increased 46.2% over this two-year period. On a service segment basis, residential plumbing revenue increased 37.1%; drain cleaning expanded 36%; excavation increased 65.6%; and water restoration increased 48.1%.

Commercial demand has been more challenging, however, commercial revenue has experienced a significant recovery since the 40% decline in commercial demand noted in April 2020. Overall, commercial revenue declined 3.1% over this 2-year period. On an individual service segment basis, commercial plumbing service declined 4.9%, drain cleaning expanded 1.8% excavation declined 10.2%, and water restoration increased 7%. We anticipate continued strengthening in commercial demand in the fourth quarter of 2021, as well as throughout 2022.

Over the past 20 years, the country has faced 9/11, the Great Recession, and now a global pandemic. In each of these crises, Roto-Rooter remained operating and materially increased market share revenue and operating margin. Just as important, post-crisis, Roto-Rooter held on to these increases in revenue market share and margins. Roto-Rooter is well positioned postpaid pandemic, and we anticipate continued expansion of market share, by pressing our core competitive advantages in terms of brand awareness, customer response time, 24-7 call centers and Internet presence.

With that, I would like to turn the teleconference over to David.

David P. Williams -- Executive Vice President And Chief Financial Officer

Thank you, Kevin. VITAS's net revenue was $317 million in the third quarter of 2021, which is a decline of 5.8% when compared to the prior year period. This revenue decline is comprised primarily of a 5.3% decline in days of care, partially offset by a geographically weighted average Medicare reimbursement rate increase, including the suspension of sequestration of approximately 1.2%. Our acuity mix shift had a net impact of reducing revenue approximately $3 million or nine-tenths of 1% in the quarter, when compared to the prior-year revenue and level of care mix. The combination of Medicare Cap and other contra-revenue changes, negatively impacted revenue growth, an additional 80 basis points.

VITAS accrued $100,000 in Medicare Cap billing limitations in the quarter. This compares to $4.1 million reversal of Medicare Cap billing limitations in the third quarter of 2020. Of our 30 Medicare provider numbers, 27 of these provider numbers currently have a Medicare Cap cushion of 10% or greater. One provider number has a cap cushion between 0% and 5%. And two of our provider numbers have a fiscal 2021 Medicare Cap billing limitation liability.

Roto-Rooter, generated quarterly revenue of $221 million in the third quarter of 2021, which is an increase of $30.1 million or 15.7% when compared to the prior year quarter. Roto-Rooter's branch residential revenue in the quarter totaled $151 million, which is an increase of $22.2 million or 17.2% over our prior year period. This aggregate residential revenue growth consisted of drain cleaning, increasing 11.7%, plumbing expanding 17.4%, excavation increasing 14.1%, and water restoration increasing 28%. Roto-Rooter branch commercial revenue in the quarter totaled $52.3 million, which is an increase of $4.7 million or 10% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning increasing 17.6%, plumbing increasing 9.3%, and commercial excavation declining 1.3%. Water restoration also increased 9.4%.

Now, let's turn to Chemed on a consolidated basis. During the quarter, we repurchased 350,000 shares of Chemed stock for $164 million, which equates to a cost per share of $467.80. As of September 30 of 2021, there is approximately $148 million of remaining share repurchase authorization under this plan. Chemed restarted its share repurchase program in 2007. Since that time, Chemed has repurchased approximately 15.2 million shares, aggregating approximately $1.7 billion, at an average share cost of $113.04. Including dividends over the same period, Chemed has returned approximately $1.9 billion to shareholders.

We have updated our full-year 2021 guidance as follows: VITAS was 2021 revenue, prior to Medicare Cap, is estimated to decline approximately 5% when compared to the prior year period. Average daily census in 2021, is estimated to decline 5.5%. In our full-year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 18.8%. We're currently estimating $6.6 million for Medicare Cap billing limitations release calendar year 2021.

Roto-Rooter is forecasted to achieve full-year 2021 revenue growth of 17.3%. Roto-Rooter's adjusted EBITDA margin for 2021 is estimated to be between 28.5% and 29%. Based on the above full-year 2021 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, cost related to litigation and other discrete items, is estimated to be in the range of $19 to $19.20. This compares to our initial 2021 adjusted earnings guidance per diluted share of $17 in $17.50. This revised 2021 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1%. This compares to Chemed's 2020 reported adjusted earnings per diluted share of $18.8.

I'll now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS subsidiary.

Nick Westfall -- President And Chief Executive Officer

Thanks, Dave. In the third quarter, our average daily census was 18,034 patients, a decline of 5% over the prior year and 0.2% increase when compared to the second quarter of 2021. This year-over-year decline in average daily census is a direct result of pandemic related disruptions across the entire healthcare system since March of 2020. Our hospital generated emissions have largely normalized to pre-pandemic levels. Referrals from senior housing, specifically nursing homes and assisted-living facilities, continue to be disrupted. During the third quarter, we've seen admission stabilization and pockets of improvement in senior housing admissions. However, it remains too early to accurately project the pace and time line for senior housing admissions to fully return to pre-pandemic levels.

In the third quarter of 2021, total VITAS admissions were 17, 598. This is a 1.9% decline when compared to the third quarter of 2020 admissions and a 4.5% sequential increase when compared to the second quarter of 2021. In the third quarter, on a year-over-year basis, our hospital directed admissions declined 0.8%. Total home-based pre-admit admissions decreased 8.3%, nursing home admits declined 0.2%, and assisted living facility admissions declined 8.6%.

When you compare our third quarter 2021 admissions to the second quarter of 2021, we generated solid sequential improvement with hospital directed admissions improving 2%, total home based pre-admit admissions increasing 16.3%, nursing home admits expanding 8.9%, and assisted living facility admissions increasing 5% sequentially. Our average length of stay in the quarter was 96 days. This compares to 97.1 days in the third quarter of 2020 and 94.5 days in the second quarter of 2021. Our median length of stay was 13 days in the quarter and compares to 14 days in the third quarter of 2020, and is equal to the second quarter of 2021.

Before I turn this call back over to Kevin, I want to thank our VITAS team members for their ongoing commitment and all hands on deck approach throughout the third quarter in all of 2021 as we continue to successfully navigate the daily challenges Kevin spoke about earlier on the call.

With that, I'd like to turn this call back over to Kevin.

Kevin J. McNamara -- President And Chief Executive Officer

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

Questions and Answers:

Operator

[Operator Instructions] Our first question coming from the line of Joanna Gajuk with Bank of America. Your line is open.

Joanna Gajuk -- Bank of America -- Analyst

Good morning, and thank you for taking the question here. So, first I guess on the hot system on VITAS, in terms of the better margins this quarter and the guidance implying that margins are actually expected to maybe improve in the fourth quarter. So, can you talk about what's driving that, especially in the context of the broad-based labor shortages, labor pressure?

Kevin J. McNamara -- President And Chief Executive Officer

Yes, Joanna. The primary difference between the third quarter and the fourth quarter is October 1, the Medicare price increase takes effect. And so, that's a primary driver related to the marginal increase that has always occurred going back forever from the third quarter to the fourth quarter. All the other dynamics we spoke about regarding labor pressure managing through it, all those will continue through and are identified, not only in our fourth quarter, but will be forecast when we release our 2022 projections.

Joanna Gajuk -- Bank of America -- Analyst

So, in terms of your managing down the labor pressure, can you flush to us what steps did you take or are you taking that allows you to have this very favorable retention rate given we're hearing a lot about a lot of turnover? And I guess in that context, also, seems like you do not really rely on contract labors. So, can you talk about what if there is any change there? Thank you.

Nick Westfall -- President And Chief Executive Officer

Yes, sure. So, from a retention and a turnover perspective, as Kevin alluded to in his remarks, we are still running turnover rate that's higher than our pre-pandemic levels. So, it's something that we are absolutely continuing to focus on and improve upon. So, I'd obviously pay attention to the numbers, everybody else references with it, but we're dialed in and focused on continuing to try to improve that. And where our level is today is not where we want to be, we want to continue to improve it.

As it relates to continuing to manage through inflationary wage pressure, as well as all sorts of other inflationary pressure related to it, the team has done a fantastic job and would expect us to continue to do a fantastic job. But with that being said, we're being very intentional and focused on a market by market community-by-community basis to respond appropriately for specific staff and specific staffing levels.

And when needed and when necessary, we're also looking for opportunities for offsets to that inflationary cost, whether it's becoming more efficient or thinking through how we want to structure the way in which we're servicing that market. So, the team has done a fantastic job in the third quarter and for the last 19 months with that. And we are -- it is the number one thing we are doing on a day-to-day basis and it's what I referred to in terms of the all hands on deck, everybody rolls up their sleeves, and let's continue to navigate through this.

Joanna Gajuk -- Bank of America -- Analyst

And if I can follow up, when you talk about wage pressure in some markets, you said you have to respond appropriately, but can you give us kind of a sense of the magnitude of things, so to go what wage inflation do you expect next year in terms of year-over-year overall increases that you would expect that you would have to implement?

Kevin J. McNamara -- President And Chief Executive Officer

Joanna, we're still assessing the impact of all of those pressures. So, we're really not prepared to project that out for next year at this time.

Joanna Gajuk -- Bank of America -- Analyst

Okay. So, I guess what I was getting at with that is that the margins are very strong this quarter and into next quarter, then I guess sequestration is coming back next year, but just thinking high level. I understand you're still working through the numbers and projections, but can you I guess maybe refer to your prior comments about normalized margins for VITAS post from banning [Phonetic] of 17.5% to 18%. So, given all these things and this variability and expectations, do you expect to be in the range or below that range for next year?

Kevin J. McNamara -- President And Chief Executive Officer

So, when we said -- So, if you go back to the last full year we had before the pandemic started disrupting things, that was the range of adjusted EBITDA margin we were generating. And our expectation is post-pandemic, in a normalized environment, and you can debate when that happens, 2022 start of 2023, but whenever that normalization of senior housing occupancy, hospital occupancy, referrals, and all the mix is normalized, that's that 17.5% and 18%, which also is predicated on us running about a 4% to 4.5% of our days of care of high acuity. But when that happens, that's still uncertain to us.

We thought, up until the variant started nagging this country, or really globally, we really thought Labor Day 2021 would have been the beginning of true accelerated pace of normalization, and obviously that's been pushed off into next year. So, I'm not going to be a base of it by any means, but we don't know. We're guessing when will normalization occur. It's clear 2022 is going to be impacted by the pandemic still.

So, at this point to forecast out margins in impacts on wages, it's too early. How much of the wage pressure right now, say for, outside contracting services, is transitory versus permanent. That's all unknown. What will be the level of our license healthcare professionals in terms of that supply for the needs of the country? If people return to the workforce, who've exited, who were in those positions pre-pandemic, things will return to normal quickly. If we see a shortage of staffing, then it's going to put wage pressure. And it really starts with -- and this is just to summarize what Dave said, the pandemic has laid bare one very clear fact; all admits are not equal. And to the extent that the most important admit source that is, senior housing, was so disrupted, and directly disrupted by the pandemic, just totally up ended the hospice market. And you can't dig yourself out just by getting hospital. And the thing that, in Nick's presentation that, it's most helpful is the fact that that referral sources seems to be coming back fairly strongly. And that is a rising Creek that we really saw metrics, let's put it that way. And as far as the timing and pace of that, as Dave said, it will do a little good, deeper dive on it, as we go through the budget process the next month and a half. And when we give guidance in February, when we release annual earnings, we will have guidance that's based on that budget. And at least at that point, it will be a guess, but will be educated guess. At this point, we haven't gone through the process.

David P. Williams -- Executive Vice President And Chief Financial Officer

That's right.

Nick Westfall -- President And Chief Executive Officer

And it's a bottoms-up approach, Joanna. So, the ranges you were referencing are very unique on a market by market basis and on a disciplined by disciplined basis as well based upon all the factors going on in states and communities.

Joanna Gajuk -- Bank of America -- Analyst

Okay, thank you. I'll go back to the queue.

Operator

Our next question coming from the line of Frank Morgan with RBC Capital. Your line is open.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. Just thinking about your different buckets of referral sources, given the uncertainty around the recovery, the timing of the recovery normalization, is there any thought about just strategically rethinking the balance of your referral sources? Does it make sense to allocate resources to some of these other areas or is it just still too attractive to stick with the senior housing, the long-term care, and the assisted living segment?

Nick Westfall -- President And Chief Executive Officer

So, Frank, this is Nick. You've hit on a key piece that we have moderated on throughout the course of 2021 very intentionally, and as Kevin alluded to, and it's something we talk about internally. Our mission, all lives are created equal, but we're deploying our time and really trying to extend relationships, has really intentionally shifted, as Kevin alluded to. So, we are often executing. You can see some of that inside of the third quarter. And some of the third quarter compared to the second quarter, inside of my comments, that I mentioned as well, and would anticipate that continuing for the rest of the year and into '22.

Kevin J. McNamara -- President And Chief Executive Officer

And Frank, as you can imagine, the cap year starts October 1. We are -- the VITAS is going now for election, for the admits in every market to build cap cushion. And so, it's almost -- and when we talk about reallocating resources, it's always hard to take resources away from, let's say, the hospital market, because those are fertile source of admits, which you never know how many you need, but it's, as Nick said, to the extent that that picture becomes clearer during the course of the year, but it's clear more resources are put to the areas that are more likely to lead to expanded stay.

David P. Williams -- Executive Vice President And Chief Financial Officer

Frank, the only other comment that drives toward that, and it's been consistent throughout the pandemic; when you think about environment where we continue to have staffing pressure, not only from our admissions teams responding, but from our care teams, we're being -- we need to be much more selective and intentional around where we're allocating our time because you use the metaphor of the phone ringing equate to our sister friends at Roto-Rooter, but the phone's ringing off the hook, in terms of demand for hospice appropriate referrals on a market by market basis. And so, we're really just ensuring we are prioritizing our time and responding and building relationships on a market by market basis.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. And I guess the margins held up remarkably well considering the wage pressure, is productivity -- I mean, how much of that productivity, is there any change in visits per case per week, or is there anything else in there that's driving that? And then, maybe some color about specifics on the use of contract labor and how does that affect productivity.

Kevin J. McNamara -- President And Chief Executive Officer

Yes. So, absolutely, productivity has increased. And would it anticipate us looking for all opportunities not only from a productivity perspective, but also from an efficiency perspective. And when I referenced efficiency, what I mean is ensuring we are either eliminating or streamlining all activity that would have taken our team members in administrative function, not in a patient facing function, and trying to make those as efficient as possible.

And so, we measure productivity based upon the time they're at the bedside and that's continued to increase. And so, it was already part of our strategic initiatives, right, for the last few years. But we have just continued to accelerate and push that and that's helped us. But in the same regard, we need to continue to retain our team members and we've been successful in our ability to recruit. But you need to be able to recruit and hire and retain and that will continue to stabilize our staffing levels on a go-forward basis.

For contract labor, we use it selectively, the biggest impact on contract labor inside of certain states is our continuous care, deployment for our select disciplines, and it is very competitive, particularly with some extreme pricing and wage inflation. We've been very selective so that we're not out just paying contracted rates that is a losing proposition from a hospice perspective because those rates are heavily influenced by hospital systems and other organizations, and if it goes up 300%, we're not going to be renewing those contracts, obviously. So, it's not a huge influence. We don't use a ton of contracted labor, but it really just impacts our continuous care service line for the most part.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. Last one, maybe a Dave question or everybody question. When you think about sort of the return of the sequester next year, could you kind of remind us what the gross impact there is? And then, maybe the net of your expected market basket update? And then, on the market basket update, can you talk a little bit about how long do you think it takes for that to catch up and reflect all the labor pressures that you're seeing? Thanks.

David P. Williams -- Executive Vice President And Chief Financial Officer

Sequestration are just round numbers, call it $6 million a quarter or $24 million is the benefit, maybe slightly less than that. So, that would be a significant headwind, if they put sequestration back in place January 1.

Kevin J. McNamara -- President And Chief Executive Officer

Which we haven't given up on by the way.

David P. Williams -- Executive Vice President And Chief Financial Officer

But that is -- it is scheduled to that -- is scheduled to sunset. But there is some talk about it being extended, the benefit. So, that's probably the biggest headwind we have for next year.

Kevin J. McNamara -- President And Chief Executive Officer

And for the pricing market basket, impact is 2.2%, Frank, what we're anticipating.

David P. Williams -- Executive Vice President And Chief Financial Officer

But your question -- So, the Bureau of Labor and Statistics measures the inflation by CBS, a core base statistical area. But basically, they use the information from April 1 through March 31 is the measurement. And then, the following October 1, is one that rate increase actually gets put in place. So, really from a full measurement period, which ends March 31, then six months later that goes into your reimbursement increase. And that's the lag Kevin referred to in his prepared remarks earlier. So, about a six month lag where you could see margin squeeze next year if this inflation in wages isn't transitory but it's permanent. And that's the issue we're currently addressing now.

But in the end, these things tend to work its way out. But it's -- right now, hospice is, the industry is in a pretty good position where the government acknowledges how labor intensive we are, and the increase we get is based upon hospital wages for these license professionals. So, there really should be a hedge, but with a six month lag.

Kevin J. McNamara -- President And Chief Executive Officer

For next year for the October 1-- And long-term, Dave. Obviously, things are changing by the minute but longer-term basis, in the budget blueprint, there is a lot of money being suggested for nurses and house resources.

David P. Williams -- Executive Vice President And Chief Financial Officer

Yes, there is actually talk of as much as $20 billion going toward training for hospice license personnel. Now, this is the framework analysis which it seems a little fluid, at the time, but without a doubt, we see strong indications that the government continues to invest in the hospice industry.

Kevin J. McNamara -- President And Chief Executive Officer

And realizes the pricing pressures.

David P. Williams -- Executive Vice President And Chief Financial Officer

Yes. Any additional follow-up, Frank?

Kevin J. McNamara -- President And Chief Executive Officer

Okay. I think that that -- is that the last question in the queue?

Operator

[Operator Instructions] We do have a follow-up from Joanna of Bank of America. Your line is open.

Joanna Gajuk -- Bank of America -- Analyst

Yes, thank you. So, I guess I just want to move to the Roto-Rooter segments, because I guess the strength there continues to be impressive, both on the top line and bottom line. So, can you talk about kind of the margin situation there. I mean, I guess, it's the opposite of what you've discussed in terms of Medicare rate increase is how you have to wait for this to play out here. I guess, can you talk about your ability to put pressure prices in the market. I guess you mentioned inflationary price increases you planned for Q4, so can you give us a sense of the magnitude of those increases that you might consider?

David P. Williams -- Executive Vice President And Chief Financial Officer

So, yes, we do have pricing power within the Roto Rooter business, within that industry. If you define the industry has, same day, next day, predominantly emergency plumbing and drain cleaning services. We have the pricing power and we price based on market by market, procedure by procedure. So what we pass through in a price increase for a plumbing is different than drain cleaning and different lines within those segments. But we can't give you anything more granular, Joanna, because we're still developing it, but we absolutely will pass through inflation increases if not inflation, plus, a little bit more, because frankly, that's the way our technicians get increases in their wages.

And our employees are feeling the pressures of inflation in terms of fuel, housing, all those costs that are going up significantly at 5%, 6%. They're paying those fees to feed their family, put fuel in their trucks that they predominantly own. So, that's what that -- that is -- they're more receptive of price increases. And our employees are very comfortable selling the price increases to our customers, because that's how they earn their money, that's how their wages go up. But the exact amount of the increase, we'll do a weighted average analysis at the end of the year and we'll give you more color in early 2022 on those increases.

Kevin J. McNamara -- President And Chief Executive Officer

And one comment. I'd like to make before leaving margins at Roto Rooter. It's what we've observed is, generally speaking, historically, we've developed our fixed cost to support the plumbing and drain cleaning business, which was the first business. And we've seen over time, as we've added substantially to the ancillary services, that is the excavation, the water restoration, that has the significantly leveraged our margins. And -- up to the point where it's -- I mean, I thought, I used to think 20% was good, now we're pushing 30%. It's that strength -- and the reason we're seeing that improved margin is of course the additional services, but you've got to remember that when there is strength in the underlying core business that comes from those fixed costs, the rest are add-ons. So, very little acquisition cost for the business.

And to the extent that, the underlying core business is a strong, we know that the service lines of the other businesses will continue to be strong, and then support that margin. So, it hasn't been, the margin has increased I guess by say, not by just taking price increases, the focus has been more on the leverage of not just the cost of the fixed business, but the underlying core businesses in and of itself.

David P. Williams -- Executive Vice President And Chief Financial Officer

And Kevin brings up a key point on that, Joanna. It's not that the margins for water restoration and excavation are so high, quite frankly, they're not that much materially different than our core business. But as Kevin pointed out, after those costs, we don't increase the cost to operate a branch at all, or it's certainly not materially, so more of that incremental revenue, and what I'd call raw contribution margin, just drops straight to the EBITDA line. So, the growth in revenue is really resulting in the accelerated EBITDA margin increase.

Joanna Gajuk -- Bank of America -- Analyst

Thank you. So, two follow-ups on this last point in terms of adding these ancillary services that allows you to leverage some of these branch level costs, are other add additional ancillary services that might make sense to -- I know you kind of already covered all the bases there.

Kevin J. McNamara -- President And Chief Executive Officer

We keep trying and we have at least the one additional service that we're testing out and seeing if we can find the winning formula. But over the years, we've tried just about every service that involves having a person, per technician in a truck going out to make emergency service on a consumer, and we've had successes, and we've had failures. But we're -- we continue to look at that, in fact, water restoration really came about following up a new look at it. We said, look, we're going to forget all the former failures and look at everything with fresh eyes, and that's where Roto Rooter came up with the water restoration, really, from that process.

And that process is ongoing where we're saying, look, we've tried pretty much everything, but we'll continue to look for something we could throw into this, very powerful. I mean, again, when I talk about Roto-Rooter, it's big and a very scattered industry. And so, it has a lot of advantages on the internet. It's got a great service mark. And again, we keep turning the pancake over. But again, I wouldn't, from an analytical standpoint or analyst standpoint, I wouldn't say, again, the way we would get involved in it would be slow and methodical. So, I wouldn't think that any of those projects that I'm vaguely referring to, are likely to reflect earnings or sales over the next year or two.

Joanna Gajuk -- Bank of America -- Analyst

No, I understand. But yeah, I was just curious whether there were considerations. So, it's good to hear there are some. And my other follow-up was in terms of the Roto-Rooter, I guess staff being level. So, we clearly increased manpower nicely up 8% this year, but I think you want to -- I want to say, is that something that demand level in some markets, if you feel like there is some under staffing at there. So, can you talk about that whether there is more difficult to find manpower to provide a services and how that's how do you expect this to play out into next year?

David P. Williams -- Executive Vice President And Chief Financial Officer

Without a doubt the manpower right now -- if we could grow manpower, we could expand our revenue base even more significantly. And the type of people we're looking for are self starters as well because typically our technicians own their own work truck and then --

Kevin J. McNamara -- President And Chief Executive Officer

Which is an issue.

David P. Williams -- Executive Vice President And Chief Financial Officer

We can't get good [Speech Overlap] that has been an issue as well. But without a doubt the pandemic has made hiring more difficult, retention is fine, but hiring is more difficult, and it is a market by market issue. Again, we suspect, as we get the pandemic behind us and we see increased more full employment on that key age category of people between 30 and 50, which is our sweet spot, we expect to see manpower expanding as the pandemic wanes in 2022.

Kevin J. McNamara -- President And Chief Executive Officer

Well, think of it this way, the phone is ringing, the service technicians are making more money, $81,000 is a high watermark.

David P. Williams -- Executive Vice President And Chief Financial Officer

And that's an average among all of our technicians in the field. If you actually look at the folks with three or more years of seniority with us, the numbers is even higher. So, we offer an incredibly viable career path for trades people who don't feel this obligation to go to college but want to work with our hands. We have a very, very viable training program and we can give them a career with great retirement benefits. So, there's a lot selling, but it's hard to find people who are willing to get their hands dirty in this day and age. We've been very successful in the past, a little bit of a limitation in the past, but we're still pleased with the 8% growth in manpower. And we certainly look at 2022 as an opportunity to further expand our manpower. But we don't kid ourselves. Right now, in this environment, it's exceptionally difficult.

Joanna Gajuk -- Bank of America -- Analyst

It's definitely good to hear about successes there to get people, I guess, involving trucks [Technical Issue] And then, my last question on Roto-Rooter, HSW, I guess we haven't really talked about how things are going there because obviously things were good with the pandemic, but any updates in terms of that transaction and your plans in those to market to make some changes? Thank you.

Kevin J. McNamara -- President And Chief Executive Officer

Okay. I can respond. Top line, we're happy with it. We've made a -- where we make a purchase, submit it to our Board, we make a request for capital authorization, we make various projections justifying the expenditure of funds, and let me say that, we are running ahead of those projections. So, it's been a -- from a financial standpoint, it's been a good one for us. That is despite the fact that we've talked about it. It had a significant commercial aspect to its business as opposed to our typical Roto Rooter branch, that's more residential, right.

Shortly, after the acquisition, the pandemic closed a lot of type of commercial establishments that they would call on. But with that, even with that, it was a transition to a normalized Roto-Rooter branch. They've done well. There is still an upside, the big upside associated with them. There are some great, very populous markets, and that's going to be a significant part of the growth of revenue over the next several years undoubtedly. So, yes, they're going well. Anything you'd want to say on that question to HSW, Dave?

David P. Williams -- Executive Vice President And Chief Financial Officer

No, I said, like, if you had told us the pandemic was going to hit, I would have said there is no chance of hitting those RCA projections, but the Roto Rooter management team did a phenomenal job of quite frankly accelerating some of the changes at the HSW locations or many of them during the pandemic. So, they took advantage of the disruption to accelerate improvement. And I would say, all of the locations, with the exception of two, we're exceptionally pleased with. And the other two are works in progress, but in aggregate, they're now exceeding our expectations.

Joanna Gajuk -- Bank of America -- Analyst

Definitely good to hear that. And my very last question on the current [Phonetic] level in terms of capital deployment priorities, including you spent a good chunk of your cash flow on this quarter and you crash against share repo [Phonetic], so, kind of, how do you think of a capital deployment going forward? Thank you.

David P. Williams -- Executive Vice President And Chief Financial Officer

I'd say we're staying with the same thesis we have on capital deployment. We love to do acquisitions, both acquisitions compete with share repurchase on a risk adjusted return basis, and we still look at share repurchasing as a macro item having a better return for lower risk for shareholders. But we are always looking at acquisitions, we just don't pull the trigger because share repurchasing is more attractive. But we look at that on a regular basis. I wouldn't even say is more often than quarterly, it's a constant conversation with the Board as well. But we anticipate continuing with the dividend, of course, and a methodical increase into that dividend and share repurchasing. We're not opposed to putting cash on the balance sheet. But at the current share price, we consider our free cash flow yield exceptionally attractive, in an environment where LIBOR is at nine basis points.

Kevin J. McNamara -- President And Chief Executive Officer

Well, now like that. Implicit is what they're saying is one of the big advantages of both Roto-Rooter and VITAS is they're very good cash generating operations. And so, the real question comes out like any company, if that's how you take best use of that advantage -- and it's been pretty clear, as Dave mentioned, since we purchased VITAS, we've taken a 1.7 billion and return it to the shareholders. And it's not tied up in goodwill of questionable acquisitions. And there's a lot of lot of very accepted theories of value, and that is the value of an asset is determined when it returns to the owner, and we've had very substantial returns that we can demonstrate.

Joanna Gajuk -- Bank of America -- Analyst

Thank you for that color. And thanks for taking all the questions.

David P. Williams -- Executive Vice President And Chief Financial Officer

Thanks, Joanna.

Operator

And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Kevin McNamara for any closing remarks.

Kevin J. McNamara -- President And Chief Executive Officer

Thank you. We were pleased with the quarter, the results, and thank you for your kind attention.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Sherri L. Warner -- Investor Relations

Kevin J. McNamara -- President And Chief Executive Officer

David P. Williams -- Executive Vice President And Chief Financial Officer

Nick Westfall -- President And Chief Executive Officer

Joanna Gajuk -- Bank of America -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

More CHE analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.