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DATE

Thursday, February 26, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Kevin J. McNamara
  • Chief Financial Officer — Michael D. Witzeman
  • President and Chief Executive Officer, VITAS Healthcare Corporation — Joel Wherley

TAKEAWAYS

  • VITAS Admissions -- 17,419 in the quarter, representing a 6% increase, supported primarily by higher hospital-based short-stay admissions.
  • VITAS Revenue -- $418.8 million, up 1.9% year over year; driven by a 1.3% increase in days of care and a 2.2% increase in geographically weighted average Medicare reimbursement rates.
  • VITAS Adjusted EBITDA Margin (ex-Medicare cap) -- 21.7%, a decline of 79 basis points from the prior-year period, attributed to a patient mix shift toward hospital-based, short-stay admissions.
  • Hospital Admission Mix (VITAS) -- 44.8% of total admissions came from hospitals, reaching management’s target range (42%-45%) for stability in the Florida patient base.
  • Florida Medicare Cap Improvement -- Fourth-quarter cap liability decreased by nearly $25 million, and, as of January 2026, there was "no billing limitation within the Florida combined program."
  • Medicare Cap Guidance -- 2026 Medicare cap billing limitation projected at $9.5 million, versus $27.2 million in 2025; 2026 estimate includes none for the Florida combined program.
  • Manatee County CON Expansion -- VITAS received a certificate of need (CON) for Manatee County, Florida, adding a market where 3,000 Medicare patients received hospice care during the previous government fiscal year.
  • VITAS 2026 Guidance -- Revenue prior to Medicare cap expected to grow 5.5%-6.5%; full-year EBITDA margin prior to Medicare cap expected at 17.5%-18%.
  • Roto-Rooter Revenue -- Decreased 3.7% year over year, with branch residential revenue down 3.1% and commercial revenue up 1.6%.
  • Roto-Rooter Water Restoration Revenue -- Residential branch revenue dropped 10.3%, largely due to rising write-offs and insurance scrutiny.
  • Write-offs at Roto-Rooter -- Implicit price concessions and credit memos increased by $4 million (57%) during the period; overall write-offs grew by $11 million and exceeded 4.5% of gross revenue.
  • Roto-Rooter Adjusted EBITDA -- $47.5 million, representing a 21.1% decrease year over year; margin declined 477 basis points to 21.5% in the quarter.
  • Paid Leads (Roto-Rooter) -- Increased 9.4% year over year while total leads remained flat, as the decline in natural leads offset growth in paid leads; average paid lead cost is ~$90 and requires 1.5 to 2 leads per paying job.
  • SEO Provider Transition -- Roto-Rooter contracted a new, exclusive third-party SEO firm late in the quarter to improve natural search performance in 2026.
  • Roto-Rooter 2026 Guidance -- Revenue growth forecast at 3%-3.5%, adjusted EBITDA margin expected at 22.5%-23%.
  • Share Repurchases -- 400,000 shares repurchased at an average price of $436.39, funded by free cash flow; over $2.9 billion returned to shareholders since inception of the program.
  • 2026 Consolidated Earnings Guidance -- Adjusted EPS projected at $23.25-$24.25, compared to $21.55 in 2025, with a 24.5% tax rate and share count of 13.9 million; 55% of full-year adjusted net income and EBITDA expected in the second half.

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RISKS

  • Kevin McNamara stated, "The fourth quarter was a $0.70 per share miss. Okay? Massive. Big problem. And raises questions like, okay. You have given guidance. How are you going to—you," explicitly identifying material underperformance and its implications for investor confidence.
  • Michael Witzeman reported, "the 2024. The decline in EBITDA margin was caused by higher marketing costs and higher water restoration write-offs," substantiating a significant drop in profitability driven by operational challenges.
  • Chemed management described elevated write-offs at Roto-Rooter, noting, "total write-offs increased $11,000,000," and that "Write-offs related mainly to our water restoration business increasingly became an issue over the course of 2025," indicating systemic collection and margin pressures.

SUMMARY

Chemed Corporation (CHE +0.57%) executives reported a challenging period with VITAS and Roto-Rooter both underperforming internal targets, explicitly citing a material fourth-quarter earnings shortfall. VITAS saw admissions rise and hospital-based mix reach target levels, allowing the firm to resolve exposure to the Florida Medicare cap but at the cost of suppressed margin and revenue growth. Roto-Rooter experienced flat total leads as natural search traffic was offset by higher-cost paid leads, with residential revenue down and write-offs in water restoration sharply increasing. New operational and technological initiatives, including expansion into Manatee County for VITAS and search optimization changes at Roto-Rooter, are in process but will impact results over several quarters.

  • Chemed management's 2026 guidance projects improvement in both segments but cautions that a recovery in financial metrics is expected to predominantly occur in the second half of the year, not immediately.
  • Executives confirmed that Roto-Rooter's current paid lead acquisition cost is $150-$180 per actual customer, reflecting both market-wide search engine dynamics and cost structure shifts.
  • VITAS expects diminishing Medicare cap liabilities outside of California, while California remains the largest individual cap exposure, mitigated by methods already proven effective in Florida.
  • Share repurchase activity continued at higher average prices, signaling confidence in long-term value, but was not enough to offset the reported earnings miss's impact on short-term investor sentiment.

INDUSTRY GLOSSARY

  • Certificate of Need (CON): A regulatory approval demonstrating community need, required for healthcare operators (like VITAS) to initiate or expand hospice care services in designated markets.
  • Medicare Cap: A government-imposed annual limit on total Medicare reimbursements per hospice provider; exceeding the cap leads to repayment obligations.
  • Implicit Price Concessions: Revenue reductions recognized when management expects to provide price discounts, write-offs, or credit memos, often resulting from payer (e.g., insurance) scrutiny or collection challenges.

Full Conference Call Transcript

I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation, Michael Witzeman, Chief Financial Officer of Chemed, and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's fourth quarter 2025 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 for questions. The 2025 fell short of our expectations for both subsidiaries. We will touch on the circumstances that led to these results, but more importantly, we will discuss what is being done to improve these results for 2026 and beyond. VITAS continues to execute the strategies required to fully mitigate potential Florida Medicare cap billing limitations for the government's fiscal 2026. Admissions at VITAS during the quarter totaled 17,419, which equates to a 6% improvement from the same period of 2024.

An important metric that we have been tracking related to Florida admissions is the percentage of total admissions that come from hospitals. Our analysis indicates that an appropriate balance for sustained long-term stability in the Florida patient base, given the current mix of referral sources, is that between 42%–45% of total admissions come from hospitals. During our community access program, this ratio dipped below the preferred range for a sustained period. In the 2025, this ratio was 44.8%, which represents a high watermark during the post-pandemic period. The continued emphasis on short-term hospital-based admissions had two main impacts on the results for the 2025.

The first impact is that the Florida Medicare cap in the fourth quarter improved by almost $25,000,000 in 2025 compared to 2025. It is important to remember that our fourth quarter is the first quarter of the government fiscal year. The year-over-year improvement gives management even more confidence that the Florida Medicare cap problem of 2025 is behind us. The second impact is that due to the overwhelming success of garnering elevated short-stay patient admissions, revenue growth and EBITDA margin were lower than anticipated. Ultimately, the percentage of total admissions that come from hospitals was higher than we originally budgeted, both the 2025, resulting in this muted revenue growth EBITDA margin.

Mid-January 2026, VITAS management responded to the improved Florida Medicare cap position by instructing operating personnel to begin the process of refocusing admissions to a more balanced approach between hospital admissions and other preadmission locations. That process is underway. In the guidance that Mike will discuss further, we have anticipated that the more balanced approach will start being reflected in financial results mainly in the second half of the year. All patients are short-term patients for the first 30 days after admission, regardless of their preadmission location. As a result, refocusing the admission patterns will result in revenue growth and EBITDA margin building over the course of 2026.

Finally, in December, we were granted a certificate of need to begin operating in Manatee County, Florida. Manatee County is in Western Florida between Hillsborough and Sarasota. Approximately 3,000 Medicare patients received hospice care in Manatee County during the government's fiscal 2024, which is the most recently published government information. Manatee represents another significant opportunity for VITAS in 2026 and beyond. Now let's turn to Roto-Rooter. Roto-Rooter revenue declined 3.7% in the 2025 compared to the same period of 2024. Branch commercial revenue increased 1.6% compared to the 2024. We continue to add commercial business managers to select branches during the quarter. Branches with commercial business managers had percentage revenue increases 10% more than those without them.

Roto-Rooter management intends to continue and expand this program in 2026. Branch residential revenue declined 3.1%. Total leads were flat in the 2025 compared to the same period of 2024. As discussed in the past few quarters, the trend of increasing paid leads offset by declining natural leads continues. During the fourth quarter, paid leads increased 9.4% compared to the same quarter of 2024. The decline in natural leads essentially offset the increase in paid leads. Roto-Rooter management has contracted with a new third-party search engine optimization provider in late December. The new provider does not provide services to any of our private equity competitors.

Additionally, they focus on understanding and responding to the underlying code used by Internet search engines to develop their search algorithms. We believe that these two factors will give us the ability to more positively impact our natural search results in 2026. Write-offs related mainly to our water restoration business increasingly became an issue over the course of 2025. In the 2025, implicit price concessions and credit memos increased at Roto-Rooter by $4,000,000, or 57% compared to the 2024. A similar increase in write-offs was seen in the 2025. The company has put into place modifications to the billing and collection support.

Collection experience began to improve in early 2026, and we anticipate improvement to accelerate through the course of the year. Our guidance reflects management's belief that 2026 is expected to be a transition year for both VITAS and Roto-Rooter. VITAS financial results are expected to build over the course of the year as we rebalance our patient mix. We are very confident the Florida Medicare cap limitation in 2025 is fully behind us. The demographic makeup of the U.S. population along with the addition of new territories in Florida provides VITAS with significant growth opportunities over the next several years. Roto-Rooter continues to deal with a difficult operating environment.

However, we have initiatives in place that I believe can lead to modest growth, mainly coming in the 2026. We anticipate continued improvement in overall leads, based on the past few quarters of paid lead generation improvement, plus the impact of a new search engine optimization company. Improved overall leads should lead to modest organic growth in 2026. The addition of more commercial sales resources is anticipated to further improve organic growth. As Mike will discuss further, improvements we are working on with respect to water restoration billing and collections should provide $4 to $6,000,000 tailwind in 2026.

We believe these improvements, along with an aggressive program to find and reacquire past franchises in desirable territories, gives us confidence that we can meet or exceed our 2026 guidance. We believe that the difficult operating environment is temporary, and there has not been any impairment in the underlying long-term growth outlook for Roto-Rooter. With that, I would like to turn this teleconference over to Mike.

Michael Witzeman: Thanks, Kevin. VITAS net revenue was $418,800,000 in the 2025, which is an increase of 1.9% when compared to the prior year period. This revenue increase is comprised primarily of a 1.3% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.2%. The acuity mix shift negatively impacted revenue growth 143 basis points 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 by approximately 20 basis points. A $2,400,000 Medicare cap billing limitation was accrued in the 2025. There was no Medicare cap billing limitation accrued for our Florida program in the 2025.

Average revenue per patient day in the 2025 was $208.01, which is 86 basis points above the prior year period. During the quarter, high-acuity days of care were 2.2% of total days of care, a decline of 32 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $91,600,000 in the quarter, which is a decline of 1.7% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 21.7%, which is 79 basis points below the prior year period. The lower EBITDA margin in the quarter reflects the impact of admitting more hospital-based short-stay patients. Now let's turn to Roto-Rooter.

Roto-Rooter branch residential revenue in the quarter totaled $155,600,000, a decrease of 3.1% from the prior year period. This aggregate residential revenue change consisted of plumbing increasing 6.3%, excavation essentially flat, offset by water restoration declining 10.3%, and drain cleaning declining 3.2%. As Kevin mentioned, water restoration write-offs, also referred to as implicit price concessions and credit memos, have been increasing over the course of 2025. Historically, total write-offs have been slightly below 3% of gross revenue. There was an uptick to the mid-3% range in the '25. We then experienced a significant jump in the 2025 to over 4.5%. As a result of those increases, total write-offs increased $11,000,000 in fiscal 2025 compared to 2024.

Primarily through the use of artificial intelligence, many insurance companies have increased their scrutiny of every line item on every job we bill. This has led to the higher write-off percentage. Roto-Rooter management also believes that it led to a reluctance to bill for certain water restoration services at the branch level. As the scrutiny on collections has increased over year, billing employees in some branches have reduced their billings per job to help ensure a higher collection rate. This was the biggest factor that led to the 10.3% decline in residential water restoration revenue in the '25. In response to this issue, Roto-Rooter is taking steps to improve its documentation through better use of technology.

They have also undertaken a project to centralize water restoration billing and collections. Billing and collections were historically performed at each branch. This led to some inconsistent practices across the company. Centralizing these processes is expected to create more concentrated expertise and result in better billing and collection results. The financial impact is expected to be seen mostly in the second half of the year as these improvements take hold. Additionally, during the transition period, we expect some duplication of costs and investment in technology which will cause some marginal headwinds in the first half of the year. Roto-Rooter branch commercial revenue in the quarter totaled $55,200,000, an increase of 1.6% from the prior year period.

This aggregate commercial revenue change consisted of excavation increasing 10.9%, drain cleaning increasing 2%, plumbing essentially flat between years, offset by a 20% decline in water restoration. The water restoration decline is a symptom mainly of the increased insurance scrutiny previously discussed. Roto-Rooter management believes that our commercial business continues to represent a significant opportunity for growth in 2026 and beyond. Commercial customers generally use our services more often than residential customers. They also have direct access to our local managers and thus generally do not search for us over the Internet. In response to the commercial business opportunity, Roto-Rooter management hired commercial business managers at select branches during 2025.

The preliminary results in the branches with commercial business managers are encouraging. As a result, Roto-Rooter continues to add commercial business managers in early 2026. It is a roughly 45-day process to get these positions trained and productive, which also may cause some marginal drag in the '26. Adjusted EBITDA at Roto-Rooter in the 2025 totaled $47,500,000, a decrease of 21.1% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 21.5%. The fourth quarter adjusted EBITDA margin represents a 477 basis point decline in the fourth quarter from the 2024. The decline in EBITDA margin was caused by higher marketing costs and higher water restoration write-offs.

During the quarter, we repurchased 400,000 shares of Chemed stock at an average price of $436.39. These purchases were funded by the free cash flow generated by both VITAS and Roto-Rooter. Since the beginning of the program, we have returned over $2,900,000,000 to shareholders through repurchases at an average cost of approximately $167 per share. Now let's turn to the 2026 guidance. VITAS revenue prior to Medicare cap is estimated to increase 5.5% to 6.5% compared to 2025. Average daily census is estimated to increase 3.5% to 4%. Full-year EBITDA margin prior to Medicare cap is estimated to be 17.5% to 18%. Medicare cap billing limitations are estimated to be $9,500,000 in calendar 2026 compared to $27,200,000 in calendar 2025.

The estimate for 2026 is in line with our historical run rate prior to 2025 and includes no limitations related to our Florida combined program. Roto-Rooter is forecasted to achieve full-year 2026 revenue growth of 3% to 3.5%. Roto-Rooter's adjusted EBITDA margin for 2026 is expected to be 22.5% to 23%. We believe this forecast is achievable based on anticipated improved lead volume in 2026, improved billing and collections in our water restoration service line, and a lift in our commercial business through a commercial-focused sales force.

Based on the above, full-year 2026 earnings per diluted share, excluding noncash expense for stock options, tax benefit from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $23.25 to $24.25. This compares to full-year 2025 adjusted earnings per diluted share of $21.55. The 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13,900,000 shares. It is important to note that the 2026 earnings trajectory is weighted towards the second half of the year.

We estimate 55% of the consolidated adjusted net income and consolidated adjusted EBITDA prior to Medicare cap is projected to be generated in the second half of the year. I will now turn the call over to Joel.

Kevin McNamara: Thanks, Mike.

Joel Wherley: In the 2025, our average daily census was 22,462 patients, an increase of 1.3%. In the quarter, hospital-directed admissions increased 9.9%. Home-based patient admissions increased 4.1%. Assisted living facility admissions increased 5.6%, and nursing home admissions declined 8.7% when compared to the prior year period. Our average length of stay in the quarter was 115.1 days. This compares to 105.5 days in the 2024. Our median length of stay was 17 days in the 2025, one day less than the median in the 2024. As Kevin discussed above, we have very successfully transitioned our admission pattern towards more hospital-directed admissions in our Florida combined program.

To add some context to that success, at the end of the 2025, that Medicare cap billing limitation was less than $2,000,000. As of January '26, we have no billing limitation in our Florida combined program. This success has allowed us to begin the process of balancing the admission patterns to a better mix of hospital-based admissions and other preadmission locations. It is important to remember that hospital-based admissions generally provide for shorter stay patients than other preadmission locations. Admitting more short-stay patients results in ADC pressure and lower margins, as previously mentioned. However, in the first roughly 30 days of any patient stay with us, the economics are the same for us regardless of their preadmission location.

Only when a patient exceeds that 30 days do we see the more positive financial impacts. Balancing the mix of admissions will lead to accelerated revenue growth and improved EBITDA margins as the year progresses. In December 2025, we were notified that we received a new CON to operate in Manatee County, Florida. As Kevin mentioned, this represents another opportunity for significant growth over the next few years. This is the fourth CON awarded to VITAS over the past two years. The previous awards in Pinellas, Marion, and Pasco Counties have met or exceeded our expectations. Currently, Marion and Pasco are admitting between 40 and 50 first-time Medicare patients per month.

In just its second full month of operation, Pinellas admitted 28 first-time Medicare patients. We will continue to aggressively pursue CON opportunities in Florida in the territories in which we do not currently operate. Now that we believe the Florida Medicare cap issue is behind us, we are focused on returning VITAS to a more normal, sustainable organic growth pattern. We will look to achieve higher overall growth through the pursuit of new starts, not only in Florida, but other CON states as well. We also continue to evaluate strategic acquisitions to add to VITAS's overall growth. With that, I will turn it back to Kevin.

Kevin McNamara: Thank you, Joel. We will now open for questions.

Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please standby while we compile the Q&A roster. Our first question comes from the line of Joanna Gajuk of Bank of America. Your line is now open.

Joanna Gajuk: Hi, good morning. Thanks for taking the question. So I guess first couple of questions on the Roto business. So thanks for the details around the, I guess, different issues, I guess, happening at the Roto-Rooter. But I guess, just to summarize, because I think you are trying to address couple of these things, what gives you confidence you can actually grow revenues, you know, 3% or so in '26 after, you know, revenues were pretty much flat in '25.

Kevin McNamara: Let me start, Joanna. And this is—I will start with from 20,000 feet. We revised guidance at the end of the second quarter of last year. And we talked at that time the—you know, there were struggles at Roto-Rooter. The problem at VITAS was we were on our way to running a—you know, a Medicare cap liability in Florida. We announced that we know we were going to have to make changes to push our mix of hospital-based admissions and community access to a different level. Okay? So we have made those adjustments to that point. And, actually, from our perspective, from our calculations, at the end of the third quarter, we were basically right at our guidance.

I mean, might have been a little below what analysts, you know, were predicting. But that is just—the difference was only seasonality. We were at our level. The fourth quarter was a $0.70 per share miss. Okay? Massive. Big problem. And raises questions like, okay. You have given guidance. How are you going to—you know, how are you going to—how are you going to reach those numbers? Okay. Now to answer your question, let us start with Roto-Rooter. Okay? Roto-Rooter, as we have said, has been going through a transition. Okay? The transition—the most significant transition is going from a majority of free leads, that is from natural search, to paid leads. Okay?

And, you know, Google is a smart company. They say, why should we give paying customers free leads? You know? And they have been very successful in engineering their algorithms to yield that. That has the negative effect on us as far as, number one for—to answer your question on sales, has effect of reducing our natural search leads. Okay? As we have mentioned at the end of the fourth quarter, looked back at the quarter and we said, okay. We have an improvement there. Our paid leads have increased almost 10%. Unfortunately, natural leads are down almost the, you know, the equivalent number. So our total leads were flat.

You look at our sales, you know, we would expect, you know, sales to be relatively flat in that case. And then, you know, making improvements growing to the following year. Well, we had a problem, as we said, with water restoration. It was an overhang from the first half of the year. Again, we had various decentralized billing practices. Insurance companies kind of sharpen their pencil. And, basically, during the course of the year, increasingly, we were not collecting at the same rate we were expecting. That dramatically, you know, goes right to profitability and sales. Okay?

We believe that has normalized, as Mike said, not to the 2024 level or 2023 level, but certainly better than the 2025 level. So, you know, when we talk about growth, to the extent that we—you know, it is part—the way I look at the Roto-Rooter numbers, I look at, okay. What is going on with paid search and natural. You know, the paid search is growing nicely. Last three quarters, almost 10% per quarter. Okay? Comes at cost. We are paying, you know, $94, you know, a lead. Compared to, you know, previously zero on a lot of those leads.

But that is still a good business, you know, as long as it is stable and growing, that is fine. We look at our natural leads. Okay? Why are the natural leads—why were they so negatively affected year? As we have said in the past, you know, the most—the place that most people get their natural leads from is what is known as the map section of Google. Okay? In October 2024, Roto-Rooter was showing up on the maps nationwide 72% of the time. Okay? Within a few months, that fell to a low of 24% of the time. Okay? Massive change in visibility, as it is done in the industry.

And, accordingly, you know, leads were falling—you know, leads were falling, sales were falling. Tough time for Roto-Rooter. Looking ahead to 2026, what do we see? Well, we see a business that, you know, on the paid lead side, continues to improve. We see—let us focus on the visibility. Okay? Our visibility, both through some of the internal changes we made and the use of our, basically AI-centric, natural search firm, our visibility up to about 35%, you know, up from 24%. You know? So that—you know, to answer your question, that gives me some confidence in saying, yes.

You know, as long as those—we have to just have to continue those improved rates for growth in Roto-Rooter on the revenue side. I mean, there is nothing, you know, that has changed in the nature of and quality of the service mark of Roto-Rooter. Then you add one thing Mike mentioned. You know, again, it is not that surprising given the difficulty of the home services, it seems like, you know, the availability of repurchases of other franchises is speeding up, which has given Mike enough confidence to include that in his remarks. But, again, those issues give me a lot of confidence that Roto-Rooter sales are going to be higher this year than the previous year.

Now I am just going to say the other point is you have to remember—I think it is an important one—when you talk about overall strength of the business, as we have talked, you know, about at VITAS, with the—call it preloading—of Medicare cap cushion in Florida. That is so significant. Just order of magnitude, we are at about a $28,000,000 better position. And cap cushion sitting, you know, right now—right now, I would say it is probably higher than that. It is probably more like $35. Okay. So the only question is, will VITAS be able to grow census to take advantage of that cushion?

And, as we said during the prepared remarks, they are doing that probably beyond our expectations. So, you know, that—in sort of a sense, that lower margin and lower sales we saw in the fourth quarter was basically just lending. It was—we were borrowing from last quarter to see profits and revenue that we are going to see in this year. So all those—those are some of the basic points of what I see happening to what looks like on paper a very bad miss in the fourth quarter.

And just let me go—in terms of dollars and cents, the $0.70 miss—probably about 30%–33% was associated with VITAS getting more of the higher percentage of their admits being short stay rather than long stay. So that is—that is something actually is a good thing. That was something ultimately they were trying to do and just were a little more successful at it than initially anticipated. With regard to—on the Roto-Rooter side, the lion's share of the miss was associated with the water restoration situation, which we have talked about, and there is every indication that is being ameliorated somewhat.

And the rest, you know—the rest of Roto-Rooter, it is largely the marketing cost—the increased marketing cost that comes from, you know, getting that 10% increase in paid leads. So it is not a good situation. Again, it is one where, you know, we went a long period of time with always exceeding analyst estimates. And we cannot kid ourselves. A $0.70 per share miss is, you know, not to be trifled with. It is big, and it is causing, you know, a lot of change and a lot of renewed emphasis on important matters here at the company and both subsidiaries. Mike, anything to add,

Michael Witzeman: Just to summarize, particularly for Roto-Rooter, Joanna, I would characterize our confidence in the 3% to 3.5% revenue growth in '26 based on three specific things. As Kevin mentioned, you know, some things we have done to change the lead trajectory, hopefully to provide some organic growth, but modest organic growth is built in. The increase in commercial sales force will also lead to some more modest organic growth. And then, as we have talked about, the water restoration write-offs will—you know, we have estimated that of the $11,000,000, the increase of write-offs of $11,000,000, we are going to recover maybe half of that this year. That is a $5.5 million tailwind.

So I would say those are the three very key components of how we get to the 3% to 3.5%.

Joanna Gajuk: Great. Thank you. And if I may, on the margins, right, for the segment. So, obviously, things impact the margins, and you gave us the guidance for 26%. But on the last call, when you kind of were talking about targeting a longer term, I guess you were talking about 26, maybe the margin should be close to 24, but, clearly, they will not be there. Then you also said, like, you know, longer term, this business should get, you know, 25%, 26% of margin. So are those still, you know, those targets, are those targets still on the table or sort of like we have to think about the business differently? Thank you.

Michael Witzeman: I think the answer to that question depends on how quickly Roto-Rooter gets back to a more normalized top-line growth path. If they get to, you know, somewhere 5% or north revenue growth, I think the 24% to 25% is still achievable. I do not anticipate the marketing costs to improve dramatically, and so we need to really drive top line and get some leverage based on that revenue growth to offset the marketing costs. So, yes, I believe it is achievable, but the path is not as clear maybe as it had been in the past because of the additional marketing spend.

The other thing I would just mention, and it is—you know, I think it is obvious, Joanna, to you, but you followed us long enough. We are not too far away from where our margins were pre-pandemic. So the 24% to 25% that we have talked about is higher than the historical Roto-Rooter margins. So we are—you know, we are right now pretty close to what the pre-pandemic margin is. It is just we need to drive some top line and get some leverage from that.

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

Brian Tanquilut: Hey. Good morning, guys. Mike, maybe I just—as I think—morning. Yeah. As I think about VITAS first. Right? So I know in previous calls, you have given some insight into what you thought growth would be in the top line. Obviously, the—and the guidance that you have formally gave last night, it is below that range that you previously provided. So just curious what is the delta there? And then how do we think about the progression of VITAS revenues and EBITDA over the course of the year?

Michael Witzeman: Yes, sure. So from a top-line perspective, and this also will, I guess, dovetail into your second question about the timeline. You know, we are sitting right now with a patient mix that, for the second half of the year of '25, we really emphasized the short-stay preadmission locations, mainly hospitals. As you well know, long-stay patients are the ones that generally provide for more revenue growth and EBITDA margin growth. And so we are sitting today with a patient mix that has led us—moderate—not moderate, eliminate the Florida Medicare cap issue. So now we need to refocus the admission pattern.

By doing that, we will get back to the normalized growth rate that we think is somewhere in the 7%–9% top-line area. We will get there. It is just going to take—it is going to build during the year because every patient, essentially, when you first admit them in the first 30 to 45 days are short-stay patients. They are negative margin for us for a period of time. They will become long-stay patients over time, but the first quarter, we are going to continue to have a very elevated number of short-stay patients regardless of the preadmission location. It builds over the course of the year.

That is why, in '26, the revenue is a little bit below our targeted range. And the cadence of how it goes quarter to quarter—the first quarter is going to be muted from a revenue and an EBITDA perspective, and then start to grow and normalize in the second through fourth quarter.

Kevin McNamara: And let me just add one thing. When you are talking about revenue at VITAS, you are talking about ADC. If VITAS is able to grow ADC, they will grow their revenue. And to the extent that they have the ability—a much larger ability in Florida—to go out and seek longer-stay patients. That is—longer-stay patients is how you grow ADC, essentially. It takes, you know, 10 short-stay patients to have the same contribution as one, you know, medium-state patient as far as, you know, going to your ADC number. But I think what you will find is that VITAS is already well on its way. This is not speculation, you know, with VITAS.

They are well on their way to growing, you know, that average daily census in Florida and beyond.

Brian Tanquilut: That makes sense. And then maybe, Kevin, since I have you, shifting gears to Roto-Rooter, you know, this is a business that used to be very stable and predictable. One question we are getting asked a lot by investors is, you know, is there a structural change or structural impairment that has happened, whether it is VITAS or Roto as an asset or the plumbing industry as a whole. So I am just curious how you are thinking about, you know, the cleanliness or the smoothness of the trajectory for Roto motion forward? Because it feels like every quarter, we are bumping up against some speed bumps that are of different natures.

So just curious how you are thinking about how—seven quarters, that is the case, what you are describing. I—we cannot get away with it. Yes.

Kevin McNamara: That certainly, that is the case. Now what has been going on during this period? I mean, I would say that the two major issues start with private equity. Introduction of private equity money and practices into the, you know, into our sector. Okay? Had an immediate effect on us. They hired our branch managers with a promise of, you know, great riches. That has stopped. And, you know, they—several of them have seen trees do not grow to heaven, and they come back, you know, to our point. The biggest impact aside from just existing and offering services at below cost on the plumbing side, they have disrupted the paid search model.

We are paying more per lead than we did, you know, two years ago. But it is—keep in mind, we paid the same amount the last three quarters. So it has not continued to go up. And we are winning that battle. Last three quarters, we have gotten a 10% increase in each of the last three quarters. You know? So I consider the threat of private equity largely diminished at this point. Okay? And I am speaking to the overall—you know, saying, has there been something changed in the plumbing industry? I think private equity—you know, private equity came in and they said, look. We have a different investment horizon. We are in a marathon.

They are in a sprint. They want to build the top line and flip it. You know, that is a tough competitor. Okay? And they also—as I said, I am going back. I am repeating myself. But they are basically HVAC companies that said, you know, we are very happy with paying $124 per lead. Okay? And a lead on a job that they will say they will clean any drain for $90. Okay? And the reason they are happy doing that is they view—that becomes a long-term customer for their HVAC services. You know what I mean? That is a tough competitor if you are in the plumbing side. Roto-Rooter has dealt with that.

I mean, I—I was just like—I am kind of spinning off here into a different discussion. But I think that of the two major things that Roto-Rooter has been dealing with the last seven quarters, private equity, definitely one of them. I do not see that as a long-term problem for Roto-Rooter at this point. Okay? One that is a problem. We are still going on, you know, in the transition. We are going to a transition where Google—we used to get in excess of 55% of our leads on the natural search. You know, somebody just finds Roto-Rooter in Google, ignoring the sponsored ads. That is totally flipped.

We are at a way to almost—you know, just over 40% of our leads come on the natural side. And I think there is a firming up in that market—in that percentage—just to give by some of the things that Roto-Rooter is doing, having to do with fighting back at visibility. But to answer your question, is that a significant—is Google going away? No. No. That is a change in the business. But as Mike says, it is a change that kind of leads us more back to pre-pandemic numbers as far as, you know, sales growth and margin, which was not the worst of all worlds. Okay?

So, you know, so if what I would say to your clients who would say, what has happened to the plumbing industry? I would say, private equity has come in, disrupted everything. But they are seeing that it is tough to give away the service—you know, to provide the service at a loss. They are not growing. Companies have stopped buying our competitors. It is—you know, it is just—it is—the problem is diminishing rather than increasing. Google—we cannot kid ourselves. Google is a—we are dependent on Google. We deal with them. We hope we, you know, we hope we can keep just having slight improvements in it.

But the thing that has changed is we have gone from a business where the leads were predominantly free, and now they are predominantly—we are paying them out. Now let me go back and say, there is nothing wrong with the leads. We are—we are very profitable. The business—a good business, you know, paying—getting leads through paid ads. It just is a negative comparison to getting them for free. So now I would say that with regard to Roto-Rooter, good cash flow, strong growth on the, you know, excavation, water restoration side. The water restoration has been a real black eye for us for the last three quarters.

But it is something we have looked to, you know, put behind us. Not by wishful thinking, by the way, by centralizing billing, and using our technology to make sure that the support for every bill is, you know, almost redundant. I mean, just—that is how you get past the AI sensors, as it were, and ultimately get paid. So, no. I do not have any long-term concerns on Roto-Rooter at this point, to be honest with—

Michael Witzeman: Brian, the only thing I would add is from an industry perspective, there has been a lot of talk and a lot of, you know, things published that the trades, including the plumbing industry, are, you know, pretty resistant to the changes that are coming from artificial intelligence and those sorts of things. So we definitely believe that plumbing—the industry itself—has not and is not going to have major changes in the viability of the industry as a whole.

I think—I mean, honestly, just to the point of your question, 2026 is the year that Chemed management and Roto-Rooter management show or do not show, but we believe will show, the ability to manage that and get back to a more profitable, more sustainable level of growth for Roto-Rooter itself. Well, let us put it this way. It comes down to leads.

Kevin McNamara: This past quarter, as bad as this past quarter was, our total leads were flat. Total leads were flat. Unfortunately, I say just a per—you know, there was a shift between some, you know, between paid and unpaid. But leads were flat. Okay? And from those leads, we are increasingly improving our ancillary services, that is excavation, water restoration. So if you say, how does Roto-Rooter continue to grow? It is by having the leads, you know, be a little better than flat, continue to grow the ancillary services. And, you know, our goal for Roto-Rooter historically has not been double-digit growth. Okay? It has not been 30% margins.

It has been growth on the top line of 7% to 8% with 24%, 25% margins depending on the seasonality in the quarter. And from that—with that cash flow—that has achieved over, let us say, prior to this year, you know, over the previous 21 years, that is with the years in which we own both VITAS and Roto-Rooter. They grew the net income at 11% per annum compounded. I mean, that is—and they did that with just, you know, the basic blocking and tackling and benefit of good cash flow. So we get a lot of questions. I mean, I could talk about this all day because we are going to talk about it all day.

People are going to say, is there something significantly wrong with Roto-Rooter? No. They are going through a difficult period. They are paying for leads they used to get for free. If you want, you know, like, a one-sentence capsule commentary.

Brian Tanquilut: Awesome. Thank you, guys. Thank you.

Operator: Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.

Ben Hendrix: Great. Thanks a lot, guys. Just starting with VITAS. Appreciate all the commentary about Florida cap and the dynamic in the fourth quarter. Appreciate that you have a little bit more visibility on the, you know, not having a cap liability in that state. But we are getting a lot of questions on how we square that with some of the—with the broader, higher cap stats that we are seeing, specifically the greater than 10% cushion coming down over the last couple of years and also an increase in the zero to 10% cushion buckets and the liability buckets. Can you kind of help us think about cap more broadly?

How we think those stats might evolve kind of given the dynamics that we are seeing in Florida? And then also just a little detail on, you know, are we at cap risk in other markets? Thanks.

Kevin McNamara: I am going to turn it over to Joel. And let me start by saying, keep in mind, in Florida, where we have a dominant position, I want to end the year with, you know, five—a small percentage. I want to monetize as much of that cap room that we created as possible. We do not want to cut it—we do not want to cut it too close. We want to be—but I just feel in Florida, we have more control over our destiny than any other state. So, you know, I would—whenever we talk about cap buckets and whatnot, I personally look at it—Florida and everywhere else. But, Joel, why do you not give—

Michael Witzeman: Let me start with just sort of the specific metrics you were talking about, Ben, and then we will let Joel talk about the, you know, color commentary around it. But in '26, we see, again, $9.5 million, which is pretty consistent with where we have been for the five or so years before 2025. That is comprised of California mainly. California is by far the largest. But because of some of the things we learned in Florida, the cap liability in California—actually, Joel and his team did some of the same things to help improve California. So California has actually gotten, you know, a little bit better.

It is—I do not think we are in a position where we do not think it is going to ever go to zero. But it is in a very manageable position right now. But there always has been, and there probably always will be, some of our smaller programs that bounce in and out of cap based on, you know—they are so small, and the cap calculation is so sensitive that if, you know, in a smaller program, if we lose an IPU relationship in one hospital, it can have a temporary impact that the—that particular program jumps into cap for a short period of time.

And that is what you are seeing is, the cap liability in total has not changed but, you know, it is a couple short programs—or small programs—that we think are currently projected to be in cap, but it is, you know, it is 50/50, and they are very small liabilities. But that is why you see the number of programs look like it is going up, but the dollar amount is not. Because it is just small programs that from time to time do this, and they always have for the entire time that we have owned VITAS. Joel, to give me your opinion. I do not want to color it. Are you that concerned with non-California or Florida cap?

Joel Wherley: I am not. And primarily for the reason, we are utilizing all of the very effective strategies that we have lifted up within the Florida CCN in every single potential cap market we have out there. Now if you look at fourth quarter specifically, that is the first quarter of the Medicare cap year. So you have full revenue, but the slate is wiped clean on admissions, so you are starting over on a new year. We always see some of the small programs dip into cap in that first quarter of the Medicare cap year.

We have no additional concerns about major programs out there that will—we expect a Medicare cap billing limitation for '26 that we have not seen previously. And to Mike's point, we have made very good progress in the state of California with our historical programs that have been in Medicare cap. And we have talked previously about why that happens in California. But the short answer to that, Ben, is that, no. We have no additional concerns specific to cap. And, in fact, we are very happy with the progress we are making and our ability to minimize that billing limitation in CCNs outside of Florida. And, as we indicated, with no billing limitation within the Florida CCN.

Ben Hendrix: Thanks, guys. Appreciate the color. Just a quick one on Roto-Rooter. We also have a lot of questions on kind of how we model this, you know, the margin impact on the paid search mix versus the natural search mix, specifically that 90-some-odd dollar, you know, per lead number that you have thrown out there, kind of, how does that look on a conversion-adjusted basis? You know, assuming some of those leads do not quite convert or there is no follow through, is there a stat that we can think of in terms of the conversion-adjusted dollars per lead on a paid search?

Michael Witzeman: Sure. So as you mentioned, we pay, you know, roughly $90 per lead, and that has not changed over the last few quarters. Historically until—and then continuing today—it takes between 1.5 to 2 leads to convert to a paying job. So you are looking at $150 to $180 customer acquisition cost for a paying job on the jobs we do from a paid lead standpoint. And that is—I think 60% to 65% of our leads are paid at the moment.

Ben Hendrix: That is helpful. Thank you.

Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Kevin McNamara for closing remarks.

Kevin McNamara: Well, my remarks are limited to the fact that, you know, we had a tough quarter. But there is, at least on this side of the line, abundant confidence that the guidance we make is guidance we can—is we want to hit. We know that it is bad enough to have bad results, but it is even worse to miss guidance. And so to the extent that the guidance is out there, we are very confident. But based on our results in those, you know, the most recent quarters, I can see why reasonable investors might say, okay. Forget last year, but are they even going to make this year?

I was going to say that when you combine some of the trends we have talked about, and inside insight, you know? Again, we are more confident now than we are on the normal guidance, to be honest with you. But with that, I would just like to thank everyone for their attention. And we will be back three months from today. Thank you.

Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.