Chemed Corp Q3 FY2025 Earnings Call

Good morning, and thank you for standing by. Welcome to the Chemed Corporation Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Holley Schmidt, Assistant Controller. Please go ahead.

Good morning. Our conference call this morning will review the financial results for the third quarter of 2025 ended September 30, 2025. 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; Mike 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.

Thank you, Holley. Good morning. Welcome to Chemed Corporation's Third 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. Both operating units fell primarily in line with our expectations in the third quarter of 2025. VITAS continued to execute the strategies required to fully mitigate any potential Florida Medicare Cap billing limitation for the government's fiscal 2026 year. Additions in VITAS during the quarter totaled 17,714, which equates to a 5.6% 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 between 42% and 45% of the total admissions should come from hospitals. During our community access program, this ratio dipped below the preferred range for a sustained period of time. In the third quarter of 2025, this ratio was 44.5%, which represents a high watermark during the post-pandemic period. The ratio has been above 42% for all of 2025. We previously estimated that the consolidated Florida program would have a $19 million billing limitation for the 2025 Medicare Cap year. We came in slightly better than that with a billing limitation of $18.9 million. Management continues to believe there will be no Medicare Cap billing limitation related to our Florida program in 2026. As discussed above, the initiative to admit a higher percentage of hospital-based admissions has gained traction, and we anticipate that to continue. We have cleared all hurdles to opening our new Pinellas County location, which is now on track to open in early November. Our new program in Marion County, Florida, which opened in May of 2025, has grown to an average daily census of 75 as of September 30, 2025. We project that it could double in size to an average daily census of 150 by the end of 2026. Now let's turn to Roto-Rooter. Roto-Rooter revenue increased 1.1% in the third quarter of 2025 compared to the same period of 2024. Branch residential and commercial revenue were both encouraging with increases of 3.4% and 2.8%, respectively. Revenue from independent contractors continues to be disappointing, declining 4.7% in the third quarter of 2025. For the first time in several quarters, we saw strength in our residential plumbing revenue service line. Residential plumbing revenue increased 8.2% in the third quarter of 2025 compared to the same period of 2024. A multipronged campaign to target selected high-revenue plumbing services yielded positive results in the quarter. The campaign included more targeted internet focus on specific services, enhanced sales materials for the technicians in the field, and more frequent close rate reporting to branch management related to the specific services. We are encouraged by the results of this campaign in the quarter. Total leads were down 1.3% in the third quarter of 2025 compared to the same period of 2024. This is a nice improvement compared to the trajectory we saw in 2024 and earlier in 2025. As discussed in the past few quarters, the trend of increasing paid leads offset by declining natural leads continues. During the third quarter, paid leads increased 8.6% compared to the same quarter of 2024. The entire decline in leads is in the natural lead category. In my opinion, this trend is both a positive and a negative. While we are paying for more leads, causing some margin pressure, we also believe this trend indicates a potential moderation of competition for leads from our most significant private equity competitors. We are monitoring these trends closely. As Mike will discuss further, Roto-Rooter margins continue to be below our long-term expectations. However, gross margin during the quarter was exactly in line with our guidance. The many operational initiatives discussed in past calls are having positive impacts. The shift from unpaid leads to paid leads was the main driver of the $3.6 million increase in SG&A costs in the quarter. This led to EBITDA and EBITDA margins being slightly lower than our expectations for the quarter. We are very encouraged with the performance of both businesses in the third quarter. VITAS is on track to ensure that the Florida Medicare Cap issue is behind us. While still below our long-term expectations, there are signs that the Roto-Rooter business has stabilized and is on the way to returning to a predictable, sustainable growth trajectory. With that, I would like to turn this conference over to Mike.

Thanks, Kevin. VITAS net revenue was $407.7 million in the third quarter of 2025, which is an increase of 4.2% when compared to the prior year period. This revenue increase is comprised primarily of a 2.5% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 4.1%. The acuity mix shift negatively impacted revenue growth by 121 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 124 basis points. The $6.1 million Medicare Cap billing limitation accrued in the third quarter of 2025 is comprised of $4.6 million for our Florida combined program and $1.5 million related to all other VITAS programs, mainly in California. We came in slightly better than our estimates for the quarter in both Florida and California. Average revenue per patient day in the third quarter of 2025 was $205.08, which is 298 basis points above the prior year period. During the quarter, high acuity days of care were 2.3% of total days of care, a decline of 259 basis points when compared to the prior year quarter. Adjusted EBITDA excluding Medicare Cap totaled $70.4 million in the quarter, which is a decline of 3.8% when compared to the prior year period. Adjusted EBITDA margin in the quarter excluding Medicare Cap was 17.0%, which is 157 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. The EBITDA margin is within our expectations and guidance. Now let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $150.9 million, an increase of 3.4% from the prior year period. This aggregate residential revenue change consisted of plumbing increasing 8.2%, excavation increasing 4.5% and water restoration increasing 6.8%, offset by a decline in drain cleaning of 2.6%. Roto-Rooter branch commercial revenue in the quarter totaled $55 million, an increase of 2.8% from the prior year period. This aggregate commercial revenue change consisted of excavation increasing 10.2%, water restoration increasing 3.5% and drain cleaning revenue increasing 1.2%, offset by a decline in plumbing of 0.8%. Revenue from our independent contractor declined 4.7% in the third quarter of 2025 as compared to the same period of 2024. Our independent contractors are generally smaller operations in middle-market cities. In many instances, based mainly on resourcing constraints, they have less effectively capitalized on the add-on service segment growth opportunities than our owned branch locations. We are actively working with the contractor group to help mitigate the issues in this segment of our business and get it back to a growth trajectory. Adjusted EBITDA at Roto-Rooter in the third quarter of 2025 totaled $49.4 million, a decrease of 12.4% compared to the prior year quarter. Adjusted EBITDA margin in the quarter was 22.7%. The third quarter adjusted EBITDA margin represents a 351 basis point decline from the third quarter of 2024. The third quarter EBITDA margin is a 90 basis point improvement over the second quarter of 2025. While below our long-term expectations, Roto-Rooter's third quarter gross margins are within our guidance range. The many field-level initiatives discussed in prior quarters have begun to take hold. The paid versus natural lead generation shift discussed by Kevin drove the $3.6 million increase in SG&A costs and the resulting EBITDA margin pressure. This is the main reason for the slightly lower-than-expected EBITDA margin in the third quarter. Management reiterates its previously issued guidance of $22 to $22.30 per share, excluding noncash expenses for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items. This guidance assumes that there will be no Medicare Cap related to our Florida combined program for the government fiscal year 2026, beginning on October 1, 2025. I will now turn this call over to Joel.

Thanks, Mike. In the third quarter of 2025, our average daily census was 22,327 patients, an increase of 2.5%. In the quarter, hospital-directed admissions increased 10.4%. Home-based patient admissions increased 2.3%. Assisted living facility admissions increased 8.9%, and nursing home admissions declined 8.9% when compared to the prior year period. Our average length of stay in the quarter was 109.7 days. This compares to 102 days in the third quarter of 2024. The average length of stay in the second quarter of '25 was 137.1 days. Our median length of stay was 18 days in the third quarter of 2025, equal to the median in the third quarter of 2024. The median length of stay in the second quarter of 2025 was 20 days. It's important to remember that length of stay statistics are calculated based on discharged patients, not active patients. The return to a more normal length of stay metric in the third quarter is indicative of the success of our renewed focus on higher admissions from hospitals as a preadmission location as previously discussed. I'm excited about the opportunity to lead VITAS into its next chapter. The new CON in Pinellas County is a significant opportunity for VITAS. We will continue to put our best foot forward when applying for new CONs in the state of Florida. We will continue to focus on providing the best possible care to our patients and their families. That focus will be coupled with getting back to the basics of ensuring that we grow the business responsibly while effectively managing the Medicare Cap. With that, I'll turn the call back over to Kevin.

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

Our first question comes from Ben Hendrix of RBC Capital Markets.

Appreciate the reaffirmation and guidance with results in line with your expectations. But with the results in both segments falling a little bit below what the Street was modeling, we're getting a lot of questions about the elements that bridge us back to guidance in the fourth quarter. Can you kind of run through in each segment what you're seeing from a demand and cost trend perspective and even from a seasonal perspective that gives you confidence that we can kind of ramp back up to the guidance midpoint in the fourth quarter?

Sure, Ben. The main point is that we expect more seasonality in the fourth quarter. When I analyzed the performance of the third and fourth quarters, it appears that the third quarter was slightly above our internal expectations, while the fourth quarter fell a bit short. Overall, we concluded the year right where we projected. This pattern is primarily influenced by seasonal factors. If we look specifically at VITAS and Roto-Rooter, VITAS typically sees its strongest performance in the fourth quarter, coinciding with the new rate increase on October 1, which leads to a significant margin increase since our cost structure remains stable from the end of September to the start of October. For Roto-Rooter, the fourth and first quarters tend to perform better, largely due to weather conditions—colder and wetter weather generates more job opportunities. The difference in performance between quarters is only a couple of million dollars, so I believe the variance between your estimates and ours is not substantial.

Right. But now we're giving you some specifics, Mike, some of the elements that we do expect to improve during the quarter compared to the third quarter.

Roto-Rooter is likely the simpler topic to address, as we have previously discussed some of our ongoing initiatives. We have mentioned the challenges we faced regarding costs, particularly with field discounting and increased commission rates, but these have shown improvement, as highlighted in my earlier remarks. Our sequential margin has improved by approximately 90 basis points, and we anticipate this trend to continue. We expect revenue growth to persist alongside margin improvements as we approach the fourth quarter. Regarding VITAS, we expect steady margins and revenues throughout the fourth quarter.

Joel, anything with regard to areas where you see some comparative improvements from the third quarter to the fourth quarter by the results?

Yes. So, and thanks for the questions, Ben. As we have talked about in the previous two quarters, we knew that we would have additional marginal compression specific to our shift in strategy away from community access and focusing more on hospitals as a preadmit driving a higher volume of shorter length-of-stay patients. However, what we have done to offset that is institute additional efficiency gains internally with labor management, which we are really excited about and have effectively put into place, as well as going into the fourth quarter, as Mike indicated, is usually a good quarter for us. And as we manage that preadmit environment, and as I indicated earlier, back to a more reasonable length of stay, we're effectively managing the fixed costs associated with that.

And just to give you one specific, how this relates to the results for VITAS. As we mentioned in the third quarter, we shoot for between 42% and 45% is the ratio of hospital admissions. For the quarter, it was 44.5%. To the extent that, that were to moderate closer to 42%, you would expect to see longer stay patients, non-hospital admissions, would still be in a healthy range, but it would yield more profitable patients. So I mean, that expectation is that 44.5% is a high watermark during a period of extensive scrutiny on Medicare Cap. And just the moderation of that alone would cause the type of improvement we're talking about quarter compared to quarter.

And if I could just do one follow-up here. Could you talk a little bit about your receivables? It looks like DSO is a little elevated. Just wanted to get your thoughts on how cash collections are progressing and if there's a timing issue there or kind of what we can expect from a cash collection perspective.

That's just a timing issue, Ben. I think it's mainly at VITAS and it's mainly relating to Medicaid, as you might imagine, with all the other sand in the air from a government perspective, Medicaid payments have slowed down, but it's not an indication of any deterioration in our collection efforts or ability to collect. It's just a timing issue.

Our next question comes from the line of Brian Tanquilut from Jefferies.

So maybe just as I think about 2026 with where the Medicare rate shook out. I know you had previously provided some insights into how you were thinking about margins and growth rates for next year. So curious where that stands now and just broadly speaking, without giving guidance obviously, how you're thinking about the growth algorithm for 2026?

Sure. I'll start and then Joel or Kevin can follow up. We're currently in the early stages of our budget process. The fourth quarter, especially regarding Florida and the Medicare Cap, will significantly influence our strategy for 2026 and its connection to our financial statements. Generally, in Florida during the fourth quarter, we generate most of our annual cap liability, and then we spend the subsequent nine months addressing that. This has been our operating model since we acquired VITAS. Last year's fourth quarter liability was considerably higher than previous years, which forced us to adjust, leading to more hospital admissions. We believe this year’s fourth quarter liability will be more moderate, which will allow us, as Kevin mentioned, to gradually increase long-stay patients and enhance both revenue growth and EBITDA margin. This process takes time, as all patients initially are short-stay. Over time, we will gain momentum in the long-stay categories, provided we do it responsibly to avoid a cap issue. The fourth quarter will really help shape our outlook for 2026. From a high-level view, while it involves some speculation, I would estimate revenue growth in the 8% range and margins around 27.5% to 28%. Sorry, I was mixing that up; it should be 17.5% to 18%. That’s our preliminary thinking as we begin to work on our budget.

Joel, do you have any insights regarding operating margin profitability that could give you renewed confidence for the upcoming year? I understand that you are still early in your budgeting process.

So thanks, Kevin. First, I would reiterate what Mike said. The fourth quarter is going to be a significant indicator as to the speed for which we can look at responsibly getting back to active census growth, especially within the Florida market. We are very encouraged by the strategies we put in place, the steps that we have taken, the moderation of the average length of stay from a discharge perspective, and all of the initiatives that we have put into place to mitigate any concerns going forward with cap, which then puts us in a position where we can be agile and responsibly get back focusing on census growth in those markets.

I appreciate that. And maybe my follow-up, just to try to keep this to two questions. Kevin, you talked about the improvement that you're seeing in the competitive dynamics in Roto. So if you can speak to that. And then maybe as I go back to your comment about gross margin coming in, in mind, clearly, G&A is the area, the other lever there. So just wanted to hear your thoughts on improvement performance and opportunity on the G&A line as we think about both Roto and VITAS.

Okay. Well, let me have Mike start with the numbers on it, but I'll provide my overall perspective after that.

Yes, certainly. The first question is that our total leads for the second quarter in a row increased by nearly high single digits on a paid search basis. The decline in leads we have experienced is primarily in unpaid search categories. This situation creates margin pressure since we are paying for more leads. However, we are not encountering the competitive pressures for those paid leads that we have faced in the past, which we find encouraging. Additionally, we are reassured by the fact that other major players in various consumer service areas are also struggling with unpaid leads. It is not just Roto-Rooter that is being targeted. All companies willing to pay for leads are being compelled to pay for more leads, which includes our private equity competitors. Consequently, we are very optimistic about obtaining leads that we may not have secured a year ago at this time.

I'll give you an example. In the second quarter of last year, Roto-Rooter invested more in Google advertising and online marketing. This was met with a competitive response, leading to higher costs for everyone without any change in the lead balance. However, that is not what we're experiencing now. As we increase our spending, we are seeing a rise in leads. It’s up to us and basic economics to ensure we make the most of that spending.

Yes. Regarding margin, our gross margin for the quarter met our expectations. However, as Kevin pointed out in his remarks, it does not align with our long-term targets, and there are still improvements to be made. We acknowledged in the second quarter that addressing some of these issues, especially related to discounting in the field and commissions, would take multiple quarters. Although the gross margins matched our expectations for the third quarter, we still have work ahead of us.

Yes. I want to make a personal observation. One of our significant challenges in achieving margin on the calls we receive is maintaining pricing discipline. It’s easier to uphold that discipline when there is ample work available. We are beginning to see a shift from a 10% decline to a 1% increase. This makes it simpler for us to avoid discounting and to ensure we obtain prices that allow us to maintain our traditional margins. The increase in leads supports this effort. Although it may be a subjective view, this is the improvement we aim for in Roto-Rooter for 2026.

And the last thing I would say, and this mirrors Kevin's remarks on the SG&A line. We're doing what we can to minimize the cost, but we want to make sure that we maximize the opportunities that are provided to us. And if it means spending a little more on paid search to provide the revenue growth that we think is appropriate, then we think that's a good investment. And we track revenue per lead cost and those sorts of things. So we track that pretty closely. And so we think it's the right use of money to drive top line to spend a little more on the paid marketing side.

We have been discussing the operational aspects of Roto-Rooter and our internal metrics, specifically the close rates at the call center and in the field. Many of these operational metrics remain very strong. Therefore, we believe that if we receive more calls, we have the potential to earn more revenue from them.

Our next question comes from Joanna Gajuk from Bank of America.

Continuing with the Roto-Rooter segment, margins appear to be under pressure due to marketing costs. How should we consider sustainable margins? It seems like this could indicate a new business model that requires higher spending. While I understand you may not have specifics for next year, can you share your thoughts on margins for the medium to long term in that business?

From a longer-term perspective, we believe that the appropriate EBITDA margin for Roto-Rooter is between 25% to 26%. While we haven't reached that level yet, we expect to manage higher marketing costs due to the increased leads and the revenue they generate. It's clear that we will face continued pressure on marketing costs in the near term, particularly over the next few quarters. However, we are confident that we can mitigate these challenges through various operational strategies we've discussed in recent quarters.

Yes. Let me explain how it works in practice. When service calls decrease, the technician goes out, provides a written estimate, and it becomes a binary decision for the customer—either they agree or they don't. At that moment, the technician has no other jobs queued up to move on to. You can understand why they might feel inclined to negotiate, asking, 'What can I do to get this job?' This leads to discounting, which erodes profit margins. If we can generate enough leads and have more jobs lined up for our technicians, it can significantly enhance our margins due to the added work opportunities. It's like a multiplier effect. We're not far from stabilizing our lead generation, aiming to avoid double-digit declines. This is crucial for maintaining good profit margins even if we have to pay a bit more. To the technician, if they reduce the job price by $70, they are still earning something for their effort. However, it's a constant struggle between poor business practices and good ones, which we continually strive to manage.

And we've put in some a little bit tighter controls around what the technicians are able to do at the door, a little bit higher level approval requirements and things like that. But a learned behavior like that doesn't change overnight. And that's why we knew this was going to be at least a couple of quarters to really fix this learned behavior in the field. And we're pleased with where it has progressed through the end of the third quarter.

Okay. Because like I say, if I look at year-to-date, adjusted EBITDA margin for the segment, about 23% or so. But I guess to get to your full-year guidance, that just implies higher margin in fourth quarter. But you also alluded to the idea of like seasonality impact, right? So is that...

Yes, fourth quarter is always the highest.

Always the higher margin. Okay. Because it kind of comes out to be like 25% or so to get to, call it, 24% for the year. So is that 24% like a good number to think about as we head into next year in terms of margins?

I think we can do better than that next year. But again, we're working on the budgets now. But I think we should see some margin improvement certainly next year compared to '25.

And then when it comes to top line, right, so it's tracking, call it, 1% growth this year. So how should we think about it? Can this business kind of grow closer to mid-single digits? Is that still kind of on the table? And when would you think we should be able to see that kind of growth?

I think we, again, are in the early stages of our budgeting process. I think we'll see better growth next year than we've seen this year, whether that's 3% to 5%, it's speculating at this point.

I would say that's probably going to be our budget. Our budget will definitely start in that range as submitted to us, and then we'll move to more.

Yes. And then with the green shoots we've seen in certain revenue categories in the third quarter here, there could be upside to that. But we're monitoring day-to-day what's happening in the field. And we're going to put together a budget that we think is achievable but also realistic.

Okay. And switching to VITAS, right? So just to clarify first, so when you said you do not have too many liabilities in Florida under the cap. Is it because you just kind of based on the rate increase, you can tell that, hey, like the delta between the rates in Florida versus the cap increase is much smaller, so that's the reason for staying like no liability? Or are you in that statement, you also already assumed like some offsets from these new markets or other things?

Yes. So Joanna, it's not just based on the year-over-year reduction in the rate increase. It actually is because of our focus and strategy within the marketplace and what Kevin referenced at the beginning of the call, which is the overall percentage of our admissions coming from hospital preadmit environment, which, as we know, has a tendency to drive a shorter length of stay patients. So what we saw was, last year in the Medicare Cap year for '25, we had multiple months where our overall percentage of hospital admissions dropped to a record low of our overall mix of admissions. That's what Kevin was referencing, that sweet spot being between 42%, 42.5% and 45%. We are monitoring that on a regular basis. And as we indicated for the last quarter, we were at a high watermark of 44.5%. That's what gives us the confidence in knowing that we are in the right direction to mitigate any cap liability. Then with addition, on top of that, we have the Pinellas opening that we're excited about.

Also, Joanna, the length of stay has really returned to normal, which indicates that the number of long-stay patients we experienced in community access has been moderating as we expected.

But Joanna, there's no doubt that last year, the factor that ultimately pushed VITAS over the edge was the increase, which was 200 basis points higher than the rate that the Medicare Cap was going to be calculated on. That alone was, in hindsight, too much to overcome, especially considering the issues Joel mentioned. Additionally, I want to emphasize that we now have the rate increase for the nation and Florida, which we believe is in a sweet spot. It’s increased but manageable.

So what is that number, if you can share with us, versus the 200 delta in fiscal '25? What is it in '26?

30 to 40 basis points. The national average is around 2.6% or 2.7%. We've calculated our Florida average to be 3%. That equates to a $3 million or $4 million headwind, which is well within our ability to manage. That headwind last year was $22 million or $25 million.

Alright, that’s what I was looking for. Regarding the short-stay patients, it seems like you’ve gained better traction, but now you might be pausing due to increased competition for these patients. It appears that in the third quarter, things have shifted to the point where you are also taking in more long-stay patients. Is that how we should understand the situation?

We definitely recognized last year that VITAS faced a challenging situation from the outset. They tried various traditional methods to attract more short-stay patients, such as increasing the number of salespeople and intensifying efforts at the hospital level. However, we noticed that these strategies did not yield the expected results, which was surprising for VITAS. The changes we implemented anticipated certain responses, but in that particular environment, they did not have the desired effect. For all the reasons previously discussed, these issues are more likely to arise in 2025 and 2026. VITAS needs to focus on increasing hospital admissions, securing more first-time Medicare admissions, and maintaining a reasonable average length of stay. Considering the reimbursement landscape, we should return to a position without the Medicare Cap limitation in Florida. It's a straightforward situation, although it requires considerable effort to manage these various elements. Joel, do you have anything to add regarding this general observation?

No, I think you're correct, Kevin. It was the combination of census growth and the rate increase that led us to a situation where we couldn't overcome it throughout the Medicare Cap year.

And keep in mind, it's just one of those things. Even having said all that, no one likes a surprise $18.9 million hit. But that's still less than 2% of the total, and it's still pretty close to what we would have expected. We just didn't quite make it. We're within 2%. So it wasn't a big miss; it was a small miss. The issue was that it was the first time ever, and it was a concerning situation we hadn't really discussed before, which was the Medicare Cap in Florida.

And if I may follow up on the discussion on seasonality, right? So if I do the same exercise in VITAS in terms of just like how margins are tracking so far this year and what this impact was fourth quarter, so it sounds like margins, I guess, would need to go up year-over-year like 50 bps or so to get to your prior, I guess, segment margin pre cap. But they've been down year-over-year. So I guess, what's going to be different? I guess, is this really the kind of the mix of patients you assume you're going to be having more of the tailwind from the long stay patients?

No, I think it's the things we've talked about already. We get a bump from the rate increase, I think Joel has talked about some of the things they're doing at the SG&A level. If you notice, in the third quarter for VITAS, SG&A actually is down year-over-year. That's going to continue in the fourth quarter. So they're combining rate increases, a little better efficiencies as well as some specific targeted cost-cutting measures.

At this time, that does conclude the question-and-answer session. I would now like to turn it back to Kevin McNamara, CEO, for closing remarks.

I just want to thank everyone for their attention to our quarterly report. I guess the next time you'll hear from us is mid-February where we'll both have the fourth quarter and our guidance for next year. Thank you.

Thank you. And thank you for your participation in today's conference. This does conclude the program. You may now disconnect.