Earnings Call Transcript - CHE Q3 2023

Operator, Operator

Good morning. Our conference call this morning will review the Financial Results for the Third Quarter of 2023 ended September 30, 2023. 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 25 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 25, 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 McNamara, CEO

Thank you, Holley. Good morning. Welcome to Chemed Corporation's third quarter 2023 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow up with additional operating details. I will then open up the call for questions. Our third quarter 2023 operating results released last night reflect continued improvement in VITAS' operational metrics. In the quarter, our admissions increased 7.5% over the prior year period. These strengthening admissions continued to drive higher patient census. In the third quarter, our Average Daily Census, or ADC, expanded to 1,617, an increase of 9.4%, when compared with the prior year and 2.5% when compared with the second quarter of 2023. VITAS' improving operating metrics are a direct result of our retention and hiring program launched on July 1st of last year. This program was designed to stabilize turnover in our tenured staff and expand patient capacity. Since July 1, 2022, our staffing has methodically increased on a sequential basis over this 12-month period. This increase in staffing and related patient capacity has been converted into increased admissions and census in roughly 60 to 90 days. This 12-month retention program generated an aggregate increase of 784 licensed healthcare professionals, the majority of which are licensed nurses. This retention bonus program ended in the second quarter of '23. However, in the third quarter, we continued to expand our licensed staff and related patient capacity. VITAS' net bedside headcount increased by 157 licensed professionals in the quarter. Our September 2023 ADC was 19,047 patients. This compares to our September 2022 ADC of 17,325 for a net increase of 1,722 patients. This raw ADC patient increase translates into $123 million of increased annualized billable revenue. Our revised guidance assumes continued sequential ADC growth in the fourth quarter of 2023. Now let's turn to Roto-Rooter. As I discussed last quarter, Roto-Rooter continues to manage through what I can only describe as headwinds on consumer spending. Overall, our call volume was down approximately 13.6% when compared to the prior-year quarter. Although call volume is a crude measurement, it does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services. Roto-Rooter has offset a significant portion of the softening demand with a material increase in close rates. Our call center's conversion rate, the rate at which a call is converted into a technician-scheduled ticket, has improved by 4.8%. Our ticket void rate, which is the rate of canceled jobs before technicians can be dispatched, improved by 4.6%. Our technician conversion rate, the percentage of time a tech arrives at a home or business and converts a scheduled ticket into billable work, was essentially equal to the prior year. These improved conversion rates combined with price increases resulted in Roto-Rooter increasing revenue by 40 basis points when compared to the prior year. We continue to see stabilization of our demand in weekly revenue. Our guidance assumes Roto-Rooter will help with modest fourth quarter sequential growth when compared to our third quarter of 2023. This conservative revenue guidance for Roto-Rooter's fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year. To summarize, I am pleased with the accelerated improvement in VITAS post-pandemic. Our increased growth in licensed healthcare professionals, strong admissions and corresponding growth in the patient census have returned VITAS to normalized operating conditions. Roto-Rooter is well-positioned, in spite of economic headwinds on consumer spending. We anticipate continued expansion of market share by pressing Roto-Rooter's core competitive advantages in terms of excellent brand awareness, customer response time, 24/7 call centers, and aggressive internet presence. With that, I would like to turn this conference over to David.

Dave Williams, CFO

Thanks, Kevin. VITAS' net revenue was $334 million in the third quarter of 2023, which is an increase of 12.5% when compared to the prior-year period. This revenue increase is comprised primarily of a 9.4% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.7%. The acuity mix shift positively impacted revenue growth by 24 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 increased revenue growth by approximately 20 basis points. Our average revenue per patient per day in the third quarter of 2023 was $196.43, which is 296 basis points above the prior-year period. Reimbursement for routine homecare and high acuity care averaged $172.52 and $1,026.48, respectively. During the quarter, high acuity days of care were 2.8% of our total days of care, which is an increase of 5 basis points compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $54.9 million in the quarter, which is an increase of 53.4%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 16.5%, which is 441 basis points above the prior-year period. Now let's take a look at Roto-Rooter. Roto-Rooter generated quarterly revenue of $231 million in the third quarter of 2023, an increase of 0.004% compared to the prior-year quarter. Roto-Rooter branch commercial revenue in the quarter was $56.8 million, an increase of 1.5% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning revenue declining 4.2%, plumbing increasing 1.8%, excavation expanding 11.9%, and water restoration increasing by 2%. Roto-Rooter branch residential revenue in the quarter totaled $155 million, an increase of 0.003% over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning decreasing 6.7%, plumbing expanding 0.003%, excavation expanding 3.2%, and water restoration increasing by 4.3%. Adjusted EBITDA in the third quarter of 2023 totaled $66.9 million, a decrease of 3.7%. The adjusted EBITDA margin in the quarter was 29%, which is 124 basis points below the prior-year period. Now let's take a look at our updated guidance. VITAS' 2023 revenue, prior to Medicare Cap, is estimated to increase 9.3% to 9.5% when compared to 2022. Full year 2023 revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023. Our Average Daily Census, or ADC, is estimated to increase 7.3% to 7.5%. And full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.4% to 15.7%. The total pre-tax cost of the retention program in 2023 is estimated at $23.8 million. This reduced our adjusted EBITDA margin guidance for 2023 by approximately 180 basis points. We are currently estimating $8 million for Medicare Cap billing limitations in calendar year 2023. Roto-Rooter is forecasted to achieve the full year 2023 revenue growth of 1.6% to 2%. Roto-Rooter's adjusted EBITDA margin for 2023 is guided to 28.4% to 28.6%. Based upon the above, full year 2023 earnings per diluted share, excluding non-cash expenses for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items, is estimated to be in the range of $19.82 to $20.02. This guidance includes $1.18 per share of after-tax costs related to the 2023 portion of the retention program. This revised 2023 guidance compares to previous guidance, as recast to no longer exclude costs related to the retention program of $18.72 to $18.92. Current 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23.6%, and a diluted share count of 15.2 million shares. Chemed's 2022 adjusted earnings per diluted share was $18.78, which includes $0.97 per share for costs associated with the 2022 retention program. During the third quarter, the company finalized a realignment of its state and local corporate tax structure. This realignment, effective January 1, 2022, was based on the location of operating resources and profitability by business segment. This reduced state taxes for 2022 and 2023 and is estimated to result in a 24.3% effective tax rate starting in 2024.

Nick Westfall, CEO of VITAS Healthcare

Thanks, David. As Kevin discussed, our 12-month retention and hiring bonus ended on June 30, 2023. This program was very effective in stabilizing and expanding our patient capacity. All retention bonus payments are individually cliff vested and paid out after the employee has successfully completed 12 months of continuous employment. I'm also very pleased that we have continued to expand our workforce and patient capacity in the third quarter without this retention program. In the quarter, VITAS increased net bedside headcount by 157 licensed professionals. Similarly, I'm pleased that we've continued to see strong retention of our team members who received their retention bonus payment, illustrating the sustainability of improvements in culture and morale at our locations. In the third quarter of 2023, our Average Daily Census was 18,859 patients, an increase of 1,617 or 9.4% when compared to the prior year and an increase of 467 or 2.5% sequentially. As Kevin mentioned, we crossed the 19,000 ADC mark in September of 2023, at 19,047 patients. This compares to our September '22 ADC of 17,325 for a net increase of 1,722 patients. VITAS has generated quarterly sequential ADC growth over the last four quarters. In the third quarter of '23, total VITAS admissions were 15,774. This is a 7.5% increase when compared to the third quarter of '22. In the quarter, our nursing home admissions increased by 2.8%, assisted living facility admissions expanded by 17.1%, hospital-directed admissions increased by 6.5%, and our home-based patient admissions expanded by 9.2% when compared to the prior-year period. Our average length of stay in the quarter was 103.1 days. This compares to 106.2 days in the third quarter of '22 and 99.5 days in the second quarter of 2023. Our median length of stay was 17 days in the quarter and compares to 17 days in the third quarter of '22 and 16 days in the second quarter of '23. To recap what our team has accomplished, we've now generated five quarters of sequential growth in licensed healthcare workers and four quarters of sequential growth in ADC. We've developed what I believe is a very sustainable path to methodically build our clinical capacity and patient base to pre-pandemic levels and beyond. These accomplishments were a result of the unwavering commitment, dedication, and focus each VITAS team member has toward fulfilling our mission in every community we serve. I want to take this opportunity to thank our entire VITAS team for what we have done to get us here today, and I look forward to what we will accomplish going forward. With that, I'd like to turn this call back over to Kevin.

Kevin McNamara, CEO

Thank you, Nick. It's now an appropriate time to entertain any questions people might have.

Operator, Operator

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

Ben Hendrix, Analyst

Hey, thank you very much. Just on the VITAS in terms of the new revised guidance, I wanted to get your thoughts on how you're factoring in the hiring that you saw in this quarter into your revised estimates? And can you remind us kind of what you're expecting in terms of pull-through in Q4 from some of the new hires that you noted? I think you noted about 150-some-odd new nurses. Thank you.

Nick Westfall, CEO of VITAS Healthcare

In terms of forecasting for the fourth quarter, we base our expectations on the prior five quarters' experience regarding census growth. This is reflected in our fourth quarter guidance for the year. We feel confident in our methodical approach. With a net increase of 157 bedside staff in the third quarter, we have every reason to believe that this growth will continue through the end of the year, setting us up for 2024, which we will factor into our guidance when we discuss it in February next year.

Dave Williams, CFO

And Ben, what you probably noticed, if you kind of do the math on the three quarters of actual to get to our full year guidance, we're anticipating a pretty big sequential pop from Q3 to Q4 in our adjusted EBITDA margin ex-Cap, and that's primarily due to three factors, one of which is all of the price increase is going to drop down to our EBITDA line, really all of it. And geographically, we came out what, 20 basis points ahead of the national average? Nick Westfall: 3.3% is where we anticipate.

Nick Westfall, CEO of VITAS Healthcare

We expect to see an increase of about 3.3 points. Additionally, Nick and his team are still working on monetizing, even though they have already made significant progress, due to the substantial growth in labor in Q2, the addition of 302 bedside full-time equivalents, and the management of the 157 they have. We are achieving leverage on central support costs in relation to the marginal revenue growth. In simple terms, we anticipate a significant rise to about 21% in our adjusted EBITDA margin for the fourth quarter, though this won't be our margin moving forward into 2024. We are currently benefiting from a strong tailwind in monetizing this large capacity and increased admissions, which tend to incur high costs. However, when we provide guidance for 2024, we will be adjusting our expectations down from the fourth quarter.

Ben Hendrix, Analyst

Thank you. That's very helpful. Moving quickly to Roto-Rooter, can you talk about the water restoration trends? It looks like the revenue is a little softer than what we've seen in past quarters. Remind us of any seasonality that goes into that number? And kind of how that business is faring amid some of the broader consumer headwinds? Thanks.

Dave Williams, CFO

In terms of seasonality, there isn't much to mention, although I prefer not to discuss weather conditions. However, in the first quarter of this year, we experienced extremely cold weather that led to frozen pipes. Frozen pipes typically require significant water restoration work due to their tendency to burst, causing water damage in various areas of a building. Thus, there could be a slight amount of seasonality in this regard. Additionally, each water restoration job is mostly customized, usually initiated by a minor plumbing or drain cleaning service, which then prompts the question of whether water and humidity need to be removed. Therefore, it generally aligns with plumbing, sewer, and drain work. Nonetheless, we are excelling at quickly addressing jobs with a high likelihood of requiring water restoration, and we are successfully capturing that business. Currently, due to our rapid response, we are outperforming in water restoration compared to the growth in sewer and drain work, and we anticipate that these will become fully correlated within a few years.

Ben Hendrix, Analyst

Great. Thank you. Just one last question. Can you just talk about any changes and thoughts around your capital deployment priorities kind of amid the current interest rate environment and expectations for rates to stay higher for longer? Thanks.

Kevin McNamara, CEO

Good day, I want to mention that Dave will discuss a change related to the overnight rate affecting our finances, but we will continue to buy stock. Dave, please go ahead.

Dave Williams, CFO

Before, about 18 months ago, we were receiving only 20 basis points on overnight money, which led Kevin and me to feel a strong urgency to invest quickly, primarily through share repurchase with dollar averaging. Now that we are able to obtain a good rate of 5.2%, which is roughly equal to our after-tax free cash flow yield per share, there’s no significant economic drawback to timing our investments. This is why you're seeing an increase in our interest income as we utilize cash on an overnight basis. We will also take advantage of opportunities to repurchase shares when there is a stock price correction. This strategy will continue to be a key method for returning capital to shareholders until we identify attractive acquisitions or ways to enhance our returns.

Operator, Operator

All right. Thank you. One moment for our next question. Our next question comes from the line of Joanna Gajuk of Bank of America. Your line is open.

Joanna Gajuk, Analyst

Thank you. Good morning. Thanks for taking the question. So, I guess, if I can first follow up on the discussion around VITAS margins. So you alluded that Q4 guidance implies a pretty high margin of 21%, that's not a good assumption for next year, obviously, because of the seasonality and how the Medicare rate update flows through. But is it fair to assume I guess full year margin guidance excluding the 180 basis points headwind from the retention program? So I guess when you do that math because you're guiding now 15.4% to 15.7%, but excluding that headwind, I guess it's 17.2% to 17.5% margin. So, is that a good starting point for next year? Because also the other way I guess to look at things would be maybe the second half, so combined Q4 and Q3, so that's like a 19% margin. So, is it fair to kind of think about margins into next year in the kind of neighborhood?

Dave Williams, CFO

Regarding margins, it's an interesting question. We are cautious because we are uncertain about how things will stabilize post-pandemic. Last year, as we were nearing the end of the pandemic, we discussed VITAS' margins without any retention program in place. We mentioned a return to an adjusted EBITDA margin of around 17.5% to 18%. As we assess the current mix and the efficiencies Nick and his team implemented during the pandemic, we believe our margins could exceed the 17.5% to 18% we had in 2019. The final margin might settle at 19% or 19.5%, but once we normalize our hospital admissions, length of stay, and patient mix, the margin will likely stabilize. Our guidance for 2024 indicates limited opportunities for margin improvement, whether we end up at 19%, 19.5%, or 20%. We expect to surpass our pre-pandemic census early in Q1 2024, if not in Q4 of this year. In summary, we believe we have a favorable trend for margin growth, but the exact level is still uncertain. However, Q4 may not reflect future annual guidance, although it could be indicative of a fourth quarter guidance for the year.

Kevin McNamara, CEO

Which would be consistent with all pre-pandemic fourth quarter marginal contribution prints at that point.

Ben Hendrix, Analyst

Usually, the highest margin is expected. I agree. Regarding the census, you mentioned that you've surpassed the 19% mark and raised your outlook, indicating an expectation for Q4 to improve sequentially from Q3. With that in mind, how should we approach next year? For this year, you're projecting a revenue growth of 9%, primarily driven by that census growth. Is it possible to achieve high single-digit growth on top of that figure again, or would that create challenges for comparisons? I'm looking for any guidance on how we should consider these factors.

Nick Westfall, CEO of VITAS Healthcare

So just from an operational standpoint, I think the sequential component that you're seeing is illustrative, built-in and baked into some of my comments earlier, we feel very good about the sustainability of sequential ADC growth, Joanna, on a go-forward basis. In terms of the overall rate, of course, we don't want to comment about what we think '24 will be until we get into talking about 2024 guidance. But my comment is really just to reinforce the overall confidence we have in our ability to continue to methodically build clinical capacity that will continue to translate into admissions growth and ADC growth. And it's a different way of saying the pandemic is behind us. We feel great around. We're hitting on all cylinders, including, just as importantly, everything we're investing from a human capital and cultural standpoint back at our individual locations. And so, we're on a good path and trajectory. But in terms of range of ADC and guidance, we'll talk about it when we get into '24. But just from an overall confidence standpoint, we sit here very confident based upon the results we're printing and anticipate continuing to produce on a go-forward basis.

Kevin McNamara, CEO

And Nick, the answer to your question also lies in a factor that's outside of our control. As Dave has indicated, it's somewhat of an unusual situation; things were tough in the hospice arena, and our competitors, who are smaller, less well-capitalized, and perhaps less professionally managed, struggled far more than we did. A significant part of our improvement was due to taking business away from those struggling competitors. Our average daily census for the quarter was up 9.4%, which is historically high. Regarding where that figure might settle, it partly depends on our competitors. Some of them, especially in Florida, are starting to recover after having struggled. We continue to see them face challenges, so many of those factors are uncertain. However, we believe that as we look at the situation now, their ongoing struggles present good news for us.

Joanna Gajuk, Analyst

Okay, I appreciate it. And before I guess I ask my Roto-Rooter question, the last thing on VITAS. So, we know what the rate update is, which is pretty good, I guess, and sounds like you actually struck a little bit higher than average rate. But there are also some provisions in the hospice rate, but also in the home health proposal around the hospice oversight, right? So there the medical reviews of hospice stays that are longer than 90 days. There's the Special Focus Program. And I guess they talk about selecting some providers for that additional review. So, can you talk about what does it mean for your business in terms of any impact to how you operate or any impact to the costs associated with just dealing with this increased oversight?

Nick Westfall, CEO of VITAS Healthcare

Sure. Joanna, let's break your comment into two parts. First, regarding the potential interest in examining patient records related to length of stay, we consistently defend these aspects successfully. Research studies indicate that longer stays in hospice benefit the Medicare Trust Fund by significantly reducing overall care costs. We will see if the desire to examine these factors aligns with the best interests of the Trust Fund. As for the proposed rule and provisions of the Special Focus Program, we expect some elements to be finalized soon. Notably, the public comment letters from various trade associations, which represent a range of providers and bipartisan congressional leaders, illustrate concerns regarding the Special Focus Program's structure and highlight recommendations from CMS. These recommendations aim to better identify poorly performing hospices, especially in states like California, Texas, Nevada, and Arizona, which have seen a surge in hospice licenses over the past four years. Some constructive feedback includes the need for normalization related to condition-level deficiencies, ensuring providers are not treated uniformly regardless of their circumstances. Additionally, it’s worth noting that 40% of hospice provider numbers haven't undergone a survey in three years, and over half lack a Cap score. There is ongoing work in the industry to ensure that all providers align to provide insights to help the government meet its objectives. However, there is speculation that the proposed measures may need significant adjustments or a pause to ensure they effectively achieve their intended goals. We will observe how this develops over the next week or two and in the coming years.

Joanna Gajuk, Analyst

No, exactly. I guess, we have to see where it stands when it's finalized. But if I can, last question on the Roto-Rooter rate. So, things tracking a little bit better. Sounds like you conserved it on Q4, but still you raised your guidance, it sounds like maybe a little bit more than the Q3. So, what gives you confidence, I guess, in Roto doing better? And can you talk about maybe trends exiting Q3 and so far in October?

Dave Williams, CFO

There's really not much to talk about. There's nothing that stood out in October. Seasonality, Joanna, kicks in about mid-November, really, through the end of the year. So, it's too early to see what kind of seasonality we have. If you look at the exact change we did to the guidance that we issued at the end of Q2 versus the end of Q3 now, we really just tightened everything up to the higher end on the Roto-Rooter side, effectively. So, it's better margin improvement, which is also an example of expense control at the Roto-Rooter level. And it's those that are really kind of resulting in about a $3 million pop in EBITDA for Roto-Rooter in the second half of the year than we were first initially anticipating. So it's really coming down to margin performance and just slightly better revenue trend lines, but still not up to where we think it should be.

Joanna Gajuk, Analyst

I have a question about VITAS. How should we think about next year? Can it continue to grow? I recognize that the answer likely depends on the state of the economy, but are there any frameworks or leading indicators you would consider for how to approach next year in Roto?

Nick Westfall, CEO of VITAS Healthcare

In Roto or VITAS, Joanna, or both? My apologies.

Kevin McNamara, CEO

It's about Roto-Rooter. For example, Ferguson Supply is a large supplier of various devices, including plumbing repair devices and pipes. In the first year they've tracked this, it's noted that the customers are entities like Roto-Rooter, who purchase items in-store, along with do-it-yourselfers and competing plumbing companies. Recently, they've reported a 12% decrease in sales in this sector year-to-date, whereas last year saw a 22% increase. This broad trend suggests it’s driven by consumer behavior rather than competition. The decline happened rapidly, which indicates there may be potential for a swift recovery as well. However, it's unclear why consumers are postponing non-emergency jobs. I believe we’re facing a cyclical economic issue that shows signs of potential improvement as fast as it has declined. As we work through the budget for Roto-Rooter, we will analyze these factors. While it’s somewhat unpredictable, we plan to provide our best insights in February for next year. I wouldn’t dismiss the possibility of improvement, but our guidance may reflect some caution along with optimism, especially if consumer demand remains stable by mid-January. It seems we've already hit a low point and are starting to normalize.

Dave Williams, CFO

Yeah. If you think about it, Joanna, we really want to see what the fourth quarter turns out to be to the impact on Roto-Rooter from what I'd call softened consumer demand. To the extent that we really achieve a soft landing in 2024, I suspect Roto-Rooter will have a very, very good year in '24. If consumer headwinds kind of nag spending throughout next year, I think we're set up for an incredible 2025, because as Kevin keeps reminding people, these jobs that are not coming in for the industry as well as for us, they're not going away, they're getting deferred. These problems don't fix themselves. You might delay it, you might push some big clogs down the line, but all this work eventually has to be done, and we're positioned for it. I have a fair amount of optimism on 2024, but it really just comes down to how much extra cash consumers have and how much longer they can defer some of these jobs. But we anticipate there will be growth next year.

Kevin McNamara, CEO

With one caveat, David, Roto-Rooter will face a challenging comparison in the first quarter. The first quarter preceded the slowdown, and they had favorable weather, resulting in a strong performance. The numbers we're discussing pertain to the entire year, not just the first quarter.

Dave Williams, CFO

Q1 will be challenging, and I appreciate the margin we are achieving right now. It's undoubtedly going to be the toughest quarter to compare against, which will be Q1 of 2023. After that, the challenges will become somewhat easier to manage.

Joanna Gajuk, Analyst

Thank you for the information. I have a final question regarding the industry trends you've mentioned that indicate you're maintaining your market share. Specifically, could you explain any differences in behavior between your commercial and residential sectors, especially considering the water restoration business? Additionally, are you affected by the slowdown in building activity, or is your commercial division diversified enough that it doesn't depend heavily on new housing developments? Thank you.

Dave Williams, CFO

The commercial business tends to be, what I'd say, less discretionary because they're trying to keep things open. The number one commercial cohort we have is actually multifamily housing. Then the number two turns into restaurants. The restaurants are exactly volume-driven, and if they're getting a lot of in-restaurant dining, that's where our volume comes from there. So, it's not really deferable on the commercial side, it just comes down to how often they're using your equipment and their drains and their plumbing systems, that triggers our repairs. And actually commercial right now, it is, what I would say is slightly outperforming residential.

Joanna Gajuk, Analyst

Great. Thanks for the color. Thank you.

Kevin McNamara, CEO

I want to express our satisfaction with what we believe was a strong operating quarter. It was encouraging to see the success of our retention program at VITAS. We are pleased that Roto-Rooter has normalized its activity levels. The close rates and effective expense control in Roto-Rooter reflect excellent management at the field level, and we anticipate a strong finish to the year. Thank you all for your attention, and we look forward to our next call in February, where we will discuss our fourth-quarter results and guidance for the upcoming year. Thank you.

Operator, Operator

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