Chemed Corporation (NYSE:CHE) Q1 2026 Earnings Call Transcript

Chemed Corporation (NYSE:CHE) Q1 2026 Earnings Call Transcript April 24, 2026

Operator: Good day, and thank you for standing by. Welcome to the Chemed Corp First Quarter 2026 Earnings Conference Call. At [Operator Instructions] Please be advised that today’s call is being recorded. I would now like to hand it over to our first speaker, Holley Schmidt, [indiscernible]. Please go ahead.

Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the first quarter of 2026 ended March 31, 2026. Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 applies 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 April 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 April 23, 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.

Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation’s First Quarter 2026 Conference Call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. VITAS’s performance during the quarter exceeded even the high end of our expectations. We believe that the first quarter of 2026 would be a tough comparison as we continue to transition to balance our patient mix between short-stay and long-stay patients. VITAS management was able to add ADC through accelerated admissions from nonhospital preadmission locations while also maintaining a high level of hospital-based emissions. This was achieved while also keeping hospice labor costs lower than budgeted.

These factors combined to allow VITAS to achieve higher-than-expected revenue growth and EBITDA margins while continuing to add Cushion to the Medicare Cap position in our Florida combined position program. Admissions at VITAS during the quarter totaled 19,394 which equates to a 6.9% improvement from the same period of 2025. We Hospital admissions as a percent of total admissions for our Florida combined program was 43.8% during the first quarter of 2026. As we have discussed previously, an appropriate balance for the sustained long-term stability in the Florida patient base, given the current mix of referral sources is that between 42% and 45% of total admissions that come from hospitals. Equally as important, as Joe will discuss in greater detail, admissions from all other preadmission locations increased 8.4% compared to the first quarter of 2025 in our Florida combined program.

Improved admissions led VITAS to outperform our expectations while also adding over $32.5 million to cap cushion in the Florida combined program in the first quarter of 2026. March 31, represents the halfway point in the government fiscal year. We are more confident than ever that VITAS has put the Florida cap issue of 2025 behind us and has returned to a normalized rate of growth. Now let’s turn to Roto-Rooter. Over the past 2 years, we have talked about the many headwinds that have persisted at Rotair, which is made for a difficult operating environment. While we believe [indiscernible] will continue to face some of those headwinds, the first quarter of 2026 also showed some signs of improvement across multiple fronts. For the first time since the fourth quarter of 2022, residential plumbing and residential sewer and drain revenue both increased during the quarter.

We consider these Roto-Rooter’s core services which drive the add-on revenue from excavation and water restoration. We see this as a very positive development for the company. Driving the increase in core residential service revenue was an increase in total leads of 3.3%. Paid leads during the first quarter of 2026, increased 18.7% compared to the same quarter of 2025. Continuing the same trend as past quarters, 53.4% of those leads were the result of paid advertisements. In the first quarter of 2025, we paid for 46.5% of the leads. The change of approximately 7% required Roto-Rooter to increase marketing spend by almost $3 million in the quarter compared to the first quarter of 2025. The centralization of water restoration billing and collections continues and has resulted in improved collections.

These improvements resulted in a $1.5 million improvement in overall write-offs compared with the first quarter of 2025. Weather patterns in the first quarter of any given year are positive for Roto-Rooter. However, in the first quarter of 2026, unusual ice and snow storms across large parts of the country led to significant service disruptions due to road conditions. 24 [indiscernible] branches experienced some level of service disruption for a period of time across 5 days of the quarter. We estimate that these service disruptions resulted in a net loss revenue of between $3 million and $4 million during the quarter. On March 31, 2026, we repurchased the territory and assets of the franchises operating in San Francisco, California, and Fort Worth, Texas in 2 separate transactions.

The aggregated combined purchase price of these transactions was approximately $20.6 million. Collectively, these retro locations serve a population of approximately 3.3 million people. This purchase is part of Rodger’s ongoing strategy of acquiring franchises to boost productivity, market share and profitability. These 2 acquisitions are anticipated to add between $5 million and $5.5 million of revenue for the remainder of 2026. These acquisitions are immediately accretive to earnings. However, initially, growth — gross margins, EBITDA margins, pricing and mix of service offerings tend to be below the average of our existing rotor portfolio. We are happy with the performance of VITAS in the quarter and its prospects for the remainder of 2026 and beyond.

In our February conference call, we described this as a year of transition for Roto-Rooter. The first quarter clearly demonstrated this transition. We feel very positive that the initiatives we have discussed over the last few quarters are beginning to take hold. With that, I would now like to turn the teleconference over to Mike.

Michael Witzeman: Thanks, Kevin. VITAS’ net revenue was $420 million in the first quarter of 2026, and which is an increase of 3.1% when compared to the prior year period. This revenue increase is the result of a 2.2% increase in days of care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. The acuity mix shift negatively impacted revenue growth, 120 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 47 basis points. In the first quarter of 2026, Vitas accrued $2.4 million in Medicare Cap billing limitation. This is in line with our expectations.

No Medicare Cap billing limitation was recorded in the first quarter of 26% for the Florida combined program and none is anticipated for the 2026 fiscal period. Average revenue per day in the first quarter of 2026, was $210.62, which is a 146 basis points improvement from the prior year period. During the quarter, high acuity days of care were 2.3% of total days of care, a decline of 28 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $70.8 million in the quarter, an increase of 0.6% when compared to the prior year period. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 16.8%. Now let’s turn to Roto-Rooter. Roto-Rooter branch commercial revenue in the quarter totaled $56.5 million, a decrease of 1.9% from the prior year period.

Commercial revenue was negatively impacted by the weather events discussed earlier to Kevin. However, for the 13 branches that had commercial business managers coming into 2026 and Commercial revenue was up approximately 10%. We added 18 new commercial business managers during the first quarter of 2026. We expect commercial business revenue to accelerate as these 18 new commercial business managers complete their training and begin to become productive sales leaders in their locations. Roto-Rooter branch residential revenue in the quarter totaled $16.3 million, a decrease of 1.5% over the prior year period. All lines of service increased from the first quarter of 2025 with the exception of water restoration. Demand for water restoration services continues to be strong, and our conversion rates remain high.

During the transition to a centralized billing and collection model, we anticipated some disruption to the day-to-day billing processing function. In the first quarter of the average revenue per water restoration job declined by roughly 13%. We anticipate that this issue will improve as the year progresses with the tallies staff gaining experience and proficiency. Revenue from our independent contractors declined 3.3% in the first quarter of ’26 compared to the same period of 2025. Our independent contractors are generally smaller operations in middle-market cities. Because they are independent contractors, they tend to operate more like a small mom-and-pop business than our owned and operated branch locations. We are actively working with the contractor group to help mitigate the issues in this segment of our business to get it back to a growth trajectory.

Adjusted EBITDA in the first quarter of 2026 totaled $53.5 million a decrease of 9.6% when compared to the first quarter of ’25. The adjusted EBITDA margin in the quarter was 22.5%, which represents a 218 basis point decline from the first quarter of ’25. Roto-Rooter gross margin of 51% was in line with our expectations. As discussed by Kevin, the decline in adjusted EBITDA margin was mainly caused by increased Internet marketing costs. Finally, let’s discuss the revised guidance for fiscal 2026. Historically, we do not give quarterly updates to guidance. Due to the materially improved performance of VITAS, coupled with the level of share repurchases in the first quarter of 2026, we believe updating guidance is appropriate in this instance.

As a result of the better-than-anticipated first quarter for VITAS we have increased projections for the remainder of ’26. Full year ADC growth for 2026 is updated to a range of 4.5% to 5.5% and compared to the original guidance of 3.5% to 4%. Anticipated revenue growth, excluding the impact of the Medicare Cap, improves from the original guidance of 5.5% to 6.5% and to a revised range of 6.5% to 7.5%. Finally, revised EBITDA margin, excluding the impact of the Medicare Cap, is anticipated to be 18% to 18.5% and compared to original guidance of 17.5% to 18.5%. We’re factoring all the gives and takes within expected Roto-Rooter performance for the remainder of fiscal 2026, anticipated revenue growth remains unchanged at 3% to 3.5%. Estimated adjusted EBITDA margin is lowered slightly to 21.5% to 22.5% compared to the original guidance of 22.5% to 23%.

This is primarily due to elevated marketing costs now expected to persist above our original guidance for the remainder of the year. Based on the above full year 2026 earnings per diluted share, excluding noncash 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 $20 to $24.75. The midpoint of the revised guidance represents a 13% increase from 2025 adjusted earnings per diluted share of $21.55. The revised 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.6 million shares. The original 2026 guidance was for adjusted earnings per share to be between $23.25 and $24.25. I will now turn the call over to Joel.

Joel Wherley: Thanks, Mike. In the first quarter of 2026, our average daily census was 22,723 and an increase of 2.2%. In the quarter, hospital directed admissions increased 13.6%, home-based patient admissions increased 2% and assisted living facility admissions increased 2.9% and nursing home admissions declined 5.4% when compared to the prior year period. The continued high level of hospital admissions allowed us to quickly transition in the quarter and start emphasizing admissions from other preadmission locations that generate a longer length of stay patient. This resulted in ADC growth that was ahead of the original projections. We were able to achieve this level of ADC growth while maintaining full-time equivalents below our budgeted targets for the quarter.

Our average length of stay in the quarter was 102.7 days. This compares to 118.7 days in the first quarter of 2025. Our median length of stay was 15 days in the first quarter of 2026, a decline of 1 day from the first quarter of 2025. The new starts in Florida continued to grow at a very rapid pace. Marian, Pasco and Pinellas Counties, combined had 526 admissions in the first quarter of 2026, exceeding our expectations. AC for each new start continues to exceed our expectations, and we anticipate opening ManatoCounty in late second quarter or early third quarter. We intend to aggressively go Manati as we have in our other 3 new starts. I believe the opportunity for growth at VITAS has never been better. We have the difficulties of the 2025 cap circumstance behind us.

We are looking forward to continue executing our strategies for the remainder of 2026 and beyond. That will translate into high sustainable growth while providing the best possible care to our patients and families. And with that, I’ll turn the call back to Kevin.

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

Operator: [Operator Instructions] Our first question will come from the line of Brian Tanquilut from Jefferies.

Q&A Session

Unknown Analyst: This is Megan Holt on for Brian Tanquilut. Congrats on the quarter guys, and the guidance rates for the year. First, on the VITAS side, margins looked good in the quarter. How much of that was head count reduction that contributed to it? And then since you’re raising the ADC guidance, do you expand labor capacity to support their growth for the remainder of the year? And then just lastly on the VITAS side, speak to any fraud enforcement you’re seeing in Southern California, given the CMS cure?

Kevin Fischbeck: I can start with the margin discussion, Megan, and then I’ll let Joel talk about the fraud stuff. But we averaged roughly 100 FTEs below our budget in the quarter. we were able to efficiently serve the increased ADC with — at that level. But I think to your point, that’s not something that we view as something sustainable for the rest of the year. We intend to I think our original budget was adding 30 to 40 FTEs a month. We’ve increased that to closer to 60 per month for the remainder of the year. So we feel very good that if we add those 60, we can achieve the level of ADC growth we have currently budgeted and maybe a little better than that. Joel, fraud, stuff.

Joel Wherley: Yes. So we certainly are very sensitive to the national campaign to root out fraud waste and abuse within the health care system. Certainly, the hospice concerns in California have been very public — there were just Senate congressional hearings on Tuesday, speaking specific to it. We are very supportive of the efforts. However, we also want to avoid direct implications associated with the fraudsters and ensure that, that does not limit access for patients in need in those counties not only in California, but across the United States for legitimate providers to impact the quality of that patient and their loved ones final journey. .

Unknown Analyst: Got it. And then on the Roto-Rooter side, it looked like you guys had some additional marketing expense in the quarter. Is that now the right run rate going forward? And you started seeing some pressure on the customers this time last year given the macro backdrop? And facing a similar headwind in terms of the economy right now and whatnot. So are you seeing that similar trends as we’re a month into Q2 now?

Kevin McNamara: Well, let me just start with the marketing costs. Marketing costs proxy for Google costs. And as we indicated, I mean our leads were up 3%. However, I mean, to get that 3%, we had the battle with the fact that due to changes in the Google algorithm are leads from the natural or free side of the search spectrum were down almost 16%, okay? So those were down 16%. Nothing Rodeo could do. We expect that to basically continue. We have several efforts afoot to increase our visibility on the natural side. But I mean, in the short term, it’s going to be something approaching that. We hope to improve our position, but through the models, I would say that’s kind of what we expect to see some tough sledding on the natural side of the search with Google.

On the positive side, without increasing the amount we bid in the various domains. We’ve been getting a lot more clicks. I mean our clicks on the paid side went up over 18%. So I guess what I’m saying is, in order to keep our business where it is and basically, our sales where we budgeted, we’ve got to pay for more of the leads, and that means more marketing costs and kind of inexorable in the short and midterm. And so to answer your question, yes, we expect that to continue.

Joel Wherley: Yes. Megan, from a specific number, [indiscernible], I can walk you through it a little bit. But we were from a year-over-year comparison, $3 million above last year in marketing costs. We had budgeted or guided — included in the guidance was an increase of $1 million — so we basically spent about $2 million in the quarter higher than what we had budgeted. Of that, we think that roughly $1 million of it was related to some of the weather things we talked about. We were — when we couldn’t get on the road, we were still getting calls probably a much higher volume than we would as we’ve talked about, weather is good — that kind of weather is good for us, but we couldn’t serve it. And so we were paying for calls that ultimately, we couldn’t serve.

We expect — we thought that was probably about $1 million additional expense that shouldn’t be really considered in the run rate. So all in all, we spent about — on a run rate basis, we spent about $1 million more in the quarter than we anticipated. And the entire change in the EBITDA margin in the guidance is us adding $1 million per quarter of marketing costs for the next 3 quarters.

Unknown Analyst: And then just any trends you can speak to so far in Q2?

Joel Wherley: It’s real early in Q2. I think things continue to progress the way we expect them to. .

Operator: Next question will come the line of Joanna Gajuk from Bank of America.

Joanna Gajuk: So maybe first on the border business. So can you just talk about the marketing for and the weather disruption — and I guess I want to tie the quarter to the full year outlook. So now the full year outlook includes, call it, $5 million from these 2 franchises that you acquired. So there’s some contribution in there too. And I guess you still expect the same revenue growth. So was there some sort of bad guy that after the good guys, so to speak, in the guidance, if you can walk us through .

Kevin McNamara: Yes. So what — I mean, what we talked about, Joanna, was that there are — within the guidance and what’s even in the first quarter, there are some positives, but there’s also continued headwinds the contract operations still performed slightly below our expectations. The water restoration revenue, particularly on a price or cost per job is still below — a little bit below our expectations. So those gives and takes sort of offset the acquisition revenue we anticipated. But revenue stays in line with where we thought it would be at the beginning of the year, just maybe the underlying components might be slightly different than what we had anticipated. But ultimately, the revenue continues to grow as we expected.

Joanna Gajuk: And if I may, so on the collection rate, did I hear right? I guess maybe there was some improvement, but I guess you did not expect in Q2 — so I guess I just want to make sure, are you still expecting to improve collection by $4 million to $6 million for the year. .

Kevin McNamara: Yes, we were slightly better than that than our expectations in the first quarter. Having said that, part of that obviously comes from the idea that we’re billing lesser job. So we anticipate both of those things improving as we finalize the centralization and those centralized employees get more experienced and we can bring up the revenue per job while still maintaining a higher collection rate.

Joanna Gajuk: Right. That makes sense. And with these acquisitions that you mentioned, they usually just come with somewhat lower margins. Obviously, accretive printing money, right? — the goal is to improve over time. Do you anticipate doing more of these this year? And are there some maybe other assets you would consider acquiring for that business?

Kevin McNamara: Well, I would just say, Joanna, that it’s hard to say. But yes, I would given the operating environment out there, we’ve noted that there are a number of franchise holders that held the franchise for a couple of generations and they’re saying, “Boy, this is tough. Maybe I will consider selling to you and we’re considering a number of possibilities. I would say that — the 2 that we mentioned this quarter, San Francisco and Fort Worth are kind of unusual. They’re real plugs. I mean the ones that are generally available to be groups of smaller franchisees that are very likely going to be participants in our independent contractor portfolio. But Yes. There’s no question. We anticipate continuing to add additional locations for Roto-Rooter. It’s a good acquisition environment for us in that time.

Joanna Gajuk: And I guess any progress you mentioned you’re making some traction with Google, Agusta I guess you had this new SEO partner. So can you give us an update there?

Kevin McNamara: Well, I hate to get too part of the week, but let me just say this, we immediately saw an improvement in what we call visibility. And by visibility, the best way to do that is you look at how often you appear in the map section. That’s where — that’s part of the — that’s where you get the natural. It’s biggest driver of the natural leads or free leads. And as we indicated previously, at the end of 2024, we were appearing nationwide, 72% of the time. And halfway through the first quarter of last year, we dropped like a rock to the mid- to low 20% of the time showing up on those maps. What we saw in the first quarter of this year was working with our outside contractor, an improvement, basically, a 10 percentage point improvement in our visibility.

And then in March, we saw a change in the algorithm again, which knocked us back a bit as far as is and again, working doing their match, we’ve been able to improve that almost back to the previous run rate of earlier this year. So it’s a constant battle, Joanna. But yes, we’re looking for certainly to stabilize the percentage of leads we get that are free. I mean as I indicated, I mean, we are winning the battle in a major way on the paid search. I mean we are getting substantially more leads without increasing the amount we’re offering per lead. So the new — the private equity firms that have come and kind of upended the Google market for leads. I don’t know if they’re pulling back. I don’t know if they’re not quite as scientific as we have become as far as our bidding process.

But that’s a real success story. The only problem is, if you’re comparing it to a prior period where you were paying nothing for the lead, it’s a tough comparison. But in any event, Joanna, it’s a constant battle, do we anticipate improving on our position, no question about it. Now if you said how Google change our algorithm again, they tend to do it in a significant way once a year. So I mean I don’t — maybe we’re past that at this point, but we’ll see.

Joanna Gajuk: Okay. And switching to [indiscernible] I just want to make sure because we hear other companies calling out the weather disruption in healthcare services. So it sounds like it wasn’t material because you guys didn’t call it out in the hospice business. .

Joel Wherley: We get paid on a per day basis, Joanna. So we don’t do fee-for-service. So there could be a disruption in a location where we can’t get to patients for a day, but that doesn’t really impact our revenue.

Kevin McNamara: It might affect admissions, but not of a disruption is just a day or 2. On a specific day. That is correct. So no, Joanna, to answer your question, we did not have any weather disruption in our business model.

Joanna Gajuk: Okay. Perfect. I just to confirm. But yes, that segment outperformed. So things are going pretty good there. And thanks for the update on the slowed, I guess, cushion, so that increased — so now we’ve got the proposal for ’27 year, right? And the rate up is going to increase and the cost is going to increase, call it, 2.4%. And I know you don’t have all the details yet, but any indication on your kind of initial estimate in terms of the proposed increase in Florida versus the [indiscernible] for 2027.

Kevin McNamara: At a very high level, very high level, we think that the revenue — the rate increase might be slightly lower in Florida than the national average, but we’re still we’re still crunching the numbers and we don’t have the details. They don’t come out until some in the summer.

Joel Wherley: Yes. Keeping in mind that is the proposed wage rule. We’re still in the comment period, and a final wage rule typically is not put into place until the late part of the third quarter.

Joanna Gajuk: Right. So that’s 1 we will find out. But as of now, there are no indications, there’s some outside dynamic that you experienced, I guess, last year. with that increase being high in Florida than overall. But maybe that’s the opposite. So that should be manageable there. And there was a couple of other items in that proposal, including this new scoring system, the index SVI. So when we look at some of the data, there was 2 service CMS, VITAS was actually screening above average, but it seems like there was 1 of these measures that were like penalizing the providers because it was essentially capturing just the total number, not per patient. So any thoughts about any of these efforts or anything that was discussed in the CMS proposal, how could that impact your operations?

Joel Wherley: Yes. Thanks, Joanna. And as I said previously, we are very supportive of the efforts to eliminate in a waste fraud and abuse from the hospice environment. But you have to keep in mind over 50% of patients needing hospice don’t have access or receive that end of life care today. So we want to ensure any efforts to weed out fraudsters, which, again, we are very supportive of, don’t in any way impact legitimate providers to be able to provide care to those in need. Now specific to your question about the proposed potential additional scrutiny that is listed in the wage drill. We’re continuing to evaluate what the potential impact that might be on VITAS, but again, I’ll go back to — this is in the comment period, and we will be providing comments to ensure that we have communicated our guidance to ensure that, that scoring and that oversight is aligned with what legitimate providers were to be evaluated on a day-to-day basis across the country.

And so weed out the fraud focus on improved quality and access for those in need.

Kevin McNamara: And Joanna, just give you just very generally speaking, when we hear about fraud in the hospice and whatnot, especially we’ll focus on California. You have to remember, they’re in 2 buildings in Los Angeles County. There are more hospices located in those 2 buildings that they are in the whole state of Florida. I mean the fraud that we’re talking about is it’s real fraud. That is almost a business mailbox offices for hospices, no real patients, no real care totally different situation from what historically has been fraud in the hospice field, which tends to be highly specialized arguments between doctors, whether a 6-month terminal prognosis is indicated or not. I mean it’s a bit different magnitude. But again, we continue to watch it. We don’t want to be swept. We don’t want to be a dolphin swept into a tune in net in the accidentally. But so as Joel said, we’re watching it very carefully.

Joanna Gajuk: So should I read this as even things like this new core system that they proposed is going to be finalized. There were some other things that the CMS proposed, but they never really force because they couldn’t really figure out how they’re going to measure things. So is it a similar situation with this particular one?

Joel Wherley: Yes. We want to make sure that the criteria and the algorithms used to evaluate the scoring with makes sense and is accurate and does not include data that is been infiltrated by fraudulent claims processing from these providers. They’ve got to be able to filter all of that out and focus on legitimate providers and the measurement of the care and services provided from those.

Joanna Gajuk: And to that end, when you mentioned making sure that these are legitimate providers. The other effort right out there. So also 1 of these meetings talk about these efforts they want to put in place where states would have to revalidate all providers within 30 days. Have you seen any of the starting? And I don’t know if that — I assume that things like hospice in California. But have you seen anything in your operations where the states are starting to do that? .

Joel Wherley: We have not seen it to that level. There is in place a higher degree of evaluation on new locations and the review of their claims on a regular basis to ensure that these new providers are legitimate in providing actual care. I mean, again, if you think about where the focus has been in L.A. County, the expansion from 400-plus providers to nearly 1,500 providers in L.A. County alone. Those individuals — those companies receive licenses. And we are very supportive of an improved surveying environment to ensure that they’re legitimate and that their patients are legitimate.

Kevin McNamara: Joanna, let me sure — one reason Joanna is a little tried on this is we attempted to get a license in San Francisco. It took us about 6 years dealing with a number of surveys kind of kind of where people didn’t understand what hospice was but we got it through it. We got it after 6 years. Joel’s sitting here saying, how could 1,100 fake hospices get a license in 18 months where it took us 6 years with legitimate. I mean, that’s the kind of stuff that’s hard to explain. Now it’s different state issues as not the federal government. So you’re talking about different silos, but still, they got to coordinate their activities. But I guess what I’m saying is if you put any type of scrutiny and the type of scrutiny we’re used to on licensing if they put anywhere a percentage of that, a small percentage of that, it would knock out about 95% of these fake hospices.

Operator: [Operator Instructions] Next question will come from Michael Murray from RBC Capital Markets.

Michael Murray: For VITAS, I think you’re probably seeing a higher mix of admissions from hospitals in your new Florida markets. Just given your current cap situation in the state, how are you thinking about community-based admissions in these markets?

Joel Wherley: So thanks for the question. And as we have talked previously, we’re managing the balance in those preadmit environments, and we look at that on a daily basis. specific to where we’re focusing or where our resources are deployed. And we feel that our community-based initiatives are responsibly growing back from where we needed to be in the last half of 2025. So we feel really good about the balance between hospitals as a preadmit and all of our other or community-based type admissions.

Kevin McNamara: And Michael, keep in mind that with the — you specifically mentioned the new starts, when we have a new start there, there is not, by definition, an existing base of long-stay patients. So regardless of where in the new starts only, regardless of where the preadmission location is for some period of time, they’re all short-stay patients because we don’t have a base of existing long-stay patients. You have legacy pace from past couple years. .

Michael Witzeman: So when you’re talking specifically about the new starts, think of them all as short-stay patients for at least a period of time.

Michael Murray: Okay. And then these new markets are pretty sizable. How should we think about the volume opportunity longer term? What’s your typical market share in Florida? And — and how should we think about the range markets?

Kevin McNamara: Well, I mean, again, if you look at our historical market in some of these markets where we’re the original hospice, I mean, — the numbers are staggering, Joel jump in here. But I mean we’re a diamond provider in almost any county that we have the license to operate in. .

Joel Wherley: Yes. And we don’t see a significant change in our outlook specific to our ability to grow into a market. And our last 3 new starts that we talked specifically about have demonstrated that. So we feel really good about the long-term outlook on our ability to continue to effectively grow those markets as we have in the past.

Michael Murray: All right. And then just 1 more on Roto-Rooter. So I just wanted to get a sense for your current mix of paid leads versus organic leads is — and what are your expectations embedded in your guidance?

Michael Witzeman: Paid leads are roughly 53% to 54% of our total leads at the moment. We anticipate that mix to continue. We don’t — we have not anticipated a deterioration or a significant improvement. And that’s why, again, we took our guidance and added of additional marketing costs — marketing costs for the rest of the year. But we don’t — we haven’t projected a significant deterioration in that from the first quarter.

Kevin McNamara: I mean it’s hard. As I indicated, it’s a constant battle. In the first quarter, we had 2 months of improving visibility on maps and then a change in change in March where we had a deterioration. And then we go to April to fight the battle and improve our visibility. So Mike is just saying as far as prognosticator, let’s — there could be some in, there’s going to be some outs. Our hope, of course, is that we have improvement there, but it remains to be seen. I mean we’ve been to a period where you go back just less than 3 years, our percentage of leads from resources were 55% and that’s 47%. I mean that’s an expensive significant shift. Now having said that, Roto-Rooter has been through something similar, and that is when we went through the change from the importance of Yellow Pages, where Yellow Pages was all and Roto-Rooter has a dominant position in virtually every directory to the Internet.

That was a tough marketing situation where we went from a dominant the first 2 pages in almost every major metropolitan directory to just 1 of 50 listings on the natural side. It was tough, but Roto-Rooter developed into in the dominant position nationwide on the Internet side. Now the Internet is changing. I have confidence that will be able to transition to the new normal, better than our competitors. And if you look at the growth we’ve had on the paid search side that is far as our 18% plus increase in leads on the paid search. I think that’s a demonstration of that. But again, as we go — there’s a cost of the transition, and we’re prepared to we’re prepared — I think, prepared to deal with it and rather we have done it in the past.

Operator: I’m not showing any further questions in the queue. I’d like to turn it back over to Kevin for any closing remarks.

Kevin McNamara: Thank you, everyone. We’re happy. We had what we thought was a good quarter, excellent quarter in VITAS. And so good trends at both companies. And we look forward to reporting on our results for the current quarter in due course. Thank you very much.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Have a great rest of your day.