CHE - NYSE

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.

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 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 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 was ADC -- excuse me, in September 2023, our 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 4.8%. Our ticket void rate, which is the rate of canceled jobs before technicians can be dispatched, improved 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 increase resulted in Roto-Rooter increasing revenue 40 basis points when compared to the prior year. We continue to see stabilization of our demand in our weekly revenue. Our guidance assumes Roto-Rooter will help 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 to 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.

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, a geographically weighted average Medicare reimbursement rate increase of approximately 2.7%. The acuity mix shift positively impacted revenue growth 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 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 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-Rooters 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 expense for stock options, tax benefits from stock option exercises, cost related to litigation, and other discrete items, is estimated to be in the range of $19.82 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, that 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. I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS Healthcare business segment.

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 of 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 17,022 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 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.

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

Okay. Thank you. [Operator Instructions] Our first question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open.

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 4Q from some of the new hires that you noted? I think you noted about 150-some-odd new nurses. Thank you.

Yeah, sounds good. So, in terms of forecasting for the fourth quarter, it obviously takes -- we have previous five quarters of experience around what we believe to be the translation from a census growth standpoint. So, it's obviously factored into our fourth quarter guidance for this year. And as alluded to in the comments, feel very good about our methodical approach. While it was 157 net bedside headcount expansion in the third quarter, there's no reason to believe that can't continue and won't continue throughout the end of the year, which will launch us into '24 and we'll include that in our 2024 guidance when we discuss that in February of next year.

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?

3.3% is where we anticipate.

So, we'll pick up about 3.3 points that way. And then the other issue we're looking at is Nick and his team are still actually monetizing, although they've done a substantial piece of it, the huge growth rate in labor in Q2, the 302 increase in bedside FTEs, as well as he's digesting the 157 and we do -- are getting leverage on central support costs, relative to the marginal revenue growth. So that's just a long way of saying is we are going to have a very, very nice pop around to about 21% in the fourth quarter adjusted EBITDA margin, but certainly that is not the go-forward margin for '24. We're obviously working on a very good, very positive tailwind in terms of how we're monetizing this huge capacity increase as well as admission increases, which are expensive. But when we give '24 guidance, it's going to moderate from the fourth quarter, obviously.

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.

In terms of seasonality, there's not much, but I rarely like to -- we don't like to talk about weather. But for example, in the first quarter of this year, we had extremely cold weather that contributed to frozen pipes. Frozen pipes tend to have a lot of water restoration work because they burst and there's water in certain parts of a structure. So, from that standpoint, there could be a modest amount of seasonality. Beyond that, every water restoration job is largely, bespoke. It's triggered from a small plumbing or drain cleaning job, then that results in, "Do you want this water and humidity removed?" So from that standpoint, it generally tracks plumbing and sewer and drain work. However, we are still doing a great job of responding quickly to jobs that have a high probability of water restoration and capturing that business. So for right now, because of our speed of response, we're actually outperforming in water restoration, the growth in sewer and drain, but we eventually expect that to be totally correlated within a couple of years.

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.

Good day, I was just -- obviously, there is a -- Dave is going to talk about a little bit of a change given the overnight rate that we get on our money, but we're still going to be buying stock. Dave, why don't you give...

Yeah, no, before -- I mean in past years, when we were getting, what, it was only 18 months ago, we were getting 20 basis points on overnight money. Kevin and I certainly felt a strong urge to put that to work quickly, and that was share repurchase primarily on dollar averaging. Now that we actually can get a good rate of 5.2%, which on an after-tax basis about equals our free cash flow yield per share, there isn't an economic cost if we try to time things. So, from that standpoint, that's why you're seeing our interest income increasing as we put that cash to work on an overnight basis. And then, we'll be opportunistic when the stock corrects jumping on share repurchase. But that clearly will be a continued part of our way to return capital to shareholders until we can find some nice juicy acquisitions or other ways to risk adjust and increase our returns.

Thank you.

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.

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?

What I would say on margin, and you're asking an interesting question, we're going to be cagey, but not only because we -- look, we don't know how things are going to smooth out post-pandemic. So, before, as we're getting tail end of the pandemic, say, even last year, I think Nick, Kevin, and I were talking about VITAS' margins, there's no retention program or anything else. We said we'll return to that 17.5%, 18% adjusted EBITDA margin ex-Cap. That's what we've been saying as we're working our way through the pandemic. Now as we look at the overall mix, we look at the efficiencies Nick and his team out of necessity created during the pandemic, again doing probably more high acuity -- less high acuity care on a go-forward basis than we were doing pre-pandemic, all of that leads to, I think, our margins are going to be higher than that 17.5% to 18% that we posted in calendar year 2019. But whatever that margin turns out to be, maybe it turns out to be 19%, maybe it turns out to be 19.5%, but whatever it settles out at, once we normalize our hospital admissions, length of stay, kind of the mix of where our patients come from, whatever margin we end up settling at, probably in our '24 guidance, that's pretty much is going to be static. There'll be minimal opportunity to improve that margin. So again, whether it's 19%, 19.5%, 20%, whatever it settles out at, for our go-forward mix post-pandemic, it's going to be then pretty flat, hard to grow that margin. So we're still kind of guessing when things settle out, but it's going to be sometime in '24 is a high, high, high probability. We're going to be above our pre-pandemic census early in the first quarter of '24 if we don't put -- if we don't post it in the fourth quarter of this year. But that's just a long-winded way of saying, Joanna, yes, we think we have a tailwind on pre-pandemic margin increasing it, just not quite sure where it's going to settle out yet. But the fourth quarter isn't going to be representative of a go-forward annual guidance. It might be representative of an annual fourth quarter guidance though.

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

That's exactly right.

Right. Usually the highest margin, right. No, I agree. And then, I guess to that end, in terms of you mentioned on the census, you kind of breached that 19% mark and the outlook was raised, it sounds like, yeah, you're expecting Q4 to sequentially improve from Q3. So how should it be -- a similar question, I guess, how should you think about next year? So for this year, I guess you're talking about revenues growing 9% this year, largely on that census growth, really. So, can you grow high single digits on top of that number again, or that creates a path for comp? I guess, any framework for how we should think about things?

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.

And Nick, the answer to your question also, Joanna, probably lies in a factor that's outside of our control. As Dave has indicated, it's kind of an unusual situation as things were tough in the hospice arena, our competitors, who are smaller, less well capitalized, and maybe less professionally managed, struggled, more mightily than we did. And so, a lot of our improvement was -- some of our improvement was based on taking business away from those struggling competitors. So, to the extent that our ADC in the quarter was up 9.4%, that's a historically high number. To the extent that you talked about where is that going to settle in, some of that comes down to our competitors. Some of the competitors, especially in Florida, come back to kind of a recovered rate of doing business. I mean, they were -- they've been struggling. We continue to see them struggle, but that so -- I guess what Nick was really saying is, that some of those factors are certainly in the category of the unknown. But again, if you ask us -- as we sit here, we see them continue to struggle, so that's good news for us.

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 [indiscernible] 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?

Yeah. So Joanna, if we take your comment sort of and break it into two different parts, your comment around any potential desire to look at patient records for any length of stay, I think it's something -- as you might imagine, we're constantly and have -- we're constantly able to successfully defend those things. And with the research studies that I know many are aware of, that are illustrating longer length of stays in the hospice benefit, actually have a larger outsized return for the Medicare Trust Fund in terms of total cost of care reduction. We'll see if the appetite to look at those things now aligns with the best interests of the Medicare Trust Fund as well. Regarding the Special Focus Program proposed rule and provisions, there will be some semblance of that will be finalized here over the next coming days. But the one item that it would point to regarding it is when you look at the comment letters that are all public from the four trade associations that are representative of large providers, small providers, for-profit providers, non-profit providers, as well as bipartisan letters from congressional leadership, all those things point to and help to illustrate some of the concerns of the construct of the Special Focus Program embedded inside of the proposed rule, along with recommendations that CMS has been listening to and able to collaborate with, for consideration of things they can and should do within the SFP to be able to achieve their goal, which is identifying poor performing hospices, in particular those that with the vast explosion in the last four years of hospice licenses in California, Texas, Nevada and Arizona. So, just as an illustration, some of those constructive comments are the need to normalize for providers related to condition-level deficiencies. So, they don't treat a provider with [450] (ph) in '25, exactly the same. They're also highlighting 40% of hospice provider numbers haven't had a survey in three years, over half don't have a Cap score. And so, we think there's continual work to do in the industry and all the providers are rowing in the same direction to provide that insight so that the government can achieve what their objective is. But speculating around something that is proposed, that should have some either significant modifications or a pause to just be able to get it right and achieve that objective that everybody believes in, I think is going to be key and critical. And we'll see how that plays out over the next week or two and then over the coming years.

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?

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.

And I guess that leads me to a similar question I had on VITAS. How to think about next year? Can you grow, I guess -- continue to grow? I guess, I understand it's probably the answer depends on where the economy lands, but any kind of framework or things you would be looking at as leading indicators for how to think about next year in Roto?

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

Roto-Rooter, yes.

It's about Roto-Rooter. I mean, the only thing -- I'll give you an example. Ferguson Supply, huge supplier of a lot of devices, but including repair plumbing devices, pipes and what have you. First year, they've broken it out, so we can track it. The people who buy those are people like Roto-Rooter, go to a store, buy them, buy the pipes and the plumbing materials, do it yourselfers, rival plumbing companies. They recently indicated the sales of those -- in that sector are down about 12% for the year-to-date. Last year, they were up 22%. In other words, the point I'm making is, first of all, that's very broad, that's an indication that it's consumer-driven, it's not -- we're not losing the business to competitors. The point there is that it changed very quickly on the downward side. That suggests to me that it could improve very quickly on the positive side. As far as what causes consumers to put off these less-than-emergency jobs, and that's an unknown. But I would say that I have some confidence that what we're dealing -- looking at -- it's a cyclical economic problem that has indications to me that it could improve as quickly as it devolved. So, when we make our -- those are the kind of issues when we go through the budget for Roto-Rooter, we're going to try and analyze. It's a little bit unknowable, but you'll get a lot -- you'll get our best thinking when we give our guidance in February for next year. But I wouldn't rule out some improvement. But I bet when you see our guidance, you're going to see a -- unless something changes significantly between now and let's say the middle of January with regard to consumer demand, you're going to see relative -- some conservatism, but at the same time some optimism, because as I say, it looks like we've already kind of hit bottom on that and have normalized.

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.

With one caveat, David, Roto-Rooter is going to have a very difficult comparison of the first quarter. First quarter was before the slowdown, and so they had excellent -- had good weather and so had an excellent first quarter. These numbers we're talking about are for the year, not in the first quarter.

Q1 will be challenging and I love the margin that we're pulling out right now. So, yeah, it's without a doubt the hardest quarter to lap is going to be Q1 of 2023. After that, actually, it gets -- the bar gets easier to hurdle.

Thank you. That's a lot of details. But my -- just a last follow-up on the -- so you mentioned the kind of that industry level trends are indicated you're not losing, sure. But also if we think about the two different businesses, so if you talk about like the water restoration and you gave us the job countdown, but then I guess as we think about the commercial versus residential, any difference in behavior there, where it's, I guess, similar? And I guess to that end, are you exposed to like the building activity slowing down or you kind of your commercial business is more diverse and you don't rely, I guess, on new ads, the housing stock? Thank you.

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.

Great. Thanks for the color. Thank you. Yeah, right. Thank you.

All right, thank you for your questions. I'm showing no further questions at this time. I would now like to turn it back to Kevin McNamara for closing comments.

The only comment I have is, we were gratified that we had what we thought was a great operating quarter. Really it was gratifying to see the retention program bearing such fruit of VITAS. Roto-Rooter, very happy that we've kind of normalized the activity. Very gratified that to the extent that we have our close rates in Roto-Rooter indicate -- and expense control indicate good field -- excellent field-level management, and we look forward to a good close to the end of the year. But with that, I'd like to thank everyone for their attention. And I guess we'll have another one of these in February, at which time we report on the fourth quarter and our guidance for next year. Thank you.