Chemed UBS Global Healthcare Conference

Sure, definitely. Maybe start with history. Chemed is a company that was formed in 1971, a subsidiary of W.R. Grace and Company, and it really had developed over time a business that had several specialty chemical companies, and it developed a healthcare group. It spun with W.R. Grace and Company, its healthcare division out as Omnicare in 1981. In fact, I was with the healthcare side of the business at that point. I was going to say, so we had healthcare, specialty chemical, Roto-Rooter. Roto-Rooter was purchased in 1980 for, I think, $17 million. We just grew the company, developed another healthcare business called Vertex, and bought and sold companies. In the year, just around, and also, excuse me, in the 1990s, purchased a one-third interest in VITAS as part of our healthcare group.

Sold the specialty chemicals companies off, had a home healthcare company that we sold off. In 2004, we were sitting with cash on the balance sheet, Roto-Rooter, and our interest in VITAS. We had the opportunity to buy the rest of VITAS we did not previously own. In 2004, we were in the position of we had Roto-Rooter and VITAS Healthcare Corporation. Healthcare Company was roughly two times the size of Roto-Rooter at that point. Our strategy was we were going to be followed by healthcare companies and go to healthcare conferences, and the point of view that we thought that the Roto-Rooter was a good, stable company with excellent cash flow characteristics, and we were going to sell the combination, not to investors, as the idea that, look, you're healthcare investors, VITAS is going to be a great growing company.

Roto-Rooter would be chugging along, excellent cash flow, and hopefully would not be a distraction. We've always said that we would put out a lot of information helping investors value the two companies. To the extent that we recognize that oftentimes, it was said at the time, Wall Street loves a pure play. To the extent that Roto-Rooter was holding the company back, we were always prepared to look into strategic alternatives. From 2004 until really the start of, really through 2025, even though that was a tough year for us, it was interesting that both companies grew at the rate of just over 11% per annum. As I say, both had good cash flow, and our strategy really was to just keep two basic service businesses going. We didn't say that there were synergies between the companies. We just said they were both growing companies.

I think the investor market had accepted the unusual combination of the two. We used the free cash flow to reduce the number of shares outstanding from about 27 million to 13 million. So you can imagine the situation. We have two growing companies. We have reducing the share count, both growing at over 11% per annum, with the magic of having fewer shares outstanding over that 21-year period. The Chemed earnings grew about 18% per annum, and the stock price at that point had grown to 20% per annum. So, the strategy was to just keep the two basic businesses growing, adding not so much by acquisition, small acquisition at Roto-Rooter, and a few new programs, getting CONs for new programs in Florida with a couple purchases in Florida. AJ, that's really the strategy that we've had for now a 22-year period.

Right. People ask us, would we be interested in changing?

Are we interested in a third leg of the stool? Chemed, if you go back some number of years, was a buyer and seller of companies. We just have decided that, at least for the period, if it's not broken, don't fix it. Even though we've looked at alternatives, we have a pretty high bar as far as other alternatives. Again, I think that other than 2025, which was a bad year for different reasons for both companies, I think we're back in a winning wicket.

Well, we are pleased, right? I am going to let Joel when he talks about more specifically VITAS, talk about how he did it. Basically, the real success was VITAS reordered their business to having basically the right mix of referrals. In other words, Florida is about over 60% of our business. We have to have the right mix. For all of Florida's one program, we will run into a cap issue if you do not have the right mix of referral sources. It just so happens that for hospital admissions, you want somewhere between 40% and 45% of your admissions coming from a hospital. That will give you short-stay patients. It is a powerhouse. There is plenty of business. You keep within those environs, and you are going to be successful. Joel has been great at rebalancing the portfolio, as it were. VITAS has had nothing but strong results.

Florida ended the year, the government plan year ends on September 30, with about a $32 million cap cushion. So, from that perspective, very safe. With regard to surprises, it is a negative surprise. It has been on Roto-Rooter. The sales are there. The problem is every company gets the sales in the home services market through Google at this point, 90% through Google. Google has just been on a process to make things tough for its best customers. That is, they know that AI is coming. They are doing everything they can to wring the profits out of their source, which is their algorithm and how people and companies show up on Google. It has been tough, and we have made a number of adjustments, and they have made a number of adjustments.

You have the company, and it is an unusual situation in that they make it toughest for their best customer, for their best customers. They feel that if you are successful enough to be able to afford paid advertising, you should not get any free leads. If it is a surprise during the course of the year, it has been how tough it has been at Roto-Rooter, given the situation where there is business out there. Last quarter, we grew sales at- 7.5% 7.5%.

The margin's been hurt exclusively through marketing expenses, with cost of marketing going basically, so far this year, from 7% of sales to 9% of sales. That's a big move. That's been a surprise.