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spk00: Good day, ladies and gentlemen. Thank you for standing by, and welcome to Chemical Operation Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press the star, then the one key on your touch-tone telephone. Please be advised that today's conference may be recorded. If you recall operating systems, please press star, then zero. I would now like to hand the conference over to your speaker host today, Sherry Werner with Investor Relations. Please go ahead.
spk03: Good morning. Our conference call this morning will review the financial results for the third quarter of 2021 and it's September 30th, 2021. Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of October 28 and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release, dated October 28, which is available on the company's website at ChemEd.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of ChemEd Corporation, 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.
spk02: Thank you, Sherry. And thank you, Sherry, for your services over the years. Sherry's retiring at the end of the year, and this is her last introduction to a quarterly conference call, but we do want to thank her for all her efforts. Good morning. Good morning. Welcome to ChemEd Corporation's third quarter 2021 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow up with additional operating detail. I will then open the call up for questions. Our third quarter 2021 operating results released last night reflect very solid performance for both VITAS and RoadRouter. On a go-forward basis, I would like to share with you some of the macro issues we are dealing with as we approach the end of the second year of the pandemic. For VITAS, the most important issue we are managing is labor. Staffing of licensed professionals has been exceptionally challenging to ensure an adequate mix of licensed healthcare workers on a market-by-market basis. This is particularly challenging during the pandemic as we deal with dynamic fluctuations in patient census in every market. Turnover within our licensed staff remains above our pre-pandemic rates, but we are seeing indications of normalization. as we continue to expand our hiring and retention initiatives in many markets. Beyond managing our staffing levels, we are observing increasing pressure on salaries and wages. To date, we've managed these pressures with increased paid time off, or PTO. We view it as inevitable that health care wages will increase if we continue to have a nationwide and systemic imbalance in supply and demand for licensed health care professionals. Fortunately for VITAS and the hospice industry, there is a natural hedge against the inflationary pressures on costs, specifically labor. The annual increase in the Medicare and Medicaid hospice reimbursement rates is based primarily on inflation in the hospital wage index basket, as measured by the federal government's Bureau of Labor Statistics. Typically, the annual inflation measured as of March 31st is used to determine the following October 1 reimbursement increase. This should give the hospice industry a reasonable stability in operating margins in an inflationary environment, albeit with a six-month lag from the inflation measurement to the actual reimbursement increase. The second critical challenge for VITAS is the continued disruption to senior housing occupancy and the latent hospice referrals. Recent admission data suggests senior housing is in the process of recovery. Pre-pandemic, nursing home-based patients represented 18% of our total average daily census, or ADC. The nursing home ADC ratio hit a low of 14.3% in the first quarter of 2021. In the second quarter of 2021, nursing home-based patients increased 60 basis points to 14.9%, and in the third quarter of 2021, our nursing home patients represented 15.6% of our total ADC. Our updated 2021 guidance anticipates sequential improvement in senior housing-based patients in the fourth quarter of 2021, with acceleration in senior housing admissions anticipated in 2022. For Roto-Rooter, our most significant challenge has been to increase manpower. We have expanded technician manpower by 8% in 2021. However, based on our current demand levels, we continue to remain understaffed in many of our markets. Technician compensation plays a role in recruiting new employees as well as retention of our existing employee base. Our average 2021 technician and field sales force compensation is over $81,000 per year. Most of our technicians are paid on a commission basis on revenue generated. As a result, pricing for our services is a critical component in increasing technician wages. We anticipate passing through inflationary price increases in all our markets in the fourth quarter of this year. Demand for plumbing, drain cleaning, excavation, and water restoration services remain at record levels. I want to give additional color on the depth and breadth of this increase in demand. Let's compare Q3 2021 revenue to Q3 2019, excluding the HSW acquisition which was completed in September 2019. Under this unit-for-unit comparison, Residential services have experienced incredible growth. In aggregate, residential branch revenue increased 46.2% over this two-year period. On a service segment basis, residential plumbing revenue increased 37.1%, drain cleaning expanded 36%, excavation increased 65.6%, and water restoration increased 48.1%. Commercial demand has been more challenging. However, commercial revenue has experienced a significant recovery since the 40% decline in commercial demand noted in April 2020. Overall, commercial revenue declined 3.1% over this two-year period. On an individual service segment basis, commercial plumbing service declined 4.9%. Drain cleaning expanded 1.8%. Excavation declined 10.2%. and water restoration increased 7%. We anticipate continued strengthening in commercial demand in the fourth quarter of 2021, as well as throughout 2022. Over the past 20 years, the country has faced 9-11, the Great Recession, and now a global pandemic. In each of these crises, Rotorua remained operating and materially increased market share, revenue, and operating margins. Just as important, post-crisis, Roto-Rooter held on to these increases in revenue, market share, and margins. Roto-Rooter is well-positioned post-pandemic, and we anticipate continued expansion of market share by pressing our core competitive advantages in terms of brand awareness, customer response time, 24-7 call centers, and Internet presence. With that, I would like to turn the teleconference over to David.
spk06: Thank you, Kevin. VITAS's net revenue was $317 million in the third quarter of 2021, which is a decline of 5.8% when compared to the prior year period. This revenue decline is comprised primarily of a 5.3% decline in days of care, partially offset by a geographically weighted average Medicare reimbursement rate increase, including the suspension of sequestration of approximately 1.2%. Our acuity mix shift had a net impact of reducing revenue approximately $3 million, or nine-tenths of 1% 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 in an additional 80 basis points. VITAS accrued $100,000 in Medicare cap billing limitations in the quarter, This compares to $4.1 million reversal of Medicare cap billing limitations in the third quarter of 2020. Of our 30 Medicare provider numbers, 27 of these provider numbers currently have a Medicare cap cushion of 10% or greater. One provider number has cap cushion between 0 and 5%, and two of our provider numbers have a fiscal 2021 Medicare cap billing limitation liability. Roto-Rooter generated quarterly revenue of $221 million in the third quarter of 2021, which is an increase of $30.1 million, or 15.7%, when compared to the prior year quarter. Roto-Rooter's branch residential revenue in the quarter totaled $151 million, which is an increase of $22.2 million, or 17.2% over our prior year period. This aggregate residential revenue growth consisted of drain cleaning increasing 11.7%, plumbing expanding 17.4%, excavation increasing 14.1%, and water restoration increasing 28%. Rotorito branch commercial revenue in the quarter totaled $52.3 million, which is an increase of $4.7 million, or 10% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning increasing 17.6%, plumbing increasing 9.3%, and commercial excavation declining 1.3%. Water restoration also increased 9.4%. Now let's turn to ChemEd on a consolidated basis. During the quarter, we repurchased 350,000 shares of ChemEd stock for $164 million and which equates to a cost per share of $467.80. As of September 30th, 2021, there's approximately $148 million of remaining share repurchase authorization under this plan. KEMED restarted its share repurchase program in 2007. Since that time, KEMED has repurchased approximately 15.2 million shares, aggregating approximately $1.7 billion at an average share cost of $113.04. Including dividends over the same period, ChemMed has returned approximately $1.9 billion to shareholders. We have updated our full-year 2021 guidance as follows. VITAS's 2021 revenue prior to Medicare cap is estimated to decline approximately 5% when compared to the prior year period. Average daily census in 2021 is estimated to decline 5.5%. And our full-year adjusted EBITDA margin prior to Medicare cap is estimated to be 18.8%. We're currently estimating $6.6 million for Medicare cap billing limitations in calendar year 2021. Roto-Rooter is forecasted to achieve full-year 2021 revenue growth of 17.3%. Rotary's adjusted EBITDA margin for 2021 is estimated to be between 28.5% and 29%. Based on the above, full-year 2021 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, cost-related litigation, and other discrete items, is estimated to be in the range of $19 to $19.20. This compares to our initial 2021 adjusted earnings guidance per diluted share of $17 and $17.50. This revised 2021 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1%. This compares to ChemEd's 2020 reported adjusted earnings per diluted share of $18.08. I'll now turn this call over to Nick Westphal, President and Chief Executive Officer of our VITAS subsidiary.
spk01: Thanks, Dave. In the third quarter, our average daily census was 18,034 patients, a decline of 5.3% over the prior year and a 0.2% increase when compared to the second quarter of 2021. This year-over-year decline in average daily census is a direct result of pandemic-related disruptions across the entire healthcare system since March of 2020. Our hospital-generated admissions have largely normalized to pre-pandemic levels. Referrals from senior housing, specifically nursing homes and assisted living facilities, continue to be disrupted. During the third quarter, we've seen emission stabilization and pockets of improvement in senior housing admissions. However, it remains too early to accurately project the pace and timeline for senior housing admissions to fully return to pre-pandemic levels. In the third quarter of 2021, total VTOS admissions were 17,598. This is a 1.9% decline when compared to the third quarter of 2020 admissions and a 4.5% sequential increase when compared to the second quarter of 2021. In the third quarter, on a year-over-year basis, our hospital-directed admissions declined 0.8%. Total home-based pre-admitted admissions decreased 8.3%. Nursing home admits declined 0.2%. and assisted living facility admissions declined 8.6%. When you compare our third quarter 2021 emissions to the second quarter of 2021, we generated solid sequential improvement, with hospital-directed admissions improving 2%, total home-based pre-admit admissions increasing 16.3%, nursing home admits expanding 8.9%, and assisted living facility admissions increasing 5% sequentially. Our average length of stay in the quarter was 96 days. This compares to 97.1 days in the third quarter of 2020 and 94.5 days in the second quarter of 2021. Our median length of stay was 13 days in the quarter and compares to 14 days in the third quarter of 2020 and is equal to the second quarter of 2021. Before I turn this call back over to Kevin, I wanted to thank our VITAS team members for their ongoing commitment and all-hands-on-deck approach throughout the third quarter and all of 2021 as we continue to successfully navigate the daily challenges Kevin spoke about earlier on the call. With that, I'd like to turn this call back over to Kevin.
spk02: Thank you, Nick. I will now open this teleconference to questions.
spk00: Ladies and gentlemen, to ask a question, you will need to press the Start Ender 1 key on your touched-on telephone. To withdraw a question, press the pound key. Please stand by while we compile the Q&A roster. Our first question coming from the line of Joanna Agachuk with Bank of America, Yolanda Sullivan.
spk04: Good morning. Thank you for taking the question here. So first, I guess, on the HACC, the segment on VDF, in terms of the better margins this quarter and the guidance implying that margins are actually expected to maybe improve in the fourth quarter, So can you talk about what's driving that, especially in the context of the broad-based labor shortage and labor pressure?
spk01: Yeah, Joanna, the primary difference between the third quarter and the fourth quarter is October 1, the Medicare price increase takes effect. And so that's a primary driver related to the marginal increase that has always occurred, you know, going back forever from the third quarter to the fourth quarter. All the other dynamics we spoke about regarding labor pressure, managing through it, all those will continue through and are identified not only in our fourth quarter, but will be forecast when we release our 2022 projections.
spk04: So in terms of managing the labor pressure, can you flash to us what steps did you take or are you taking that allowed you to – have this very favorable retention rate given we're hearing a lot about a lot of turnover. And I guess in that context, it also seems like you do not really rely on contract labor. So can you talk about whether there's any change there? Thank you.
spk01: Yeah, sure. So from a retention and a turnover perspective, as Kevin alluded to in his remarks, we're still running turnover rate that's higher than our pre-pandemic levels. So it's something that we are absolutely continuing to focus on and improve upon. So I obviously pay attention to the numbers everybody else references with it, but we're dialed in and focused on continuing to try to improve that. And where our level is today is not where we want to be. We want to continue to improve it. As it relates to continuing to manage through inflationary wage pressure as well as all sorts of other inflationary pressure related to it, the team's done a fantastic job and would expect us to continue to do a fantastic job. But with that being said, we're being very intentional and focused on a market-by-market, community-by-community basis to respond appropriately for specific staff and specific staffing levels. And when needed and when necessary, we're also looking for opportunities for offsets to that inflationary cost, whether it's becoming more efficient or thinking through how we want to structure the way in which we're servicing that market. So the team's done a fantastic job in the third quarter and for the last 19 months with that. And it is the number one thing we are doing on a day-to-day basis. And it's what I referred to in terms of the All hands on deck, everybody rolls up their sleeves, and let's continue to navigate through this.
spk04: And if I can follow up, when you talk about wage pressure in some markets, it seems like you have to respond appropriately. But can you give us a sense of the magnitude of things? What wage inflation do you expect next year in terms of year-over-year overall increases that you would expect that you would have to implement?
spk06: Joanna, we're still assessing the impact of all of those pressures, so we're really not prepared to project that out for next year at this time.
spk04: Okay, because what I was getting at with that is, yeah, the margins are very strong, you know, this quarter and into next quarter, and I guess sequestration is coming back next year. But just thinking, you know, high level, I understand that you're still walking through the numbers and projections, but, you know, can you, I guess, maybe refer to to your prior comments about normalized margins for VDAP post-pandemic of 17.5 to 18. So given all these things in this variability and expectations, do you expect to be in their range or below their range for next year?
spk06: So if you go back to the last full year we had before the pandemic started disrupting things, That was the range of adjusted EBITDA margin we were generating. And our expectation is post-pandemic in a normalized environment. And you can debate when that happens. This is 2022, start of 2023. But whenever that normalization of senior housing occupancy, hospital occupancy, referrals, and all the mix is normalized, that's that 17.5% and 18%, which also is predicated on us running about a 4% to 4.5% of our days of care are high acuity. But when that happens, that's still uncertain to us. We thought up until the variant started nagging this country really globally, we really thought Labor Day 2021 would have been the beginning of true accelerated pace of normalization. And obviously that's been pushed off into next year. So I'm not going to be evasive by any means, but we don't know. We're guessing when will normalization occur. It's clear 2022 is going to be impacted by the pandemic still. So at this point, to forecast out margins and impacts on wages, it's too early. How much of the wage pressure right now, say for outside contracting services, is transitory versus permanent? That's all unknown. What will be the level of our licensed health care professionals in terms of that supply for the needs of the country? If people return to the workforce who've exited, who were in those positions pre-pandemic, things will return to normal quickly. If we see a shortage of staffing, then it's going to put wage pressure.
spk02: And it really starts with, and this is just to summarize what Dave said, the pandemic has laid bare one very clear fact. All admits are not equal. And to the extent that the most important thing admit source, that is senior housing, was so disrupted and directly disrupted by the pandemic, just totally upended the hospice market. And you can't dig yourself out just by getting hospital admissions. And the thing that, in Nick's presentation, that is most hopeful is the fact that that referral source seems to be coming back fairly strongly. And that is a rising creek that lifts all metrics, let's put it that way. And as far as the timing and pace of that, as Dave said, you know, we'll do a little bit, you know, deeper dive on it as we go through the budget process the next month and a half. And when we give guidance in February when we release annual earnings, we'll have guidance that's based on that budget And at least at that point, it will be a guess, but it will be an educated guess at this point where we haven't gone through the process.
spk01: That's right. And it's a bottoms-up approach, Joanna. So the ranges you were referencing are very unique on a market-by-market basis and on a discipline-by-discipline basis as well, based upon all the factors going on in states and communities.
spk04: Okay. Thank you. And I'll go back to the queue.
spk00: Our next question coming from the line of Frank Morgan with RBC Capital.
spk05: Good morning. Just thinking about your different buckets of referral sources, given the uncertainty around the recovery, the timing of the recovery and normalization, is there any thought about just kind of strategically rethinking the balance of your referral sources? Does it make sense to allocate resources to some of these other areas, or is it just still too attractive to stick with the you know, the senior housing, the long-term care, and the assisted living segment.
spk01: So, Frank, this is Nick. You've hit on a key piece that we have moderated on throughout the course of 2021 very intentionally, and as Kevin alluded to, and it's something we talk about internally, you know, our mission, you know, all lives are created equal, but where we're deploying our time and really trying to extend relationships has really intentionally shifted, as Kevin alluded to. So we are off and executing. You can see some of that inside of the third quarter and, you know, some of the third quarter compared to the second quarter inside of my comments that I mentioned as well and would anticipate that continuing, you know, for the rest of the year and into 22.
spk02: And, Frank, as you can imagine, you know, when the cap year starts October 1st, We are, VITAS is going for election for admits in every market to build cap cushion. And so it's almost, when we talk about reallocating resources, it's always hard to take resources away from, let's say, the hospital market because those are a fertile source of admits, which you never know how many you need. But it's, as Dick said, You know, to the extent that that picture becomes clear during the course of the year, it's clear more resources are put to the areas that are more likely to lead to expanded stay.
spk01: Frank, the only other comment that drives towards that, and it's been consistent throughout the pandemic, when you think about an environment where we continue to have staffing pressure not only from our admission teams responding but from our care teams, you know, we're being – need to be much more selective and intentional around where we're allocating our time because, you know, I'll use the metaphor of the phone ringing to equate to our sister friends at Roto-Rooter, but the phone's ringing off the hook in terms of demand for hospice-appropriate referrals on a market-by-market basis. And so we're really just ensuring we are prioritizing our time and responding and building relationships on a market-by-market basis.
spk05: Gotcha. And I guess the margins held up remarkably well considering the wage pressure. Is productivity... I mean, how much of that is productivity? Is there any change in visits per case per week? Or is there anything else in there that's driving that? And then maybe some color about specifics on the use of contract labor and how does that affect productivity?
spk01: Yeah, so... Absolutely. Productivity has increased and would anticipate us looking for all opportunities, not only from a productivity perspective, but also from an efficiency perspective. And when I reference efficiency, what I mean is ensuring we are either eliminating or streamlining all activity that would have taken our team members in an administrative function, not in a patient-facing function. and trying to make those as efficient as possible. And so we measure productivity based upon the time they're at the bedside, and that's continued to increase. And so it was already part of our strategic initiative for the last few years, but we have just continued to accelerate and push that, and that's helped us. But in the same regard, we need to continue to retain our team members, and we've been successful in our ability to recruit, but You need to be able to recruit and hire and retain, and that will continue to stabilize our staffing levels on a go-forward basis. For contract labor, we use it selectively. The biggest impact on contract labor inside of certain states is our continuous care deployment for our select disciplines, and it is very competitive, particularly with some extreme levels pricing and wage inflation. We've been very selective so that we're not out just, you know, paying contracted rates that, you know, it's a losing proposition from a hospice perspective because those rates are heavily influenced by hospital systems and other organizations. And, you know, if it goes up 300%, we're not going to be renewing, you know, those contracts, obviously. So, you know, it's not a huge influence. You but it really just impacts our continuous care service line for the most part.
spk05: Gotcha. Last one, maybe a Dave question or an everybody question. When you think about sort of the return of the sequester next year, could you kind of remind us what the gross impact there is and then maybe the net of your expected market basket update and then On the Market Basket update, can you talk a little bit about how long you think it takes for that to catch up and reflect all the labor pressures that you're seeing? Thanks.
spk06: Sequestration, just round numbers, call it $6 million a quarter or $24 million is the benefit, maybe slightly less than that. So that would be a significant headwind if they put sequestration back in place January 1st. Which we haven't given up on, by the way. But it is scheduled to that. This is scheduled to sunset. But there is some talk about it being extended, the benefit. So that's probably the biggest headwind we have for next year.
spk01: And for the pricing, market basket impact is 2.2%, frankly, we're anticipating. Okay.
spk06: But your question, so the Bureau of Labor and Statistics measures the inflation by CBSA, core base statistical area, but basically they use the information from April 1st through March 31st is the measurement, and then the following October 1 is when that rate increase actually gets put in place. So really from the full measurement period, which ends March 31st, then six months later that goes into your reimbursement increase. And that's the lag Kevin referred to in his prepared remarks earlier. So about a six-month lag where you could see margins squeeze next year if this inflation in wages isn't transitory but it's permanent. And that's the issue we're currently addressing now. But in the end, these things tend to work its way out. But right now, hospice, the industry is in a pretty good position where the government acknowledges how labor-intensive we are. And the increase we get is based upon hospital wages for these licensed professionals. So there really should be a hedge, but with a six-month lag.
spk01: For next year, for the October 1st.
spk02: And long-term, Dave, obviously things are changing by the minute, but on a longer-term basis, in the budget blueprint, there's a lot of money being suggested for nurses and hospice nurses.
spk06: Yeah, they're actually talk of as much as $20 billion going towards training for hospice licensed personnel. Now, this is the framework analysis, which seems a little fluid at the time, but without a doubt, we see strong indications that the government continues to invest in the hospice industry.
spk02: Well, it realizes the pricing pressures.
spk06: Yes. Frank, any additional follow-up, Frank?
spk02: Okay. I think that that – is that the last question in the queue?
spk00: As a reminder, ladies and gentlemen, to ask a question, please press star 1. We do have a follow-up from Joanna of Bank of America. Yes, thank you.
spk04: So I guess I just want to – move to the lower segments. Cause I guess, uh, the, um, the strength there, you know, continues to, uh, be impressive both on the top line and bottom line. So can you talk about, um, kind of the, the margin situation there? I mean, I guess it's, uh, um, you know, the opposite of what we just discussed in terms of Medicare, uh, ratings is how you have to wait, uh, for this to play out here. I guess, uh, Can you talk about your ability to put prices in the market? I guess you mentioned inflationary price increases you plan for Q4. So can you give us a sense of the magnitude of, you know, those increases that you might consider?
spk06: So, yes, we do have pricing power within the Rotorooter business, within that industry. If you define the industry as same day, next day, predominantly emergency plumbing and drain cleaning services. we have the pricing power, and we price based market by market, procedure by procedure. So what we pass through in a price increase for plumbing is different than drain cleaning and different lines within those segments. But we can't give you anything more granular, Joanna, because we're still developing it, but we absolutely will pass through inflation increases, if not inflation plus a little bit more, because frankly that's the way our technicians get increases in their wages. And our employees are feeling the pressures of inflation in terms of fuel, housing, all those costs that are going up significantly at 5%, 6%. They're paying those fees to feed their family, put fuel in their trucks that they predominantly own. So that is, they're more receptive of price increases, and our employees are, very comfortable selling the price increases to our customers because that's how they earn their money. That's how their wages go up. But the exact amount of the increase, we'll do a weighted average analysis at the end of the year, and we'll give you more color in early 2022 on those increases.
spk02: One comment I'd like to make before leaving margins and rotator. It's what we've observed is, generally speaking, historically, we've developed... our fixed costs to support the plumbing and drain cleaning business, which was the first business. And we've seen over time, as we've added substantially to the ancillary services, that is the excavation, the water restoration, that has significantly leveraged our margins in It's up to the point where it's... I used to think 20% was good. Now we're pushing 30%. It's that strength. The reason we're seeing that improved margin is, of course, the addition of those services, but you've got to remember that when there's strength in the underlying core business, the that comes from those fixed costs, the rest are add-ons with very little acquisition costs for the business. And to the extent that The underlying core business is strong. We know that the service lines of the other businesses will continue to be strong and then support that margin. So it hasn't been – the margin has increased, I guess, by saying not by just taking price increases. The focus has been on the leverage of not just the cost of the fixed business but the underlying core businesses in and of itself.
spk06: And Cameron brings up – Key point on that, Joanna, it's not that the margins for water restoration and excavation are so high. Quite frankly, they're not that much materially different than our core business. But as Kevin pointed out, after those costs, we don't increase the cost to operate a branch at all, or certainly not materially. So more of that incremental revenue and what I'd call raw contribution margin just drops straight to the EBITDA lines. So the growth in revenue is really resulting in the accelerated EBITDA margin increase.
spk04: Thank you. So two follow-ups. So on this last point, in terms of adding these ancillary services that allows you to leverage some of these branch-level costs, are there additional ancillary services that might make sense to add, or you kind of already covered all the bases there?
spk02: we keep trying and, you know, we have at least, you know, one additional service that, you know, we're testing out and seeing if we can't find, you know, the winning formula. But, you know, over the years, we've tried just about every service that involves having a person or technician in a truck going out to, you know, make emergency service on a consumer. And, you know, we've We've had successes, we've had failures, but we continue to look at that. In fact, water restoration really came about following a new look at it. We said, look, we're going to forget all the former failures and look at everything from with fresh eyes. And that's where, you know, Roto-Rooter came up with the, uh, water restoration really from that process. And that process, that process is ongoing where we're saying, look, we've tried pretty much everything, but let's, let's continue to look for, um, something we could throw into this very powerful. I mean, again, when I talk about Roto-Rooter, you know, it's, it's big and a very, uh, uh, scattered industry, and so it has a lot of advantages on the Internet. It's got a great service mark, and again, we keep turning the pancake over, but again, I wouldn't, from an analytical standpoint or an analyst standpoint, I wouldn't say, again, the way we would get involved in it would be slow, methodical, so I wouldn't think that any of those projects that I'm vaguely referring to are likely to reflect earnings or sales over the next year or two.
spk04: No, I understand. Buddy, I was just curious whether they're Yeah, there's consideration. So it's good to hear there are some. And my other follow up was in terms of developer, I guess, staffing level. So we could increase your manpower nicely. I think we said 8% this year. But I think I want to say you said something that demand level, you know, in some markets, it feels like there's some understaffing there. So can you talk about that, whether there's, you know, more difficult to find manpower to provide the services and how do you expect this to play out into next year?
spk06: Without a doubt, there are Manpower right now, if we could grow in manpower, we could expand our revenue base even more significantly. And the type of people we're looking for are self-starters as well because typically our technicians own their own work truck. Which is an issue. We can't get bands now. That is an issue as well. But without a doubt, the pandemic has made hiring more difficult. Retention is fine, but hiring is more difficult. And it's a market-by-market issue. Again, we suspect as we get the pandemic behind us and we see increased more full employment on that key age category of people between 30 and 50, which is our sweet spot, we expect to see manpower expanding as the pandemic wanes in 2022. Let's put it this way.
spk02: The phone is ringing. The service technicians are making more money. $81,000 is a high watermark.
spk06: That's an average among all of our technicians in the field. If you actually look at the folks with three or more years of seniority with us, the number is even higher. We offer an incredibly viable career path for tradespeople who don't feel this obligation to go to college but want to work with their hands. We have a very, very viable training program, and we can give them a career with great retirement benefits. There's a lot selling, but it's hard to find people who are willing to get their hands dirty in this day and age. We've been very successful in the past. A little bit of a limitation during the pandemic, but we're still pleased with the 8% growth in manpower. And we certainly look at 2022 as an opportunity to further expand our manpower. But we don't kid ourselves. Right now in this environment, it's exceptionally difficult.
spk04: So, yeah, but it's definitely good to hear about, you know, successes there to get people, you know, I guess, involved in these jobs. And there's definitely demand. And last question on Rotova, HSW, I guess, we haven't really talked about how things are going there because obviously things were with the pandemic. But any updates, you know, in terms of, you know, that transaction and your plans in those markets to make some changes? Thank you.
spk02: Okay. I can respond. Top line, we're, you know, we're happy with it. We made a – when we make a purchase for – submitted to our board, we make a request for capital authorization. We make various projections for justifying the expenditure of funds, and let me say that we're running ahead of those projections, so it's been, from a financial standpoint, it's been a good one for us. That is, despite the fact, as we've talked about it, it had a significant commercial impact, you know, aspect to its business as opposed to, you know, our typical Rotary branch that's more residential. Right, you know, shortly after the acquisition, the pandemic closed a lot of the type of commercial establishments that they would call on. But with that, even with that and with the transition to a normalized Rotary branch, they've done well. There's still an upside, a big upside associated with them. There are some great very populous markets, and that's going to be a significant part of the growth of Roto-Rooter over the next several years, undoubtedly. So, yeah, they're going well. Anything you'd want to say on that question to HSW, Dave?
spk06: No, I said if you had told us the pandemic was going to hit, I would have said there's no chance of hitting those RCA projections. But the Roto-Rooter management team did a phenomenal job of, quite frankly, accelerating some of the changes. at the HSW locations, or many of them, during the pandemic. So they took advantage of the disruption to accelerate improvement. And I would say all of the locations, with the exception of two, were exceptionally pleased with, and the other two are works in progress. But in aggregate, they're now exceeding our expectations.
spk04: Definitely good to hear that. And my very last question on the CEMET level, in terms of capital deployment priorities, including U.S. spent a good chunk of your cash flow this quarter and your cash, I guess, on ShareRepo. So kind of how do you think about capital deployment going forward? Thank you.
spk06: I'd say we're staying with the same thesis we have on capital deployment. We love to do acquisitions, but acquisitions compete with share repurchase on a risk-adjusted return basis. And we still look at share repurchasing as a macro item having a better return for lower risk for shareholders. But we are always looking at acquisitions. We just don't pull the trigger because share repurchasing is more attractive. But we look at that on a regular basis. I wouldn't even say it's more often than quarterly. It's a constant conversation with the board as well. But we anticipate continuing with the dividend, of course, and a methodical increase in that dividend and share repurchasing. We're not opposed to putting cash on the balance sheet. But at the current share price, we consider our free cash flow yield exceptionally attractive in an environment where a LIBOR is at nine basis points.
spk02: Well, and not only that, implicit with what Dave's saying is one of the big advantages of both WordRooter and VITAS is their very good cash-generating operations. And, you know, so the real question comes down, like any company, if that's how you take best, you know, best use of that advantage. And it's been pretty clear, as Dave mentioned, we've, you know, since we purchased ETOS, we've taken a billion seven and returned it to the shareholders. And, you know, it's not tied up in goodwill of questionable acquisitions. And, you know, there's a lot of very accepted theories of value, and that is the value of an asset is determined, you know, what it returns to the owner, and we've had very substantial returns that we can demonstrate.
spk04: Thank you for that caller, and thanks for taking all the questions.
spk06: Thanks, Joanna.
spk00: I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Kevin McNamara for any closing remarks.
spk02: Thank you. We were pleased with the quarter. the results, and thank you for your kind attention.
spk00: Ladies and gentlemen, that's some conference for today. Thank you for your participation. You may now disconnect.
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