Chemed Corporation (CHE) Earnings Call Transcript & Summary

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Joanna Gajuk. Please go ahead.

Hello, everyone. Thanks so much for joining. My name is Joanna Gajuk. I'm the equity research analyst at Bank of America, covering health care facilities and managed care. And it's -- and thank you so much for joining the Home Care conference. So this is our second day. And it's my pleasure to now host this session with Chemed, one of the largest hospice providers, but also a provider of other services, non-health care-related services. So we'll talk about that briefly too as well, I think. But with us today, we have Chemed team here, Kevin McNamara, President and CEO; and Mike Witzeman, who's the CFO; and also Nick Westfall, who's the CEO of VITAS. So thanks so much, gentlemen, for joining us again this year. And before we got into the Q&A, I just want to make a note to the audience, you can see the ask question window in the webcast panel. So please feel free to send your questions my way, and I'll be happy to ask on your behalf. So with that, I figured this is a Home Care conference so we're going to start with VITAS. And the results that have been coming in much better than expected, census growing organically more than 10% so far this year. And on the call, you said you expect VITAS census to grow high single to low double digits next year. So can you talk through the main assumptions for that and kind of what gives you confidence in that kind of level of growth continuing?

Yes. So to reaffirm some of the comments that we made. So if you just take the third quarter run rate, which is about 15.5% volume with 2.5% of that being accretive to the acquisition earlier in the year. What we think our new run rate will be and how it gets comprised ultimately, and obviously, we'll finalize when we finalize our '25 guidance and release that in February is our new normal is something that is probably in the high single-digit range, where pre-pandemic, we would have talked about volume growth somewhere between 4% to 6%. And so for illustrative purposes, we talk about something in the 8% to 10% volume range. How we get confidence and comfort there is not just in '24 results, which have outpaced that. But to effectively illustrate right over -- when we ended the third quarter, we had 9 quarters of continuous demonstration of our ability to add net clinical capacity, which is the best leading indicator as long as demand, which it has continues to be strong for our services of the result of the fact that with 9 quarters of net sequential growth in clinical capacity, we've had 8 quarters of sequential growth from an ADC standpoint. And so that's what's brought us from the low 17,000 at the low of the pandemic, north of 22,000 as we entered the third quarter. And so everything that goes into our ability to not only continue to attract but more importantly, retain all of our team members and our balanced approach, not only from community access, but really just continuing to service all 4 of our preadmit segments in every market in which we operate is what gives us the confidence that our new normal organic volume growth rate will be somewhere between 8% and 10% for '25 and that becomes a sustainable approach on a go-forward basis. And when you combine that with an anticipated price increase, October 1 of next year, it gets us to low double-digit top line growth.

And I think the other thing, Joanna, that's important to mention is the baby boomer generation, there's a bubble of demographics for the entire hospice industry that are just about to hit the age range where they're going to need to access hospice more. And so we think -- and we've seen studies that overall, over the next 10 years, the hospice industry itself is going to grow 8% to 10% a year over those 10 years. And so there's going to be a rising tide for the whole industry as well. We think we're in a great position to take that and maybe a little more than that, given that 60% of our business is in Florida. And if 8% to 10% is the national average, Florida is probably going to be a little higher than that. So we're pretty confident that the industry is a sustainable high single digits, and we'll take our share of that, if not even a little more.

Yes. And the other variable really gets to the continued awareness that the pandemic helped to elevate to build better awareness and openness towards advanced care planning goals of care conversation that over time should lead towards earlier access and earlier adoption of the hospice benefit, which things like the NOR study and others have proven to be not only beneficial to higher-quality outcomes for patients and their families, but just as importantly, elevates the return of dollars and cost savings back to the Medicare Trust Fund, which is important for the overall country, right? It completes the triple aim, which we've talked about for a decade so right inside the health care system.

And I guess with that kind of census growth, you're talking about very high single digits. Do you need to grow your staff at the same pace to kind of meet that demand?

Short answer is yes. And so that same methodical pace that we have grown it at over the last, I would say, more 6 quarters than the 9 quarters that we're talking about. We've proven a methodical, predictable way to say with days of care growth and there's a lot of variables embedded inside of that, we will grow thoughtfully, mindfully and selectively clinical capacity on a site-by-site level based upon what those needs are. And so we've disclosed the net growth rates of the 5 disciplines that were stimulated with our retention program that expired well over 1.5 years ago, but it's not only those 5 clinical disciplines but others to make sure we continue to have high-quality care at the bed side.

And I guess talking about that bonus program and retention success that you have had. So can you talk about what's driving the clinicians to VITAS right even after the expiration of this 1 program? And maybe talk about where is people coming from? Are you just essentially hiring them away from your competition? Or is it that they're coming from other settings?

So we've probably grown into 3 categories. I'll answer the second question first, which is we absolutely see some of our newest team members coming from competition. And I'll get to why we believe they're coming to us in those circumstances. Similarly, I think you have a natural reentry of some clinicians reentering the workforce from the pandemic and really thinking about the settings of care and the type of care that may have been their initial motivator for becoming a nurse or becoming whatever clinical discipline in which they have. And then the other aspect to it, particularly inside of the home care and specifically hospice industry, we're seeing younger and younger applicants then we would have pre pandemic, and I find that to be the most encouraging of all 3 because we're trying to break down maybe some of the social stigmas and educational stigmas that would have occurred inside of nursing schools and other places that would only think about working in hospice late stage of your career so that they now begin thinking about all the benefit, all the outcome pieces. Obviously, my opinion is biased, but they can really impact patient and families lives in a dramatic way and why not do that for your entire career just as opposed to the last 10 years of your career. And so I think just based on average age of some of our new clinicians, which we don't disclose. It's very encouraging that we are getting people earlier in their career. And hopefully, we continue to keep them because we have a lot of career path options and create growth depending on what that individual wants.

Joanna, I think also implicit in your question, at least, is we've always, even during the height of the pandemic we've been able to hire people really was improved more dramatically, I believe, it's our retention of people. Our turnover has really, really improved over the past 3 years due to a lot of the things Nick talked about. And so during the pandemic we might have had to hire 700 new people in the quarter to add in that 200 headcount. Well, now we only have to hire maybe 300 people that add a net 200 headcount, it's really being more selective. Yes. So we can be more selective in who we hire, but we also had so many newer people now than we did to add the same number of headcount in a given quarter.

Yes. And to answer the first part of the question as to why is retention improving. There are a lot of lot of reasons. I think at the core cost of it, right? We're always paying prevailing market wages. We're always looking for ways to improve benefit packages and everything else, that sort of table stakes. I think being any type of health care provider at this point. What we really have is leaned into and try to elevate our culture, not only our VITAS culture, which we think is a differentiator but use that to elevate why if you're thinking about why coming to hospice that has a lot of cultural benefits, right? You're out in the community, you're able to spend time with patients and their families and see the significant impact it has. But at VITAS, we're really trying to celebrate some of that unique cultural pieces and elevate every location has their own culture that comes along with it while we have a foundational mission and value. We're allowing all of our local leadership to sort of create their own team culture and the things they want to celebrate and recognize and celebrate one another. And while that sounds very -- it is a high-level simplification of everything. It's proven to have an impact, and we'll measure it, call it, scientifically. But at the end of the day where the rubber meets the road is retention levels continuing to elevate and stabilize and us continuing to keep that top of mind because that is the leading indicator around our future success. And every member of the team knows it.

And switching a little bit on to other areas of growth. So we talk about the organic growth but also recently the company they've had its first hospice acquisition in many, many years. So I guess the question obvious question here is like, should we expect more, right? Is there increased appetite for deals? And what types of assets you're looking at? And I guess with that, would you consider something bigger? Should we expect more like a covenant size acquisitions? Or is there a capacity and interest to do something maybe bigger than that?

To simplify all answers. The answer is yes to every question you asked there. With all that being said, though, we're not going to stray from what I think we've been pretty consistent of through all of '24. We think there's an opportunity for us to enter into not only additional counties and states in which we operate in that we'd like to be in like the state of Florida, which we've done through CON or acquisition, as you pointed out, with Covenant earlier in the year. But there's other states that we think are particularly attractive for a variety of reasons and align with our service and operating model that we're also being very intentional around how we approach much more proactively than maybe we would have in the past. And as you guys -- and as everybody, I think, on this call knows with our balance sheet in no way, shape or form are we happily constrained, but that does not mean we're just out looking to acquire things blindly for the sake of adding census. It's very intentional methodical, and we want to enter into locations where we think we can really have a differentiated offering and grow with the same growth expectation that the shareholders have for us and the same expectation we have internally. So there's nothing I would say we would shy away from, but it has to meet our strategic thesis, first and foremost and like-minded long-standing mission-focused hospice providers are the key underbelly because that cultural integration is so critical when we start talking about M&A activity inside of the space.

And I'd just like to add, everyone likes in business baseball analogies, but it has been observed that in baseball, in call balls are strikes and you just waited for a ball right down in the middle of the play and would be in the hall of fame. That's kind of -- we could reduce our strategy pretty much over the last several years for that, and we're not straying too much from that because we have limitations in our organization as far as the type of program we have experience managing and we recognize our limits to that regard. We don't rule out of the future as far as expanding our business. But that's [indiscernible] that we didn't buy. But that certainly adequately summarize where we are on that. We just -- at Chemed, we have a long history of buying and selling companies prior to -- we getting at a same situation with VITAS. But -- some of the pitfalls, almost every acquisition we made going back to our history was a positive one that we exited to get a capital gain but at the same time that doesn't move the needles [indiscernible] needle and there are risks. I mean, I always like to say, when you evaluate Chemed's stock performance, it has a risk adjustment. Up to this point, we've been swinging at the balls right down the middle of the play not taking much risk. And we haven't changed too much recently on that approach.

Thank you for that. But I guess coming back to the fundamentals a little bit more so margins in VITAS in this segment, let's focus on that. For '24 -- this is 19.8% to 19%, 19.5%, right. And then this is above where our margins were in the segment in 2019. So how much, I guess, is from the higher volumes you just talked about versus maybe some efficiencies or maybe also the Medicare rebasing, right? It took effect in the last quarter of '19. So we haven't really seen this flowing through the full year, which is more normalized year. So can you kind of help us understand like these margins being that much higher than 2019.

Sure. We -- so there's a few levers in the fourth quarter, as you suggest, will always be our highest because our price increase goes through on October 1. And so obviously, our cost structure on September 30 is the same as it is on October 1. And so a significant amount of that price increase particularly in the fourth quarter, will drop to the EBITDA line fairly directly. The second thing that Nick has talked about a lot that has helped expand our margins in an outsized way over the last 15 months or so is the Community Access Program and expanding length of stay. When we expand length of stay, that has an outsized impact on margins as well as revenue because our first 30 in last 30 days are the most expensive days of care for us. And so to the extent you can expand those days in the middle, that will help us on a marginal basis. And then the third thing I would say, is we've always had sort of an internal benchmark that we will grow back office costs, call it SG&A at half the rate of our revenue increase. And so we -- there are some years we've hit that and some year we haven't, but that's sort of our benchmark, but when we're growing top line by 15% or 16%, it's less likely that we're going to grow back office SG&A costs by 7% to 8%. And so we've gotten some leverage on the back office because of our higher-than-average growth rate. Having said that, there's going to be going forward puts and takes and some headwinds and some tailwinds to those -- to that margin rate. So I would say where we're headed and or where we've projected '24, it's probably going to be at the stable number to use for the foreseeable future as to where margins will wind out.

It will be a good predictable range. And just to remind everybody, too, right, you take VITAS specifically, but the overall industry price increase that just went into effect October 1. You're talking 2.9%. And if you try to hold all things constant, 2.9% is not going to -- while we're not complaining about it. It's more than some of the other segments, right, inside of health care. It's not going to keep up with overall cost of doing business and inflation. And so it's up to us and the rest of the providers to continue to find ways to be more efficient so that on all the other various puts and takes, we're making sure we're not -- we're paying prevailing market wages. We're able to provide appropriate and sufficient ancillary services to all of our team members. And that's what each of us as providers get tasked with doing as we're deploying funds that were being paid for by the federal government.

And I guess staying on the margin discussion, right? So you made some comments about next year. Obviously, you don't have the guidance, the full guidance you just see it, but you kind of alluded to margins, I guess, should be expanding with that kind of rate growth to your point in census, but maybe not to the degree that it did in '24. Because when I look at this guidance for '24, it's kind of implying like a 200 basis points improvement in the margin year-over-year, right? And obviously, this was coming off a very depressed level in 2003, I guess, in terms of the margins. But if you grow that fast, right, you grew your top line double digits , sounds like there should be some margin expansion, right? So is that the way to think about it for '25 with some margin expansion would -- should be happening still?

I think you'd be safer saying that our margins will be consistent year-to-year. I don't see a significant amount of expansion. And again, there's pluses and minuses, the leverage is certainly an improvement to margin. As Nick mentioned, while the gap in wages in our reimbursement has certainly narrowed, it's still -- they're still not equivalent. So that's a headwind. And then the third thing that we've talked about a little bit is we have a few programs that are -- because of the expanded length of stay and the Community Access program, we have a few programs that are starting to get uncomfortably close to the Medicare Cap limitation and so with those few handful of programs, we're going to have to slow down growth and expansion of length of stay. And it's not going to be material, and we'll still be growing at -- we'll be growing dollars for sure. But I would think margins will be fairly stable.

And even that Mike, from a long-term perspective, I think realistically, it's spot on. But it is -- the growth in admissions is the wildcard there, I mean, to the extent that growth of admissions through the new hospital admissions, if that exceeds our expectations, the limit of growth even in those markets would disappear.

Yes. And like to Kevin's point, nothing has changed in that regard. It always becomes a balancing act related, but there is no -- there's no harder no limitation, but it's one every hospice provider is constantly evaluating. And as everyone knows, it's very market specific, given the fact the Medicare cap rate just raises universally over the last few years with some of the statutory changes irrespective of what the individual CBSA does. So it creates its own challenging and state-specific dynamics each and every year with the rate update.

Right, exactly. And just talking about the reimbursement here. So it's been relatively stable, right, and some changes here and there and such. But I guess I want to ask you your thoughts about this proposal that's been out there, I guess, now for a little bit, but the Hospice Care Act from Congressman Blumenauer, right includes a bunch of different things in there, right? There's the integrity performance, but there also changes to payment structure, which was surprising. So can you give us your sense of the -- either the entire bill getting picked up somewhere there or maybe the pieces? And if so, I guess, what -- how you would think about the impact from those pieces to your business?

Yes, sure. So representative Blumenauer first and foremost, was always a champion for hospice, and we appreciated that as an overall industry. And so what you're alluding to, that bill was really we saw it, and I think everybody else in the industry and from direct dialogue related to it as a discretionary piece that wanted to throw off some topics or some things for consideration over the coming years as he looks for new champions inside the legislation to continue to advocate for hospice. So I think that's the key theme underneath it, which is representative Blumenauer very much saw the positive impact of hospice and was looking to elevate and expand those things. And so there's a lot of different ways one could argue you go about it. But I think, first and foremost, it is rebaselining everyone's understanding that earlier access to hospice and longer stays in hospice increase quality outcomes for patients and families. That's been proven by every study. And more importantly, in the last few years, it reduces total cost of care to the Medicare trust fund. And when you take those 2 combinations, it's a really powerful thing. There are a lot of items that we individually and collectively as an industry agree with, don't agree with. And I think it's a good reference point going forward for a collaborative approach with our new consolidated trade association to be working both directly with CMS and with the new administration to help accomplish.

But you don't think it's something that's necessarily it's going to be passed or has a good likelihood of being passed, correct?

That's exactly right. They're talking points, not actual.

Right. And since you mentioned incoming administration, I guess I'll ask you that question, I'm asking everyone, but obviously we don't know any details and such, but any high level thoughts of anything that might come up in the new administration or the new kind of CMS that might be impactful for your industry at all.

No one has a crystal ball. I'm sure everyone is giving you that same answer. But I think universally, hospice has -- and I'll just use the past year, has been very universally supported and understood in a bipartisan way. With the new administration, we're very encouraged about some of the key themes that could come out of it and what it may mean for the hospice industry, if I'll go back to what I referenced in the studies, we believe we're one of the solutions for helping root out maybe unnecessary spending in other pieces and replace it with high quality of care for some of the most vulnerable population in the country. And so we're looking forward to continuing to work with the new administration to slowly and incrementally pass any type of legislative updates, reforms that could help elevate awareness and access to the hospice benefit throughout the country because it's going to be needed and it's going to be needed for decades to come.

Exactly. So I guess we will look out for that. And maybe we have, I guess, 15 minutes or so left. So maybe even though this is a Home Care conference, but I guess the other business gets a lot of attention since the results of the Roto-Rooter have been disappointing. So maybe we can talk a little bit about that business. And commercial revenues showed some stabilization there in third quarter because they were actually up sequentially, but still down year-over-year, right? So what needs to happen really for this part of the business to grow again?

So we've talked a lot about it over the last 3 quarters. There were a number of management initiatives that were put in place that we think are showing some grassroot efforts that are starting to pay some fruit. I would tell you, ultimately, they all center around the idea of blocking and tackling, boots on the ground, sales efforts at the local branch level. And when I say that, people get the maybe misconception that our commercial business is centered around like the Targets and Walmarts of the world, but that's really not the bread and butter of our Roto-Rooter commercial business. The real key customers we have are on a location-by-location basis, large apartment complexes or maybe someone who owns a few McDonald's franchises in the territory. And those are local sales relationships that need to be established, and we've put a lot of effort into a number of things to get those relationships kick started.

Right. So I guess it's taking some time there. And on the call, you alluded to this idea of the segment, not just commercial but the Roto segment revenue may be flattish year-over-year next year. So what are the biggest swing factors there? And what do you assume what you think about is being flattish? What do you assume for the commercial or you just talk about and then residential?

Sure. So we -- like I said, we see some definite momentum for commercial going into '25. How much that will be up is yet to be determined, we're still working and finalizing our budgets and things, but we see some level of growth in the commercial business in '25. We believe residential has hit a bottom for the most part. But we aren't -- we're less confident or we have a little -- we're a little more cautious on the residential side that we're going to see any substantial growth in that segment. Residential is 75% of the business. So like I said, we're putting pen to paper now and finalizing budgets and things, but a little bit of growth in commercial. I call it down a little to up a little in residential, and we can eke out a little bit of growth in '25 for Roto-Rooter.

So when talking about the residential piece of the Roto business, kind of what are some of the indicators that you're looking at to kind of tell you that, "Hey, you said you think this is pretty much bottom." But you kind of -- what we should be looking out for to kind of assess that from the outside as well that this is the bottom?

Let me just start by saying, with Roto-Rooter, what we're looking at is call volume. I mean when we talk about market share, but we're talking about something we track these calls that we're getting and the calls that we're getting come as a result of kind of legacy customers who know us or they're responding to sales efforts and hopefully, they're calling us directly. Those are calls we get 80% right now are product related. Our jobs come up with some reference to Google, whether it's natural or paid search. And we really feel that even though there's been increased competition, increased bidding for placement, we think that despite having the preeminent service market by far in the sector, we're getting kind of lost in the shuffle. Google has created a bit of a shuffle. As I said, how much they there's more aggressive paid search. They've changed a bit couple of times in the last 18 months, the algorithm determining where you can show up on the kind of the natural search match section that has adversely affected us. Roto-Rooter has been dealing with that. We've gotten some new help in that regard. We've changed Internet marketing department. I think we have a deeper understanding of what we're facing. The net effect, what gives to answer your question but gives us a good feeling with regard to the improvement is the fact that by doing a better job analyzing the bidding market, we're bidding less and getting the same number of phone calls. You might say, well, bid more and get even more phone calls, we tried that. The market in that kind of the overbidding that's occurring by competing private equity firms has suggested that and we tried that really that 2 different times last year. We didn't get more calls as a result of that. So we're -- we think we're confident that rightsizing our bidding strategies will get us the optimum number of or I should really say the maximum number. The optimum is always more. But the maximum number of calls, we're able to save money on the marketing. We're expanding our efforts to the non-Google resources to get calls. And the fact of the matter is, as we've indicated I mean we're now coming into the time of year on a seasonality basis where Roto-Rooter historically has done well. And as we cover more fixed expenses with the increased number of calls, it's easier to assume that we're going to -- that we are doing better and we expect to do better. So we're seeing that. We think that most of the strategies that we've talked about over the last couple of months that are grand strategies that is things like adding to customers phones to starting program where we're getting maintenance contracts going among our customers. Obviously, those are programs that take some time to bear fruit. On the other hand, we're going in with some real advantages. The real advantage is being the #1 service mark, the fact that when you accumulate over a long period of time, the fact that at this point, the number of residences in the United States that have used Roto-Rooter sometime over -- some point over the last 40 years is approaching almost total market dominance in that respect. We have that going for us. We have as part of a very solid service force. We have in regard to that, they're operating at peak efficiencies. We have almost historically high close rates at the call center level and the service tech level, we have historically high close rates and the ancillary services that they are selling the customers, that is the water restoration, the excavation are beyond historic -- previous historic levels. I mean the approaching 50% of our sales at this point. So I mean, we have a lot of things going for us. And a big win will be somehow have those programs take hold and/or increase the number of share of the number of calls for Google, which we're going to get by bidding smarter, not higher, would you agree with that, Mike and that's what I'm seeing.

Yes, absolutely. The only thing I would add to what Kevin said is we aren't economists, and we don't pretend to be. There have been some studies we've seen in Wall Street Journal and other publications that would say that they believe some of the economic factors that have led to the softness -- some of the softness in a lot of home service industries are starting to get better and maybe some improved conditions for operating in those industries, maybe mid 2025 and beyond. And so we're cautious. We think the first quarter, first 2 quarters have reversed, there going to be some tough sledding. But sequentially, we think that just the overall operating environment is going to start to improve for us from a demand standpoint.

Right, because like you mentioned, seasonally, Q4 is a strong quarter, but I guess Q1 probably 2. So is this the idea we would need to wait to kind of see things really in a year, essentially in the Q4 of 2025 to kind of say, hey, like things are improving? Or I guess we could also maybe see it through like better than seasonal trends quarter-over-quarter of the year.

I think you'll start to see it even in the second quarter, 25 improving sequentially -- as we sit today, the first quarter last year of '24 -- first quarter of '24 was by far, Roto-Rooter's best quarter. And so that's -- there are some weather impacts that happened there and things like that, that we can't budget for that sort of thing. We can -- we can help them, but we can't budget for them. And so as we sit today, we think that there's a pretty good chance that Roto-Rooter might still have a show some level of revenue decline in the first quarter, but then start to really improve starting in the second quarter and beyond.

And I guess on margins very quickly, in the quarter or so. So year-to-date, I guess, is averaging like 26% or so. So is that the way to think about next year as the starting point?

I would think about it. And again, we're still working on our budget. So this is just off the top of my head, sort of, I would say, somewhere between 26% and 27% is probably a fairly good way to think about it. We have some plans that are going to maybe cause a little margin pressure for us to try and drive some top line demand. At the same time, we do drive top line demand, there's some system leverage that will get over fixed costs. So there's -- I think where we're at currently is just probably a pretty good indicator for the next year or so.

And the last question, I guess, on the corporate level. The company has no leverage, no debt really, right? So how to think about that? Is there any goal for the leverage? And also with that capital deployment priorities? Should we think about hospice acquisitions? Or is there something maybe in the Roto-Rooter segment that you might be considering as well? And any additional, I guess, priorities that you want to discuss now for cash flow?

Sure. We aren't scared of leverage. That's the first thing. We haven't had any need for leverage in the last few years. We generated free cash flow of roughly $300 million a year. So we can use that for stock buybacks. We obviously cover any capital needs we have internally. But because of our strong balance sheet, we have been continued to do our stock buyback program. It takes fairly significant opportunistic swings at stock buyback, when it's advantageous. And that in no way would have need any M&A that we really want to do. That's the advantage of having the balance sheet that we have. On an M&A front, we wouldn't shy away from anything. I think we would buy anything at Roto-Rooter in the right location that becomes available. Those opportunities are probably not from a pure dollar standpoint, as large as some of the opportunities we could potentially have with VITAS. But again, VITAS acquisitions would be well thought out within our current strategic thought process on location, valuation and those sorts of things. So we're not going to do M&A just to grow the company at any cost. So M&A is going to be thoughtful. The Covenant deal has went very, very well for us, and we would love to do more transactions in that neighborhood.

And if I may, just to top on that. Any thoughts on, I guess, de novos in hospice. I mean, I guess maybe they are just low capital outflow. So you might have been doing those, but we just don't already talk about it, but maybe any thoughts on that?

Yes, we have been doing them. We just don't -- sometimes we'll reference it. I think I referenced it at the end of the third quarter, we just lifted up and began servicing Pasco County in Florida October 1. We have 2 new locations in California that are up and running. So there has been de novo activity that has always occurred, Joanna, as you point out, from time to time, maybe we'll call it out, but it's not large capital nor is it immediately material to the overall financials and outlook. So it's one that we may talk about happenstance, but it's part of the growth formula as well.

And it's expected in the future de novos to occur either in California or more likely in a CON state...

We have a pipeline of anticipated pieces for need that were already out feet on the street preparing for. So yes, de novos will be part of the strategy as well.

Great. This is all the time we have today. So I appreciate. Thank you so much. And I guess I'll talk to you soon. And for the audience, there's still a couple of sessions left for today. So don't go too far away.

Thanks, Joanna.

Thanks, Joanna. Thank you.