Mike Witzeman: Sure.
Holley Schmidt: Thank you so much for the questions.
Operator: [Operator Instructions]. Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.
Michael Murray: Hi, this is Michael Murray on for Ben. Just double clicking on Roto-Rooter, you saw a pretty sizable deceleration in commercial growth in 4Q. I wanted to see if you could expand upon that. And what do you expect for commercial demand in 2024 and what’s your expectations for residential growth as well?
Kevin McNamara: Well, let me just start by saying, our commercial sales in Roto-Rooter in the fourth quarter were below our expectation. There were a couple of factors that we think are a couple big commercial customers that we thought had effect on it, but even generally, it’s not where we want it to be. It’s an area of renewed focus and emphasis at Roto-Rooter. And again, it’s — we think that there’s no reason it won’t mirror a lot of our experience on the residential side. But it didn’t in the fourth quarter.
Nick Westfall: And the 3.5% to 4% growth that we’re projecting for 2024 comes fairly evenly across both segments and across each service offering within those segments. There’s a little bit of variation, but we don’t see a huge increase in commercial and a decline in residential or anything. It’s fairly stable across both business segments.
Michael Murray: Okay. And just a follow-up. What gives you confidence that what you saw in 4Q commercial won’t continue into 2024?
Kevin McNamara: Well, the thing gives me confidence is, I see and know the increased emphasis that Roto-Rooter is making with each of its branch managers. And so the concept I have over the years, just seeing that that type of emphasis and effort usually in Roto-Rooter yields results.
Nick Westfall: We’ve seen this before, maybe not quite to this magnitude, but there are from time to time local area managers at some of these big retailers for instance that get the idea that they can manage their plumbing needs on a mom-and-pop basis, on a store-by-store basis, and they quickly figure out that that’s not very manageable. And they come back to us not saying that’s necessarily this case, but we have had many instances in the past where we’ve lost that business for a small period of time and the figure — our customers figure out that managing it on a store-by-store basis is not very easy, and then they come back to us. So there’s no guarantee in this instance, but we think that there’s probably a potential for that as well.
Michael Murray: Okay. That’s really helpful. And switching to VITAS, so you’re continuing to see solid ADC growth and you’re expecting that to continue? Well, some of your peers have had softer ADC growth coming out of the pandemic. Obviously, you had your retention program, but is there anything else in your competitive strategy that may explain some of your outperformance compared to peers?
Kevin McNamara: Yes. So the thing we’ve been pretty rather consistent on probably over the last year-and-a-half was, of course, the recruiting and retention program served as a catalyst. That catalyst, though, had a lot of other tactful things. And I’ll put it under the overall umbrella from a cultural standpoint, that really had a compounding effect around improvement of retention at each local, each one of our programs. And that combined with some very strong hiring, continued to allow us to meet and not turn away any of the unwavering demand that we continue to see from our referral sources. And when we have that on a market-by-market basis, compared against some of our competitors, who would either not respond with the same degree of commitment to those referral sources or not be able to provide the full complement of services that they expected before the pandemic started, I think is really allowing us to and we can see it in our metrics expand market share on an account-by-account basis, but in the same regard, enter of new relationships with certain accounts that may not have taken our call, but the circumstances have helped to reinforce that.
So that’s always that combination we feel very confident in, as well as helps provide confidence in our 2024 guidance and beyond. So not to oversimplify it, but focusing on recruiting and retention, as well as continuing to lean into all of our educational approaches out on the market are proving to be a very effective strategy for us.
Mike Witzeman: And there’s a bit of a waterfall effect, right? So if we have — we feel like in a program we’re fully staffed from an admission nurse standpoint, right? We can get to the referrals maybe faster than some of our competitors that don’t have the staffing levels that we do. And that’s one of the key factors in being able to admit the patient. So it’s sort of a waterfall, not just with nurses providing the care, but it starts at the admission nurse level to begin with.
Kevin McNamara: And while we don’t report them publicly, we continue to see very strong strength in referral growth, and that gives us great confidence that there continues to be share to be gained, and the only impediment would be staffing, which we feel very comfortable about continuing to methodically build.
Michael Murray: Okay. That’s really helpful. Just the last one for me. Do you have any comments regarding cadence of earnings throughout the year? Anything that we should keep in mind? And do you expect VITAS margin to ramp through the year like you saw this year?
Nick Westfall: Yes. I think VITAS margin, it always spikes in the fourth quarter because we get our reimbursement rate on October 1, and essentially that increase falls to the bottom line in the fourth quarter because we haven’t seen the inflation that goes along with that. So we definitely think VITAS, particularly the fourth quarter is going to ramp. There’s definitely a ramping as well at Roto-Rooter as we talked a little bit before is sequentially, we think demand, hopefully, in our opinion is going to increase and improve as the year goes on. So there’s a little bit of ramping at Roto-Rooter, but that’s a little more stable. VITAS certainly the fourth quarter will be the best quarter.
