Sherri Warner – Investor Relations Kevin McNamara - President & Chief Executive Officer David Williams – Executive Vice President & Chief Financial Officer Mick Westfall – Chief Executive Officer, VITAS

Jim Barrett – C.L. King & Associates William Sutherland – Emerging Growth Equity

Good morning. Our conference call this morning will review the financial results for the third quarter of 2016 ended September 30, 2016.

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 the 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 26th and in the 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 26th 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 Mick Westfall, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherri. Good morning.

Welcome to Chemed Corporation's third quarter 2016 conference call. I will begin with some of the highlights for the quarter, and Dave and Mick will follow up with some additional operating detail.

I will then open up the call for questions. In the quarter, Chemed generated $393 million of revenue, an increase of 1.7%.

Consolidated debt income in the quarter excluding certain discreet items generated adjusted earnings per diluted share of $1.73, a decrease of 2.8%. On the year-to-date basis, adjusted earnings per diluted share are $5.14, this is a 2.4% increase over the prior year.

This earnings growth is below our historic growth rate and related primarily to a shifted Medicare reimbursement methodology. As most of you are aware, on January 1, 2016, CMS implemented a rebating to the Medicare Hospice reimbursement per diem.

This rebasing eliminated the single tier per diem for routine homecare and replaced it with a two-tiered rate with a higher rate for the first 60 days of a hospice patient's care and a lower rate for days 61 and thereafter. In addition, CMS provided a service intensity add-on payments, which provides for reimbursement of care provided by a registered nurse or a social worker for routine homecare patients within the seven days prior to death.

Rebasing is revenue neutral for routine homecare billings if 37.6% of the total routine days of care are provided to patients in their first 60 days of admission and 62.4% of the total routine homecare days of care provided for the patients after the 60 days. This is basically a 38% to 62% ratio.

This change in reimbursement has reduced our revenue growth by roughly $17 million for the first nine months of 2016 and the full-year impact will be roughly $24 million. We anticipate a portion of this estimated reduction revenue growth will be offset by increased efficiencies in 2017 in the areas of non-bedside field operations and general administration.

With that, I would like to turn the conference over to David Williams, our Chief Financial Officer.

Thanks, Kevin. As Kevin noted, the VITAS' revenue of $283 million in the third quarter of 2016 is a decrease of 0.8% when compared to the prior year period.

The revenue decrease is composed primarily of an average Medicare reimbursement rate increase of approximately six-tenths of 1%, a 3% increase in our average daily census, offset by a few acuity mix shift which negatively impacted revenue 1.7% and changes the Medicare Hospice Reimbursement methodology as Kevin noted which negatively impacted revenue of 2.1%. Approximately $0.2 million of Cap was recorded in the quarter, relating to the 2015 measurement period.

The methodology used that calculate the Medicare Cap is in dispute. CMS is calculating the Medicare Cap liability using theoretical revenue that assumes no revenue reduction from sequence ratio.

At September 30, 2016, VITAS had 31 Medicare provider numbers, none of which had an estimated 2015 Medicare Cap filling limitation. Of VITAS' 31 unique Medicare provider numbers, 27 of these provider numbers have the Medicare Cap cushion of 10% or greater for the 2016 Cap period.

Two provider numbers have a Cap cushion between 5% and 10% and two provider numbers have a Cap cushion between 0% and 5%. VITAS generated an aggregate Cap cushion of $281 million during the trailing 12-month period.

Average revenue for patient per day in the quarter was $189.94, which is 3.6% below the prior year period. Routine homecare reimbursement and high acuity care averaged $160.9 and $697.21 respectively.

During the quarter, high acuity day days of care were 5.6% of total days of care, 58 basis points less than the prior year quarter. Third quarter of 2016 gross margin excluding Medicare Cap is 20.7%, which is at 260 basis point decline compared to the prior year period.

Our routine homecare direct gross margin was 51.4% in the quarter, a decrease of 230 basis points compared to the prior year quarter; and our indirect inpatient margins in the quarter were -2.4%. Occupancy of our 32 dedicated inpatient units averaged 69.3% in the quarter and compares to 72.4% in the prior year's quarter.

Approximately 75% of our inpatient days of care and in these dedicated units with the remaining 25% of our inpatient care utilizing contract debts. Continuous care had a direct gross margin of 12.2%, a decline of 350 basis points when compared to the prior year quarter.

Average hours filled for a day of continuous care was 18.3 in the quarter, a slight decrease when compared to the 18.2 average hours filled for the patient in the prior year. Selling general and administrative expense was $21.8 million in the third quarter of 2016, which is 2.6% favorable compared to the prior year.

VITAS did generate $38.6 million of adjusted EBITDA on the quarter. This is a decline of $6.7 million.

Approximately $6 million of this decline is from the rebasing of the Medicare reimbursement. Adjusted EBITDA should compare favorably in 2017, once both years of operating results are under the same reimbursement methodology for Medicare.

Adjusted EBITDA was also impacted by relatively low margins in our continuous and inpatient care. This temporary margin decline is the result of restructuring short-term and long-term contract debts within our inpatient structure and other related cost incurred in delivering high acuity care.

We anticipate improved margins in the fourth quarter and more normalized margins in 2017. Mick will be providing additional color on this temporary decline in the high acuity margins.

Now let's look at Roto-Rooter. Roto-Rooter generated sales of $110 million in the third quarter of 2016, an increase of $8.5 million or 8.4% over the prior year.

$3.8 million of this increase is attributed to water restoration activity. Commercial drain cleaning revenue increased 6.7% and commercial plumbing and excavation increased 10.2%.

Overall, commercial revenue increased 10.2%. Residential plumbing and excavation increased 4.5% and drain cleaning increased 2.2%, and the overall residential sales increased 8.1%.

Commercial and residential water restoration revenue increased 46.3% which equated to revenue of $11.9 million in the quarter. On the Chemed consolidated balance sheet as of September 30, 2016, Chemed had total cash and cash equivalent of $21 million and debt of $111 million.

As you may recall in June of 2014, we entered into a five-year amended and restated credit agreement that consistent of $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that's currently LIBOR plus 112.5 basis points.

At September 30, 2016, we had approximately $288 million of undrawn borrowing capacity under this agreement. Consolidated capital expenditures through September 30, 2016 aggregate a $29.7 million, in comparison to depreciation to amortization during the same period of $25.9 million.

On March 11, 2016, Chemed's Board of Directors authorized an additional $100 million for stock repurchase under Chemed's existing share repurchase program. The company did not purchase any share of Chemed's stock in the third quarter of 2016 and on a year-to-date basis, the company has purchased 780,134 shares of Chemed stock at an aggregate cost of $102.3 million.

As of September 30, 2016, there is $50.2 million of share repurchase authorization remaining under the plan. Our full year 2016 guidance is as follows.

Including the impact of the change in Medicare Hospice Reimbursement previously discussed, full-year 2016 revenue growth for VITAS prior to Medicare Cap has estimated being the range of 1% to 2%. Average daily census in 2016 is estimated to expand approximately 4.5% to 5% and full-year adjusted EBITDA margin prior to Medicare Cap is estimated to be 14.0% to 14.5%.

We are currently estimating $1.25 million from Medicare Cap filling limitations in the fourth quarter of this year. Roto-Rooter was forecasted to achieve full year 2016 revenue growth of 5% to 5.5%.

This revenue estimate is based upon increased job pricing of approximately 1% and continued growth in water restoration services. Adjusted EBITDA margin for 2016 for Roto-Rooter is estimated to be in the range of 21.0% to 21.3%.

Based upon the above, full-year 2016 adjusted earnings per diluted share excluding non-cash expense for stock options, cost-related litigation and other discreet items is estimated to be in the range of $7.20 to $7.30. This compares to Chemed's 2015 reported adjusted earnings per diluted share of $6.98.

I will now turn this call over to Mick Westfall, Chief Executive Officer of VITAS.

Thanks, David. Total average daily census in the third quarter of 2016 was 16,201 patients, an increase of 3% over the prior year.

If you exclude the three small programs we closed in the past year, our average daily census on a unit-per-unit basis increased 4.0%. Total admissions in the quarter were 16,157, an increase of 0.2%.

This low growth rate is distorted by the closing of the three small programs. On a unit-per-unit basis, admissions increased 1.7%.

Admissions continue to be driven from local efforts and events unique to the community. Local admissions have volatility, month-to-month and market-by-market.

This volatility tends to be smooth when you aggregate over a long enough time period and when we aggregate up on our national footprint. For example, Florida, our largest market by state had overall admissions growth in the quarter of 3.4%.

However, within the state of Florida, individual communities had admissions in the most recent quarter that range from an increase of 38.9% to a decline of 5.8%. California, our second largest market by state had its decline in admissions of 4.2%.

Within California, our established programs had admissions ranging from an increase of 16.1% to a decline of 23.4%. Although admissions have been soft in the first nine months of 2016, our recent admission trends have been positive and I anticipate this trend continuing on the coming quarters.

This improving trend is due to our focus on enhancing all aspects of our admissions infrastructure regarding people, processes and accountability. This approach combined with our continued healthy referral trends will help to ensure we are admitting appropriate hospice patients in a timely, efficient manner.

In addition, we have been awarded the CON [ph] license to service four counties in the Northwest Florida, Panhandle and plan to begin servicing patients there in early 2017. During the quarter, unit-per-unit admissions generated from hospital referrals which typically represents over 50% of our admissions increased 1.0%, home-based referrals increased 4.2%, nursing home admissions improved 1.7% and assisted living facility admissions declined 1.3%.

Our per patient per day ancillary costs which includes durable medical equipment, supplies and pharmaceutical costs averaged $16.30 and are 1.1% above the cost of these items in the prior year quarter. Margins in our high acuity care were particularly challenging in the quarter.

High acuity care is a combination of inpatient and continuous care. Although the reimbursement for high acuity is high, relative to routine homecare, the cost associated with providing this care typically results in low margins.

As we previously mentioned, in the third quarter, there were restructuring and process improvement efforts which had costs that resulted in a temporary margin decline with both inpatient and continuous care. Our inpatient care currently consist of 32 dedicated units as well as our contract debts.

We are in the process of realigning this capacity, so our inpatient facilities are appropriately positioned to meet the needs of our patients in every community we operate. This process involves reviewing all of our inpatient contractual arrangements and renegotiating, expanding or exiting some of these relationships.

This realignment process has triggered some expenses resulting in a normally low margin in the quarter. We anticipate our inpatient restructuring will be completed by the end of this year, resulting in improving margins in the fourth quarter and a return to more historical inpatient margin levels in 2017.

Within continuous care, we went through some restructuring efforts to realign our supporting infrastructure to our current and projected needs. We have also enhanced our focus on the labor management of continuous care related to appropriate nursing to aid staffing assignments and appropriate utilization of outside nursing agencies based upon the patient's locations and individual needs.

These efforts have resulted in a temporary continuous care margin decline in the quarter. We anticipate margins improving in the fourth quarter and returning to historical operating margins in 2017.

VITAS' average length of stay in the quarter was 87.8 days, which compares to the 78.6 days in the prior year quarter. Medium length of stay was 16 days in the quarter and is equal to the prior year quarter.

Medium length of stay is a key indicator of our penetration into the high acuity sector of the market. With that, I'd like to turn this call back over to Kevin.

Thank you, Mick. I will now open this teleconference to questions.

Good morning, everyone.

Good morning.

Kevin, I have three questions for you. Is the outcome of the election of interest to VITAS in the hospice industry, does it not matter which party is in control from November?

I would guess that doesn't matter. If I look at over the years we've been associated with this business, it's all over the board and some of the biggest supporters in Congress are democrats.

Republicans have been generally supportive, but it was during a republic administration that the budget neutrality factor was put together. It's hard to say.

A lot of support is for hospice on both sides of the isle. Again, the hospice is a bit of an outlier on the healthcare system in general.

The biggest issue is again, in my limited capacity, to comment, to be a commentator, I'd say to the extent that if you want to look at democrats having wanting to nationalize the policy for Medical Care Republicans are going the other direction. But we're in an industry that's already been nationalized; 97% of our businesses with the government.

We're talking about Medicaid or Medicare, so it's fair to say no impact on us.

Okay. Secondly, there was a drop in net expenses related to the OIG investigation.

Does that simply reflect the ebbs and flow of spending or are there any implications we can draw from that? And can you give us a current status update on that investigation to the extent that you can?

Yes, ebb and flow. The discovery period has closed.

You can imagine when the discovery period was ranging with depositions all over the country, expenses were very high. We're now in the state where technically it's the need of preparation for and doing the mediation stage, which is required in this type of litigation.

Just so you know, there's another straight element to it and is largely under wraps. We're not supposed to comment, the government is not supposed to comment during this stage, but it's very preliminary to the extent that we're having those discussions -- I mean -- just talk about we're having discussions about scheduling, those type of meetings, that's why it's relatively quiet.

If you ask me as an observer, you're probably familiar with the Sorica [ph] case that's going to the briefing stage. And there is a lot of Amicus [ph] brief's thing filed by the AMA saying the government's position is unfair, the doctors in general after they see that.

But again, it's a case that we continue to think very seriously. The government does not take these matters lightly and frankly, generally speaking, I mean we expect the government to look out for the citizen's [ph].

It's just -- so we would have -- it's kind of tough, we'd be in a tough industry because we're a big company, a public company looking to deal with the government fairly. We wouldn't like it if everyone read rug-shot [ph] over the government and it was a very tough competitor for us doing things that we would never consider doing ourselves.

Generally speaking, the government enforcement law is not something to see as a bad thing. We're caught in the midst of troubling matters; I personally think someone will approve [ph] VITAS, but that is very preliminary.

Okay. And then finally, what is your current view of the water restoration business?

Where do you view it in terms of approaching maturation across the U.S.? I know it can be a lumpy business, but how do you think about that business today, given how rapid the growth has been.

Well, I'll put it this way. You put your finger on one target and that is we went to the stage where we were making it available in each of our operations.

That is now available everywhere. There is still profound variation as far as how well taken old in various segments of the country and that, I believe those are temporary.

I think it's going to become more predictable. I internally characterize it as a program that we intentionally dealt with it, kind of ready-fire-aim in many respects because it was so dynamic that we wanted to get it out and we haven't really established towards that affection of best practices, method of applying the service.

We're getting now and recently at a meeting, a group I said, I asked a question -- 'how high is up?' And the considered response was at this point, too early to tell.

So that's what they were telling me and I wouldn't tell you too much different other than we're refining the service. I would say the biggest limitation of the businesses where still we get -- the good is we're getting all the leads from our own plumbers and drain cleaners.

We get virtually no business over the transom at the totally different business, which I think we're still always away from tracking the code on that type of business, but I think from the people who are closer to it, they still see an upside to it. But keep in mind, the geographic element is handled at this point.

We are offering in all our programs.

Thank you very much.

Thanks and thank you for taking the question. I guess this is for Mick.

Just wondering, could you dive in a little bit more on your admissions trend? We could join to bring it back to a better pace and then trying to understand where there is so much community-by-community?

Thanks.

Sounds good. I'll take the first part of that -- I'll take it in order, Bill.

That sounds good. From a macro perspective, something we've always focused on and are always improving are evaluating every step in the process related to when we received the referral, to the point in which we're deploying personnel to educate the patient or family and ultimately admit appropriate patients on the service.

As we break all of those pieces down, speed of response of course has always been and is continuing to be a more important element to all of our referral sources, as well as patients and families. We have works under the covers to methodically break that down, provide tools and transparency to our program managers that help allow us to look at recent trends and align staffing hours and models and speed of response capabilities.

We've also enhanced our personnel with mobile infrastructure. It really helps to improve performance overall.

So from a macro perspective, it's really giving back to the comments that we made earlier, it's people, it's processes and it's governance and accountability, and we're very comfortable with the steps we're taking, the steps we're going to take and just continuing to improve our overall performance at a macro basis. As it relates to the individual volatility on market-by-market basis, there are a lot of factors that you can imagine that impact that.

Some of them are people and personnel, some of them are month-to-month variances and some of them may be the actual capacity if you start looking at hospitals -- that's an example. Much of it has to do with some of the larger referring institutions and how their business is doing -- whether their beds are full, whether they're at capacity.

This is not a new trend necessarily. There is discreet volatility on a market-by-market basis, sometimes on a month-to-month trend.

But typically what we're always looking at is just improving that incrementally on a month-to-month basis and have found that as we manage it on an account-by-account level, the results tend to really flat line and directionally improve in positive manner month-over-month.

So you all were calling out the volatility currently as something if it's thousand norms? This is just the way it is market-by-market?

That's correct, Bill.

I would say the classic. If a very important salesperson leaves or particularly effective admitting there is leaves in one program -- a smaller program; it can happen bigger -- it can have that impact because it's the people business.

I wanted to go into the first part of the question, I also want to say that in understanding the admissions trends -- we've been so far this year, it's important to understand what I think -- what I think would cause a deviation from the historical trend; and again, from my perspective, what I would say is -- and looking at it, the shortfall has skewed short-term. So what has happened in the -- in our efforts to admit short-term patients and I would say that we haven't done things differently.

I don't think that we continue to do our level-best in getting them. We've always been for a variety of reasons actively pursuing patients that were very likely to have a very short stay and probably be unprofitable.

We did that for a number of reasons to demonstrate our professionalism, to indicate to the referral sources that -- again, we may be a for-profit company, but that's our effective view of what we're trying to do in the field, which is probably better service than our competitors. But what we saw generally first was the government further incentivized other hospices to go after these unprofitable patients by holding out the hope of profitability was significantly reimbursement increase.

So one way to look at it is, we -- at that point, we were doing our level best to get those patients. All of a sudden, other hospices started trying harder and that is maybe speeding up their effort to see those patients.

That was the change we saw and what Mick is really suggesting is well, if the other hospices are trying harder, we have to reexamine some of our efforts in that regard. I will use the sports analogies of we were giving 105% before, now we have to do 110%.

You get the idea. Historically, it's understandable.

It's not something that was immediate concern for us because over the short-term, probably 95% or higher of the patients we're talking about were going to be very short stay and breakeven at best. The problem is over time, the 4% to 5% of those patients that defy the odds, that haven't come back and become well and long average or long stay patients, those accumulate over time and that's what you're losing out on.

We have every confidence that the historic, we're already approaching that, but we're fairly confident our historical levels of growth that is supplied by admitting growth will return in 2017.

That's right. Bill, the one last item from an enterprise perspective, just to reiterate to Kevin's comment is, in certain markets where we would see a more significant pickup month-to-month, quarter-by-quarter, in many instances as you're aware and everybody else on this call, a lot of the healthcare systems are continuing to consolidate.

We like to really drive an advantage in which we have inside the industry, which is our infrastructure cost and our overall scale and ability to provide all levels of care to those referring institutions -- not only through routine homecare, but through the high acuity service lines as well -- which is more advantageous of course for those patients and families, as well as the overall system. It has allowed us to have a differentiating advantage in those markets and we see that trend continually and are very comfortable with our forecasted guidance of this month.

Thanks for that. Just one more.

Just stepping back a little bit and thinking about to go forward growth potential for VITAS and assuming Medicare keeps things the way they are after the rebasing and assuming you get your permissions growth to a level you want -- how should investors think about ongoing growth outlook for VITAS at the top-line starting next year?

You look it up in a few components and they're largely additive. Growth for VITAS can be based upon three things: the price increase for the federal government, which we actually have that, the national rate is up about 2% and our rate is going to be roughly equivalent; then there's the turnaround and you're going to look at your growth in admissions, which we really think are going to be up 2% to 4% -- so let's call it 3%.

Now this is just a sustainable rate over multiple years. So again 2% price increase -- 2% to 4%, let's call that 3%; and then the third area that impacts our broad growth is length of stay.

When you get an admission, admission is very typically staying a couple of days longer on average on the base of let's call it 80-ish days. You had to post three and you're really talking about mid to upper single-digit growth in revenue is sustainable.

The issue we actually don't have is -- that's the revenue growth. Let's call it somewhere between -- to be conservative, 68%.

But the other issue we're also wrestling with is if price increases get from the federal government, by design is lagging the inflation and the care model, and we have to make up for it in terms of we have a modest amount of infrastructure cost -- about $80 million to $85 million a year, HRIT, accounting, those type of things -- we can actually hold those in check and there's other bedside cost that are fixed or step-variable. Long story short is mid-to-upper single digits in revenue growth.

We anticipate long-term of slight degradation in the gross profit margin and we're going to try to offset that with efficiency in bedside care to try to maintain margins, but long-term, you have to anticipate a slight erosion of margins, but we anticipate the patient where caring for is growing at a faster rate. So that increases the overall bucket of profitability.

I got it. That's good.

Thanks very much.

Okay. I think that completes the questions in the queue.

I want to thank everyone for your attention and we look forward to a little more than three months from now reporting on the year-end results and that time we give guidance for the following year. Thanks very much.