Chemed Reports Fourth-Quarter 2019 Results

Chemed Corporation (Chemed) (NYSE: CHE), which operates VITAS Healthcare Corporation (VITAS), one of the nation’s largest providers of end-of-life care, and Roto-Rooter, the nation’s largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its fourth quarter ended December 31, 2019, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 14.2% to $522 million
• GAAP Diluted Earnings-per-Share (EPS) of $3.96, an increase of 21.5%
• Adjusted Diluted EPS of $4.22, an increase of 26.0%

VITAS segment operating results:

• Net Patient Revenue of $340 million, an increase of 10.7%
• Average Daily Census (ADC) of 19,258, an increase of 6.1%
• Admissions of 17,479, an increase of 5.4%
• Net Income, excluding certain discrete items, of $50.1 million, an increase of 24.5%
• Adjusted EBITDA, excluding Medicare Cap, of $70.5 million, an increase of 27.0%

Roto-Rooter segment operating results:

• Revenue of $182 million, an increase of 21.2%
• Net Income, excluding certain discrete items, of $30.5 million, an increase of 16.3%
• Adjusted EBITDA of $43.7 million, an increase of 20.9%
• Adjusted EBITDA margin of 24.0%, equal to the prior year

VITAS

VITAS net revenue was $340 million in the fourth quarter of 2019, which is an increase of 10.7%, when compared to the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 5.5%, a 6.1% increase in days-of-care and an increase in the Medicare Cap billing limitation that decreased revenue 0.3%. This growth was partially offset by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which negatively impacted revenue growth approximately 0.7%, when compared to the prior-year period.

In the fourth quarter of 2019, VITAS accrued $4.5 million in Medicare Cap billing limitations. This compares to the prior-year Medicare Cap billing limitation of $3.5 million.

VITAS currently has 30 Medicare provider numbers. On a 12-month trailing basis, 23 of these provider numbers have a Medicare Cap cushion of 10% or greater, three provider numbers have a cap cushion between 0% and 5%, and four provider numbers have a Medicare Cap billing limitation.

Average revenue per patient per day in the fourth quarter of 2019 was $198.48, which is 5.0% above the prior-year period. Reimbursement for routine home care and high acuity care averaged $164.62 and $996.82, respectively. During the quarter, high acuity days-of-care were 4.1% of total days of care, 11-basis points less than the prior-year quarter. This 11-basis point mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.5% to 5.0% in the quarter.

The fourth quarter 2019 gross margin, excluding Medicare Cap, was 26.3%, which is a 204-basis point margin improvement when compared to the fourth quarter of 2018.

Selling, general and administrative expense was $21.2 million in the fourth quarter of 2019, which is an increase of 3.9% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $70.5 million in the quarter, an increase of 27.0%. Adjusted EBITDA margin, excluding Medicare Cap, was 20.5% in the quarter, which is a 259-basis point margin improvement when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $182 million for the fourth quarter of 2019, an increase of $31.9 million, or 21.2%, over the prior-year quarter. On a unit for unit basis, which excludes the Oakland and HSW acquisitions completed in July and September 2019, respectively, Roto-Rooter generated quarterly revenue of $162 million for the fourth quarter of 2019, an increase of 7.9%, over the prior-year quarter.

Including acquisitions, total commercial revenue increased 26.4%. This aggregate commercial revenue growth consisted of drain cleaning revenue expanding 34.9%, commercial plumbing and excavation increasing 25.2%, and commercial water restoration declining 8.8%.

Excluding acquisitions, commercial drain cleaning revenue increased 7.1%, commercial plumbing and excavation declined 0.1%, and commercial water restoration declined 17.4%. Commercial water restoration represents approximately 10% of total water restoration service revenue. Overall, commercial revenue excluding acquisitions increased 1.2%.

Including acquisitions, total residential revenue increased 19.4%. This aggregate residential revenue growth consisted of residential drain cleaning increasing 25.5%, plumbing and excavation expanding 18.1%, and residential water restoration increasing 16.3%.

Excluding acquisitions, residential drain cleaning increased 10.1%, plumbing and excavation increased 7.4%, and residential water restoration increased 14.6%. Overall, residential sales excluding acquisitions increased 9.5%.

Roto-Rooter’s gross margin in the quarter was 48.6%, a 15-basis point decline when compared to the fourth quarter of 2018. Adjusted EBITDA in the fourth quarter of 2019 totaled $43.7 million, an increase of 20.9%. The Adjusted EBITDA margin in the quarter was 24.0% which is equivalent to the prior year.

Chemed Consolidated

As of December 31, 2019, Chemed had total cash and cash equivalents of $6.2 million and long-term debt of $90 million.

In June 2018, Chemed entered into a five-year Amended and Restated Credit Agreement that consists of a $450 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 100-basis points. At December 31, 2019, the Company had approximately $322 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 50,000 shares of Chemed stock for $20.7 million which equates to a cost per share of $414.11. As of December 31, 2019, there was approximately $104 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time Chemed has repurchased over 14.1 million shares, aggregating approximately $1.2 billion at an average share cost of $85.93. Including dividends over this period, Chemed has returned approximately $1.4 billion to shareholders.

Guidance for 2020

Revenue growth for VITAS in 2020, prior to Medicare Cap, is estimated to be in the range of 8.5% to 9.5%. Admissions and Average Daily Census in 2020 are estimated to expand approximately 3.5% to 4.5%. High acuity days-of-care are estimated at 4.1% of total 2020 days-of-care. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 18.7% to 19.0%. We are currently estimating $18 million for Medicare Cap billing limitations for calendar year 2020.

Roto-Rooter is forecasted to achieve full-year 2020 revenue growth of 13.0% to 14.0%. This revenue estimate is based upon unit for unit revenue growth of 4.0% to 5.0% in core plumbing and drain cleaning services, continued but slowing revenue growth from water restoration services, combined with 12-months of revenue in the Oakland and HSW acquisitions. Roto-Rooter’s Adjusted EBITDA margin for 2020 is estimated to be in the range of 23.0% to 23.5%.

Based upon the above, full-year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock options, costs related to litigation, intangible amortization of reacquired franchise rights and other discrete items, is estimated to be in the range of $16.20 to $16.50. This 2020 guidance assumes an effective corporate tax rate of 25.2%. Chemed’s 2019 reported adjusted earnings per diluted share was $13.96.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Wednesday, February 19, 2020, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (844) 743-2500 for U.S. and Canadian participants and +1 (661) 378-9533 for international participants. The Conference ID is 4939797. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (855) 859-2056 for U.S. and Canadian callers and +1 (404) 537-3406 for international callers and will be available for one week following the live call. The replay Conference ID is 4939797. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 19,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing, drain cleaning, and water cleanup services through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in the republics of Indonesia and Singapore, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed’s management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements.

These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed’s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed’s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.