Chemed Reports Second-Quarter 2022 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 second quarter ended June 30, 2022, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue declined 0.2% to $531 million
• GAAP Diluted Earnings-per-Share (EPS) of $4.40, an increase of 25.4%
• Adjusted Diluted EPS of $4.84, an increase of 5.2%

VITAS segment operating results:

• Net Patient Revenue of $298 million, a decline of 4.5%
• Average Daily Census (ADC) of 17,315, a decline of 3.8%
• Admissions of 14,735, a decline of 12.5%
• Net Income, excluding certain discrete items, of $35.3 million, a decline of 10.4%
• Adjusted EBITDA, excluding Medicare Cap, of $50.0 million, a decline of 8.8%
• Adjusted EBITDA margin, excluding Medicare Cap, of 16.7%, a decrease of 78-basis points

Roto-Rooter segment operating results:

• Revenue of $233 million, an increase of 6.0%
• Net Income, excluding certain discrete items, of $48.8 million, an increase of 8.8%
• Adjusted EBITDA of $69.0 million, an increase of 7.4%
• Adjusted EBITDA margin of 29.6%, an increase of 39-basis points

VITAS

VITAS net revenue was $298 million in the second quarter of 2022, which is a decline of 4.5%, when compared to the prior-year period. This revenue decline is comprised primarily of a 3.8% decline in days-of-care partially offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%. Acuity mix shift had a net impact of reducing revenue approximately $5.2 million, or 1.6%, 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 reduced the revenue decline by approximately 10-basis points.

In the second quarter of 2022, VITAS accrued $2.0 million in Medicare Cap billing limitations. This is equal to the Medicare Cap billing limitation in the second quarter of 2021.

Of VITAS’ 30 Medicare provider numbers, 27 provider numbers have a Medicare Cap cushion of 10% or greater, one provider number has a cushion between 5% and 10%, and two provider numbers have an estimated fiscal 2022 Medicare Cap billing limitation liability.

Average revenue per patient per day in the second quarter of 2022 was $193.57 which, including acuity mix shift, is 84-basis points below the prior-year period. Reimbursement for routine home care and high acuity care averaged $170.29 and $1,004.55, respectively. During the quarter, high acuity days-of-care were 2.8% of total days of care, 40-basis points less than the prior-year quarter.

The second quarter 2022 gross margin, excluding Medicare Cap and increased costs directly related to operating during the pandemic, was 24.1%. This is a 61-basis point margin decline when compared to the second quarter of 2021.

Selling, general and administrative expense was $23.1 million in the second quarter of 2022 and compares to $22.6 million incurred in the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $50.0 million in the quarter, a decrease of 8.8%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 16.7%, which is 78-basis points below the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $233 million in the second quarter of 2022, an increase of $13.2 million, or 6.0%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $54.8 million, an increase of $3.8 million, or 7.5%, over the prior year. This aggregate commercial revenue growth consisted of drain cleaning revenue increasing 8.4%, plumbing increasing 10.4%, water restoration increasing 4.1%, and excavation increasing 4.2%.

Roto-Rooter branch residential revenue in the quarter totaled $159 million, an increase of $7.6 million, or 5.0%, over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning remaining essentially equal to the prior year quarter, plumbing expanding 9.3%, excavation declining 0.1%, and water restoration increasing 14.0%.

Roto-Rooter’s gross margin in the quarter was 53.2%, a 6-basis point decline when compared to the second quarter of 2021. Adjusted EBITDA in the second quarter of 2022 totaled $69.0 million, an increase of 7.4%. The Adjusted EBITDA margin in the quarter was 29.6%, which is a 39-basis point improvement when compared to the prior year.

Chemed Consolidated

As of June 30, 2022, Chemed had total cash and cash equivalents of $9.6 million and $117 million of current and long-term debt.

In June 2022, Chemed entered into a five-year $550 million Amended and Restated Credit Agreement (Credit Agreement). This Credit Agreement consists of a $100 million amortizable term loan and a $450 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently SOFR plus 100-basis points. On June 30, 2022, the Company had approximately $387 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 100,000 shares of Chemed stock for $49.9 million which equates to a cost per share of $498.61. As of June 30, 2022, there was approximately $125 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time, Chemed has repurchased approximately 15.9 million shares, aggregating approximately $2.0 billion at an average share cost of $128.76. Including dividends over this period, Chemed has returned approximately $2.3 billion to shareholders.

Guidance for 2022

Historically, Chemed earnings guidance has been developed using previous periods’ key operating metrics which are then modeled and projected out for future periods. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. This modeling exercise also takes into consideration anticipated industry and macro-economic issues outside of management’s control but are somewhat predictable in terms of timing and impact on our business segments’ operating results.

The COVID-19 pandemic, uncertainty regarding forward looking inflation, and a potential economic recession, has made accurate modeling and providing meaningful earnings guidance exceptionally challenging. Since the start of the pandemic, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue earnings guidance for the remainder of the 2022 calendar year. However, this guidance should be taken with the recognition the above macro issues could materially impact the company’s ability to achieve this guidance.

Based upon the above discussion, VITAS 2022 revenue, prior to Medicare Cap, is estimated to decline 4.5% to 5.0% when compared to 2021. A portion of the estimated revenue reduction, approximately $15 million, is the result of the phase out of sequestration relief over the first half of 2022 compared to a full year of sequestration relief in 2021. ADC is estimated to decline 3.5%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 17.0% to 17.2%. We are currently estimating $10 million for Medicare Cap billing limitations in calendar year 2022.

Roto-Rooter is forecasted to achieve full-year 2022 revenue growth of 5.5% to 5.7%. Roto-Rooter’s adjusted EBITDA margin for 2022 is expected to be 29.2% to 29.5%.

Based upon the above, full-year 2022 earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $19.30 to $19.50. This compares to our previous 2022 adjusted earnings per share guidance of $19.10 to $19.50. Current 2022 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1% and a diluted share count of 15.12 million shares. Chemed’s 2021 reported adjusted earnings per diluted share was $19.33.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, July 28, 2022, to discuss the company's quarterly results and to provide an update on its business. Participants may access a live webcast of the conference call through the investor relations section of Chemed’s website, Investor Relations Home | Chemed Corporation or the hosting website https://edge.media-server.com/mmc/p/z8752xj3.

Participants may also register via teleconference at: https://register.vevent.com/register/BIb15c9a69666f4f3f8c4010ce89314068. Once registration is completed, participants will be provided with a dial-in number containing a personalized conference code to access the call. All participants are instructed to dial-in 15 minutes prior to the start time.

A taped replay of the conference call will be available beginning approximately two hours after the call's conclusion. You may access the replay via webcast through the investors relations section of Chemed’s website.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 17,300 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.