Chemed Reports Third-Quarter 2022 Results - Increases 2022 Earnings Guidance

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 third quarter ended September 30, 2022, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue declined 2.3% to $526 million
• GAAP Diluted Earnings-per-Share (EPS) of $3.78
• Adjusted Diluted EPS of $4.74, a decline of 6.3%

VITAS segment operating results:

• Net Patient Revenue of $297 million, a decline of 6.6%
• Average Daily Census (ADC) of 17,242, a decline of 4.4%
• Admissions of 14,680, a decline of 16.6%
• Net Income, excluding certain discrete items, of $33.2 million, a decline of 25.9%
• Adjusted EBITDA, excluding Medicare Cap, of $45.4 million, a decline of 24.9%
• Adjusted EBITDA margin, excluding Medicare Cap, of 15.3%, a decrease of 375-basis points

Roto-Rooter segment operating results:

• Revenue of $230 million, an increase of 3.9%
• Net Income, excluding certain discrete items, of $49.3 million, an increase of 5.9%
• Adjusted EBITDA of $69.5 million, an increase of 5.7%
• Adjusted EBITDA margin of 30.2%, an increase of 50-basis points

VITAS

VITAS net revenue was $297 million in the third quarter of 2022, which is a decline of 6.6%, when compared to the prior-year period. This revenue decline is comprised primarily of a 4.4% reduction in days-of-care and a geographically weighted average Medicare reimbursement rate decrease of approximately 0.2%. Reimbursement rates in the quarter were negatively impacted by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately $5.3 million, or 1.7%, 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 negatively impacted revenue growth by 30-basis points.

In the third quarter of 2022, VITAS accrued $0.6 million in Medicare Cap billing limitations. This compares to a $0.1 million Medicare Cap billing limitation in the third quarter of 2021.

Of VITAS’ 30 Medicare provider numbers, 25 provider numbers have a Medicare Cap cushion of 10% or greater, two provider numbers have a cushion between 5% and 10%, one provider number has a cushion between 0% and 5%, and two provider numbers have an estimated fiscal 2022 Medicare Cap billing limitation liability.

Average revenue per patient per day in the third quarter of 2022 was $190.78 which, including acuity mix shift, is 193-basis points below the prior-year period. Reimbursement for routine home care and high acuity care averaged $168.20 and $990.67, respectively. During the quarter, high acuity days-of-care were 2.7% of total days of care, 41-basis points below the prior-year quarter.

The third quarter 2022 gross margin, excluding Medicare Cap, expenses related to VITAS’ 12-month hiring and retention program, and increased costs directly related to operating during the pandemic, was 22.5%. This is a 323-basis point margin decline when compared to the third quarter of 2021. Approximately 200-basis points of this decline is from Medicare reimplementing sequestration effective July 1, 2022. An additional 70-basis points of this margin decline is attributed to increased staffing and patient capacity from VITAS’ hiring and retention program.

Selling, general and administrative expense was $21.6 million in the third quarter of 2022 and compares to $21.4 million incurred in the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $45.4 million in the quarter, a decrease of 24.9%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 15.3%, which is 375-basis points below the prior-year period. This Adjusted EBITDA margin was also negatively impacted by 200-basis points for the reimplementation of sequestration and approximately 70-basis points due to increased staffing and patient capacity from VITAS’ hiring and retention program.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $230 million in the third quarter of 2022, an increase of 3.9%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $55.9 million, an increase of 6.9%, over the prior year. This aggregate commercial revenue growth consisted of drain cleaning revenue increasing 2.9%, plumbing increasing 11.6%, excavation increasing 9.8%, and water restoration increasing 6.7%.

Roto-Rooter branch residential revenue in the quarter totaled $155 million, an increase of 2.5%, over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning decreasing 2.9%, plumbing expanding 5.9%, excavation expanding 0.9%, and water restoration increasing 7.6%.

Roto-Rooter’s gross margin in the quarter was 53.4%, a 37-basis point increase when compared to the third quarter of 2021. Adjusted EBITDA in the third quarter of 2022 totaled $69.5 million, an increase of 5.7%. The Adjusted EBITDA margin in the quarter was 30.2%, which is a 50-basis point improvement when compared to the prior year.

Chemed Consolidated

As of September 30, 2022, Chemed had total cash and cash equivalents of $7.8 million and $101 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 September 30, 2022, the Company had approximately $401 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 50,000 shares of Chemed stock for $23.9 million which equates to a cost per share of $477.68. As of September 30, 2022, there was approximately $101 million of remaining share repurchase authorization under its plan.

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. This guidance should be taken with the recognition that 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 decline, approximately $15 million or 118-basis points, 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 3.4%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 17.1% to 17.2%. We are currently estimating $8.1 million for Medicare Cap billing limitations in calendar year 2022.

Roto-Rooter is forecasted to achieve full-year 2022 revenue growth of 6.2% to 6.5%. Roto-Rooter’s adjusted EBITDA margin for 2022 is expected to be 29.5% to 29.7%.

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, retention program for licensed healthcare employees, and other discrete items, is estimated to be in the range of $19.60 to $19.70. This compares to our previous 2022 adjusted earnings per share guidance of $19.30 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 Tuesday November 1, 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/8ovxyhbq.

Participants may also register via teleconference at:

https://register.vevent.com/register/BId400f56fad7a4877af359aca78465824. 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 investor 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.