Chemed Reports Fourth-Quarter 2020 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, 2020, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 2.1% to $533 million
• GAAP Diluted Earnings-per-Share (EPS) of $6.96, an increase of 75.8%
• Adjusted Diluted EPS of $5.13, an increase of 21.6%

VITAS segment operating results:

• Net Patient Revenue of $332 million, a decline of 2.3%
• Average Daily Census (ADC) of 18,718, a decline of 2.8%
• Admissions of 17,960 an increase of 2.8%
• Net Income, excluding certain discrete items, of $58.1 million, an increase of 16.0%
• Adjusted EBITDA, excluding Medicare Cap, of $78.7 million, an increase of 11.7%
• Adjusted EBITDA margin, excluding Medicare Cap, of 23.5%, an increase of 306-basis points

Roto-Rooter segment operating results:

• Revenue of $201 million, an increase of 10.2%
• Net Income, excluding certain discrete items, of $37.9 million, an increase of 24.6%
• Adjusted EBITDA of $54.5 million, an increase of 24.7%
• Adjusted EBITDA margin of 27.1%, an increase of 313-basis points

VITAS

VITAS net revenue was $332 million in the fourth quarter of 2020, which is a decline of 2.3%, when compared to the prior-year period. This revenue decline is comprised primarily of a 2.8% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 2.4%, and acuity mix shift which then reduced the blended average Medicare rate increase approximately 255-basis points. The combination of lower Medicare Cap and a decrease in Medicaid net room and board pass-through, increased revenue growth an additional 64-basis points in the quarter.

In the fourth quarter of 2020, VITAS accrued $2.5 million in Medicare Cap billing limitations. This compares to a $4.5 million Medicare Cap billing limitation in the fourth quarter of 2019.

Of VITAS’ 30 Medicare provider numbers, 23 provider numbers currently have a Medicare Cap cushion of 10% or greater, four provider numbers have a cap cushion between 5% and 10%, one provider number has a cap cushion between 0% and 5% and two provider numbers currently have a fiscal 2021 Medicare Cap billing limitation liability.

Average revenue per patient per day in the fourth quarter of 2020 was $198.33, which, including acuity mix shift, is 7-basis points below the prior-year period. Reimbursement for routine home care and high acuity care averaged $169.83 and $997.37, respectively. During the quarter, high acuity days-of-care were 3.4% of total days of care, 62-basis points less than the prior-year quarter.

The fourth quarter 2020 gross margin, excluding Medicare Cap, increased costs for personal protection equipment (PPE), disinfecting facilities and other costs related to operating during the pandemic, was 29.9%. This is a 357-basis point margin improvement when compared to the fourth quarter of 2019. This increase in gross margin is attributed to a level-of-care mix shift to higher margin routine home care and the temporary suspension of sequestration which increased reimbursement 200-basis points.

Selling, general and administrative expense was $20.3 million in the fourth quarter of 2020, which is a favorable decrease of 4.0% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $78.7 million in the quarter, an increase of 11.7%. Adjusted EBITDA margin, excluding Medicare Cap, was 23.5% in the quarter, which is a 306-basis point improvement when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $201 million in the fourth quarter of 2020, an increase of $18.7 million, or 10.2%, over the prior-year quarter. On a unit-for-unit basis, which excludes the Oakland and HSW acquisitions completed in July 2019 and September 2019, respectively, Roto-Rooter generated quarterly revenue of $183 million for the fourth quarter of 2020, an increase of 12.8% over the prior-year quarter.

Total commercial revenue in the quarter, excluding acquisitions, decreased 9.8%. This aggregate commercial revenue decline consisted of drain cleaning revenue declining 11.6%, commercial plumbing and excavation declining 8.9%, and commercial water restoration increasing 1.0%.

Total residential revenue, excluding acquisitions, increased 20.8%. This aggregate residential revenue growth consisted of residential drain cleaning increasing 17.1%, plumbing and excavation expanding 25.5%, and residential water restoration increasing 16.8%.

Roto-Rooter’s gross margin in the quarter was 51.6%, a 301-basis point increase when compared to the fourth quarter of 2019. Adjusted EBITDA in the fourth quarter of 2020 totaled $54.5 million, an increase of 24.7%. The Adjusted EBITDA margin in the quarter was 27.1% which is a 313-basis point increase when compared to the prior year.

Chemed Consolidated

As of December 31, 2020, Chemed had total cash and cash equivalents of $163 million and no long-term debt.

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, 2020, the Company had approximately $412 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 59,252 shares of Chemed stock for $28.5 million which equates to a cost per share of $480.52. As of December 31, 2020, there was approximately $178 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time, Chemed has repurchased approximately 14.5 million shares, aggregating approximately $1.4 billion at an average share cost of $95.75. Including dividends over this period, Chemed has returned approximately $1.6 billion to shareholders.

Guidance for 2021

Historically, Chemed earnings guidance has been developed using previous years’ key operating metrics which are then modeled and projected out for the calendar year. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. Once we complete this phase of our projected operating results, we would then modify the projections for the timing of price increases, changes in commission structure, wages, marketing programs and a variety of continuous improvement initiatives that our business segments plan on executing over the coming year. 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 has made accurate modeling and providing meaningful earnings guidance exceptionally challenging. Federal, state and local government authorities are forced to make swift decisions within our healthcare system, labor pools and general economy. These governmental decisions have the potential for an immediate and material impact on VITAS and Roto-Rooter operating results.

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 2021 calendar year. However, this guidance should be taken with the recognition the pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact our ability to achieve this guidance.

Statistically, patients residing in senior housing are identified as hospice appropriate earlier into their terminal prognosis and have a much greater probability of having a length of stay in excess of 90 days. Hospice patients referred from hospitals, oncology practices and similar referral sources are generally more acute and have a significantly lower probability of lengths-of-stay exceeding 90 days. According to data released by the National Investment Center for Seniors Housing & Care, COVID-19 continues to adversely affect senior housing occupancy, which reached another record low in the third quarter of 2020. This reduced occupancy in senior housing has had a corresponding reduction in VITAS nursing home admissions. Nursing home patients represented 14.7% of the VITAS fourth quarter 2020 patient census, a 310-basis point reduction when compared the fourth quarter of 2019.

VITAS anticipates continued weak occupancy and corresponding weak referrals from senior housing for the first half of 2021. This guidance anticipates senior housing occupancy will begin to normalize to pre-pandemic occupancy starting in the second half of calendar year 2021.

Based upon the above discussion, VITAS 2021 revenue, prior to Medicare Cap, is estimated to decline approximately 4.0% when compared to the prior year. Average Daily Census in 2021 is estimated to decline approximately 5.0%. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 19.4%. We are currently estimating $10 million for Medicare Cap billing limitations in calendar year 2021.

Roto-Rooter is forecasted to achieve full-year 2021 revenue growth of 5% to 6%. Roto-Rooter’s Adjusted EBITDA margin for 2021 is estimated to be 26.0%.

Based upon the above, full-year 2021 adjusted 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 $17.00 to $17.50. This 2021 guidance assumes an effective corporate tax rate on adjusted earnings of 24.7%. Chemed’s 2020 reported adjusted earnings per diluted share was $18.08.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Wednesday, February 24, 2021, 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 7865216. 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 7865216. 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.