Chemed Reports First-Quarter 2023 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 first quarter ended March 31, 2023, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 5.6% to $560 million
• GAAP Diluted Earnings-per-Share (EPS) of $3.58
• Adjusted Diluted EPS of $4.82, an increase of 0.6%

VITAS segment operating results:

• Net Patient Revenue of $310 million, an increase of 3.8%
• Average Daily Census (ADC) of 17,830, an increase of 3.0%
• Admissions of 16,179, a decline of 2.1%
• Net Income, excluding certain discrete items, of $32.9 million, a decline of 10.5%
• Adjusted EBITDA, excluding Medicare Cap, of $47.2 million, a decline of 10.1%
• Adjusted EBITDA margin, excluding Medicare Cap, of 15.1%, a decrease of 234-basis points

Roto-Rooter segment operating results:

• Revenue of $250 million, an increase of 7.9%
• Net Income, excluding certain discrete items, of $50.7 million, an increase of 9.3%
• Adjusted EBITDA of $71.8 million, an increase of 9.0%
• Adjusted EBITDA margin of 28.8%, an increase of 29-basis points

VITAS

VITAS net revenue was $310 million in the first quarter of 2023, which is an increase of 3.8% when compared to the prior year period. This revenue increase is comprised primarily of a 3.0% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.9%, partially offset by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic in 2020. Acuity mix shift had minimal impact 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 10-basis points.

In the first quarter of 2023, VITAS accrued $2.75 million in Medicare Cap billing limitations. This compares to a $2.5 million Medicare Cap billing limitation in the first quarter of 2022.

Of VITAS’ 30 Medicare provider numbers, 25 provider numbers have a trailing six-month Medicare Cap cushion of 10% or greater, one provider number has a cushion between 5% and 10%, one provider number has a cushion between 0% and 5% and three provider numbers have a trailing six-month billing limitation liability.

Average revenue per patient per day in the first quarter of 2023 was $198.86 which is 100-basis points above the prior-year period. Reimbursement for routine home care and high acuity care averaged $173.39 and $1,042.06 respectively. During the quarter, high acuity days-of-care were 2.9% of total days of care, essentially equal to the prior-year quarter.

The first quarter 2023 gross margin, excluding Medicare Cap and the hiring and retention bonus program, was 22.5%. This is a 220-basis point margin decline when compared to the first quarter of 2022. The majority of this margin decline is the result of CMS reimplementing sequestration which reduced gross margins 200-basis points. During the quarter, VITAS increased the licensed healthcare staff by 200 professionals. This results in total licensed staff increasing by 475 professionals since the inception of the retention program on July 1, 2022. The increase of 200 professionals hired during the first quarter of 2023 is estimated to have negatively impacted margins in the quarter by approximately 50-basis points.

Selling, general and administrative expenses were $23.3 million in the first quarter of 2023 and compares to $22.5 million incurred in the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $47.2 million in the quarter, a decrease of 10.1%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 15.1%, which is 234-basis points below the prior-year period. This Adjusted EBITDA margin was negatively impacted by 200-basis points for the reimplementation of sequestration and approximately 50-basis points due to the addition of 200 licensed professionals during the first quarter of 2023.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $250 million in the first quarter of 2023, an increase of 7.9%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $59.9 million, an increase of 10.1%, over the prior year. This aggregate commercial revenue growth consisted of drain cleaning revenue increasing 4.0%, plumbing increasing 10.7%, excavation increasing 26.2%, and water restoration increasing 7.4%.

Roto-Rooter branch residential revenue in the quarter totaled $169 million, an increase of 7.5%, over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning decreasing 2.9%, plumbing expanding 3.6%, excavation expanding 3.9%, and water restoration increasing 27.4%.

Roto-Rooter’s gross margin in the quarter was 53.1%, a 37-basis point increase when compared to the first quarter of 2022. Adjusted EBITDA in the first quarter of 2023 totaled $71.8 million, an increase of 9.0%. The Adjusted EBITDA margin in the quarter was 28.8%, which is a 29-basis point improvement when compared to the prior year.

Chemed Consolidated

As of March 31, 2023, Chemed had total cash and cash equivalents of $58.1 million and $21.3 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 consisted 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. During the quarter, the Company paid off the majority of the term loan, with $21.3 million remaining as of March 31, 2023. The Company has approximately $405 million of undrawn borrowing capacity under the revolving portion of the credit agreement.

Guidance for 2023

Management anticipates providing updated 2023 earnings guidance as part of the June 30, 2023, earnings press release.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday April 27, 2023, 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/j92nc5np.

Participants may also register via teleconference at:

https://register.vevent.com/register/BI022164faf96b4f54a3fa9a29dc1a2511. 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 17,800 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.

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