Chemed Reports Third-Quarter 2021 Results - Full-Year 2021 Earnings Guidance Increased

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, 2021, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 2.0% to $539 million
• GAAP Diluted Earnings-per-Share (EPS) of $4.55, an increase of 9.9%
• Adjusted Diluted EPS of $5.06, an increase of 4.1%

VITAS segment operating results:

• Net Patient Revenue of $317 million, a decline of 5.8%
• Average Daily Census (ADC) of 18,034, a decline of 5.3%
• Admissions of 17,598, a decline of 1.9%
• Net Income, excluding certain discrete items, of $44.8 million, a decline of 18.7%
• Adjusted EBITDA, excluding Medicare Cap, of $60.4 million, a decline of 11.5%
• Adjusted EBITDA margin, excluding Medicare Cap, of 19.0%, a decrease of 146-basis points

Roto-Rooter segment operating results:

• Revenue of $221 million, an increase of 15.7%
• Net Income, excluding certain discrete items, of $46.6 million, an increase of 28.9%
• Adjusted EBITDA of $65.8 million, an increase of 27.1%
• Adjusted EBITDA margin of 29.7%, an increase of 266-basis points

VITAS

VITAS net revenue was $317 million in the third quarter of 2021, which is a decline of 5.8%, when compared to the prior-year period. This revenue decline is comprised primarily of a 5.3% decline in days-of-care partially offset by a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration) of approximately 1.2%. Acuity mix shift had a net impact of reducing revenue approximately $3.0 million, or 0.9%, 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 an additional 80-basis points.

In the third quarter of 2021, VITAS accrued $0.1 million in Medicare Cap billing limitations. This compares to a $4.1 million reversal of Medicare Cap billing limitation in the third quarter of 2020.

Of VITAS’ 30 Medicare provider numbers, 27 provider numbers currently have a Medicare Cap cushion of 10% or greater, one provider number has a cap cushion between 0% and 5% and two provider numbers have a fiscal 2021 Medicare Cap billing limitation liability.

Average revenue per patient per day in the third quarter of 2021 was $194.53, which, including acuity mix shift, is 22-basis points above the prior-year period. Reimbursement for routine home care and high acuity care averaged $168.88 and $983.43, respectively. During the quarter, high acuity days-of-care were 3.1% of total days of care, 28-basis points less than the prior-year quarter.

The third quarter 2021 gross margin, excluding Medicare Cap, increased costs for personal protection equipment (PPE), disinfecting facilities and other costs related to operating during the pandemic, was 25.8%. This is a 158-basis point margin decline when compared to the third quarter of 2020.

Selling, general and administrative expense was $21.4 million in the third quarter of 2021 and compares to $21.8 million incurred in the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $60.4 million in the quarter, a decrease of 11.5%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 19.0%, which is 146-basis points less than the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $221 million in the third quarter of 2021, an increase of $30.1 million, or 15.7%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $52.3 million, an increase of $4.7 million, or 10.0%, over the prior year. This aggregate commercial revenue growth consisted of drain cleaning revenue increasing 17.6%, plumbing increasing 9.3% and excavation declining 1.3%. Water restoration increased 9.4%.

Roto-Rooter branch residential revenue in the quarter totaled $151 million, an increase of $22.2 million, or 17.2%, over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning increasing 11.7%, plumbing expanding 17.4%, excavation increasing 14.1%, and water restoration increasing 28.0%.

Roto-Rooter’s gross margin in the quarter, excluding the impact from COVID, was 53.2%, a 95-basis point increase when compared to the third quarter of 2020. Adjusted EBITDA in the third quarter of 2021 totaled $65.8 million, an increase of 27.1%. The Adjusted EBITDA margin in the quarter was 29.7%, which is a 266-basis point improvement when compared to the prior year.

Chemed Consolidated

As of September 30, 2021, Chemed had total cash and cash equivalents of $29 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 September 30, 2021, the Company had approximately $404 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 350,000 shares of Chemed stock for $164 million which equates to a cost per share of $467.80. As of September 30, 2021, there was approximately $148 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time, Chemed has repurchased approximately 15.2 million shares, aggregating approximately $1.7 billion at an average share cost of $113.04. Including dividends over this period, Chemed has returned approximately $1.9 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. 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. 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 disrupt our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact the company’s 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. This reduced occupancy in senior housing has had a corresponding reduction in VITAS nursing home admissions. Nursing home patients represented 15.6% of VITAS’ third-quarter 2021 patient census. This compares to nursing home patients averaging 18.2% of total census just prior to the pandemic.

Based upon the above discussion, VITAS 2021 revenue, prior to Medicare Cap, is estimated to decline approximately 5% when compared to the prior year. Average Daily Census in 2021 is estimated to decline approximately 5.5%. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 18.8%. We are currently estimating $6.6 million for Medicare Cap billing limitations in calendar year 2021.

Roto-Rooter is forecasted to achieve full-year 2021 revenue growth of 17.3%. Roto-Rooter’s Adjusted EBITDA margin for 2021 is estimated to be between 28.5% to 29.0%.

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 $19.00 to $19.20. This compares to initial 2021 adjusted earnings per diluted share guidance of $17.00 to $17.50. This revised 2021 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1%. 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 Friday, October 29, 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 6082999. 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 6082999. 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 18,000 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.