Chemed Reports Fourth-Quarter 2017 Results
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Chemed Reports Fourth-Quarter 2017 Results

CINCINNATI--(BUSINESS WIRE)--Feb. 14, 2018-- Chemed Corporation (Chemed) (NYSE:CHE),which operates VITAS Healthcare Corporation (VITAS), the nation’s largest provider 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, 2017, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 6.2% to $428 million
  • GAAP Diluted Earnings-per-Share of $3.25, an increase of 67.5%
  • Adjusted Diluted EPS of $2.32, an increase of 10.5%

VITAS segment operating results:

  • Net Patient Revenue of $292 million, an increase of 2.8%
  • Average Daily Census (ADC) of 16,920, an increase of 4.7%
  • Admissions of 16,575, an increase of 4.3%
  • Net Income of $42.8 million, an increase of 62.2%
  • Adjusted EBITDA of $47.5 million, an increase of 2.7%

Roto-Rooter segment operating results:

  • Revenue of $136 million, an increase of 14.1%
  • Net Income of $25.6 million, an increase of 87.0%
  • Adjusted EBITDA of $31.1 million, an increase of 24.2%
  • Adjusted EBITDA margin of 22.8%, an increase of 185 basis points

VITAS

Net revenue for VITAS was $292 million in the fourth quarter of 2017, which is an increase of 2.8%, when compared to the prior-year period. This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%, a 4.7% increase in average daily census, offset by Medicare Cap which reduced revenue 0.9% and acuity mix shift which negatively impacted revenue 1.7%, when compared to the prior-year period.

In the fourth quarter of 2017, VITAS had a 24.3/75.7 RHC Days-of-Care ratio and generated approximately $1.3 million in SIA revenue. This compares to a fourth-quarter 2016 RHC Days-of-Care ratio of 24.2/75.8 and SIA revenue of $1.2 million.

VITAS recorded $2.4 million in Medicare Cap billing limitations for two programs in the quarter, all of which are related to the 2018 Medicare Cap billing period.

At December 31, 2017, VITAS had 30 Medicare provider numbers, two of which have an estimated 2018 Medicare Cap billing limitation.

Of VITAS’ 30 unique Medicare provider numbers, 25 provider numbers have a Medicare Cap cushion of 10% or greater, three provider numbers have a cap cushion between 5% and 10% and two provider numbers have a Medicare Cap liability on a trailing twelve-month period.

Average revenue per patient per day in the quarter was $189.33, which is 1.0% below the prior-year period. Routine home care reimbursement and high acuity care averaged $163.50 and $713.35, respectively. During the quarter, high acuity days of care were 4.7% of total days of care, 58 basis points less than the prior-year quarter.

The fourth quarter of 2017 gross margin, excluding Medicare Cap, was 24.5%, which is a 41-basis point improvement when compared to the fourth quarter of 2016.

Selling, general and administrative expense was $22.6 million in the fourth quarter of 2017, which is a decrease of 3.2% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $49.9 million in the quarter, an increase of 7.9%. Adjusted EBITDA margin, excluding Medicare Cap, was 16.9% in the quarter which is a 66 basis point improvement when compared to the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $136 million for the fourth quarter of 2017, an increase of $16.8 million, or 14.1%, over the prior-year quarter. Revenue from water restoration totaled $22.1 million, an increase of $8.4 million or, 61.7%, when compared to the prior-year quarter.

Roto-Rooter’s gross margin in the quarter was 49.3%, a 241 basis point improvement when compared to the fourth quarter of 2016. Adjusted EBITDA in the fourth quarter of 2017 totaled $31.1 million, an increase of 24.2%, and the Adjusted EBITDA margin was 22.8% in the quarter, 185 basis points higher than the prior year.

Chemed Consolidated

As of December 31, 2017, Chemed had total cash and cash equivalents of $11 million and debt of $101 million.

In June 2014, Chemed entered into a five-year Amended and Restated Credit Agreement that consisted of a $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 112.5 basis points. At December 31, 2017, the Company had approximately $288 million of undrawn borrowing capacity under this credit agreement.

The Company did not repurchase any shares of Chemed stock in the quarter. Chemed repurchased a total of 500,000 shares in 2017 for $95 million which equates to a cost per share of $189.28. As of December 31, 2017, there was $55.5 million of remaining share repurchase authorization under this plan.

Guidance for 2018

Revenue growth for VITAS in 2018, prior to Medicare Cap, is estimated to be in the range of 2.5% to 3.5%. Admissions and Average Daily Census in 2018 are estimated to expand approximately 3% to 4% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.4%. We are currently estimating $5.0 million for Medicare Cap billing limitations in the 2018 calendar year.

Roto-Rooter is forecasted to achieve full-year 2018 revenue growth of 4.0% to 5.0%. This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services. Adjusted EBITDA margin for 2018 is estimated at 22.3%.

Based upon the above, full-year 2018 adjusted earnings per diluted share, excluding non-cash expense for stock options, costs related to litigation, and other discrete items, is estimated to be in the range of $10.60 to $10.85. This compares to Chemed’s 2017 reported adjusted earnings per diluted share of $8.43. This 2018 guidance assumes an effective corporate tax rate of 25.7%.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, February 15, 2018, 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 participant passcode/Conference ID is 3768588. 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 3768588. 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 over 16,500 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 restoration 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.

     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)(unaudited)
           
Three Months Ended December 31, For the Years Ended December 31,
2017 2016 2017 2016
Service revenues and sales $ 428,357   $ 403,476   $ 1,666,724   $ 1,576,881  
Cost of services provided and goods sold 291,493 279,083 1,150,532 1,115,431
Selling, general and administrative expenses (aa) 71,621 62,526 276,652 243,572
Depreciation 8,943 8,660 35,488 34,279
Amortization 26 85 137 359
Other operating expenses   (258 )   -     90,880     4,491  
Total costs and expenses   371,825     350,354     1,553,689     1,398,132  
Income from operations 56,532 53,122 113,035 178,749
Interest expense (1,108 ) (884 ) (4,272 ) (3,715 )
Other income--net (bb)   2,715     87     8,154     2,020  
Income before income taxes 58,139 52,325 116,917 177,054
Income taxes   (3,587 )   (20,136 )   (18,740 )   (68,311 )
Net income $ 54,552   $ 32,189   $ 98,177   $ 108,743  
 
 
Earnings Per Share
Net income $ 3.40   $ 1.99   $ 6.11   $ 6.64  
Average number of shares outstanding   16,026     16,206     16,057     16,383  
 
Diluted Earnings Per Share
Net income $ 3.25   $ 1.94   $ 5.86   $ 6.48  
Average number of shares outstanding   16,776     16,598     16,742     16,789  
 
 
 
                             
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
 
Three Months Ended December 31, For the Years Ended December 31,
2017 2016 2017 2016
SG&A expenses before long-term incentive
compensation, expenses related to the O.I.G.
investigation and the impact of market value
adjustments related to deferred compensation
plans $ 66,821 $ 60,137 $ 258,034 $ 234,321
Market value adjustments related to
deferred compensation plans 2,811 205 8,430 2,061
Long-term incentive compensation 1,973 1,029 4,994 1,930
Expenses related to the O.I.G. investigation   16     1,155     5,194     5,260  
Total SG&A expenses $ 71,621   $ 62,526   $ 276,652   $ 243,572  
 
(bb) Other income--net comprises (in thousands):
Three Months Ended December 31,   For the Years Ended December 31,
2017 2016 2017 2016
Market value adjustments related to
deferred compensation plans $ 2,811 $ 205 $ 8,430 $ 2,061
Loss on disposal of property and equipment (226 ) (200 ) (707 ) (424 )
Interest income 131 82 427 383
Other   (1 )   -     4     -  
Total other income--net $ 2,715   $ 87   $ 8,154   $ 2,020  
 

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(in thousands)(unaudited)

           
December 31,
2017 2016
Assets
Current assets
Cash and cash equivalents $ 11,121 $ 15,310
Accounts receivable less allowances 113,651 132,021
Inventories 5,334 5,755
Prepaid income taxes 29,848 3,709
Prepaid expenses   16,092     13,105  
Total current assets 176,046 169,900
Investments of deferred compensation plans held in trust 62,067 54,389
Properties and equipment, at cost less accumulated depreciation 143,034 121,302
Identifiable intangible assets less accumulated amortization 54,865 55,065
Goodwill 476,887 472,366
Other assets   7,127     7,037  
Total Assets $ 920,026   $ 880,059  
 
Liabilities
Current liabilities
Accounts payable $ 48,372 $ 39,586
Current portion of long-term debt 10,000 8,750
Accrued insurance 46,968 47,960
Accrued compensation 62,933 53,979
Accrued legal 1,786 1,805
Other current liabilities   23,463     19,752  
Total current liabilities 193,522 171,832
Deferred income taxes 16,640 14,291
Long-term debt 91,200 100,000
Deferred compensation liabilities 61,800 54,288
Other liabilities   16,510     15,549  
Total Liabilities   379,672     355,960  
 
Stockholders' Equity
Capital stock 34,732 34,270
Paid-in capital 695,797 639,703
Retained earnings 1,038,955 958,149
Treasury stock, at cost (1,231,332 ) (1,110,536 )
Deferred compensation payable in Company stock   2,202     2,513  
Total Stockholders' Equity   540,354     524,099  
Total Liabilities and Stockholders' Equity $ 920,026   $ 880,059  
 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)(unaudited)
                 
For the Years Ended December 31,
2017 2016
Cash Flows from Operating Activities
Net income $ 98,177 $ 108,743
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 35,625 34,638
Provision for uncollectible accounts receivable 17,306 16,319
Stock option expense 10,485 8,330
Loss on sale of transportation equipment 5,266 -
Noncash long-term incentive compensation 3,774 1,301
Provision/(benefit) for deferred income taxes 2,407 (6,707 )
Amortization of restricted stock awards 1,231 1,855
Noncash directors' compensation 766 541
Amortization of debt issuance costs 516 519
Noncash early retirement expense - 1,747
Changes in operating assets and liabilities, excluding
amounts acquired in business combinations:
(Increase)/decrease in accounts receivable 1,072 (42,142 )
Decrease in inventories 421 559
Increase in prepaid expenses (2,987 ) (253 )
Increase in accounts payable and
other current liabilities

12,890

891
(Decrease)/increase in income taxes (26,104 ) 13,886
Increase in other assets (8,330 ) (5,224 )
Increase in other liabilities 8,561 7,105
Excess tax benefit on share-based compensation

-

 

(7,195 )
Other sources  

1,419

    480  
Net cash provided by operating activities   162,495     135,393  
Cash Flows from Investing Activities
Capital expenditures (64,300 ) (39,772 )
Business combinations, net of cash acquired (4,725 ) -
Other sources/(uses)   1,417     (90 )
Net cash used by investing activities   (67,608 )   (39,862 )
Cash Flows from Financing Activities
Proceeds from revolving line of credit 261,650 184,550
Payments on revolving line of credit (260,450 ) (159,550 )
Purchases of treasury stock (94,640 ) (102,313 )
Proceeds from exercise of stock options 27,092 8,421
Dividends paid (17,371 ) (16,439 )
Capital stock surrendered to pay taxes on stock-based compensation (14,223 ) (8,772 )
Payments on other long-term debt (8,750 ) (7,500 )
Decrease in cash overdrafts payable 6,700 (736 )
Excess tax benefit on share-based compensation

-

7,195
Other sources  

916

    196  
Net cash used by financing activities   (99,076 )   (94,948 )
(Decrease)/Increase in Cash and Cash Equivalents (4,189 ) 583
Cash and cash equivalents at beginning of year   15,310     14,727  
Cash and cash equivalents at end of period $ 11,121   $ 15,310  
 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016
(in thousands)(unaudited)
            Chemed
VITAS Roto-Rooter Corporate Consolidated
2017        

Service revenues and sales (a)

$ 292,283   $ 136,074   $ -   $ 428,357  
Cost of services provided and goods sold 222,497 68,996 - 291,493
Selling, general and administrative expenses (a) 22,607 35,330 13,684 71,621
Depreciation 4,568 4,344 31 8,943
Amortization - 26 - 26
Other operating expenses (a)   (5,524 )   -     5,266     (258 )
Total costs and expenses   244,148     108,696     18,981     371,825  
Income/(loss) from operations 48,135 27,378 (18,981 ) 56,532
Interest expense (27 ) (65 ) (1,016 ) (1,108 )
Intercompany interest income/(expense) 3,177 1,562 (4,739 ) -
Other income/(expense)—net   (31 )   (64 )   2,810     2,715  
Income/(loss) before income taxes 51,254 28,811 (21,926 ) 58,139
Income taxes (a)   (8,406 )   (3,228 )   8,047     (3,587 )
Net income/(loss) $ 42,848   $ 25,583   $ (13,879 ) $ 54,552  
 
2016        
Service revenues and sales (b) $ 284,186   $ 119,290   $ -   $ 403,476  
Cost of services provided and goods sold 215,722 63,361 - 279,083
Selling, general and administrative expenses (b) 23,354 30,922 8,250 62,526
Depreciation 4,690 3,838 132 8,660
Amortization   14     71     -     85  
Total costs and expenses   243,780     98,192     8,382     350,354  
Income/(loss) from operations 40,406 21,098 (8,382 ) 53,122
Interest expense (35 ) (68 ) (781 ) (884 )
Intercompany interest income/(expense) 2,130 981 (3,111 ) -
Other income/(expense)—net   (57 )   (60 )   204     87  
Income/(loss) before income taxes 42,444 21,951 (12,070 ) 52,325
Income taxes (b)   (16,023 )   (8,272 )   4,159     (20,136 )
Net income/(loss) $ 26,421   $ 13,679   $ (7,911 ) $ 32,189  

The "Footnotes to Financial Statements" are integral parts of this financial information.

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands)(unaudited)
           
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017        
Service revenues and sales (a) $ 1,148,260   $ 518,464   $ -   $ 1,666,724  
Cost of services provided and goods sold 886,062 264,470 - 1,150,532
Selling, general and administrative expenses (a) 95,215 136,248 45,189 276,652
Depreciation 18,616 16,667 205 35,488
Amortization 14 123 - 137
Other operating expenses (a)   85,614     -     5,266     90,880  
Total costs and expenses   1,085,521     417,508     50,660     1,553,689  
Income/(loss) from operations 62,739 100,956 (50,660 ) 113,035
Interest expense (188 ) (323 ) (3,761 ) (4,272 )
Intercompany interest income/(expense) 11,656 5,596 (17,252 ) -
Other income/(expense)—net   (126 )   (148 )   8,428     8,154  
Income/(loss) before income taxes 74,081 106,081 (63,245 ) 116,917
Income taxes (a)   (16,436 )   (32,782 )   30,478     (18,740 )
Net income/(loss) $ 57,645   $ 73,299   $ (32,767 ) $ 98,177  
 
2016        
Service revenues and sales (b) $ 1,123,317   $ 453,564   $ -   $ 1,576,881  
Cost of services provided and goods sold 878,092 237,339 - 1,115,431
Selling, general and administrative expenses (b) 92,550 118,812 32,210 243,572
Depreciation 19,035 14,698 546 34,279
Amortization 55 304 - 359
Other operating expenses (b)   4,491     -     -     4,491  
Total costs and expenses   994,223     371,153     32,756     1,398,132  
Income/(loss) from operations 129,094 82,411 (32,756 ) 178,749
Interest expense (211 ) (332 ) (3,172 ) (3,715 )
Intercompany interest income/(expense) 7,969 3,595 (11,564 ) -
Other income/(expense)—net   19     (62 )   2,063     2,020  
Income/(loss) before income taxes 136,871 85,612 (45,429 ) 177,054
Income taxes (b)   (51,910 )   (32,719 )   16,318     (68,311 )
Net income/(loss) $ 84,961   $ 52,893   $ (29,111 ) $ 108,743  

The "Footnotes to Financial Statements" are integral parts of this financial information.

       

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING SUMMARIES OF EBITDA

FOR THE THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016
(in thousands)(unaudited)
       
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017          
Net income/(loss) $ 42,848 $ 25,583 $ (13,879 ) $ 54,552
Add/(deduct):
Interest expense 27 65 1,016 1,108
Income taxes 8,406 3,228 (8,047 ) 3,587
Depreciation 4,568 4,344 31 8,943
Amortization -     26     -     26  
EBITDA 55,849 33,246 (20,879 ) 68,216
Add/(deduct):
Intercompany interest expense/(income) (3,177 ) (1,562 ) 4,739 -
Interest income (121 ) (10 ) - (131 )
Litigation settlement (5,524 ) - - (5,524 )
Loss on sale of transportation equipment - - 5,266 5,266
Medicare cap sequestration adjustment 342 - - 342
Expenses related to OIG investigation 16 - - 16
Amortization of stock awards 71 66 160 297
Advertising cost adjustment (c) - (664 ) - (664 )

Stock option expense

- - 2,747 2,747
Long-term incentive compensation   -     -     1,973     1,973  
Adjusted EBITDA $ 47,456   $ 31,076   $ (5,994 ) $ 72,538  
 
2016          
Net income/(loss) $ 26,421 $ 13,679 $ (7,911 ) $ 32,189
Add/(deduct):
Interest expense 35 68 781 884
Income taxes 16,023 8,272 (4,159 ) 20,136
Depreciation 4,690 3,838 132 8,660
Amortization 14     71     -     85  
EBITDA 47,183 25,928 (11,157 ) 61,954
Add/(deduct):
Intercompany interest expense/(income) (2,130 ) (981 ) 3,111 -
Interest income (69 ) (13 ) - (82 )
Expenses related to OIG investigation 1,155 - - 1,155
Amortization of stock awards 86 76 279 441
Advertising cost adjustment (c) - 20 - 20
Litigation settlement costs - 1 - 1

Stock option expense

- - 2,071 2,071
Long-term incentive compensation   -     -     1,029     1,029  
Adjusted EBITDA $ 46,225   $ 25,031   $ (4,667 ) $ 66,589  

The "Footnotes to Financial Statements" are integral parts of this financial information.

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING SUMMARIES OF EBITDA

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands)(unaudited)
       
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017          
Net income/(loss) $ 57,645 $ 73,299 $ (32,767 ) $ 98,177
Add/(deduct):
Interest expense 188 323 3,761 4,272
Income taxes 16,436 32,782 (30,478 ) 18,740
Depreciation 18,616 16,667 205 35,488
Amortization   14     123     -     137  
EBITDA 92,899 123,194 (59,279 ) 156,814
Add/(deduct):
Intercompany interest expense/(income) (11,656 ) (5,596 ) 17,252 -
Interest income (388 ) (39 ) - (427 )
Litigation settlement 84,476 213 - 84,689
Medicare cap sequestration adjustment 447 - - 447
Loss on sale of transportation equipment - - 5,266 5,266
Program closure expenses 1,138 - - 1,138
Expenses related to OIG investigation 5,194 - - 5,194
Amortization of stock awards 291 269 670 1,230
Advertising cost adjustment (c) - (1,371 ) - (1,371 )
Stock option expense - - 10,485 10,485
Long-term incentive compensation   -     -     4,994     4,994  
Adjusted EBITDA $ 172,401   $ 116,670   $ (20,612 ) $ 268,459  
 
2016          

 

Net income/(loss) $ 84,961 $ 52,893 $ (29,111 ) $ 108,743
Add/(deduct):
Interest expense 211 332 3,172 3,715
Income taxes 51,910 32,719 (16,318 ) 68,311
Depreciation 19,035 14,698 546 34,279
Amortization   55     304     -     359  
EBITDA 156,172 100,946 (41,711 ) 215,407
Add/(deduct):
Intercompany interest expense/(income) (7,969 ) (3,595 ) 11,564 -
Interest income (325 ) (58 ) - (383 )
Early retirement expenses 4,491 - - 4,491
Expenses related to OIG investigation 5,260 - - 5,260
Amortization of stock awards 387 307 1,161 1,855
Medicare cap sequestration adjustment 228 - - 228
Advertising cost adjustment (c) - (1,333 ) - (1,333 )
Net expenses related to litigation settlements 1,149 45 - 1,194
Long-term incentive compensation - - 1,930 1,930
Stock option expense   -     -     8,330     8,330  
Adjusted EBITDA $ 159,393   $ 96,312   $ (18,726 ) $ 236,979  

The "Footnotes to Financial Statements" are integral parts of this financial information.

     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
             
Three Months Ended December 31, For the Years Ended December 31,
2017 2016 2017 2016
Net income as reported $ 54,552 $ 32,189 $ 98,177 $ 108,743
 
Add/(deduct) after-tax cost of:
Excess tax benefits on stock compensation (10,811 ) - (18,932 ) -
Impact of tax reform (8,302 ) - (8,302 ) -
Litigation settlement (3,425 ) - 52,504 -
Loss on sale of transportation equipment 3,314 - 3,314 -
Stock option expense 2,000 1,308 6,892 5,266
Long-term incentive compensation 1,332 651 3,243 1,221
Expenses of OIG investigation 9 713 3,207 3,248
Program closure expenses - - 675 -
Expenses related to litigation settlements - 1 - 28
Medicare cap sequestration adjustments 211 - 276 141
Early retirement expenses   -     -   -     2,840
Adjusted net income $ 38,880   $ 34,862 $ 141,054   $ 121,487
 
 
Diluted Earnings Per Share As Reported
Net income $ 3.25   $ 1.94 $ 5.86   $ 6.48
Average number of shares outstanding   16,776     16,598   16,742     16,789
 
 
Adjusted Diluted Earnings Per Share
Adjusted net income $ 2.32   $ 2.10 $ 8.43   $ 7.24
Average number of shares outstanding   16,776     16,598   16,742     16,789

The "Footnotes to Financial Statements" are integral parts of this financial information.

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
           
Three Months Ended December 31, For the Years Ended December 31,  
OPERATING STATISTICS 2017 2016 2017 2016
Net revenue ($000) (d)
Homecare $ 242,554 $ 228,463 $ 935,913 $ 887,940
Inpatient 22,033 23,724 90,472 97,580
Continuous care   30,131     31,999   124,557     138,025  
Total before Medicare cap allowance $ 294,718 $ 284,186 $ 1,150,942 $ 1,123,545
Medicare cap allowance   (2,435 )   -   (2,682 )   (228 )
Total $ 292,283   $ 284,186 $ 1,148,260   $ 1,123,317  
Net revenue as a percent of total before Medicare cap allowance
Homecare 82.3 % 80.4 % 81.2 % 78.9 %
Inpatient 7.5 8.3 7.9 8.7
Continuous care   10.2     11.3   10.9     12.4  
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   (0.8 )   -   (0.2 )   -  
Total   99.2   %   100.0 %   99.8   % 100.0   %
Average daily census ("ADC") (days)
Homecare 12,861 12,241 12,549 12,040
Nursing home   3,265     3,065   3,177     3,037  
Routine homecare 16,126 15,306 15,726 15,077
Inpatient 342 383 354 400
Continuous care   452     471   470     515  
Total   16,920     16,160   16,550     15,992  
 
Total Admissions 16,575 15,889 66,449 65,094
Total Discharges 16,553 16,282 65,637 64,689
Average length of stay (days) 91.4 91.4 88.8 86.7
Median length of stay (days) 16.0 16.0 16.0 16.0
ADC by major diagnosis
Cerebro 36.1 % 33.4 % 35.5 % 32.7 %
Neurological 18.5 20.3 19.2 21.1
Cardio 16.4 16.9 16.5 17.1
Cancer 14.1 15.4 14.6 15.3
Respiratory 8.0 7.8 7.9 7.8
Other   6.9     6.2   6.3     6.0  
Total   100.0   %   100.0 %   100.0   %   100.0   %
Admissions by major diagnosis
Cerebro 22.3 % 21.6 % 22.0 % 21.0 %
Neurological 10.7 11.3 10.6 11.0
Cancer 30.0 32.2 30.6 31.8
Cardio 14.9 16.0 15.0 15.4
Respiratory 10.7 10.8 10.8 10.2
Other   11.4     8.1   11.0     10.6  
Total   100.0   %   100.0 %   100.0   %   100.0   %
Direct patient care margins (e)
Routine homecare 53.9 % 53.1 % 52.6 % 52.1 %
Inpatient 8.5 1.2 5.4 2.3
Continuous care 16.8 15.8 16.9 14.2
Homecare margin drivers (dollars per patient day)
Labor costs $ 55.65 $ 56.11 $ 56.80 $ 56.41
Combined drug, home medical equipment and
medical supplies cost 14.30 14.99 14.65 15.66
Inpatient margin drivers (dollars per patient day)
Labor costs $ 355.96 $ 363.06 $ 366.41 $ 350.56
Continuous care margin drivers (dollars per patient day)
Labor costs $ 583.45 $ 602.30 $ 584.49 $ 607.52
Bad debt expense as a percent of revenues 1.1 % 1.2 % 1.1 % 1.2 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 33.7 36.5 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 25.0 32.6 n.a. n.a.

The "Footnotes to Financial Statements" are integral parts of this financial information.

     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
FOOTNOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2017 AND 2016
(unaudited)
             
(a) Included in the results of operations for 2017 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
For the Three Months Ended December 31, 2017
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (342 ) $ - $ - $ (342 )
Selling, general and administrative expenses:
Expenses related to OIG investigation (16 ) - - (16 )
Stock option expense - - (2,747 ) (2,747 )
Long-term incentive compensation - - (1,973 ) (1,973 )
Other operating expenses:
Litigation settlements 5,524 - - 5,524
Loss on sale of transportation equipment   -     -     (5,266 )   (5,266 )
Pretax impact on earnings 5,166 - (9,986 ) (4,820 )
Impact of tax reform 11,057 7,761 (10,516 ) 8,302
Excess tax benefits on stock compensation - - 10,811 10,811
Income tax benefit on the above   (1,961 )   -     3,340     1,379  
After-tax impact on earnings $ 14,262   $ 7,761   $ (6,351 ) $ 15,672  
 
For the Year Ended December 31, 2017
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (447 ) $ - $ - $ (447 )
Selling, general and administrative expenses:
Expenses related to OIG investigation (5,194 ) - - (5,194 )
Stock option expense - - (10,485 ) (10,485 )
Long-term incentive compensation - - (4,994 ) (4,994 )
Other operating expenses:
Litigation settlements (84,476 ) (213 ) - (84,689 )
Loss on sale of transportation equipment - - (5,266 ) (5,266 )
Program closure expenses   (1,138 )   -     -     (1,138 )
Pretax impact on earnings (91,255 ) (213 ) (20,745 ) (112,213 )
Impact of tax reform 11,057 7,761 (10,516 ) 8,302
Excess tax benefits on stock compensation - - 18,932 18,932
Income tax benefit on the above   34,722     84     7,296     42,102  
After-tax impact on earnings $ (45,476 ) $ 7,632   $ (5,033 ) $ (42,877 )
 
 
(b) Included in the results of operations for 2016 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
For the Three Months Ended December 31, 2016
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,155 ) $ - $ - $ (1,155 )
Expenses related to litigation settlements - (1 ) - (1 )
Stock option expense - - (2,071 ) (2,071 )
Long-term incentive compensation   -     -     (1,029 )   (1,029 )
Pretax impact on earnings (1,155 ) (1 ) (3,100 ) (4,256 )
Income tax benefit on the above   442     -     1,141     1,583  
After-tax impact on earnings $ (713 ) $ (1 ) $ (1,959 ) $ (2,673 )
 
For the Year Ended December 31, 2016
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (228 ) $ - $ - $ (228 )
Selling, general and administrative expenses:
Expenses related to OIG investigation (5,260 ) - - (5,260 )
Expenses related to litigation settlements - (45 ) - (45 )
Stock option expense - - (8,330 ) (8,330 )
Long-term incentive compensation - - (1,930 ) (1,930 )
Other operating expenses:
Early retirement expenses   (4,491 )   -     -     (4,491 )
Pretax impact on earnings (9,979 ) (45 ) (10,260 ) (20,284 )
Income tax benefit on the above   3,750     17     3,773     7,540  
After-tax impact on earnings $ (6,229 ) $ (28 ) $ (6,487 ) $ (12,744 )
 
(c)  

Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the fourth quarters of 2017 and 2016, GAAP advertising expense for Roto-Rooter totaled $8,145,000 and $7,323,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the fourth quarters of 2017 and 2016 would total $8,809,000 and $7,303,000, respectively.

 

Similarly, for the years ended December 31, 2017 and 2016, GAAP advertising expense for Roto-Rooter totaled $31,042,000 and $26,717,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the years ended December 31, 2017 and 2016 would total $32,413,000 and $28,050,000, respectively.

 
(d)

VITAS has 11 large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 17 small (less than 200 ADC) hospice programs. Of VITAS' 30 unique Medicare provider numbers, 23 provider numbers have a Medicare cap cushion of 10%, five provider numbers have Medicare cap cushion between 3% and 5% and two provider numbers have a Medicare cap liability for the current cap year.

 
(e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.

Source: Chemed Corporation

Chemed Corporation
David P. Williams, 513- 762-6901

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Page last modified: 04/18/05