CONTACT:  David P. Williams

(513) 762-6901



Chemed Reports Second-Quarter 2020 Results



CINCINNATI, July 29, 2020—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 second quarter ended June 30, 2020, versus the comparable prior-year period, as follows:



Consolidated operating results:



VITAS segment operating results:



Roto-Rooter segment operating results:



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VITAS



VITAS net revenue was $327 million in the second quarter of 2020, which is an increase of 4.7%, when compared to the prior-year period.  This revenue increase is comprised primarily of a 2.8% increase in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 5.4%, and acuity mix shift which then reduced the blended average Medicare rate increase approximately 310-basis points.  The combination of increased Medicare Cap and a decrease in Medicaid net room and board pass-through, as well as reductions in other contra revenue activity, reduced revenue growth an additional 42-basis points in the quarter.



VITAS accrued $5.8 million in Medicare Cap billing limitations in the second quarter of 2020.  This $5.8 million of Medicare Cap includes approximately $2.3 million of Cap liability attributed to the pandemic. The suspension of sequestration resulted in an additional 2% increase in reimbursement effective May 1, 2020.  In Medicare provider numbers that were in a Medicare Cap liability situation, this 2% reimbursement increase was effectively eliminated by a corresponding increase in Medicare Cap liability in those markets.  In addition, disruption in Medicare admissions in these markets resulted in a further increase in the projected 2020 Medicare Cap billing limitation. 



VITAS currently has 30 Medicare provider numbers.  During the first nine months of the fiscal 2020 Medicare Cap year, 22 of these provider numbers have a Medicare Cap cushion of 10% or greater, three provider numbers have a cap cushion between 5% and 10%, two provider numbers have a cap cushion between 0% and 5%, and three provider numbers have an estimated 2020 Medicare Cap billing limitation.



Average revenue per patient per day in the second quarter of 2020 was $194.02, which, including acuity mix shift, is 2.3% above the prior-year period. Reimbursement for routine home care and high acuity care averaged $165.22 and $985.23, respectively.  During the quarter, high acuity days-of-care were 3.5% of total days of care, 69-basis points less than the prior-year quarter.  This 69-basis point mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.4% to 2.3% in the quarter.



The second quarter 2020 gross margin, excluding Medicare Cap, increased costs for personal protection equipment (PPE), disinfecting facilities and increased costs for additional paid time off (PTO) for our front-line employees, was 27.2%, which is a 352-basis point margin improvement when compared to the second quarter of 2019.  This increase in gross margin is attributed to a level-of-care mix shift to higher margin, lower reimbursement routine home care; efficiencies from utilizing telehealth when appropriate; and lower wage costs from reduced admission intake, including reduced hospital referred admissions that typically result in short length-of-stays and negative gross margins.



Selling, general and administrative expense was $21.1 million in the second quarter of 2020, which is a favorable decrease of 2.8% compared to the prior-year quarter.  Adjusted EBITDA, excluding Medicare Cap, totaled $72.5 million in the quarter, an increase of 32.2%.  Adjusted EBITDA margin, excluding Medicare Cap, was 21.7% in the quarter, which is a 440-basis point

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improvement when compared to the prior-year period.



Roto-Rooter



Roto-Rooter generated quarterly revenue of $175 million in the second quarter of 2020, an increase of $13.9 million, or 8.6%, 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 $158 million for the second quarter of 2020, a decline of 1.9% over the prior-year quarter.



Total commercial revenue, excluding acquisitions, decreased 29.1%.  This aggregate commercial revenue decline consisted of drain cleaning revenue declining 31.2%, commercial plumbing and excavation declining 28.0%, and commercial water restoration declining 20.3%.



Total residential revenue, excluding acquisitions, increased 10.4%.  This aggregate residential revenue growth consisted of residential drain cleaning increasing 10.2%, plumbing and excavation expanding 14.4%, and residential water restoration increasing 4.3%.



Roto-Rooter started the second quarter of 2020 with plummeting demand in our commercial business and very soft demand in our residential services when compared to the prior year.  Fortunately, service demand began to improve in the later part of April and continued to strengthen throughout the remainder of the second quarter.  This is reflected in our monthly performance with unit-for-unit commercial revenue declining 38.6%, 31.8% and 19.7% in April, May and June 2020, respectively.  Unit-for-unit residential revenue sales declined 1.6% in April, increased 11.7% in May and increased 18.7% in June.



Roto-Rooter’s gross margin in the quarter was 51.2%, a 247-basis point increase when compared to the second quarter of 2019.  Adjusted EBITDA in the second quarter of 2020 totaled $46.8 million, an increase of 20.7%.  The Adjusted EBITDA margin in the quarter was 26.8% which is a 269-basis point increase when compared to the prior year.  The increase in Adjusted EBITDA margin is attributed to residential services having a higher margin than commercial services,  as well as increased residential excavation and water restoration services which have a significantly higher direct contribution margin compared to commercial plumbing and drain cleaning services.



Chemed Consolidated



As of June 30, 2020, Chemed had total cash and cash equivalents of $20.4 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 June 30, 2020, the Company had approximately $412 million of undrawn borrowing capacity under this credit agreement.



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During the quarter, the Company repurchased 50,000 shares of Chemed stock for $21.9 million which equates to a cost per share of $438.27.  As of June 30, 2020, there was approximately $232 million of remaining share repurchase authorization under this plan.



Chemed restarted its share repurchase program in 2007.  Since that time Chemed has repurchased approximately 14.4 million shares, aggregating approximately $1.3 billion at an average share cost of $92.76.  Including dividends over this period, Chemed has returned approximately $1.5 billion to shareholders.



Guidance for 2020



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 2020 pandemic has made accurate modeling and providing meaningful earnings guidance for Chemed 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.



Over the past four months, 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 provide guidance for the remainder of the 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.



Revenue growth for VITAS in 2020, prior to Medicare Cap, is estimated to be in the range of 5% to 7%. Average Daily Census in 2020 is estimated to expand approximately 2% to 4%.  Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 19% to 20%.  We are currently estimating $17 million for Medicare Cap billing limitations for calendar year 2020.  We also anticipate the $80.2 million of CARES Act funds formulaically calculated by the federal government based upon our 2019 Medicare fee-for-service revenue will be adequate to cover increased costs specifically related to operating our healthcare unit during the pandemic as well as any incremental Medicare Cap billing limitations triggered from declines in Medicare admissions.  Chemed’s full year adjusted earnings per share guidance eliminates any financial benefit from the CARES Act funds that relate to lost revenue.  We anticipate returning any unused CARES Act funds to the federal government at the end of the pandemic measurement period.



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Roto-Rooter is forecasted to achieve full-year 2020 revenue growth of 9% to 10%.  Roto-Rooter’s Adjusted EBITDA margin for 2020 is estimated to be in the range of 23% to 25%.



Based upon the above, full-year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock options, costs related to litigation, and other discrete items, is estimated to be in the range of $16.20 to $16.40.  This 2020 guidance assumes an effective corporate tax rate of 25.2%. Chemed’s 2019 reported adjusted earnings per diluted share was $13.96. 



Conference Call



Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, July 30, 2020, 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 2266476.  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 2266476.  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.



 

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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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