Chemed Reports Fourth-Quarter 2012 Results

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Chemed Reports Fourth-Quarter 2012 Results

CINCINNATI--(BUSINESS WIRE)-- Chemed Corporation (Chemed) (NYS: 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, 2012, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 5.2% to $369 million
  • GAAP Diluted EPS increased 6.9% to $1.40
  • Adjusted Diluted EPS increased 8.3% to $1.57

VITAS segment operating results:

  • Net Patient Revenue of $273 million, an increase of 7.2%
  • Average Daily Census (ADC) of 14,465, an increase of 5.4%
  • Admissions of 16,004, an increase of 5.4%
  • Net Income of $24.6 million, an increase of 8.4%
  • Adjusted EBITDA of $44.0 million, an increase of 9.8%
  • Adjusted EBITDA margin of 16.1%, a increase of 38 basis points

Roto-Rooter segment operating results:

  • Revenue of $95.6 million, a decrease of 0.1%
  • Unit-for-unit job count of 168,144, a decrease of 2.1%
  • Net Income of $9.2 million, a decrease of 0.8%
  • Adjusted EBITDA of $17.1 million, a decrease of 4.2%
  • Adjusted EBITDA margin of 17.9%, a decrease of 76 basis points

VITAS

Net revenue for VITAS was $273 million in the fourth quarter of 2012, which is an increase of 7.2% over the prior-year period. This revenue growth was the result of increased ADC of 5.4%, driven by an increase in admissions of 5.4%, increased discharges of 5.4% and Medicare price increases of approximately 0.9%. Revenue growth in the quarter was also enhanced by lower Medicare Cap billing limitations.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $205.78, which is 1.0% above the prior-year period. Routine home care reimbursement and high acuity care averaged $163.76 and $713.34, respectively, per patient per day in the fourth quarter of 2012. During the quarter, high acuity days of care were 7.7% of total days of care, essentially equal to the prior-year quarter.

In the fourth quarter of 2012, VITAS recorded a Medicare Cap liability of $0.9 million. This compares to $2.6 million of Medicare Cap liability recorded in the fourth quarter of 2011. The government's Medicare Cap fiscal year begins on September 29. The first quarter of a Medicare Cap year has the potential to be volatile if a program experiences unusual or seasonal admission and discharge patterns.

Of VITAS' 36 unique Medicare provider numbers, 28 provider numbers have a Medicare Cap cushion of 10% or greater during the trailing twelve-month period; four provider numbers have a Medicare Cap cushion between 5% to 10%; two provider numbers have a cap cushion between 0% and 5% and two provider numbers have recorded a modest Medicare Cap liability. VITAS generated an aggregate cap cushion of $213 million during the trailing twelve-month period.

The fourth quarter of 2012 gross margin, excluding the impact of Medicare Cap, was 23.5%, which is 21 basis points below the gross margin in the fourth quarter of 2011.

Selling, general and administrative expense was $20.1 million in the fourth quarter of 2012, which is an increase of 10.0% when compared to the prior-year quarter. On a year-to-date basis, selling, general and administrative expenses increased 6.3%, 150 basis points below full-year revenue growth, excluding the impact of Medicare Cap. Adjusted EBITDA totaled $44.0 million in the quarter, an increase of 9.8% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 16.4% in the quarter which is 21 basis points below the prior-year quarter.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $95.6 million for the fourth quarter of 2012, a decrease of 0.1%, over the prior-year quarter.

Unit-for-unit job count in the fourth quarter of 2012 declined 2.1% when compared to the prior-year period. During the fourth quarter of 2012, total residential jobs decreased 2.4%, as residential plumbing jobs declined 9.0% and residential drain cleaning jobs increased 1.2%, when compared to the fourth quarter of 2011. Residential jobs represented 70% of total job count in the quarter. Total commercial jobs decreased 1.3%, with commercial plumbing/excavation job count decreasing 3.4% and commercial drain cleaning increasing 0.3% when compared to the prior-year quarter. The "All Other" residential and commercial job category, which represents 1.5% of aggregate job count, decreased 10.5%.

Roto-Rooter's gross margin in the quarter was 45.1%, a 30 basis point decline when compared to the fourth quarter of 2011. Adjusted EBITDA in the fourth quarter of 2012 totaled $17.1 million, a decline of 4.2%, and the Adjusted EBITDA margin was 17.9% in the quarter, a decline of 76 basis points.

Chemed Consolidated

Chemed had total debt of $175 million at December 31, 2012. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187 million and is due in May 2014. Chemed's total debt equates to less than one times trailing twelve-month adjusted EBITDA.

In January 2013 Chemed entered into a five-year Amended and Restated Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this Amended Credit Agreement has a floating rate that is currently LIBOR plus 125 basis points. In addition, an expansion feature is included in this Credit Agreement that provides Chemed the opportunity to increase its revolver and/or enter into term loans for an additional $150 million. At December 31, 2012, the Company had approximately $321 million of undrawn borrowing capacity after deducting $29 million for letters of credit issued to secure the Company's workers' compensation insurance.

Capital expenditures for the full year of 2012 aggregated $35.3 million and compares to depreciation and amortization during the same period of $30.5 million.

During the quarter, the Company purchased 723,472 shares of Chemed stock at an aggregate cost of $48.8 million. The Company has $14.8 million remaining under Chemed's previously announced share repurchase program.

Guidance for 2013

VITAS expects to achieve full-year 2013 revenue growth, prior to Medicare Cap, of 6.4% to 7.0%. Admissions in 2013 are estimated to increase approximately 4.5% to 6.0% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.4% to 14.8%. Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Revenue growth assumes sequestration is deferred into calendar year 2014. Earnings per share guidance also assumes VITAS will incur $5.0 million of estimated Medicare contractual billing limitations for calendar year 2013.

Roto-Rooter expects to achieve full-year 2013 revenue growth of 2.0%. The revenue estimate is a result of increased pricing of approximately 1.5%, a favorable mix shift to higher revenue jobs, with job count estimated to equal the prior year. Adjusted EBITDA margin for 2013 is estimated in the range of 17.1% to 17.5%.

Based upon the above, management estimates 2013 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt and other items not indicative of ongoing operations, will be in the range of $5.65 to $5.80. This compares to Chemed's 2012 reported adjusted earnings per diluted share of $5.29.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, February 19, 2013, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (800) 299-8538 for U.S. and Canadian participants and (617) 786-2902 for international participants. The participant passcode is 59071392. 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 (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 22711120. 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 14,000 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 and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, 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 STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
   
 
For the Three Months EndedFor the Years Ended
December 31,December 31,
2012201120122011
Service revenues and sales$368,577 $350,253 $1,430,043 $1,355,970 
Cost of services provided and goods sold261,898248,3661,033,321970,484
Selling, general and administrative expenses (aa)52,76448,564208,656202,260
Depreciation6,8316,28826,00925,247
Amortization1,1371,0094,5124,252
Other operating expenses (bb) -  -  1,126  - 
Total costs and expenses 322,630  304,227  1,273,624  1,202,243 
Income from operations45,94746,026156,419153,727
Interest expense(3,691)(3,628)(14,723)(13,888)
Other income/(expense)--net (cc) 1,158  (164) 4,123  717 
Income before income taxes43,41442,234145,819140,556
Income taxes (16,674) (16,529) (56,515) (54,577)
Net income$26,740 $25,705 $89,304 $85,979 
 
 
Earnings Per Share
Net income$1.44 $1.34 $4.72 $4.19 
Average number of shares outstanding 18,628  19,237  18,924  20,523 
 
Diluted Earnings Per Share
Net income$1.40 $1.31 $4.62 $4.10 
Average number of shares outstanding 19,053  19,556  19,339  20,945 
 
             
(aa)Selling, general and administrative ("SG&A") expenses comprise (in thousands):
For the Three Months EndedFor the Years Ended
December 31,December 31,
2012201120122011
SG&A expenses before long-term incentive
compensation and the impact of market gains

and losses of deferred compensation plans

$51,666$48,561$204,797$198,449

Market value gains of deferred compensation trusts

73833,499799
Long-term incentive compensation 360  -  360  3,012 
Total SG&A expenses$52,764 $48,564 $208,656 $202,260 
 
(bb)Other operating expenses comprise severance and other costs related to closing Roto-Rooter's HVAC business in the third quarter of 2012.
 

(cc)

Other income/(expense)--net comprises (in thousands):
For the Three Months EndedFor the Years Ended
December 31, December 31,
2012201120122011

Market value gains of deferred compensation trusts

$738$3$3,499$799
Interest income408229809426
Loss on disposal of property and equipment(119)(373)(347)(441)
Other 131  (23) 162  (67)
Total other income--net$1,158 $(164)$4,123 $717 
 

      
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
        
 
December 31,
20122011
Assets
Current assets
Cash and cash equivalents$69,531$38,081
Accounts receivable less allowances93,33377,924
Inventories
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