Chemed Reports Third-Quarter 2012 Results

Chemed Reports Third-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 third quarter ended September 30, 2012, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 3.8% to $354 million

  • GAAP Diluted EPS increased 2.9% to $1.07

  • Adjusted Diluted EPS increased 6.7% to $1.28


VITAS segment operating results:

  • Net Patient Revenue of $268 million, an increase of 5.9%

  • Average Daily Census (ADC) of 14,277, an increase of 4.5%

  • Admissions of 15,539, an increase of 4.4%

  • Net Income of $21.9 million, an increase of 4.6%

  • Adjusted EBITDA of $39.8 million, an increase of 5.2%

  • Adjusted EBITDA margin of 14.8%, a decrease of 11 basis points

Roto-Rooter segment operating results:

  • Revenue of $86.4 million, a decrease of 2.4%

  • Unit-for-unit job count of 157,815, a decrease of 3.0%

  • Net Income of $6.1 million, a decrease of 23.3%

  • Adjusted EBITDA of $12.7 million, a decrease of 15.3%

  • Adjusted EBITDA margin of 14.7%, a decrease of 223 basis points

VITAS

Net revenue for VITAS was $268 million in the third quarter of 2012, which is an increase of 5.9% over the prior-year period. This revenue growth was the result of increased ADC of 4.5%, driven by an increase in admissions of 4.4%, increased discharges of 4.5% and Medicare price increases of approximately 2.5%. Revenue growth was partially offset by mix shift between routine home care and high acuity care.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $204.03, which is 1.5% above the prior-year period. Routine home care reimbursement and high acuity care averaged $162.90 and $706.19, respectively, per patient per day in the third quarter of 2012. During the quarter, high acuity days of care were 7.57% of total days of care, 15 basis points lower than the prior-year quarter.

VITAS did not incur any Medicare Cap billing limitations in the third quarter of 2012. The Medicare Cap 2012 fiscal year is based upon Medicare admissions from September 29, 2011, through September 28, 2012, and is compared to Medicare hospice billings from November 1, 2011, through October 31, 2012. Based upon admissions during this period, VITAS estimates there will not be any billing limitations for the 2012 Medicare Cap fiscal year.

Of VITAS' 35 unique Medicare provider numbers, 29 provider numbers have a Medicare Cap cushion of 10% or greater during the 2012 Medicare Cap year; two provider numbers have a Medicare Cap cushion between 5% and 10%; and four provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $217 million during in the 2012 Medicare Cap fiscal year.

The third quarter of 2012 gross margin was 22.2%, which is equal to the gross margin in the third quarter of 2011 when you exclude the impact of Medicare Cap in the prior-year quarter.

Selling, general and administrative expense was $20.1 million in the third quarter of 2012, which is an increase of 6.3% when compared to the prior-year quarter. Adjusted EBITDA totaled $39.8 million in the quarter, an increase of 5.2% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.8% in the quarter which is equal to the prior year.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $86.4 million for the third quarter of 2012, a decrease of $2.1 million, or 2.4%, over the prior-year quarter. Approximately $1.0 million, or 113 basis points, of this decline is attributed to Roto-Rooter eliminating a small HVAC operation in an East Coast market. This resulted in effectively zero HVAC revenue in the third quarter of 2012.

Unit-for-unit job count in the third quarter of 2012 declined 3.0% when compared to the prior-year period. During the third quarter of 2012, total residential jobs decreased 4.8%, as residential plumbing jobs declined 4.6% and residential drain cleaning jobs decreased 4.9%, when compared to the third quarter of 2011. Residential jobs represented 69% of total job count in the quarter. Total commercial jobs increased 1.1%, with commercial plumbing/excavation job count increasing 5.6% and commercial drain cleaning declining 0.4% when compared to the prior-year quarter. The "All Other" residential and commercial job category, which represents 1.6% of aggregate job count, decreased 8.6%.

Roto-Rooter's gross margin in the quarter was 44.3%, a 76 basis point decline when compared to the third quarter of 2011. Adjusted EBITDA in the third quarter of 2012 totaled $12.7 million, a decline of 15.3%, and the Adjusted EBITDA margin was 14.7% in the quarter, a decline of 223 basis points.

Chemed Consolidated

Chemed had total debt of $173 million at September 30, 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 March 2011 Chemed entered into a five-year Credit Agreement that consists of a $350 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently LIBOR plus 175 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 September 30, 2012, this facility 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 through September 2012 aggregated $26.5 million and compares to depreciation and amortization during the same period of $22.6 million.

During the quarter, the Company purchased 9,334 shares of Chemed stock at an aggregate cost of $586,000. The Company has $63.5 million remaining under Chemed's previously announced share repurchase program.

Guidance for 2012

VITAS expects to achieve full-year 2012 revenue growth, prior to Medicare Cap, of 7.5% to 8.0%. Admissions in 2012 are estimated to increase approximately 4.0% to 4.5% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Guidance assumes VITAS will incur $1.25 million of estimated Medicare contractual billing limitations for the remainder of calendar year 2012.

Roto-Rooter expects to achieve full-year 2012 revenue 2.0% below the prior year. 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 decrease 3% to 4%. Adjusted EBITDA margin for 2012 is estimated in the range of 15.8% to 16.3%.

Based upon the above, management estimates 2012 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 $5.20 to $5.30. This compares to Chemed's 2011 reported adjusted earnings per diluted share of $4.78.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, October 30, 2012, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (866) 700-0133 for U.S. and Canadian participants and (617) 213-8831 for international participants. The participant passcode is 88495350. 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 32895198. 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 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)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2012

2011

2012

2011

Service revenues and sales

$

354,353

$

341,439

$

1,061,466

$

1,005,717

Cost of services provided and goods sold

256,610

245,063

771,423

722,118

Selling, general and administrative expenses (aa)

52,955

47,618

155,892

153,696

Depreciation

6,557

6,313

19,178

18,959

Amortization

1,135

1,134

3,375

3,243

Other operating expenses (bb)

1,126

-

1,126

-

Total costs and expenses

318,383

300,128

950,994

898,016

Income from operations

35,970

41,311

110,472

107,701

Interest expense

(3,743

)

(3,555

)

(11,032

)

(10,260

)

Other income/(expense)--net (cc)

1,840

(1,935

)

2,965

881

Income before income taxes

34,067

35,821

102,405

98,322

Income taxes

(13,222

)

(13,934

)

(39,841

)

(38,048

)

Net income

$

20,845

$

21,887

$

62,564

$

60,274

Earnings Per Share

Net income

$

1.10

$

1.06

$

3.30

$

2.88

Average number of shares outstanding

18,960

20,674

18,977

20,934

Diluted Earnings Per Share

Net income

$

1.07

$

1.04

$

3.23

$

2.82

Average number of shares outstanding

19,404

21,055

19,382

21,400

(aa)

Selling, general and administrative ("SG&A") expenses comprise (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

SG&A expenses before long-term incentive compensation and the impact of market gains and losses of deferred compensation plans

$

51,379

$

49,629

$

153,131

$

149,888

Market value gains/(losses) related to assets held in deferred compensation trusts

1,576

(2,011

)

2,761

796

Long-term incentive compensation

-

-

-

3,012

Total SG&A expenses

$

52,955

$

47,618

$

155,892

$

153,696

(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):

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Market value gains/(losses) related to assets held in deferred compensation trusts

$

1,576

$

(2,011

)

$

2,761

$

796

Interest income

291

74

401

197

Loss on disposal of property and equipment

(80

)

(79

)

(228

)

(68

)

Other

53

81

31

(44

)

Total other income--net

$

1,840

$

(1,935

)

$

2,965

$

881

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

(in thousands, except per share data)(unaudited)

September 30,

2012

2011

Assets

Current assets

Cash and cash equivalents

$

69,296

$

21,342

Accounts receivable less allowances

101,152

112,721

Inventories

7,639

8,888

Current deferred income taxes

14,118

14,850

Prepaid income taxes

3,044

764

Prepaid expenses

9,855

10,031

Total current assets

205,104

168,596

Investments of deferred compensation plans held in trust

35,053

31,339

Properties and equipment, at cost less accumulated depreciation

90,135

83,484

Identifiable intangible assets less accumulated amortization

57,507

58,644