Chemed Reports Second-Quarter 2013 Results

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Chemed Reports Second-Quarter 2013 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 second quarter ended June 30, 2013, versus the comparable prior-year period, as follows:


Consolidated operating results:

  • Revenue increased 0.9% to $357 million
  • GAAP Diluted EPS, including litigation settlement, decreased 30.0% to $0.77
  • Adjusted Diluted EPS increased 14.3% to $1.44

VITAS segment operating results:

  • Net Patient Revenue of $264 million, a decrease of 0.6%
  • Average Daily Census (ADC) of 14,679, an increase of 4.0%
  • Admissions of 15,721, a decrease of 1.2%
  • Net Income of $20.5 million, an increase of 0.3%
  • Adjusted EBITDA of $37.7 million, an increase of 1.7%
  • Adjusted EBITDA margin of 14.3%, an increase of 32 basis points

Roto-Rooter segment operating results:

  • Revenue of $93.6 million, an increase of 5.3%
  • Unit-for-unit job count of 162,432, an increase of 1.0%
  • Net Income, including litigation settlement, of $1.4 million
  • Adjusted EBITDA of $18.9 million, an increase of 31.1%
  • Adjusted EBITDA margin of 20.2%, an increase of 398 basis points

VITAS

Net revenue for VITAS was $264 million in the second quarter of 2013, which is a decline of 0.6% when compared to the prior-year period. This revenue decline is a combination of Medicare reimbursement rates decreasing approximately 1.1%, increased ADC of 4.0% and level of care mix shifting as the proportion of high acuity days-of-care declined 89 basis points.

In the second quarter of 2013, VITAS recorded a Medicare Cap billing adjustment of $0.9 million related to one provider number.

Of VITAS' 36 unique Medicare provider numbers, 32 provider numbers have a Medicare Cap cushion of 10% or greater during the first nine months of the 2013 Medicare Cap year; two provider numbers have a Medicare Cap cushion between 5% to 10%; and one provider number has a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $233 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $197.95, which is 4.2% below the prior-year period. The average revenue includes the 2.0% reduction in Medicare hospice reimbursement effective April 1, 2013. Routine home care reimbursement and high acuity care averaged $161.08 and $693.20, respectively, per patient per day in the second quarter of 2013. During the quarter, high acuity days of care were 6.9% of total days of care, 89 basis points below the prior-year quarter.

The second quarter of 2013 gross margin, excluding the impact of Medicare Cap, was 22.2%, which is a 54 basis point improvement when compared to the second quarter of 2012.

Selling, general and administrative expense was $21.1 million in the second quarter of 2013, which is an increase of 2.9% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $38.5 million in the quarter, an increase of 4.0% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.6% in the quarter which is 60 basis points above the prior-year quarter.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $93.6 million for the second quarter of 2013, an increase of 5.3%, over the prior-year quarter.

Total unit-for-unit job count increased 1.0% in the second quarter of 2013 when compared to the prior-year period. This consisted of a residential drain cleaning job count increase of 5.8% and residential plumbing job count decline of 4.5%, when compared to the second quarter of 2012. Residential jobs represented 69% of total job count in the quarter. Commercial drain cleaning increased 0.8% and commercial plumbing/excavation job count declined 2.2% when compared to the prior-year quarter.

Roto-Rooter's gross margin in the quarter was 47.1%, a 273 basis point increase when compared to the second quarter of 2012. Adjusted EBITDA in the second quarter of 2013 totaled $18.9 million, an increase of 31.1%, and the Adjusted EBITDA margin was 20.2% in the quarter, an increase of 398 basis points.

In June 2013 Roto-Rooter reached a tentative agreement, subject to Court approval, to settle litigation claims for alleged violation of the Fair Labor Standards Act ("FLSA") and alleged claims for violations of the labor laws of multiple states. As a result of this tentative settlement, Roto-Rooter recorded an after-tax expense in the quarter of $9.0 million.

Chemed Consolidated

As of June 30, 2013, Chemed had total cash and cash equivalents of $113 million, and debt of $179 million. 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.

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 facility has a floating rate that is currently LIBOR plus 125 basis points. At June 30, 2013, the Company had approximately $317 million of undrawn borrowing capacity under this credit agreement after deducting $33 million for letters of credit issued to secure the Company's workers' compensation insurance.

Capital expenditures through June 30, 2013, aggregated $12.2 million and compares to depreciation and amortization during the same period of $16.0 million.

During the quarter, the Company repurchased $18.4 million of Chemed stock. This equates to 280,701 of Chemed shares repurchased at an average cost of $65.72. Chemed currently has $96.3 million of authorization remaining under this share repurchase plan.

Guidance for 2013

Effective October 1, 2012, Medicare increased the average hospice reimbursement rates by approximately 0.9%. Effective April 1, 2013, Medicare reduced hospice reimbursement rates 2.0%. As a result, effective April 1, 2013, this 0.9% increase was reduced to a 1.1% decline in Medicare rates when compared to the prior year. The impact from sequestration impacts approximately 91.2% of Vitas' revenue base and is factored into the 2013 guidance detailed below.

VITAS estimates its full-year 2013 revenue growth will be constrained in the second half of 2013 as a result of mix shift from high acuity care to routine home care. This mix shift is anticipated to have a modest impact on overall profitability given the relatively low direct contribution margins of high acuity care.

Full year 2013 revenue growth, prior to Medicare Cap, is estimated to be in the range of 0.5% to 2.0%. Admissions in 2013 are estimated to increase approximately 2.0% to 4.0% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.0% to 14.5%.

Roto-Rooter is forecasted to achieve full-year 2013 revenue growth of 4.0% to 5.0%. This revenue estimate is based upon increased job pricing of approximately 3.5% and job count increasing 0.5% to 1.0%. Adjusted EBITDA margin for 2013 is estimated in the range of 19.0% to 19.5%.

Management reaffirms previous guidance that full-year 2013 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt, litigation 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 Friday, July 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 (866) 578-5771 for U.S. and Canadian participants and (617) 213-8055 for international participants. The participant passcode is 98464909. 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 78884155. 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)
           
 
Three Months Ended June 30,Six Months Ended June 30,
2013201220132012
Service revenues and sales$357,198 $354,170 $723,839 $707,113 
Cost of services provided and goods sold255,359257,368519,666514,813
Selling, general and administrative expenses (aa)53,10749,770108,667102,937
Depreciation6,8996,38013,69412,621
Amortization1,1811,1272,3082,240
Other operating expenses (bb) 14,760  -  14,760  - 
Total costs and expenses 331,306  314,645  659,095  632,611 
Income from operations25,89239,52564,74474,502
Interest expense(3,697)(3,672)(7,791)(7,289)
Other income/(expense)--net (cc) 1,696  (970) 3,402  1,125 
Income before income taxes23,89134,88360,35568,338
Income taxes (9,283) (13,609) (23,469) (26,619)
Net income$14,608 $21,274 $36,886 $41,719 
 
 
Earnings Per Share
Net income$0.79 $1.12 $1.99 $2.20 
Average number of shares outstanding 18,606  18,998  18,564  18,976 
 
Diluted Earnings Per Share
Net income$0.77 $1.10 $1.94 $2.16 
Average number of shares outstanding 18,966  19,369  18,980  19,357 
 
 
               
(aa)Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2013201220132012

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

$51,550$50,718$105,026$101,752

Market value gains/(losses) related to deferred compensation plans (cc)

1,063(948)2,5351,185
Long-term incentive compensation 494  -  1,106  - 
Total SG&A expenses$53,107 $49,770 $108,667 $102,937 
 
(bb)Other operating expenses comprise a litigation settlement in June 2013.
 
(cc)Other income/(expense)--net comprises (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2013201220132012

Market value gains/(losses) related to deferred compensation plans

$1,063$(948)$2,535$1,185
Interest income67059973110
Loss on disposal of property and equipment(1)(67)(79)(148)
Other (36) (14) (27) (22)
Total other income--net$1,696 $(970)$3,402 $1,125 
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
          
 
June 30,
20132012
Assets
Current assets
Cash and cash equivalents$113,047$59,966
Accounts receivable less allowances76,35681,811
Inventories6,1568,146
Current deferred income taxes19,32213,226
Prepaid income taxes4,9114,187
Prepaid expenses 13,518  10,737 
Total current assets233,310178,073
Investments of deferred compensation plans held in trust40,58333,215
Properties and equipment, at cost less accumulated depreciation90,22988,571
Identifiable intangible assets less accumulated amortization57,34857,635<
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