Chemed Reports Fourth-Quarter 2018 Results
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Chemed Reports Fourth-Quarter 2018 Results

CINCINNATI--(BUSINESS WIRE)--Feb. 20, 2019-- 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 fourth quarter ended December 31, 2018, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 6.8% to $458 million
  • GAAP Diluted Earnings-per-Share (EPS) of $3.26
  • Adjusted Diluted EPS of $3.35, an increase of 44.4%

VITAS segment operating results:

  • Net Patient Revenue of $307 million, an increase of 5.0%
  • Average Daily Census (ADC) of 18,149, an increase of 7.3%
  • Admissions of 16,579, essentially equal to prior year
  • Net Income, excluding special items, of $40.2 million, an increase of 40.7%
  • Adjusted EBITDA, excluding cap, of $55.5 million, an increase of 11.2%

Roto-Rooter segment operating results:

  • Revenue of $151 million, an increase of 10.6%
  • Net Income, including special items, of $26.2 million, an increase of 46.9%
  • Adjusted EBITDA of $36.1 million, an increase of 16.3%
  • Adjusted EBITDA margin of 24.0%, an increase of 118-basis points

Effective January 1, 2018, the Financial Accounting Standards Board (FASB) mandated changes in revenue recognition under Generally Accepted Accounting Principles (GAAP). For Chemed, the accounting standard mandated reclassification of certain costs within the 2018 income statement when compared to prior-year formats. These reclassifications do not impact EBITDA, Adjusted EBITDA, pretax income or net income. This accounting standard has been adopted on a modified retrospective basis, meaning prior-year GAAP results are not reclassified and are reported using historical revenue recognition accounting standards.

This resulted in the reclassification of net room and board expenses associated with certain patients residing in nursing homes to be reclassified from cost of services to revenue, effectively reducing VITAS’ fourth-quarter 2018 revenue and cost of sales by $2.2 million. In addition, uncollectable accounts receivable, commonly referred to as bad debt expense, historically has been included in selling, general and administrative expenses for VITAS and Roto-Rooter, are now netted against service revenue and sales.

The discussion and analysis of operating results in this fourth-quarter 2018 earnings release narrative does reclassify the fourth-quarter 2017 net room and board and estimated uncollectable receivables to facilitate analysis of operating results in a format consistent with the 2018 revenue recognition accounting standard.

VITAS

VITAS net revenue was $307 million in the fourth quarter of 2018, which is an increase of 7.3%, when compared to the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 1.1%; a 7.3% increase in average daily census; and a Medicare Cap liability that reduced revenue growth by 0.4%. This growth is partially offset by acuity mix shift that negatively impacted revenue growth 1.0% when compared to the prior-year period.

In the fourth quarter of 2018, VITAS accrued $3.5 million in Medicare Cap billing limitations. At December 31, 2018, VITAS had 30 Medicare provider numbers, two of which have an estimated 2019 Medicare Cap billing limitation liability of approximately $13.6 million.

Of VITAS’ 30 Medicare provider numbers, on a trailing 12-month basis, 25 provider numbers have a Medicare Cap cushion of 10% or greater, one provider number has a cap cushion between 5% and 10%, two provider numbers have a cap cushion between 0% and 5%, and two provider numbers would have a Medicare Cap billing limitation.

Average revenue per patient per day in the quarter was $189.06, which is 0.1% below the prior-year period. Reimbursement for routine home care and high acuity care averaged $164.98 and $741.21, respectively. During the quarter, high acuity days-of-care were 4.2% of total days of care, 31-basis points less than the prior-year quarter.

The fourth quarter of 2018 gross margin, excluding Medicare Cap, was 24.0%, which is a 13-basis point increase when compared to the fourth quarter of 2017.

Selling, general and administrative expense was $19.4 million in the fourth quarter of 2018, which is an increase of 0.6% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $55.5 million in the quarter, an increase of 11.2%. Adjusted EBITDA margin, excluding Medicare Cap, was 17.9% in the quarter which is a 59-basis point increase when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $151 million for the fourth quarter of 2018, an increase of $15.6 million, or 11.6%, over the prior-year quarter. Revenue from the water restoration service segment totaled $24.3 million, an increase of $2.1 million, or 9.7%, when compared to the prior-year quarter. Approximately 90% of the water restoration revenue is generated from residential customers and the remaining 10% is generated from commercial accounts.

Commercial drain cleaning revenue increased 11.6%, commercial plumbing and excavation increased 12.5% and commercial water restoration increased 12.4%. Overall, commercial revenue increased 12.0%.

Residential drain cleaning increased 9.4%, plumbing and excavation increased 14.2% and residential water restoration increased 9.3%. Aggregate residential sales increased 11.4%.

Roto-Rooter’s gross margin in the quarter was 48.8%, a 6-basis point decline when compared to the fourth quarter of 2017. Adjusted EBITDA in the fourth quarter of 2018 totaled $36.1 million, an increase of 16.3%. The Adjusted EBITDA margin in the quarter was 24.0% which is a 98-basis point improvement over the prior year.

Chemed Consolidated

As of December 31, 2018, Chemed had total cash and cash equivalents of $5 million and debt of $89 million.

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 December 31, 2018, the Company had approximately $324 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 130,524 shares of Chemed stock for $36.9 million which equates to a cost per share of $282.77. On March 6, 2018, Chemed’s Board of Directors authorized an additional $150 million for stock repurchase under Chemed’s existing share repurchase program. As of December 31, 2018, there was approximately $47 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time Chemed has repurchased 13.9 million shares, aggregating over $1.1 billion at an average share cost of $80.92. Including dividends over this period, Chemed has returned approximately $1.3 billion to shareholders.

Guidance for 2019

Revenue growth for VITAS in 2019, prior to Medicare Cap, is estimated to be in the range of 5.5% to 6.0%. Admissions are estimated to expand approximately 3.0% to 4.0% and Average Daily Census in 2019 is estimated to expand approximately 4.0% to 5.0%. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.9%. We are currently estimating $10 million for Medicare Cap billing limitations in 2019.

Roto-Rooter is forecasted to achieve full-year 2019 revenue growth of 9.0% to 10.0%. This revenue estimate is based upon increased job pricing of approximately 2%, continued growth in core plumbing and drain cleaning services as well as continued but slowing revenue growth from water restoration services. Roto-Rooter’s Adjusted EBITDA margin for 2019 is estimated at 23.7%.

Based upon the above, full-year 2019 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 $12.65 to $12.85. This 2019 guidance assumes an effective corporate tax rate of 25.2%. Chemed’s 2018 reported adjusted earnings per diluted share was $11.93.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, February 21, 2019, 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 8283536. 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 8283536. 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 18,000 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.

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 December 31, For the Years Ended December 31,
2018 2017 2018 2017
Service revenues and sales $ 457,507   $ 428,357   $ 1,782,648   $ 1,666,724  
Cost of services provided and goods sold 313,054 291,493 1,228,644 1,150,532
Selling, general and administrative expenses (aa) 65,735 71,621 270,209 276,652
Depreciation 9,822 8,943 38,464 35,488
Amortization 303 26 399 137
Other operating (income)/expenses   1,212     (258 )   1,300     90,880  
Total costs and expenses   390,126     371,825     1,539,016     1,553,689  
Income from operations 67,381 56,532 243,632 113,035
Interest expense (1,177 ) (1,108 ) (4,990 ) (4,272 )
Other income--net (bb)   (3,398 )   2,715     958     8,154  
Income before income taxes 62,806 58,139 239,600 116,917
Income taxes   (8,478 )   (3,587 )   (34,056 )   (18,740 )
Net income $ 54,328   $ 54,552   $ 205,544   $ 98,177  
 
 
Earnings Per Share
Net income $ 3.39   $ 3.40   $ 12.80   $ 6.11  
Average number of shares outstanding   16,026     16,026     16,059     16,057  
 
Diluted Earnings Per Share
Net income $ 3.26   $ 3.25   $ 12.23   $ 5.86  
Average number of shares outstanding   16,670     16,776     16,803     16,742  
                               
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
 
Three Months Ended December 31, For the Years Ended December 31,
2018 2017 2018 2017

SG&A expenses before long-term incentive compensation, expenses related to the OIG investigation and the impact of market value adjustments related to deferred compensation plans

$ 67,034 $ 66,821 $ 263,304 $ 258,034

Market value adjustments related to deferred compensation plans

(3,541 ) 2,811 287 8,430
Long-term incentive compensation 2,242 1,973 6,618 4,994
Expenses related to the OIG investigation   -     16     -     5,194  
Total SG&A expenses $ 65,735   $ 71,621   $ 270,209   $ 276,652  
 
(bb) Other income--net comprises (in thousands):
 
Three Months Ended December 31, For the Years Ended December 31,
2018 2017 2018 2017

 

Market value adjustments related to deferred compensation plans

$ (3,541 ) $ 2,811 $ 287 $ 8,430
Interest income 143 131 671 427
Other   -     (227 )   -     (703 )
Total other income--net $ (3,398 ) $ 2,715   $ 958   $ 8,154  
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                   
December 31,
2018 2017
Assets
Current assets
Cash and cash equivalents $ 4,831 $ 11,121
Accounts receivable less allowances 119,504 113,651
Inventories 5,705 5,334
Prepaid income taxes 10,646 29,848
Prepaid expenses   19,154     16,092  
Total current assets 159,840 176,046
Investments of deferred compensation plans held in trust 65,624 62,067
Properties and equipment, at cost less accumulated depreciation 162,033 143,034
Identifiable intangible assets less accumulated amortization 68,253 54,865
Goodwill 510,570 476,887
Other assets   9,209     7,127  
Total Assets $ 975,529   $ 920,026  
 
Liabilities
Current liabilities
Accounts payable $ 50,150 $ 48,372
Current portion of long-term debt - 10,000
Accrued insurance 46,095 46,968
Accrued compensation 63,329 62,933
Accrued legal 1,857 1,786
Other current liabilities   30,239     23,463  
Total current liabilities 191,670 193,522
Deferred income taxes 21,598 16,640
Long-term debt 89,200 91,200
Deferred compensation liabilities 64,616 61,800
Other liabilities   17,111     16,510  
Total Liabilities   384,195     379,672  
 
Stockholders' Equity
Capital stock 35,311 34,732
Paid-in capital 774,358 695,797
Retained earnings 1,225,617 1,038,955
Treasury stock, at cost (1,446,296 ) (1,231,332 )
Deferred compensation payable in Company stock   2,344     2,202  
Total Stockholders' Equity   591,334     540,354  
Total Liabilities and Stockholders' Equity $ 975,529   $ 920,026  
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                     
For the Years Ended December 31,
2018 2017
Cash Flows from Operating Activities
Net income $ 205,544 $ 98,177

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 38,863 35,625
Stock option expense 12,611 10,485
Noncash long-term incentive compensation 5,405 3,774
Benefit for deferred income taxes 5,187 2,407
Noncash directors' compensation 766 766
Amortization of restricted stock awards 446 1,231
Amortization of debt issuance costs 441 516
Provision for uncollectible accounts receivable - 17,306
Loss on sale of transportation equipment - 5,266

Changes in operating assets and liabilities, excluding amounts acquired in business combinations:

(Increase)/decrease in accounts receivable (5,570 ) 1,072
(Increase)/decrease in inventories (351 ) 421
Increase in prepaid expenses (2,665 ) (2,987 )

Decrease in accounts payable and other current liabilities

8,935 12,890
Change in current income taxes 18,898 (26,104 )
Increase in other assets (5,544 ) (8,330 )
Increase in other liabilities 3,451 8,561
Other sources   721     1,419  
Net cash provided by operating activities   287,138     162,495  
Cash Flows from Investing Activities
Capital expenditures (52,872 ) (64,300 )
Business combinations, net of cash acquired (53,177 ) (4,725 )
Other sources   824     1,417  
Net cash used by investing activities   (105,225 )   (67,608 )
Cash Flows from Financing Activities
Proceeds from revolving line of credit 469,550 212,350
Payments on revolving line of credit (406,550 ) (211,150 )
Purchases of treasury stock (158,884 ) (94,640 )
Payments on other long-term debt (75,000 ) (8,750 )
Proceeds from exercise of stock options 32,412 27,092
Capital stock surrendered to pay taxes on stock-based compensation (27,548 ) (14,223 )
Dividends paid (18,662 ) (17,371 )
Change in cash overdrafts payable (1,531 ) 6,700
Debt issuance costs (1,052 ) -
Other (uses)/sources   (938 )   916  
Net cash used by financing activities   (188,203 )   (99,076 )
Decrease in Cash and Cash Equivalents (6,290 ) (4,189 )
Cash and cash equivalents at beginning of year   11,121     15,310  
Cash and cash equivalents at end of period $ 4,831   $ 11,121  
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(in thousands)(unaudited)

 
                  Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Service revenues and sales $ 306,985   $ 150,522   $ -   $ 457,507  
Cost of services provided and goods sold 235,971 77,083 - 313,054
Selling, general and administrative expenses (a) 19,363 37,563 8,809 65,735
Depreciation 4,935 4,847 40 9,822
Amortization 12 291 - 303
Other operating expense   1,114     98     -     1,212  
Total costs and expenses   261,395     119,882     8,849     390,126  
Income/(loss) from operations 45,590 30,640 (8,849 ) 67,381
Interest expense (22 ) (64 ) (1,091 ) (1,177 )
Intercompany interest income/(expense) 3,308 1,678 (4,986 ) -
Other income—net   110     32     (3,540 )   (3,398 )
Income/(loss) before income taxes 48,986 32,286 (18,466 ) 62,806
Income taxes (a)   (9,860 )   (6,375 )   7,757     (8,478 )
Net income/(loss) $ 39,126   $ 25,911   $ (10,709 ) $ 54,328  
 
2017
Service revenues and sales $ 292,283   $ 136,074   $ -   $ 428,357  
Cost of services provided and goods sold 222,497 68,996 - 291,493
Selling, general and administrative expenses (b) 22,607 35,330 13,684 71,621
Depreciation 4,568 4,344 31 8,943
Amortization - 26 - 26
Other operating expense/(income)   (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 (b)   (8,406 )   (3,228 )   8,047     (3,587 )
Net income/(loss) $ 42,848   $ 25,583   $ (13,879 ) $ 54,552  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(in thousands)(unaudited)

                 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Service revenues and sales $ 1,197,562   $ 585,086   $ -   $ 1,782,648  
Cost of services provided and goods sold 929,306 299,338 - 1,228,644
Selling, general and administrative expenses (a) 80,969 145,683 43,557 270,209
Depreciation 19,688 18,629 147 38,464
Amortization 12 387 - 399
Other operating expenses   1,130     170     -     1,300  
Total costs and expenses   1,031,105     464,207     43,704     1,539,016  
Income/(loss) from operations 166,457 120,879 (43,704 ) 243,632
Interest expense (175 ) (319 ) (4,496 ) (4,990 )
Intercompany interest income/(expense) 12,832 6,908 (19,740 ) -
Other income—net   579     93     286     958  
Income/(loss) before income taxes 179,693 127,561 (67,654 ) 239,600
Income taxes (a)   (40,847 )   (28,850 )   35,641     (34,056 )
Net income/(loss) $ 138,846   $ 98,711   $ (32,013 ) $ 205,544  
 
2017
Service revenues and sales $ 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 (b) 95,215 136,248 45,189 276,652
Depreciation 18,616 16,667 205 35,488
Amortization 14 123 - 137
Other operating expenses   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 (b)   (16,436 )   (32,782 )   30,478     (18,740 )
Net income/(loss) $ 57,645   $ 73,299   $ (32,767 ) $ 98,177  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

(in thousands)(unaudited)

                 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Net income/(loss) $ 39,126 $ 25,911 $ (10,709 ) $ 54,328
Add/(deduct):
Interest expense 22 64 1,091 1,177
Income taxes 9,860 6,375 (7,757 ) 8,478
Depreciation 4,935 4,847 40 9,822
Amortization 12     291     -     303  
EBITDA 53,955 37,488 (17,335 ) 74,108
Add/(deduct):
Intercompany interest expense/(income) (3,308 ) (1,678 ) 4,986 -
Medicare cap sequestration adjustment 456 - - 456
Acquisition expense 32 371 - 403
Litigation settlement costs 1,000 - - 1,000
Interest income (111 ) (32 ) - (143 )

Stock option expense

- - 3,251 3,251
Long-term incentive compensation   -     -     2,242     2,242  
Adjusted EBITDA $ 52,024   $ 36,149   $ (6,856 ) $ 81,317  
 
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 - (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  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(in thousands)(unaudited)

                 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Net income/(loss) $ 138,846 $ 98,711 $ (32,013 ) $ 205,544
Add/(deduct):
Interest expense 175 319 4,496 4,990
Income taxes 40,847 28,850 (35,641 ) 34,056
Depreciation 19,688 18,629 147 38,464
Amortization   12     387     -     399  
EBITDA 199,568 146,896 (63,011 ) 283,453
Add/(deduct):
Intercompany interest expense/(income) (12,832 ) (6,908 ) 19,740 -
Medicare cap sequestration adjustment 1,496 - - 1,496
Interest income (580 ) (92 ) 1 (671 )
Accrued litigation settlement 796 - - 796
Acquisition Expense 209 548 - 757
Amortization of stock awards 107 100 239 446
Stock option expense - - 12,611 12,611
Long-term incentive compensation   -     -     6,618     6,618  
Adjusted EBITDA $ 188,764   $ 140,544   $ (23,802 ) $ 305,506  
 
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
Expenses related to OIG investigation 5,194 - - 5,194
Program closure expenses 1,138 - - 1,138
Amortization of stock awards 291 269 670 1,230
Advertising cost adjustment - (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  
 
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,
2018 2017 2018 2017
Net income as reported $ 54,328 $ 54,552 $ 205,544 $ 98,177
 
Add/(deduct) pre-tax cost of:
 
Stock option expense 3,251 2,747 12,611 10,485
Long-term incentive compensation 2,242 1,973 6,618 4,994
Litigation settlement 1,000 (5,524 ) 796 84,689
Medicare cap sequestration adjustments 456 342 1,496 447
Acquisition expenses 403 - 757 -
Loss on sale of transportation equipment - 5,266 - 5,266
Expenses of OIG investigation - 16 - 5,194
Program closure expenses - - - 1,138
Add/(deduct) tax impacts:
Tax impact of the above pre-tax adjustments (1) (1,527 ) (1,379 ) (4,586 ) (42,102 )
Impact of tax reform - (8,302 ) - (8,302 )
Excess tax benefits on stock compensation   (4,244 )   (10,811 )   (22,862 )   (18,932 )
Adjusted net income

$

55,909

  $

38,880

 

$

200,374

  $ 141,054  
 
 
Diluted Earnings Per Share As Reported
Net income $ 3.26   $ 3.25   $ 12.23   $ 5.86  
Average number of shares outstanding   16,670     16,776     16,803     16,742  
 
 
Adjusted Diluted Earnings Per Share
Adjusted net income $ 3.35   $ 2.32   $ 11.93   $ 8.43  
Average number of shares outstanding   16,670     16,776     16,803     16,742  
 

(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.

 
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 2018 2017 2018 2017
Net revenue ($000) (c)
Homecare $ 261,972 $ 242,554 $ 1,010,518 $ 935,913
Inpatient 20,874 22,033 82,677 90,472
Continuous care 30,834 30,131 122,498 124,557
Other   1,986     -     7,831     -  
Subtotal $ 315,666 $ 294,718 $ 1,223,524 $ 1,150,942
Room and board, net (2,191 ) - (10,054 ) -
Contractual allowances (3,036 ) - (11,785 ) -
Medicare cap allowance   (3,454 )   (2,435 )   (4,123 )   (2,682 )
Net Revenue $ 306,985   $ 292,283   $ 1,197,562   $ 1,148,260  
Net revenue as a percent of total before Medicare cap allowance
Homecare 83.0 % 82.3 % 82.6 % 81.2 %
Inpatient 6.6 7.5 6.8 7.9
Continuous care 9.8 10.2 10.0 10.9
Other   0.6     -     0.6     -  
Subtotal 100.0 100.0 100.0 100.0
Room and board, net (0.7 ) - (0.8 ) -
Contractual allowances (1.0 ) - (1.1 ) -
Medicare cap allowance   (1.1 )   (0.8 )   (0.2 )   (0.2 )
Net Revenue   97.2   %   99.2   %   97.9   % 99.8   %
Average daily census ("ADC") (days)
Homecare 14,062 12,861 13,652 12,549
Nursing home   3,297     3,265     3,298     3,177  
Routine homecare 17,359 16,126 16,950 15,726
Inpatient 326 342 327 354
Continuous care   464     452     465     470  
Total   18,149     16,920     17,742     16,550  
 
Total Admissions 16,579 16,575 68,119 66,449
Total Discharges 16,623 16,553 66,868 65,637
Average length of stay (days) 92.6 91.4 89.9 88.8
Median length of stay (days) 17.0 16.0 17.0 16.0
ADC by major diagnosis
Cerebro 35.8 % 36.1 % 36.3 % 35.5 %
Neurological 18.6 18.5 19.0 19.2
Cancer 13.7 14.1 13.7 14.6
Cardio 16.3 16.4 16.4 16.5
Respiratory 8.0 8.0 8.2 7.9
Other   7.6     6.9     6.4     6.3  
Total   100.0   %   100.0   %   100.0   % 100.0   %
Admissions by major diagnosis
Cerebro 20.9 % 22.3 % 21.8 % 22.0 %
Neurological 11.5 10.7 11.4 10.6
Cancer 31.1 30.0 30.2 30.6
Cardio 14.6 14.9 15.4 15.0
Respiratory 10.1 10.7 10.9 10.8
Other   11.8     11.4     10.3     11.0  
Total   100.0   %   100.0   %   100.0   % 100.0   %
Direct patient care margins (d)
Routine homecare 53.9 % 53.9 % 53.0 % 52.6 %
Inpatient 3.9 8.5 4.7 5.4
Continuous care 18.4 16.8 17.7 16.9
Homecare margin drivers (dollars per patient day)
Labor costs $ 56.82 $ 55.65 $ 57.59 $ 56.80

Combined drug, home medical equipment and medical supplies cost

13.58 14.30 14.06 14.65
Inpatient margin drivers (dollars per patient day)
Labor costs $ 379.17 $ 355.96 $ 376.53 $ 366.41
Continuous care margin drivers (dollars per patient day)
Labor costs $ 571.18 $ 583.45 $ 575.36 $ 584.49
Bad debt expense as a percent of revenues 1.0 % 1.1 % 1.0 % 1.1 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 35.0 33.7 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 24.6 25.0

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, 2018 AND 2017
(unaudited)
                     
 
(a) Included in the results of operations for 2018 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended December 31, 2018
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (456 ) $ - $ - $ (456 )
Selling, general and administrative expenses:
Litigation settlement (1,000 ) - - (1,000 )
Acquisition expense (32 ) (371 ) - (403 )
Stock option expense - - (3,251 ) (3,251 )
Long-term incentive compensation   -     -     (2,242 )   (2,242 )
Pretax impact on earnings (1,488 ) (371 ) (5,493 ) (7,352 )
Excess tax benefits on stock compensation - - 4,244 4,244
Income tax benefit on the above   381     98     1,048     1,527  
After-tax impact on earnings $ (1,107 ) $ (273 ) $ (201 ) $ (1,581 )
 
For the Year Ended December 31, 2018
VITAS

Roto-Rooter

Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (1,496 ) $ - $ - $ (1,496 )
Selling, general and administrative expenses:
Litigation settlement (796 ) - - (796 )
Acquisition expense (209 ) (548 ) - (757 )
Stock option expense - - (12,611 ) (12,611 )
Long-term incentive compensation   -     -     (6,618 )   (6,618 )
Pretax impact on earnings (2,501 ) (548 ) (19,229 ) (22,278 )
Excess tax benefits on stock compensation - - 22,862 22,862
Income tax benefit on the above   637     145     3,804     4,586  
After-tax impact on earnings $ (1,864 ) $ (403 ) $ 7,437   $ 5,170  
 
(b) Included in the results of operations for 2017 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
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 )
Litigation settlement - (213 ) - (213 )
Stock option expense - - (10,485 ) (10,485 )
Long-term incentive compensation - - (4,994 ) (4,994 )
Other operating expenses:
Litigation settlement (84,476 ) - - (84,476 )
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 )
 
(c)  

VITAS has 11 large (greater than 450 ADC), 18 medium (greater than 200 but less than 450 ADC) and 18 small (less than 200 ADC) hospice programs.  Of VITAS' 30 Medicare provider numbers, 25 provider numbers have a Medicare cap cushion of 10% or greater during the current cap year, one provider number has a Medicare cap cushion between 5% and 10%, two provider numbers have a Medicare cap cushion between 0% and 5%, and two provider numbers would have a Medicare cap liability.

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

Source: Chemed Corporation

David P. Williams
(513) 762-6901

All information current at time of original publication. Read complete disclaimer for details.
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Page last modified: 04/18/05