Chemed Reports Second-Quarter 2017 Results
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Chemed Reports Second-Quarter 2017 Results

-Earnings Guidance Increased-

CINCINNATI--(BUSINESS WIRE)--Jul. 25, 2017-- Chemed Corporation (Chemed) (NYSE: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, 2017, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 6.3% to $415 million
  • GAAP Loss-per-Share of ($1.35) which includes ($3.49) for potential litigation settlement
  • Adjusted Diluted EPS increased 19.4% to $2.15

VITAS segment operating results:

  • Net Patient Revenue of $285 million, an increase of 2.1%
  • Unit-for-Unit Average Daily Census (ADC) of 16,398, an increase of 3.4%
  • Unit-for-Unit Admissions of 16,311, an increase of 1.3%
  • Net Loss, including potential litigation settlement, of ($32.3) million
  • Adjusted EBITDA of $42.6 million, an increase of 10.3%

Roto-Rooter segment operating results:

  • Revenue of $130 million, an increase of 16.7%
  • Net Income of $17.1 million, an increase of 27.9%
  • Adjusted EBITDA of $30.5 million, an increase of 26.0%
  • Adjusted EBITDA margin of 23.4%, an increase of 173 basis points

The GAAP Loss-per-Share noted above includes $55.8 million ($3.49 per share) of after-tax expense ($90 million pre-tax) for the accrual of a potential litigation settlement related to the May 2, 2013 complaint filed against the Company by the U.S. Department of Justice. As required by U.S. Generally Accepted Accounting Principles, the Company accrues for contingent loss claims in its financial statements when it is probable that a liability has been incurred and the amount can be reasonably estimated. Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, the Company believes that it is probable that this matter will be settled, and that such settlement will include settlement payments and relator attorney fees, by the Company of approximately the accrued amount. However, the achievement of a final, definitive settlement will require the parties to resolve several outstanding issues (and draft and negotiate related definitive documentation), and there can be no assurance that such a final, definitive settlement will be reached and agreed on these or other terms.

VITAS

Net revenue for VITAS was $285 million in the second quarter of 2017, which is an increase of 2.1%, when compared to the prior-year period. This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 1.7%, a 2.8% increase in average daily census, offset by acuity mix shift which negatively impacted revenue 2.5%, when compared to the prior-year period.

In the second quarter of 2017, VITAS had a 25.7/74.3 RHC Days-of-Care ratio and generated approximately $1.2 million in SIA revenue. This compares to a 2016 RHC Days-of-Care ratio of 25.0/75.0 and SIA revenue of $1.0 million.

VITAS recorded $247,000 in Medicare Cap billing limitations in the quarter, all of which related to the 2013, 2014 or 2015 Medicare Cap billing periods.

At June 30, 2017, VITAS had 30 Medicare provider numbers, none of which has an estimated 2017 Medicare Cap billing limitation.

Of VITAS’ 30 unique Medicare provider numbers, 29 provider numbers have a Medicare Cap cushion of 10% or greater and one provider number has a cap cushion between 0% and 5% on a trailing twelve-month period.

Average revenue per patient per day in the quarter was $190.96, which is 0.6% below the prior-year period. Routine home care reimbursement and high acuity care averaged $163.11 and $722.16, respectively. During the quarter, high acuity days of care were 5.0% of total days of care, 85 basis points less than the prior-year quarter.

The second quarter of 2017 gross margin, excluding Medicare Cap, was 22.9%, which is a 133 basis point improvement when compared to the second quarter of 2016.

Selling, general and administrative expense was $24.5 million in the second quarter of 2017, which is an increase of 8.4% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $42.8 million in the quarter, an increase of 10.9%. Adjusted EBITDA margin, excluding Medicare Cap, was 15.0% in the quarter which is 118 basis points improvement when compared to the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $130 million for the second quarter of 2017, an increase of $18.7 million, or 16.7%, over the prior-year quarter. Revenue from water restoration totaled $20.9 million, an increase of $8.8 million or 72.1%, when compared to the prior-year quarter.

Roto-Rooter’s gross margin in the quarter was 49.3%, an 85 basis point improvement when compared to the second quarter of 2016. Adjusted EBITDA in the second quarter of 2017 totaled $30.5 million, an increase of 26.0%, and the Adjusted EBITDA margin was 23.4% in the quarter, 173 basis points higher than the prior year.

Chemed Consolidated

As of June 30, 2017, Chemed had total cash and cash equivalents of $14 million and debt of $125 million.

In June 2014, Chemed entered into a five-year Amended and Restated Credit Agreement that consisted of a $100 million amortizable term loan and a $350 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 112.5 basis points. At June 30, 2017, the Company had approximately $269 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through June 30, 2017, aggregated $28.1 million and compares to depreciation and amortization during the same period of $17.8 million.

During the quarter, the Company repurchased 150,000 shares of Chemed stock for $30.8 million which equates to a cost per share of $205.34. On March 10, 2017, Chemed’s Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. As of June 30, 2017, there was $65.1 million of remaining share repurchase authorization under this plan.

Updated Guidance for 2017

Revenue growth for VITAS in 2017, prior to Medicare Cap, is estimated to be in the range of 2% to 3%. Admissions and Average Daily Census in 2017 are estimated to expand approximately 3% to 5% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.0% to 15.5%. We are currently estimating $2.5 million for Medicare Cap billing limitations in the 2017 calendar year.

Roto-Rooter is forecasted to achieve full-year 2017 revenue growth of 12% to 13%. This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services. Adjusted EBITDA margin for 2017 is estimated in the range of 22.0% to 22.5%.

Based upon the above, full-year 2017 adjusted earnings per diluted share, excluding non-cash expense for stock options, costs related to litigation, and other discrete items, is estimated to be in the range of $8.10 to $8.20. This compares to Chemed’s 2016 reported adjusted earnings per diluted share of $7.24.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Wednesday July 26, 2017, 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 52397487. 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 52397487. 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 16,000 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 restoration 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 June 30, Six Months Ended June 30,
2017 2016 2017 2016
Service revenues and sales $ 415,059   $ 390,409   $ 820,923   $ 780,798  
Cost of services provided and goods sold 285,852 276,255 570,992 554,690
Selling, general and administrative expenses (aa) 68,654 62,628 138,112 121,673

Depreciation

8,833 8,581 17,726 17,005
Amortization 32 91 78 183
Other operating expenses   90,636     4,491     91,509     4,491  
Total costs and expenses   454,007     352,046     818,417     698,042  
Income/(loss) from operations (38,948 ) 38,363 2,506 82,756
Interest expense (1,121 ) (971 ) (2,116 ) (1,813 )
Other income--net (bb)   1,653     3,217     4,116     293  
Income/(loss) before income taxes (38,416 ) 40,609 4,506 81,236
Income taxes   16,760     (15,724 )   3,682     (31,511 )
Net income/(loss) $ (21,656 ) $ 24,885   $ 8,188   $ 49,725  
 
 
Earnings Per Share
Net income/(loss) $ (1.35 ) $ 1.51   $ 0.51   $ 3.00  
Average number of shares outstanding   16,010     16,443     16,114     16,583  
 
Diluted Earnings Per Share
Net income/(loss) $ (1.35 ) $ 1.48   $ 0.49   $ 2.93  
Average number of shares outstanding   16,010     16,831     16,758     16,999  
 
 
 
                   
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
 
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016

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

$ 64,018 $ 57,771 $ 127,750 $ 117,708
Expenses related to the O.I.G. investigation 2,093 1,170 4,243 3,506

Market value adjustments related to deferred compensation plans

1,587 3,188 4,202 201
Long-term incentive compensation   956     499     1,917     258  
Total SG&A expenses $ 68,654   $ 62,628   $ 138,112   $ 121,673  
 
(bb) Other income--net comprises (in thousands):
Three Months Ended June 30,   Six Months Ended June 30,
2017   2016   2017   2016  

Market value adjustments related to deferred compensation plans

$ 1,587 $ 3,188 $ 4,202 $ 201
Interest income 161 85 245 182
Loss on disposal of property and equipment (98 ) (57 ) (334 ) (90 )
Other   3     1     3     -  

Total other income--net

$ 1,653   $ 3,217   $ 4,116   $ 293  

               

 CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
         
 
June 30,
2017 2016
Assets
Current assets
Cash and cash equivalents $ 13,753 $ 17,474
Accounts receivable less allowances 117,906 98,952
Inventories 5,618 6,120
Prepaid income taxes 4,537 8,964
Prepaid expenses   14,678     15,457  

Total current assets

156,492 146,967
Investments of deferred compensation plans held in trust 58,579 53,127
Properties and equipment, at cost less accumulated depreciation 140,209 118,502
Identifiable intangible assets less accumulated amortization 54,737 54,928
Goodwill 472,897 472,471

Deferred income taxes

20,593

11

Other assets  

6,767

   

6,949

 
Total Assets $ 910,274   $ 852,955  
 
Liabilities
Current liabilities
Accounts payable $ 49,154 $ 41,962
Current portion of long-term debt 10,000 7,500
Income taxes 3,815 -
Accrued insurance 44,905 44,704
Accrued compensation 48,082 51,289
Accrued legal 92,502 1,729
Other current liabilities   20,142     20,267  
Total current liabilities 268,600 167,451
Deferred income taxes - 16,832
Long-term debt 115,000 140,000
Deferred compensation liabilities 57,811 52,452
Other liabilities   15,780     14,638  
Total Liabilities   457,191     391,373  
 
Stockholders' Equity
Capital stock 34,470 34,105
Paid-in capital 661,553 617,793
Retained earnings 957,941 907,531
Treasury stock, at cost (1,203,077 ) (1,100,314 )
Deferred compensation payable in Company stock   2,196     2,467  
Total Stockholders' Equity   453,083     461,582  
Total Liabilities and Stockholders' Equity $ 910,274   $ 852,955  

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                     
 
Six Months Ended June 30,
2017

2016

Cash Flows from Operating Activities
Net income $ 8,188

$

49,725

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

Depreciation and amortization 17,804

17,188

Provision for uncollectible accounts receivable 8,250

8,124

Stock option expense 6,055

4,840

Benefit for deferred income taxes (34,876 )

(4,244

)

Potential litigation settlement 90,000

-

Noncash early retirement expense -

1,747

Amortization of restricted stock awards 638

974

Noncash directors' compensation 766

541

Noncash long-term incentive compensation 1,783

196

Amortization of debt issuance costs 258

260

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

Decrease/(increase) in accounts receivable 5,804

(839

)

Decrease in inventories 137

194

Increase in prepaid expenses (1,573 )

(2,605

)

Decrease in accounts payable and other current liabilities

(6,931 )

(4,879

)

Increase in income taxes 2,982

3,109

Increase in other assets (4,152 )

(3,636

)

Increase in other liabilities 3,754

4,145

Excess tax benefit on share-based compensation -

(1,383

)

Other sources/(uses)   1,437    

(9

)

Net cash provided by operating activities   100,324    

73,448

 
Cash Flows from Investing Activities
Capital expenditures (28,133 )

(19,983

)

Business combinations, net of cash acquired (525 )

-

Other sources   87    

214

 
Net cash used by investing activities   (28,571 )  

(19,769

)

Cash Flows from Financing Activities
Proceeds from revolving line of credit 135,800

92,400

Payments on revolving line of credit (115,800 )

(32,400

)

Purchases of treasury stock (85,063 )

(94,337

)

Dividends paid (8,396 )

(8,039

)

Decrease in cash overdrafts payable (1,090 )

(5,440

)

Capital stock surrendered to pay taxes on stock-based compensation (5,716 )

(5,163

)

Payments on other long-term debt (3,750 )

(3,750

)

Proceeds from exercise of stock options 10,398

3,533

Excess tax benefit on share-based compensation -

1,383

Other sources   307    

881

 
Net cash used by financing activities   (73,310 )  

(50,932

)

Increase/(Decrease) in Cash and Cash Equivalents (1,557 )

2,747

Cash and cash equivalents at beginning of year   15,310    

14,727

 
Cash and cash equivalents at end of period $ 13,753  

$

17,474

 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016
(in thousands)(unaudited)
             
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017
Service revenues and sales $ 284,710   $ 130,349   $ -   $ 415,059  
Cost of services provided and goods sold 219,769 66,083 - 285,852
Selling, general and administrative expenses (a) 24,531 33,763 10,360 68,654
Depreciation 4,741 4,070 22 8,833
Amortization - 32 - 32
Other operating expenses   90,636     -     -     90,636  
Total costs and expenses   339,677     103,948     10,382     454,007  
Income/(loss) from operations (54,967 ) 26,401 (10,382 ) (38,948 )
Interest expense (a) (53 ) (87 ) (981 ) (1,121 )
Intercompany interest income/(expense) 2,826 1,346 (4,172 ) -
Other income/(expense)—net   71     (4 )   1,586     1,653  
Income/(loss) before income taxes (52,123 ) 27,656 (13,949 ) (38,416 )
Income taxes (a)   19,869     (10,598 )   7,489     16,760  
Net income/(loss) $ (32,254 ) $ 17,058   $ (6,460 ) $ (21,656 )
 
2016
Service revenues and sales $ 278,739   $ 111,670   $ -   $ 390,409  
Cost of services provided and goods sold 218,694 57,561 - 276,255
Selling, general and administrative expenses (a) 22,638 29,448 10,542 62,628
Depreciation 4,814 3,628 139 8,581
Amortization 14 77 - 91
Other operating expenses   4,491     -     -     4,491  
Total costs and expenses   250,651     90,714     10,681     352,046  
Income/(loss) from operations 28,088 20,956 (10,681 ) 38,363
Interest expense (a) (59 ) (92 ) (820 ) (971 )
Intercompany interest income/(expense) 1,927 866 (2,793 ) -
Other income/(expense)—net   38     (12 )   3,191     3,217  
Income/(loss) before income taxes 29,994 21,718 (11,103 ) 40,609
Income taxes (a)   (11,444 )   (8,377 )   4,097     (15,724 )
Net income/(loss) $ 18,550   $ 13,341   $ (7,006 ) $ 24,885  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(in thousands)(unaudited)
             
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017

 

Service revenues and sales $ 567,026   $ 253,897   $ -   $ 820,923  
Cost of services provided and goods sold 441,446 129,546 - 570,992
Selling, general and administrative expenses (a) 48,825 67,223 22,064 138,112
Depreciation 9,519 8,054 153 17,726
Amortization 14 64 - 78
Other operating expenses   91,509     -     -     91,509  
Total costs and expenses   591,313     204,887     22,217     818,417  
Income/(loss) from operations (24,287 ) 49,010 (22,217 ) 2,506
Interest expense (a) (108 ) (185 ) (1,823 ) (2,116 )
Intercompany interest income/(expense) 5,528 2,656 (8,184 ) -
Other income/(expense)—net   (9 )   (77 )   4,202     4,116  
Income/(loss) before income taxes (18,876 ) 51,404 (28,022 ) 4,506
Income taxes (a)   7,219     (19,722 )   16,185     3,682  
Net income/(loss) $ (11,657 ) $ 31,682   $ (11,837 ) $ 8,188  
 
2016
Service revenues and sales $ 556,266   $ 224,532   $ -   $ 780,798  
Cost of services provided and goods sold 437,960 116,730 - 554,690
Selling, general and administrative expenses (a) 47,422 59,255 14,996 121,673
Depreciation 9,595 7,129 281 17,005
Amortization 27 156 - 183
Other operating expenses   4,491     -     -     4,491  
Total costs and expenses   499,495     183,270     15,277     698,042  
Income/(loss) from operations 56,771 41,262 (15,277 ) 82,756
Interest expense (a) (117 ) (186 ) (1,510 ) (1,813 )
Intercompany interest income/(expense) 4,030 1,813 (5,843 ) -
Other income/(expense)—net   78     12     203     293  
Income/(loss) before income taxes 60,762 42,901 (22,427 ) 81,236
Income taxes (a)   (23,125 )   (16,542 )   8,156     (31,511 )
Net income/(loss) $ 37,637   $ 26,359   $ (14,271 ) $ 49,725  
 
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 JUNE 30, 2017 AND 2016
(in thousands)(unaudited)
           
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017
Net income/(loss) $ (32,254 ) $ 17,058 $ (6,460 ) $ (21,656 )
Add/(deduct):
Interest expense 53 87 981 1,121
Income taxes (19,869 ) 10,598 (7,489 ) (16,760 )
Depreciation 4,741 4,070 22 8,833
Amortization -     32     -     32  
EBITDA (47,329 ) 31,845 (12,946 ) (28,430 )
Add/(deduct):
Intercompany interest expense/(income) (2,826 ) (1,346 ) 4,172 -
Interest income (149 ) (12 ) - (161 )
Potential litigation settlement 90,000 - - 90,000
Expenses related to OIG investigation 2,093 - - 2,093
Program closure expenses 636 - - 636
Medicare cap sequestration adjustment 105 - - 105
Amortization of stock awards 71 66 166 303
Advertising cost adjustment (c) - (272 ) - (272 )
Expenses related to litigation settlements - 213 - 213

Stock option expense

- - 3,054

3,054

Long-term incentive compensation   -     -     956     956  
Adjusted EBITDA $ 42,601   $ 30,494   $ (4,598 ) $ 68,497  
 
2016
Net income/(loss) $ 18,550 $ 13,341 $ (7,006 ) $ 24,885
Add/(deduct):
Interest expense 59 92 820 971
Income taxes 11,444 8,377 (4,097 ) 15,724
Depreciation 4,814 3,628 139 8,581
Amortization 14     77     -     91  
EBITDA 34,881 25,515 (10,144 ) 50,252
Add/(deduct):
Intercompany interest expense/(income) (1,927 ) (866 ) 2,793 -
Interest income (69 ) (16 ) - (85 )
Early retirement expenses 4,491 - - 4,491
Expenses related to OIG investigation 1,170 - - 1,170
Amortization of stock awards 85 74 276 435
Advertising cost adjustment (c) - (557 ) - (557 )
Expenses related to litigation settlements - 44 - 44

Stock option expense

- - 2,277 2,277
Long-term incentive compensation - - 499 499
Net expenses related to securities litigation   -     -     (3 )   (3 )
Adjusted EBITDA $ 38,631   $ 24,194   $ (4,302 ) $ 58,523  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(in thousands)(unaudited)
         
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2017
Net income/(loss) $ (11,657 ) $ 31,682 $ (11,837 ) $ 8,188
Add/(deduct):
Interest expense 108 185 1,823 2,116
Income taxes (7,219 ) 19,722 (16,185 ) (3,682 )
Depreciation 9,519 8,054 153 17,726
Amortization   14     64     -     78  
EBITDA (9,235 ) 59,707 (26,046 ) 24,426
Add/(deduct):
Intercompany interest expense/(income) (5,528 ) (2,656 ) 8,184 -
Interest income (219 ) (26 ) - (245 )
Potential litigation settlement 90,000 - - 90,000
Medicare cap sequestration adjustment 105 - - 105
Program closure expenses 1,509 - - 1,509
Expenses related to OIG investigation 4,243 - - 4,243
Amortization of stock awards 148 136 354 638
Advertising cost adjustment (c) - (545 ) - (545 )
Expenses related to litigation settlements - 213 - 213
Stock option expense - - 6,055 6,055
Long-term incentive compensation   -     -     1,917     1,917  
Adjusted EBITDA $ 81,023   $ 56,829   $ (9,536 ) $ 128,316  
 

2016

Net income/(loss) $ 37,637 $ 26,359 $ (14,271 ) $ 49,725
Add/(deduct):
Interest expense 117 186 1,510 1,813
Income taxes 23,125 16,542 (8,156 ) 31,511
Depreciation 9,595 7,129 281 17,005
Amortization   27     156     -     183  
EBITDA 70,501 50,372 (20,636 ) 100,237
Add/(deduct):
Intercompany interest expense/(income) (4,030 ) (1,813 ) 5,843 -
Interest income (148 ) (34 ) - (182 )
Early retirement expenses 4,491 - - 4,491
Expenses related to OIG investigation 3,506 - - 3,506
Amortization of stock awards 216 155 603 974
Advertising cost adjustment (c) - (1,165 ) - (1,165 )
Expenses related to litigation settlements - 44 - 44
Stock option expense - - 4,840 4,840
Long-term incentive compensation   -     -     258     258  
Adjusted EBITDA $ 74,536   $ 47,559   $ (9,092 ) $ 113,003  
 
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 June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net income/(loss) as reported $ (21,656 ) $ 24,885 $ 8,188 $ 49,725
 
Add/(deduct) after-tax cost of:

Potential litigation settlement

55,800 - 55,800 -
Excess tax benefits on stock compensation (2,643 ) - (6,338 ) -
Stock option expense 1,931 1,440 3,828 3,061
Expenses of OIG investigation 1,292 722 2,620 2,165
Long-term incentive compensation 604 316 1,212 164
Program closure expenses 385 - 898 -
Expenses related to litigation settlements 129 27 129 27
Medicare cap sequestration adjustments 65 - 65 -
Early retirement expenses - 2,840 - 2,840
Net expenses related to securities litigation   -     (2 )   -     -
Adjusted net income $ 35,907   $ 30,228   $ 66,402   $ 57,982
 
 
Diluted Earnings Per Share As Reported
Net income/(loss) $ (1.35 ) $ 1.48   $ 0.49   $ 2.93
Average number of shares outstanding   16,010     16,831     16,758     16,999
 
 
Adjusted Diluted Earnings Per Share
Adjusted net income $ 2.15   $ 1.80   $ 3.96   $ 3.41
Average number of shares outstanding   16,702     16,831     16,758     16,999
 
The "Footnotes to Financial Statements" are integral parts of this financial information.

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(unaudited)
             
Three Months Ended June 30, Six Months Ended June 30,
OPERATING STATISTICS 2017 2016 2017 2016
Net revenue ($000) (d)
Homecare $ 231,258 $ 219,280 $ 456,794 $ 434,129
Inpatient 22,000 24,489 45,923 50,006
Continuous care   31,699     34,970     64,556     72,131  
Total before Medicare cap allowance $ 284,957 $ 278,739 $ 567,273 $ 556,266
Medicare cap allowance   (247 )   -     (247 )   -  
Total $ 284,710   $ 278,739   $ 567,026   $ 556,266  
Net revenue as a percent of total before Medicare cap allowance
Homecare 81.2 % 78.7 % 80.5 % 78.0 %
Inpatient 7.7 8.8 8.1 9.0
Continuous care   11.1     12.5     11.4     13.0  
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   (0.1 )   -     -     -  
Total   99.9   %   100.0   %   100.0   %   100.0   %
Average daily census ("ADC") (days)
Homecare 12,446 12,007 12,368 11,844
Nursing home   3,135     3,015     3,093     3,003  
Routine homecare 15,581 15,022 15,461 14,847
Inpatient 343 405 360 412
Continuous care   474     525     489     543  
Total   16,398     15,952     16,310     15,802  
 
Total Admissions 16,311 16,180 33,874 33,048
Total Discharges 16,124 15,960 33,344 32,707
Average length of stay (days) 85.2 84.2 87.1 83.9
Median length of stay (days) 16.0 16.0 16.0 16.0
ADC by major diagnosis
Cerebro 34.8 % 31.9 % 34.7 % 31.7 %
Neurological 19.5 21.3 19.6 21.7
Cardio 16.5 17.6 16.5 17.4
Cancer 14.9 15.2 15.0 15.3
Respiratory 7.9 7.8 7.9 7.8
Other   6.4     6.2     6.3     6.1  
Total   100.0   %   100.0   %   100.0   %   100.0   %
Admissions by major diagnosis
Cerebro 21.4 % 20.5 % 21.7 % 20.7 %
Neurological 10.7 10.8 10.8 11.0
Cancer 31.5 31.6 30.4 31.1
Cardio 15.1 15.7 15.1 15.7
Respiratory 10.2 10.2 11.0 10.6
Other   11.1     11.2     11.0     10.9  
Total   100.0   %   100.0   %   100.0   %   100.0   %
Direct patient care margins (e)
Routine homecare 52.8 % 51.9 % 52.1 % 52.0 %
Inpatient 3.7 4.6 4.8 5.1
Continuous care 18.0 13.8 16.8 14.5
Homecare margin drivers (dollars per patient day)
Labor costs $ 56.55 $ 56.29 $ 57.58 $ 56.50

Combined drug, home medical equipment and medical supplies cost

14.51 15.92 14.82 15.69
Inpatient margin drivers (dollars per patient day)
Labor costs $ 377.13 $ 341.29 $ 373.41 $ 339.98
Continuous care margin drivers (dollars per patient day)
Labor costs $ 583.87 $ 610.58 $ 587.39 $ 604.80
Bad debt expense as a percent of revenues 1.1 % 1.2 % 1.1 % 1.3 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 34.5 37.7 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 28.0 26.6 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 AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(unaudited)
                 
 
(a) 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 June 30, 2017
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (105 ) $ - $ - $ (105 )
Selling, general and administrative expenses:
Expenses related to OIG investigation (2,093 ) - - (2,093 )
Expenses related to litigation settlements - (213 ) - (213 )
Stock option expense - - (3,054 ) (3,054 )
Long-term incentive compensation - - (956 ) (956 )
Other operating expenses:
Potential litigation settlement (90,000 ) - - (90,000 )
Program closure expenses   (636 )   -     -     (636 )
Pretax impact on earnings (92,834 ) (213 ) (4,010 ) (97,057 )
Excess tax benefits on stock compensation - - 2,643 2,643
Income tax benefit on the above   35,292     84     1,475     36,851  
After-tax impact on earnings $ (57,542 ) $ (129 ) $ 108   $ (57,563 )
 
Six Months Ended June 30, 2017
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (105 ) $ - $ - $ (105 )
Selling, general and administrative expenses:
Expenses related to OIG investigation (4,243 ) - - (4,243 )
Expenses related to litigation settlements - (213 ) - (213 )
Stock option expense - - (6,055 ) (6,055 )
Long-term incentive compensation - - (1,917 ) (1,917 )
Other operating expenses:
Potential litigation settlement (90,000 ) - - (90,000 )
Program closure expenses   (1,509 )   -     -     (1,509 )
Pretax impact on earnings (95,857 ) (213 ) (7,972 ) (104,042 )
Excess tax benefits on stock compensation - - 6,338 6,338
Income tax benefit on the above   36,474     84     2,932     39,490  
After-tax impact on earnings $ (59,383 ) $ (129 ) $ 1,298   $ (58,214 )
 
(b) Included in the results of operations for 2016 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended June 30, 2016
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,170 ) $ - $ - $ (1,170 )
Expenses related to litigation settlements - (44 ) - (44 )
Stock option expense - - (2,277 ) (2,277 )
Long-term incentive compensation - - (499 ) (499 )
Net expenses related to securities litigation - - 3 3
Other operating expenses:
Early retirement expenses   (4,491 )   -     -     (4,491 )
Pretax impact on earnings (5,661 ) (44 ) (2,773 ) (8,478 )
Income tax benefit on the above   2,099     17     1,019     3,135  
After-tax impact on earnings $ (3,562 ) $ (27 ) $ (1,754 ) $ (5,343 )
 
Six Months Ended June 30, 2016
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:

Expenses related to OIG investigation

$ (3,506 ) $ - $ - $ (3,506 )
Expenses related to litigation settlements - (44 ) - (44 )
Stock option expense - - (4,840 ) (4,840 )

Long-term incentive compensation

- - (258 ) (258 )
Other operating expenses:
Early retirement expenses   (4,491 )   -     -     (4,491 )
Pretax impact on earnings (7,997 ) (44 ) (5,098 ) (13,139 )
Income tax benefit on the above   2,992     17     1,873     4,882  
After-tax impact on earnings $ (5,005 ) $ (27 ) $ (3,225 ) $ (8,257 )
 
 
(c)

Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the second quarters of 2017 and 2016, GAAP advertising expense for Roto-Rooter totaled $7,878,000 and $6,615,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2017 and 2016 would total $8,149,000 and $7,172,000, respectively.

 

Similarly, for the first six months of 2017 and 2016, GAAP advertising expense for Roto-Rooter totaled $14,784,000 and $12,898,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first six months of 2017 and 2016 would total $15,329,000 and $14,063,000, respectively.

 

(d)

VITAS has 9 large (greater than 450 ADC), 18 medium (greater than 200 but less than 450 ADC) and 17 small (less than 200 ADC) hospice programs. Of VITAS' 30 unique Medicare provider numbers, 29 provider numbers have a Medicare cap cushion of 10% or greater during the first six months of the current cap year and one provider number has a Medicare cap cushion between 5% and 10%.

 

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

 

Source: Chemed Corporation

Chemed Corporation
David P. Williams, 513-762-6901

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Page last modified: 04/18/05