Chemed Reports Third-Quarter 2018 Results - Earnings Guidance Increased
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Chemed Reports Third-Quarter 2018 Results - Earnings Guidance Increased

CINCINNATI--(BUSINESS WIRE)--Oct. 29, 2018-- 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 third quarter ended September 30, 2018, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 6.4% to $444 million
  • GAAP Diluted Earnings-per-Share (EPS) of $3.06, an increase of 43.7%
  • Adjusted Diluted EPS of $3.07, an increase of 42.8%

VITAS segment operating results:

  • Net Patient Revenue of $302 million, an increase of 4.4%
  • Average Daily Census (ADC) of 17,957, an increase of 7.8%
  • Admissions of 16,403, an increase of 2.5%
  • Net Income, excluding special items, of $36.4 million, an increase of 35.9%
  • Adjusted EBITDA, excluding cap, of $50.9 million, an increase of 15.9%

Roto-Rooter segment operating results:

  • Revenue of $142 million, an increase of 10.8%
  • Net Income of $24.6 million, an increase of 53.2%
  • Adjusted EBITDA of $34.0 million, an increase of 18.2%
  • Adjusted EBITDA margin of 23.9%, an increase of 123-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 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’ third-quarter 2018 revenue and cost of sales by $2.6 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 third-quarter 2018 earnings release narrative does reclassify the third-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 $302 million in the third quarter of 2018, which is an increase of 6.5%, when compared to the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%; a 7.8% increase in average daily census; and a Medicare Cap liability that reduced revenue growth by 0.6%. This growth is partially offset by acuity mix shift that negatively impacted revenue growth 1.8% when compared to the prior-year period.

In the third quarter of 2018, VITAS accrued $1.9 million in Medicare Cap billing limitations. At September 30, 2018, VITAS had 30 Medicare provider numbers, two of which have a current estimated 2018 Medicare Cap billing limitation liability of approximately $2.9 million.

Of VITAS’ 30 Medicare provider numbers, 25 provider numbers have a Medicare Cap cushion of 10% or greater, two provider numbers have a cap cushion between 5% and 10%, one provider number has a cap cushion between 0% and 5%, and two provider numbers have a Medicare Cap billing limitation for the 2018 Medicare Cap period.

Average revenue per patient per day in the quarter was $187.19, which is 0.8% below the prior-year period. Reimbursement for routine home care and high acuity care averaged $163.58 and $744.15, respectively. During the quarter, high acuity days-of-care were 4.1% of total days of care, 54-basis points less than the prior-year quarter.

The third quarter of 2018 gross margin, excluding Medicare Cap, was 23.3%, which is an 85-basis point increase when compared to the third quarter of 2017.

Selling, general and administrative expense was $20.4 million in the third quarter of 2018, which is a decrease of 0.6% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $50.9 million in the quarter, an increase of 15.9%. Adjusted EBITDA margin, excluding Medicare Cap, was 16.8% in the quarter which is a 125-basis point increase when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $142 million for the third quarter of 2018, an increase of $15.4 million, or 12.1%, over the prior-year quarter. Revenue from the water restoration service segment totaled $25.0 million, an increase of $3.9 million, or 18.3%, 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 9.7%, commercial plumbing and excavation increased 1.7% and commercial water restoration declined 13.1%. Overall, commercial revenue increased 3.5%.

Residential drain cleaning increased 13.1%, plumbing and excavation increased 15.1% and residential water restoration increased 23.5%. Aggregate residential sales increased 16.1%.

Roto-Rooter’s gross margin in the quarter was 49.2%, a 112-basis point increase when compared to the third quarter of 2017. Adjusted EBITDA in the third quarter of 2018 totaled $34.0 million, an increase of 18.2%. The Adjusted EBITDA margin in the quarter was 23.9% which is a 123-basis point improvement over the prior year.

Chemed Consolidated

As of September 30, 2018, Chemed had total cash and cash equivalents of $67 million and debt of $130 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 September 30, 2018, the Company had approximately $284 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 120,622 shares of Chemed stock for $37.7 million which equates to a cost per share of $312.31. 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 September 30, 2018, there was approximately $84 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time Chemed has repurchased 13.7 million shares, aggregating over $1.0 billion at an average share cost of $79.00. Including dividends over this period, Chemed has returned over $1.2 billion to shareholders.

Guidance for 2018

Revenue growth for VITAS in 2018, prior to Medicare Cap, is estimated to be in the range of 4.5% to 5.0%. Admissions are estimated to expand approximately 3.5% to 4.0% and Average Daily Census in 2018 is estimated to expand approximately 6.7% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.9%. We are currently estimating $1.3 million for Medicare Cap billing limitations in the fourth quarter of 2018.

Roto-Rooter is forecasted to achieve full-year 2018 revenue growth of 13.0% to 14.0%. This revenue estimate is based upon increased job pricing of approximately 2%, continued growth in core plumbing and drain cleaning services as well as revenue growth from water restoration services. Roto-Rooter’s adjusted EBITDA margin for 2018 is estimated at 23.6%.

Based upon the above, full-year 2018 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 $11.80 to $11.90. This compares to our initial 2018 guidance of $10.60 to $10.85. This revised 2018 guidance assumes an effective corporate tax rate of 25.2%. Chemed’s 2017 reported adjusted earnings per diluted share was $8.43.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, October 30, 2018, 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 9353956. 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 9353956. 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 September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Service revenues and sales $ 444,151   $ 417,444   $ 1,325,140   $ 1,238,367  
Cost of services provided and goods sold 305,312 288,047 915,589 859,039
Selling, general and administrative expenses (aa) 67,177 66,919 204,474 205,031
Depreciation 9,657 8,819 28,642 26,545
Amortization 35 33 96 111
Other operating (income)/expenses   257     (371 )   88     91,138  
Total costs and expenses   382,438     363,447     1,148,889     1,181,864  
Income from operations 61,713 53,997 176,251 56,503
Interest expense (1,082 ) (1,048 ) (3,813 ) (3,164 )
Other income--net (bb)   2,300     1,323     4,356     5,439  
Income before income taxes 62,931 54,272 176,794 58,778
Income taxes   (11,682 )   (18,835 )   (25,578 )   (15,153 )
Net income $ 51,249   $ 35,437   $ 151,216   $ 43,625  
 
 
Earnings Per Share
Net income $ 3.19   $ 2.22   $ 9.41   $ 2.72  
Average number of shares outstanding   16,074     15,976     16,070     16,068  
 
Diluted Earnings Per Share
Net income $ 3.06   $ 2.13   $ 8.98   $ 2.60  
Average number of shares outstanding   16,772     16,676     16,830     16,763  
                             
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
 
Three Months Ended September 30, Nine Months Ended September 30,
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

$ 63,754 $ 63,463 $ 196,271 $ 191,213

Market value adjustments related to deferred compensation plans

2,189 1,417 3,827 5,619
Long-term incentive compensation 1,234 1,104 4,376 3,021

Expenses related to the OIG investigation

  -     935     -     5,178  
Total SG&A expenses $ 67,177   $ 66,919   $ 204,474   $ 205,031  
 
(bb) Other income--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017

 

Market value adjustments related to deferred compensation plans

$ 2,189 $ 1,417 $ 3,827 $ 5,619
Interest income 111 51 529 297
Other   -     (145 )   -     (477 )
Total other income--net $ 2,300   $ 1,323   $ 4,356   $ 5,439  
 

                   

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

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

September 30,

2018

2017

Assets

  Current assets

 

 

Cash and cash equivalents $ 67,459 $ 18,871
Accounts receivable less allowances 108,999 91,483
Inventories 5,763 5,658
Prepaid income taxes 6,039 3,621
Prepaid expenses   17,610     15,678  
Total current assets 205,870 135,311
Investments of deferred compensation plans held in trust 70,237 60,445
Properties and equipment, at cost less accumulated depreciation

154,434

143,148
Identifiable intangible assets less accumulated amortization

56,649

54,793
Goodwill

483,281

473,024
Deferred income taxes - 21,893
Other assets  

8,653

    6,845  
Total Assets $ 979,124   $ 895,459  
 
Liabilities
Current liabilities
Accounts payable $ 36,977 $ 34,752
Current portion of long-term debt - 10,000
Income taxes 112 12,349
Accrued insurance 43,503 44,584
Accrued compensation 70,687 53,857
Accrued legal 1,423 91,450
Other current liabilities   27,496     22,382  
Total current liabilities 180,198 269,374
Deferred income taxes 15,293 -
Long-term debt 130,000 72,500
Deferred compensation liabilities 68,492 59,389
Other liabilities   16,988     16,494  
Total Liabilities   410,971     417,757  
 
Stockholders' Equity
Capital stock 35,211 34,514
Paid-in capital 755,263 668,573
Retained earnings 1,175,949 988,895
Treasury stock, at cost (1,400,577 ) (1,216,509 )
Deferred compensation payable in Company stock   2,307     2,229  
Total Stockholders' Equity   568,153     477,702  
Total Liabilities and Stockholders' Equity $ 979,124   $ 895,459  
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                     
Nine Months Ended September 30,
2018 2017
Cash Flows from Operating Activities
Net income $ 151,216 $ 43,625

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

Depreciation and amortization 28,738 26,656
Stock option expense 9,360 7,738
Noncash long-term incentive compensation 4,176 2,888
Benefit for deferred income taxes (1,344 ) (36,175 )
Noncash directors' compensation 766 766
Amortization of restricted stock awards 446 933
Amortization of debt issuance costs 361 387
Provision for uncollectible accounts receivable - 12,953
Potential litigation settlement - 90,000

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

Increase in accounts receivable 4,637 27,534
(Increase)/decrease in inventories (429 ) 97
Increase in prepaid expenses (1,518 ) (2,573 )

Decrease in accounts payable and other current liabilities

12,182 2,448
Change in current income taxes 23,858 12,432
Increase in other assets (9,441 ) (6,238 )
Increase in other liabilities 7,190 6,046
Other sources   410     1,472  
Net cash provided by operating activities   230,608     190,989  
Cash Flows from Investing Activities
Capital expenditures (36,554 ) (50,247 )
Business combinations, net of cash acquired (12,875 ) (525 )
Other sources   480     116  
Net cash used by investing activities   (48,949 )   (50,656 )
Cash Flows from Financing Activities
Proceeds from revolving line of credit 428,150 183,700
Payments on revolving line of credit (324,350 ) (203,700 )
Purchases of treasury stock (121,976 ) (94,640 )
Payments on other long-term debt (75,000 ) (6,250 )
Capital stock surrendered to pay taxes on stock-based compensation (24,763 ) (7,637 )
Proceeds from exercise of stock options 23,079 11,625
Decrease in cash overdrafts payable (15,307 ) (8,139 )
Dividends paid (13,850 ) (12,879 )
Debt issuance costs (985 ) -
Other (uses)/sources   (319 )   1,148  
Net cash used by financing activities   (125,321 )   (136,772 )
Increase in Cash and Cash Equivalents 56,338 3,561
Cash and cash equivalents at beginning of year   11,121     15,310  
Cash and cash equivalents at end of period $ 67,459   $ 18,871  
 

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(in thousands)(unaudited)
                     
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Service revenues and sales $ 301,764   $ 142,387   $ -   $ 444,151  
Cost of services provided and goods sold 233,006 72,306 - 305,312
Selling, general and administrative expenses (a) 20,394 36,112 10,671 67,177
Depreciation 4,905 4,712 40 9,657
Amortization - 35 - 35
Other operating expense   100     157     -     257  
Total costs and expenses   258,405     113,322     10,711     382,438  
Income/(loss) from operations 43,359 29,065 (10,711 ) 61,713
Interest expense (49 ) (71 ) (962 ) (1,082 )
Intercompany interest income/(expense) 3,306 1,814 (5,120 ) -
Other income—net   89     22     2,189     2,300  
Income/(loss) before income taxes 46,705 30,830 (14,604 ) 62,931
Income taxes (a)   (10,784 )   (6,267 )   5,369     (11,682 )
Net income/(loss) $ 35,921   $ 24,563   $ (9,235 ) $ 51,249  
 
2017
Service revenues and sales $ 288,951   $ 128,493   $ -   $ 417,444  
Cost of services provided and goods sold 222,119 65,928 - 288,047
Selling, general and administrative expenses (b) 23,783 33,694 9,442 66,919
Depreciation 4,529 4,268 22 8,819
Amortization - 33 - 33
Other operating income   (371 )   -     -     (371 )
Total costs and expenses   250,060     103,923     9,464     363,447  
Income/(loss) from operations 38,891 24,570 (9,464 ) 53,997
Interest expense (53 ) (73 ) (922 ) (1,048 )
Intercompany interest income/(expense) 2,950 1,378 (4,328 ) -
Other income/(expense)—net   (86 )   (8 )   1,417     1,323  
Income/(loss) before income taxes 41,702 25,867 (13,297 ) 54,272
Income taxes (b)   (15,248 )   (9,833 )   6,246     (18,835 )
Net income/(loss) $ 26,454   $ 16,034   $ (7,051 ) $ 35,437  
 

The "Footnotes to Financial Statements" are integral parts of this financial information.

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(in thousands)(unaudited)
                     
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Service revenues and sales $ 890,577   $ 434,563   $ -   $ 1,325,140  
Cost of services provided and goods sold 693,335 222,254 - 915,589
Selling, general and administrative expenses (a) 61,606 108,120 34,748 204,474
Depreciation 14,753 13,782 107 28,642
Amortization - 96 - 96
Other operating income   16     72     -     88  
Total costs and expenses   769,710     344,324     34,855     1,148,889  
Income/(loss) from operations 120,867 90,239 (34,855 ) 176,251
Interest expense (153 ) (255 ) (3,405 ) (3,813 )
Intercompany interest income/(expense) 9,524 5,231 (14,755 ) -
Other income—net   469     60     3,827     4,356  
Income/(loss) before income taxes 130,707 95,275 (49,188 ) 176,794
Income taxes (a)   (30,987 )   (22,476 )   27,885     (25,578 )
Net income/(loss) $ 99,720   $ 72,799   $ (21,303 ) $ 151,216  
 
2017
Service revenues and sales $ 855,977   $ 382,390   $ -   $ 1,238,367  
Cost of services provided and goods sold 663,565 195,474 - 859,039
Selling, general and administrative expenses (b) 72,608 100,917 31,506 205,031
Depreciation 14,048 12,322 175 26,545
Amortization 14 97 - 111
Other operating expenses   91,138     -     -     91,138  
Total costs and expenses   841,373     308,810     31,681     1,181,864  
Income/(loss) from operations 14,604 73,580 (31,681 ) 56,503
Interest expense (161 ) (259 ) (2,744 ) (3,164 )
Intercompany interest income/(expense) 8,478 4,035 (12,513 ) -
Other income/(expense)—net   (95 )   (85 )   5,619     5,439  
Income/(loss) before income taxes 22,826 77,271 (41,319 ) 58,778
Income taxes (b)   (8,029 )   (29,555 )   22,431     (15,153 )
Net income/(loss) $ 14,797   $ 47,716   $ (18,888 ) $ 43,625  
 

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 SEPTEMBER 30, 2018 AND 2017
(in thousands)(unaudited)
                             
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Net income/(loss) $ 35,921 $ 24,563 $ (9,235 ) $ 51,249
Add/(deduct):
Interest expense 49 71 962 1,082
Income taxes 10,784 6,267 (5,369 ) 11,682
Depreciation 4,905 4,712 40 9,657
Amortization -     35     -     35  
EBITDA 51,659 35,648 (13,602 ) 73,705
Add/(deduct):
Intercompany interest expense/(income) (3,306 ) (1,814 ) 5,120 -
Medicare cap sequestration adjustment 503 - - 503
Acquisition expense 177 177 - 354
Interest income (88 ) (23 ) - (111 )

Stock option expense

- - 2,055 2,055
Long-term incentive compensation   -     -     1,234     1,234  
Adjusted EBITDA $ 48,945   $ 33,988   $ (5,193 ) $ 77,740  
 
2017
Net income/(loss) $ 26,454 $ 16,034 $ (7,051 ) $ 35,437
Add/(deduct):
Interest expense 53 73 922 1,048
Income taxes 15,248 9,833 (6,246 ) 18,835
Depreciation 4,529 4,268 22 8,819
Amortization -     33     -     33  
EBITDA 46,284 30,241 (12,353 ) 64,172
Add/(deduct):
Intercompany interest expense/(income) (2,950 ) (1,378 ) 4,328 -
Expenses related to OIG investigation 935 - - 935
Program closure expenses (371 ) - - (371 )
Amortization of stock awards 72 67 156 295
Interest income (48 ) (4 ) - (52 )
Advertising cost adjustment - (162 ) - (162 )

Stock option expense

- - 1,683 1,683
Long-term incentive compensation   -     -     1,104     1,104  
Adjusted EBITDA $ 43,922   $ 28,764   $ (5,082 ) $ 67,604  
 

The "Footnotes to Financial Statements" are integral parts of this financial information.

 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING SUMMARY OF EBITDA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(in thousands)(unaudited)
                             
Chemed
VITAS Roto-Rooter Corporate Consolidated
2018
Net income/(loss) $ 99,720 $ 72,799 $ (21,303 ) $ 151,216
Add/(deduct):
Interest expense 153 255 3,405 3,813
Income taxes 30,987 22,476 (27,885 ) 25,578
Depreciation 14,753 13,782 107 28,642
Amortization   -     96     -     96  
EBITDA 145,613 109,408 (45,676 ) 209,345
Add/(deduct):
Intercompany interest expense/(income) (9,524 ) (5,231 ) 14,755 -
Medicare cap sequestration adjustment 1,040 - - 1,040
Interest income (468 ) (60 ) - (528 )
Accrued litigation settlement (204 ) - - (204 )
Acquisition Expense 177 177 - 354
Amortization of stock awards 107 100 239 446
Stock option expense - - 9,360 9,360
Long-term incentive compensation   -     -     4,376     4,376  
Adjusted EBITDA $ 136,741   $ 104,394   $ (16,946 ) $ 224,189  
 
2017
Net income/(loss) $ 14,797 $ 47,716 $ (18,888 ) $ 43,625
Add/(deduct):
Interest expense 161 259 2,744 3,164
Income taxes 8,029 29,555 (22,431 ) 15,153
Depreciation 14,048 12,322 175 26,545
Amortization   14     97     -     111  
EBITDA 37,049 89,949 (38,400 ) 88,598
Add/(deduct):
Intercompany interest expense/(income) (8,478 ) (4,035 ) 12,513 -
Interest income (267 ) (29 ) - (296 )
Accrued litigation settlement 90,000 - - 90,000
Expenses related to OIG investigation 5,178 - - 5,178
Program closure expenses 1,138 - - 1,138
Amortization of stock awards 220 203 510 933
Medicare cap sequestration adjustment 105 - - 105
Advertising cost adjustment - (707 ) - (707 )
Expenses related to litigation settlements - 213 - 213
Stock option expense - - 7,738 7,738
Long-term incentive compensation   -     -     3,021     3,021  
Adjusted EBITDA $ 124,945   $ 85,594   $ (14,618 ) $ 195,921  
 

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 September 30, Nine Months Ended September 30,
2018   2017 2018   2017
Net income as reported $ 51,249 $ 35,437 $ 151,216 $ 43,625
 
Add/(deduct) after-tax cost of:
Excess tax benefits on stock compensation (3,118 ) (1,783 ) (18,618 ) (8,121 )
Stock option expense 1,674 1,064 7,465 4,892
Long-term incentive compensation 1,013 699 3,515 1,911
Accrued litigation settlement - - (152 ) 55,800
Acquisition expenses 262 - 262 -
Medicare cap sequestration adjustments 376 - 777 65
Expenses of OIG investigation - 578 - 3,198
Program closure expenses - (223 ) - 675
Expenses related to litigation settlements   -     -     -     129  
Adjusted net income $ 51,456   $ 35,772   $ 144,465   $ 102,174  
 
 
Diluted Earnings Per Share As Reported
Net income $ 3.06   $ 2.13   $ 8.98   $ 2.60  
Average number of shares outstanding   16,772     16,676     16,830     16,763  
 
 
Adjusted Diluted Earnings Per Share
Adjusted net income $ 3.07   $ 2.15   $ 8.58   $ 6.10  
Average number of shares outstanding   16,772     16,676     16,830     16,763  
 

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 NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(unaudited)
                               
Three Months Ended September 30, Nine Months Ended September 30,
OPERATING STATISTICS 2018 2017 2018 2017
Net revenue ($000) (c)
Homecare $ 257,134 $ 235,102 $ 748,546 $ 689,248
Inpatient 19,617 21,807 61,803 66,369
Continuous care 30,385 29,870 91,664 94,426
Other   2,104     2,172   5,844     6,181  
Subtotal $ 309,240 $ 288,951 $ 907,857 $ 856,224
Room and board, net (2,569 ) - (7,863 ) -
Contractual allowances (2,957 ) - (8,749 ) -
Medicare cap allowance   (1,950 )   -   (668 )     (247 )
Net Revenue $ 301,764   $ 288,951 $ 890,577   $ 855,977  
Net revenue as a percent of total before Medicare cap allowance
Homecare 83.2 % 81.4 % 82.5 % 80.5 %
Inpatient 6.3 7.5 6.8 7.8
Continuous care 9.8 10.3 10.1 11.0
Other   0.7     0.8   0.6     0.7  
Subtotal 100.0 100.0 100.0 100.0
Room and board, net (0.8 ) - (0.9 ) -
Contractual allowances (1.0 ) - (1.0 ) -
Medicare cap allowance   (0.6 )   -   (0.1 )   -    
Net Revenue   97.6   %   100.0 %   98.0   % 100.0   %
Average daily census ("ADC") (days)
Homecare 13,791 12,596 13,515 12,444
Nursing home   3,402       3,254   3,298     3,148  
Routine homecare 17,193 15,850 16,813 15,592
Inpatient 313 354 328 358
Continuous care   451       448   466     475  
Total   17,957     16,652   17,607     16,425  
 
Total Admissions 16,403 16,000 51,540 49,874
Total Discharges 16,171 15,726 50,234 49,074
Average length of stay (days) 90.0 89.5 89.0 87.9
Median length of stay (days) 18.0 16.0 16.0 16.0
ADC by major diagnosis
Cerebro 36.2 % 35.6 % 36.5 % 35.0 %
Neurological 18.8 18.9 18.7 19.4
Cancer 13.8 16.6 13.8 16.6
Cardio 16.4 14.4 16.4 14.8
Respiratory 8.1 7.9 8.1 7.9
Other   6.7     6.6   6.5     6.3  
Total   100.0   %   100.0 %   100.0   % 100.0   %
Admissions by major diagnosis
Cerebro 21.1 % 22.0 % 21.9 % 21.9 %
Neurological 11.6 10.0 11.3 10.5
Cancer 31.5 31.5 30.0 30.8
Cardio 14.7 14.9 15.3 15.1
Respiratory 10.3 10.6 11.0 10.9
Other   10.8     11.0   10.5     10.8  
Total   100.0   %   100.0 %   100.0   % 100.0   %
Direct patient care margins (d)
Routine homecare 53.0 % 52.4 % 52.6 % 52.2 %
Inpatient 3.1 3.4 5.0 4.4
Continuous care 17.3 17.3 17.4 16.9
Homecare margin drivers (dollars per patient day)
Labor costs $ 57.31 $ 56.48 $ 57.85 $ 57.20

Combined drug, home medical equipment and medical supplies cost

13.85 14.67 14.23 14.77

Inpatient margin drivers (dollars per patient day)

Labor costs $ 384.50 $ 362.48 $ 375.65 $ 369.77
Continuous care margin drivers (dollars per patient day)
Labor costs $ 587.84 $ 579.31 $ 576.77 $ 584.82
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

36.0

37.6

n.a.

n.a.

Days of revenue outstanding- including unapplied Medicare payments

22.8

19.9

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 NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2018
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (503 ) $ - $ - $ (503 )

Selling, general and administrative expenses:

Acquisition expense (177 ) (177 ) - (354 )
Stock option expense - - (2,055 ) (2,055 )
Long-term incentive compensation   -     -     (1,234 )   (1,234 )
Pretax impact on earnings (680 ) (177 ) (3,289 ) (4,146 )
Excess tax benefits on stock compensation - - 3,118 3,118
Income tax benefit on the above   172     47     602     821  
After-tax impact on earnings $ (508 ) $ (130 ) $ 431   $ (207 )
 
Nine Months Ended September 30, 2018
VITAS Roto-Rooter Corporate Consolidated
Service revenues and sales:
Medicare cap sequestration adjustment $ (1,040 ) $ - $ - $ (1,040 )
Selling, general and administrative expenses:
Acquisition expense (177 ) (177 ) - (354 )
Stock option expense - - (9,360 ) (9,360 )
Long-term incentive compensation - - (4,376 ) (4,376 )
Other operating expenses:
Accrued litigation settlement   204     -     -     204  
Pretax impact on earnings (1,013 ) (177 ) (13,736 ) (14,926 )
Excess tax benefits on stock compensation - - 18,618 18,618
Income tax benefit on the above   256     47     2,756     3,059  
After-tax impact on earnings $ (757 ) $ (130 ) $ 7,638   $ 6,751  
 
(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 September 30, 2017
VITAS Corporate Consolidated
Selling, general and administrative expenses:

 

 

 

Expenses related to OIG investigation

$

(935 )

$

-

$

(935 )
Stock option expense - (1,683 ) (1,683 )
Long-term incentive compensation - (1,104 ) (1,104 )
Other operating expenses:
Program closure expenses   371     -     371  
Pretax impact on earnings (564 ) (2,787 ) (3,351 )
Excess tax benefits on stock compensation - 1,783 1,783
Income tax benefit on the above   209     1,024     1,233  
After-tax impact on earnings $ (355 ) $ 20   $ (335 )
 
Nine Months Ended September 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 (5,178 ) - - (5,178 )
Expenses related to litigation settlements - (213 ) - (213 )
Stock option expense - - (7,738 ) (7,738 )
Long-term incentive compensation - - (3,021 ) (3,021 )
Other operating expenses:
Accrued litigation settlement (90,000 ) - - (90,000 )
Program closure expenses   (1,138 )   -     -     (1,138 )
Pretax impact on earnings (96,421 ) (213 ) (10,759 ) (107,393 )
Excess tax benefits on stock compensation - - 8,121 8,121
Income tax benefit on the above   36,683     84     3,956     40,723  
After-tax impact on earnings $ (59,738 ) $ (129 ) $ 1,318   $ (58,549 )
 
 
(c)

VITAS has 12 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 Medicare provider numbers, 28 provider numbers have a Medicare cap cushion of 4% or greater during the first nine months of the current cap year and two provider number have a Medicare cap liability.

 

(d) 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