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Chemed Reports Second-Quarter 2014 Results

CINCINNATI--(BUSINESS WIRE)--Jul. 23, 2014-- 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, 2014, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 0.8% to $360 million
  • GAAP Diluted EPS increased 76.6% to $1.36
  • Adjusted Diluted EPS increased 4.2% to $1.50

VITAS segment operating results:

  • Net Patient Revenue of $264 million, an increase of 0.2%
  • Average Daily Census (ADC) of 14,536, a decrease of 1.0%
  • Admissions of 15,771, an increase of 0.3%
  • Net Income, including litigation costs, of $20.9 million, an increase of 2.0%
  • Adjusted EBITDA of $37.5 million, a decrease of 0.5%
  • Adjusted EBITDA margin of 14.2%, a decrease of 10 basis points

Roto-Rooter segment operating results:

  • Revenue of $96.2 million, an increase of 2.7%
  • Net Income of $10.7 million
  • Adjusted EBITDA of $19.1 million, an increase of 0.9%
  • Adjusted EBITDA margin of 19.8%, a decrease of 35 basis points

VITAS

Net revenue for VITAS was $264 million in the second quarter of 2014, which is an increase of $0.5 million, or 0.2%, when compared to the prior-year period. This revenue increase consists of a Medicare reimbursement rate increase of 1.4%, offset by a 1.0% decline in average daily census.

In the second quarter of 2014, VITAS recorded $0.1 million in estimated Medicare Cap billing limitations. VITAS has 38 unique Medicare provider numbers. At June 30, 2014, VITAS had two programs with an estimated 2014 Medicare Cap billing limitation.

Of the 36 remaining Medicare provider numbers, 33 provider numbers have a Medicare Cap cushion of 10% or greater for the 2014 Medicare Cap period; two provider numbers have a Medicare Cap cushion of 5% to 10%; and one provider number has a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $248 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $199.70, which is 0.9% above the prior-year period. Routine home care reimbursement and high acuity care averaged $162.71 and $699.97, respectively. During the quarter, high acuity days of care were 6.9% of total days of care, 4 basis points below the prior-year quarter.

The second quarter of 2014 gross margin, excluding the impact of Medicare Cap, was 22.1%, which is a 9 basis point decline when compared to the second quarter of 2013.

Selling, general and administrative expense was $21.0 million in the second quarter of 2014, which is a decrease of 0.3% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $37.6 million in the quarter, a decrease of 2.4% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.2% in the quarter which is 33 basis points below the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $96.2 million for the second quarter of 2014, an increase of 2.7% over the prior-year quarter.

Roto-Rooter’s gross margin in the quarter was 46.8%, a 29 basis point decline when compared to the second quarter of 2013. Adjusted EBITDA in the second quarter of 2014 totaled $19.1 million, an increase of 0.9%, and the Adjusted EBITDA margin was 19.8% in the quarter, a decrease of 35 basis points.

Chemed Consolidated

As of June 30, 2014, Chemed had total cash and cash equivalents of $28 million and debt of $160 million.

In June 2014 Chemed entered into a five-year Amended and Restated Credit Agreement that consists 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 125 basis points. At June 30, 2014, the Company had approximately $253 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through June 30, 2014, aggregated $19.5 million and compares to depreciation and amortization during the same period of $16.2 million.

The Company repurchased $25.5 million of Chemed stock during the quarter. This equates to 300,000 of Chemed shares repurchased at an average cost of $85.04 Chemed currently has $63.3 million of authorization remaining under this share repurchase plan.

Guidance for 2014

VITAS revenue growth was constrained in the first half of 2014. This is primarily the result of the 2.0% Medicare rate cut implemented in the second quarter of 2013 as well as mix shift from high acuity care to routine home care. These factors negatively impacted revenue comparisons in the first half of 2014.

Full-year 2014 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 1% to 2%. Admissions in 2014 are estimated to increase 2% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14.5% to 15.0%. Medicare Cap is estimated to be $3.7 million in 2014.

Roto-Rooter is forecasted to achieve full-year 2014 revenue growth of 3% to 4%. This revenue estimate is based upon increased job pricing of approximately 2.0%. Adjusted EBITDA margin for 2014 is estimated in the range of 19.5% to 20.0%.

Management estimates that full-year 2014 earnings per diluted share, excluding non-cash expense for stock options, the non-cash interest expense related to the accounting for convertible debt, litigation and other discrete items, will be in the range of $5.90 to $6.10. This compares to Chemed’s 2013 reported adjusted earnings per diluted share of $5.62.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, July 24th, 2014, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (800) 901-5213 for U.S. and Canadian participants and (617) 786-2962 for international participants. The participant passcode is 55015302. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (888) 286-8010 for U.S. and Canadian callers and (617) 801-6888 for international callers and will be available for one week following the live call. The replay passcode is 85516221. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to over 14,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed’s management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed’s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed’s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
                   
 
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
Service revenues and sales $ 360,182   $ 357,198   $ 718,482   $ 723,839  
Cost of services provided and goods sold 257,007 255,359 514,826 519,666
Selling, general and administrative expenses (aa) 53,649 53,107 109,320 108,667
Depreciation 7,272 6,899 14,421 13,694
Amortization 735 1,181 1,744 2,308
Other operating expenses (bb)   -     14,760     -     14,760  
Total costs and expenses   318,663     331,306     640,311     659,095  
Income from operations 41,519 25,892 78,171 64,744
Interest expense (2,429 ) (3,697 ) (6,244 ) (7,791 )
Other income--net (cc)   756     1,696     1,572     3,402  
Income before income taxes 39,846 23,891 73,499 60,355
Income taxes   (15,483 )   (9,283 )   (28,562 )   (23,469 )
Net income $ 24,363   $ 14,608   $ 44,937   $ 36,886  
 
 
Earnings Per Share
Net income $ 1.41   $ 0.79   $ 2.59   $ 1.99  
Average number of shares outstanding   17,236     18,606     17,374     18,564  
 
Diluted Earnings Per Share
Net income $ 1.36   $ 0.77   $ 2.48   $ 1.94  
Average number of shares outstanding   17,880     18,966     18,097     18,980  
 
 
                   
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
 
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013

 

 

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

$ 52,386 $ 51,550 $ 106,522 $ 105,026

Market value gains related to deferred compensation plans (cc)

650 1,063 1,812 2,535
Long-term incentive compensation   613     494     986     1,106  
Total SG&A expenses $ 53,649   $ 53,107   $ 109,320   $ 108,667  
 
(bb) Other operating expenses comprise a litigation settlement in June 2013.
 
(cc) Other income--net comprises (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013

Market value gains related to deferred compensation plans

$ 650 $ 1,063 $ 1,812 $ 2,535
Loss on disposal of property and equipment (48 ) (1 ) (326 ) (79 )
Interest income 58 670 8 973
Other   96     (36 )   78     (27 )
Total other income--net $ 756   $ 1,696   $ 1,572   $ 3,402  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
                   
 
June 30,
2014 2013
Assets
Current assets
Cash and cash equivalents $ 27,913 $ 113,047
Accounts receivable less allowances 92,152 76,356
Inventories 6,856 6,156
Current deferred income taxes 13,459 19,322
Prepaid income taxes 4,001 4,911
Prepaid expenses   21,119     13,518  
Total current assets 165,500 233,310
Investments of deferred compensation plans held in trust 47,314 40,583
Properties and equipment, at cost less accumulated depreciation 97,206 90,229
Identifiable intangible assets less accumulated amortization 56,288 57,348
Goodwill 466,867 466,271
Other assets   8,420     11,137  
Total Assets $ 841,595   $ 898,878  
 
Liabilities
Current liabilities
Accounts payable $ 35,013 $ 35,921
Current portion of long-term debt 5,000 179,154
Income taxes 6,029 4,561
Accrued insurance 40,164 42,616
Accrued compensation 42,527 42,156
Accrued legal 7,429 16,209
Other current liabilities   20,511     17,631  
Total current liabilities 156,673 338,248
Deferred income taxes 27,270 27,981
Long-term debt 155,000 -
Deferred compensation liabilities 46,917 39,660
Other liabilities   11,251     11,702  
Total Liabilities   397,111     417,591  
 
Stockholders' Equity
Capital stock 32,980 32,075
Paid-in capital 511,794 466,980
Retained earnings 724,295 653,146
Treasury stock, at cost (826,802 ) (673,008 )
Deferred compensation payable in Company stock   2,217     2,094  
Total Stockholders' Equity   444,484     481,287  
Total Liabilities and Stockholders' Equity $ 841,595   $ 898,878  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
                       
 
Six Months Ended June 30,
2014 2013
Cash Flows from Operating Activities
Net income $ 44,937 $ 36,886

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

Depreciation and amortization 16,165 16,002
Provision for uncollectible accounts receivable 6,449 5,432
Provision for deferred income taxes 6,180 (5,375 )
Amortization of discount on convertible notes 3,392 4,264
Stock option expense 2,453 3,103
Noncash long-term incentive compensation 986 1,106
Amortization of debt issuance costs 564 1,097

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

Decrease/(increase) in accounts receivable (6,782 ) 11,745
Decrease/(increase) in inventories (153 ) 902
Increase in prepaid expenses (3,301 ) (2,017 )

Increase/(decrease) in accounts payable and other current liabilities

(33,584 ) 14,721
Increase/(decrease) in income taxes 7,224 (409 )
Increase in other assets (2,748 ) (4,914 )
Increase in other liabilities 4,644 4,401
Excess tax benefit on share-based compensation (1,866 ) (2,478 )
Other sources   553     200  
Net cash provided by operating activities   45,113     84,666  
Cash Flows from Investing Activities
Capital expenditures (19,454 ) (12,200 )
Business combinations, net of cash acquired (250 ) (1,501 )
Other sources   192     101  
Net cash used by investing activities   (19,512 )   (13,600 )
Cash Flows from Financing Activities
Repayment of convertible notes (186,956 ) -
Proceeds from issuance of term loan 100,000 -
Net increase in revolving line of credit 60,000 -
Purchases of treasury stock (58,493 ) (18,448 )
Proceeds from exercise of stock options 16,092 12,558
Dividends paid (6,757 ) (6,775 )
Capital stock surrendered to pay taxes on stock-based compensation (3,543 ) (4,269 )
Retirement of warrants (2,645 ) -
Excess tax benefit on share-based compensation 1,866 2,478
Debt issuances costs (939 ) (1,104 )
Decrease in cash overdrafts payable (479 ) (11,608 )
Other uses   (252 )   (382 )
Net cash used by financing activities   (82,106 )   (27,550 )
Increase/(Decrease) in Cash and Cash Equivalents (56,505 ) 43,516
Cash and cash equivalents at beginning of year   84,418     69,531  
Cash and cash equivalents at end of period $ 27,913   $ 113,047  
 

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
(in thousands)(unaudited)
               
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2014

Service revenues and sales $ 264,026   $ 96,156   $ -   $ 360,182  
Cost of services provided and goods sold 205,818 51,189 - 257,007
Selling, general and administrative expenses (a) 21,002 25,705 6,942 53,649
Depreciation 4,564 2,561 147 7,272
Amortization   205     137     393     735  
Total costs and expenses   231,589     79,592     7,482     318,663  
Income/(loss) from operations 32,437 16,564 (7,482 ) 41,519
Interest expense (a) (57 ) (111 ) (2,261 ) (2,429 )
Intercompany interest income/(expense) 1,517 680 (2,197 ) -
Other income/(expense)—net   (95 )   198     653     756  
Income/(loss) before income taxes 33,802 17,331 (11,287 ) 39,846
Income taxes (a)   (12,910 )   (6,612 )   4,039     (15,483 )
Net income/(loss) $ 20,892   $ 10,719   $ (7,248 ) $ 24,363  
 

 2013

Service revenues and sales $ 263,568   $ 93,630   $ -   $ 357,198  
Cost of services provided and goods sold 205,788 49,571 - 255,359
Selling, general and administrative expenses (b) 21,063 25,230 6,814 53,107
Depreciation 4,520 2,246 133 6,899
Amortization 536 149 496 1,181
Other operating expenses (b)   -     14,760     -     14,760  
Total costs and expenses   231,907     91,956     7,443     331,306  
Income/(loss) from operations 31,661 1,674 (7,443 ) 25,892
Interest expense (b) (51 ) (97 ) (3,549 ) (3,697 )
Intercompany interest income/(expense) 866 436 (1,302 ) -
Other income/(expense)—net   585     34     1,077     1,696  
Income/(loss) before income taxes 33,061 2,047 (11,217 ) 23,891
Income taxes (b)   (12,576 )   (633 )   3,926     (9,283 )
Net income/(loss) $ 20,485   $ 1,414   $ (7,291 ) $ 14,608  
 

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, 2014 AND 2013
(in thousands)(unaudited)
               
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2014

Service revenues and sales $ 524,438   $ 194,044   $ -   $ 718,482  
Cost of services provided and goods sold 411,210 103,616 - 514,826
Selling, general and administrative expenses (a) 42,716 52,887 13,717 109,320
Depreciation 9,178 4,961 282 14,421
Amortization   624     282     838     1,744  
Total costs and expenses   463,728     161,746     14,837     640,311  
Income/(loss) from operations 60,710 32,298 (14,837 ) 78,171
Interest expense (a) (112 ) (208 ) (5,924 ) (6,244 )
Intercompany interest income/(expense) 2,860 1,330 (4,190 ) -
Other income/(expense)—net   (388 )   139     1,821     1,572  
Income/(loss) before income taxes 63,070 33,559 (23,130 ) 73,499
Income taxes (a)   (24,019 )   (12,808 )   8,265     (28,562 )
Net income/(loss) $ 39,051   $ 20,751   $ (14,865 ) $ 44,937  
 

 2013

Service revenues and sales $ 534,895   $ 188,944   $ -   $ 723,839  
Cost of services provided and goods sold 418,949 100,717 - 519,666
Selling, general and administrative expenses (c) 42,667 51,892 14,108 108,667
Depreciation 9,033 4,394 267 13,694
Amortization 1,026 303 979 2,308
Other operating expenses (c)   -     14,760     -     14,760  
Total costs and expenses   471,675     172,066     15,354     659,095  
Income/(loss) from operations 63,220 16,878 (15,354 ) 64,744
Interest expense (c) (97 ) (156 ) (7,538 ) (7,791 )
Intercompany interest income/(expense) 1,709 864 (2,573 ) -
Other income/(expense)—net   805     34     2,563     3,402  
Income/(loss) before income taxes 65,637 17,620 (22,902 ) 60,355
Income taxes (c)   (25,009 )   (6,582 )   8,122     (23,469 )
Net income/(loss) $ 40,628   $ 11,038   $ (14,780 ) $ 36,886  
 

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, 2014 AND 2013
(in thousands)(unaudited)
                 
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2014

Net income/(loss) $ 20,892 $ 10,719 $ (7,248 ) $ 24,363
Add/(deduct):
Interest expense 57 111 2,261 2,429
Income taxes 12,910 6,612 (4,039 ) 15,483
Depreciation 4,564 2,561 147 7,272
Amortization 205     137     393     735  
EBITDA 38,628 20,140 (8,486 ) 50,282
Add/(deduct):
Intercompany interest expense/(income) (1,517 ) (680 ) 2,197 -
Interest income (43 ) (12 ) (3 ) (58 )
Expenses related to OIG investigation 410 - - 410
Advertising cost adjustment (c) - (399 ) - (399 )
Expenses related to litigation settlements - 32 - 32

Stock option expense

- - 1,144 1,144
Long-term incentive compensation - - 613 613
Expenses related to securities litigation   -     -     189     189  
Adjusted EBITDA $ 37,478   $ 19,081   $ (4,346 ) $ 52,213  
 

 2013

Net income/(loss) $ 20,485 $ 1,414 $ (7,291 ) $ 14,608
Add/(deduct):
Interest expense 51 97 3,549 3,697
Income taxes 12,576 633 (3,926 ) 9,283
Depreciation 4,520 2,246 133 6,899
Amortization   536     149     496     1,181  
EBITDA 38,168 4,539 (7,039 ) 35,668
Add/(deduct):
Intercompany interest expense/(income) (866 ) (436 ) 1,302 -
Interest income (642 ) (14 ) (14 ) (670 )
Expenses related to OIG investigation 996 - - 996
Acquisition expenses 19 1 - 20
Litigation settlement - 14,760 - 14,760
Expenses related to litigation settlements - 567 - 567
Advertising cost adjustment (c) - (505 ) - (505 )

Stock option expense

- - 1,612 1,612
Long-term incentive compensation - - 494 494
Expenses related to securities litigation   -     -     1     1  
Adjusted EBITDA $ 37,675   $ 18,912   $ (3,644 ) $ 52,943  
 

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, 2014 AND 2013
(in thousands)(unaudited)
                   
 
Chemed
VITAS Roto-Rooter Corporate Consolidated

 2014

Net income/(loss) $ 39,051 $ 20,751 $ (14,865 ) $ 44,937
Add/(deduct):
Interest expense 112 208 5,924 6,244
Income taxes 24,019 12,808 (8,265 ) 28,562
Depreciation 9,178 4,961 282 14,421
Amortization   624     282     838     1,744  
EBITDA 72,984 39,010 (16,086 ) 95,908
Add/(deduct):
Intercompany interest expense/(income) (2,860 ) (1,330 ) 4,190 -
Interest income 20 (19 ) (9 ) (8 )
Expenses related to OIG investigation 1,158 - - 1,158
Expenses related to litigation settlements 113 225 - 338
Acquisition expenses 1 - - 1
Advertising cost adjustment (d) - (1,140 ) - (1,140 )
Stock option expense - - 2,453 2,453
Long-term incentive compensation - - 986 986
Expenses related to securities litigation   -     -     189     189  
Adjusted EBITDA $ 71,416   $ 36,746   $ (8,277 ) $ 99,885  
 

 2013

Net income/(loss) $ 40,628 $ 11,038 $ (14,780 ) $ 36,886
Add/(deduct):
Interest expense 97 156 7,538 7,791
Income taxes 25,009 6,582 (8,122 ) 23,469
Depreciation 9,033 4,394 267 13,694
Amortization   1,026     303     979     2,308  
EBITDA 75,793 22,473 (14,118 ) 84,148
Add/(deduct):
Intercompany interest expense/(income) (1,709 ) (864 ) 2,573 -
Interest income (888 ) (56 ) (29 ) (973 )
Expenses related to OIG investigation 2,035 - - 2,035
Acquisition expenses 20 1 - 21
Litigation settlement - 14,760 - 14,760
Expenses related to litigation settlements - 708 - 708
Advertising cost adjustment (d) - (974 ) - (974 )
Cost of severance arrangements - 302 - 302
Stock option expense - - 3,103 3,103
Long-term incentive compensation - - 1,106 1,106
Expenses related to securities litigation   -     -     3     3  
Adjusted EBITDA $ 75,251   $ 36,350   $ (7,362 ) $ 104,239  
 

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,
2014 2013 2014 2013
Net income as reported $ 24,363 $ 14,608 $ 44,937 $ 36,886
 
Add/(deduct) after-tax cost of:
Stock option expense 722 1,020 1,544 1,963

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

714 1,348 2,143 2,671
Long-term incentive compensation 388 313 624 700
Expenses of OIG investigation 254 618 718 1,262
Expenses related to securities litigation 119 1 119 2
Expenses related to litigation settlements 20 344 207 430
Litigation settlement - 8,967 - 8,967
Acquisition expenses - 13 1 13
Loss on extinguishment of debt - - - 294
Severance arrangements   -   -   -   184
 
Adjusted net income $ 26,580 $ 27,232 $ 50,293 $ 53,372
 
 
Diluted Earnings Per Share As Reported
Net income $ 1.36 $ 0.77 $ 2.48 $ 1.94
Average number of shares outstanding   17,880   18,966   18,097   18,980
 
 
Adjusted Diluted Earnings Per Share

Adjusted net income

$ 1.50 $ 1.44 $ 2.81 $ 2.81
Adjusted average number of shares outstanding (e)   17,759   18,966   17,895   18,980
 

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, 2014 AND 2013
(unaudited)
             
Three Months Ended June 30, Six Months Ended June 30,
OPERATING STATISTICS 2014 2013 2014 2013
Net revenue ($000) (f)
Homecare $ 200,418 $ 200,273 $ 395,815 $ 396,934
Inpatient 26,032 25,889 52,025 54,357
Continuous care   37,719     38,261     75,894   83,586
Total before Medicare cap allowance $ 264,169 $ 264,423 $ 523,734 $ 534,877
Medicare cap allowance   (143 )   (855 )   704   18
Total $ 264,026   $ 263,568   $ 524,438 $ 534,895
Net revenue as a percent of total before Medicare cap allowance
Homecare 75.9 % 75.7 % 75.6 % 74.2 %
Inpatient 9.8 9.8 9.9 10.2
Continuous care   14.3     14.5     14.5   15.6
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   (0.1 )   (0.3 )   0.1   -
Total   99.9   %   99.7   %   100.1 % 100.0 %
Average daily census ("ADC") (days)
Homecare 10,546 10,719 10,511 10,538
Nursing home   2,989     2,943     2,909   2,936
Routine homecare 13,535 13,662 13,420 13,474
Inpatient 433 434 435 451
Continuous care   568     583     572   631
Total   14,536     14,679     14,427   14,556
 
Total Admissions 15,771 15,721 32,124 32,858
Total Discharges 15,673 15,763 31,678 32,622
Average length of stay (days) 82.4 84.8 81.7 80.9
Median length of stay (days) 16.0 16.0 15.0 14.0
ADC by major diagnosis
Neurological 41.2 % 35.5 % 40.9 % 35.1 %
Cancer 17.3 16.9 17.4 16.9
Cardio 15.7 12.5 15.4 12.0
Respiratory 7.7 7.5 7.8 7.3
Other   18.1     27.6     18.5   28.7
Total   100.0   %   100.0   %   100.0 % 100.0 %
Admissions by major diagnosis
Neurological 21.6 % 20.1 % 22.0 % 19.8 %
Cancer 33.4 33.6 33.1 32.3
Cardio 15.3 13.2 14.6 12.5
Respiratory 9.6 9.1 9.8 9.4
Other   20.1     24.0     20.5   26.0
Total   100.0   %   100.0   %   100.0 % 100.0 %
Direct patient care margins (g)
Routine homecare 53.4 % 52.3 % 53.2 % 52.1 %
Inpatient 6.9 3.6 5.6 7.4
Continuous care 17.5 14.6 17.0 16.3
Homecare margin drivers (dollars per patient day)
Labor costs $ 53.89 $ 55.04 $ 54.65 $ 56.09
Drug costs 7.26 7.55 7.25 7.56
Home medical equipment 6.76 6.56 6.69 6.70
Medical supplies 3.17 3.13 3.20 3.03
Inpatient margin drivers (dollars per patient day)
Labor costs $ 337.30 $ 346.46 $ 343.50 $ 333.15
Continuous care margin drivers (dollars per patient day)
Labor costs $ 581.00 $ 595.29 $ 587.40 $ 591.24
Bad debt expense as a percent of revenues 1.0 % 0.8 % 1.0 % 0.8 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 36.6 36.8 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 24.4 20.5 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, 2014 AND 2013
(unaudited)
                     
 
(a) Included in the results of operations 2014 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended June 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (410 ) $ - $ - $ (410 )
Expenses related to litigation settlements - (32 ) - (32 )
Stock option expense - - (1,144 ) (1,144 )
Long-term incentive compensation - - (613 ) (613 )
Expenses related to securities litigation - - (189 ) (189 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (1,130 )   (1,130 )
Pretax impact on earnings (410 ) (32 ) (3,076 ) (3,518 )
Income tax benefit on the above   156     12     1,133     1,301  
After-tax impact on earnings $ (254 ) $ (20 ) $ (1,943 ) $ (2,217 )
 
Six Months Ended June 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,158 ) $ - $ - $ (1,158 )
Expenses related to litigation settlements (113 ) (225 ) - (338 )
Acquisition expenses (1 ) - - (1 )
Stock option expense - - (2,453 ) (2,453 )
Long-term incentive compensation - - (986 ) (986 )
Expenses related to securities litigation - - (189 ) (189 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (3,389 )   (3,389 )
Pretax impact on earnings (1,272 ) (225 ) (7,017 ) (8,514 )
Income tax benefit on the above   483     88     2,587     3,158  
After-tax impact on earnings $ (789 ) $ (137 ) $ (4,430 ) $ (5,356 )
 
(b)  

Included in the results of operations for the three months ended June 30, 2013 are the following significant credits/(charges) which may not be indicative of ongoing operation (in thousands):

 

       
      Three Months Ended June 30, 2013
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (996 ) $ - $ - $ (996 )
Acquisition expenses (19 ) (1 ) - (20 )
Expenses related to litigation settlements - (567 ) - (567 )
Stock option expense - - (1,612 ) (1,612 )
Long-term incentive compensation - - (494 ) (494 )
Expenses related to securities litigation - - (1 ) (1 )
Other operating expenses:
Litigation settlement - (14,760 ) - (14,760 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (2,132 )   (2,132 )
Pretax impact on earnings (1,015 ) (15,328 ) (4,239 ) (20,582 )
Income tax benefit on the above   385     6,016     1,557     7,958  
After-tax impact on earnings $ (630 ) $ (9,312 ) $ (2,682 ) $ (12,624 )
 

(c)  

Included in the results of operations for the six months ended June 30, 2013 are the following significant credits/(charges) which may not be indicative of ongoing (in thousands):

         
Six Months Ended June 30, 2013
VITAS   Roto-Rooter   Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (2,035 ) $ - $ - $ (2,035 )
Acquisition expenses (20 ) (1 ) - (21 )
Expenses related to litigation settlements - (708 ) - (708 )
Costs of severance arrangements - (302 ) - (302 )
Stock option expense - - (3,103 ) (3,103 )
Long-term incentive compensation - - (1,106 ) (1,106 )
Expenses related to securities litigation - - (3 ) (3 )
Other operating expenses:
Litigation settlement - (14,760 ) - (14,760 )
Interest expense:

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

- - (4,223 ) (4,223 )
Loss on extinguishment of debt   -     -     (465 )   (465 )
Pretax impact on earnings (2,055 ) (15,771 ) (8,900 ) (26,726 )
Income tax benefit on the above   781     6,189     3,270     10,240  
After-tax impact on earnings $ (1,274 ) $ (9,582 ) $ (5,630 ) $ (16,486 )
 
(d)  

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 2014 and 2013, GAAP advertising expense for Roto-Rooter totaled $6,087,000 and $6,094,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the second quarters of 2014 and 2013 would total $6,486,000 and $6,599,000, respectively.

 

Similarly, for the first six months of 2014 and 2013, GAAP advertising expense for Roto-Rooter totaled $12,602,000 and $11,798,000, 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 2014 and 2013 would total $13,742,000 and $12,772,000, respectively

 
(e)

Adjusted diluted average shares outstanding excludes the estimated dilutive impact of the convertible notes prior to conversion of these notes on May 15, 2014 (121,000 shares for the three months ended June 30, 2014 and 202,000 shares for the six months ended June 30, 2014) as this impact was entirely offset upon the exercise of the note hedges on May 15, 2014.

 
(f)

VITAS has nine large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 27 small (less than 200 ADC) hospice programs. Of VITAS' 38 unique Medicare provider numbers, 33 provider numbers have a Medicare cap cushion of 10% or greater during the first nine months of the current cap year; two provider numbers have a Medicare cap cushion between 5% and 10%; and one provider number has a cap cushion between 0% and 5%. There are two program with a cap liability in the current cap year.

 
(g) 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