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Chemed Reports Third-Quarter 2015 Results

CINCINNATI--(BUSINESS WIRE)--Oct. 22, 2015-- 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 third quarter ended September 30, 2015, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 7.8% to $386 million
  • GAAP Diluted EPS increased 18.7% to $1.65
  • Adjusted Diluted EPS increased 20.3% to $1.78

VITAS segment operating results:

  • Net Patient Revenue of $285 million, an increase of 7.4%
  • Average Daily Census (ADC) of 15,722, an increase of 7.4%
  • Admissions of 16,131, an increase of 3.1%
  • Net Income, including litigation costs, of $25.7 million, an increase of 19.1%
  • Adjusted EBITDA of $45.3 million, an increase of 18.2%
  • Adjusted EBITDA margin of 15.9%, an increase of 145 basis points

Roto-Rooter segment operating results:

  • Revenue of $101 million, an increase of 8.8%
  • Net Income of $11.0 million, an increase of 11.3%
  • Adjusted EBITDA of $19.8 million, an increase of 14.6%
  • Adjusted EBITDA margin of 19.5%, an increase of 98 basis points

VITAS

Net revenue for VITAS was $285 million in the third quarter of 2015, which is an increase of $19.6 million, or 7.4%, when compared to the prior-year period. This revenue increase is comprised of an average Medicare reimbursement rate increase of approximately 1.4%, a 7.4% increase in average daily census, offset by level of care and geographic mix shift, when compared to the prior year.

In the third quarter of 2015, VITAS did not record any adjustments in estimated Medicare Cap billing limitations. This compares to $2.5 million of Medicare Cap billing limitations recorded in the third quarter of 2014.

At September 30, 2015, VITAS had 34 Medicare provider numbers, none of which has an estimated 2015 Medicare Cap billing limitation.

Of VITAS’ 34 unique Medicare provider numbers, 32 provider numbers have a Medicare Cap cushion of 10% or greater for the 2015 Medicare Cap period, one provider number has a cap cushion between 5% and 10% and one provider number has a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $302 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $197.04, which is 0.9% below the prior-year period. Routine home care reimbursement and high acuity care averaged $164.22 and $699.04, respectively. During the quarter, high acuity days of care were 6.1% of total days of care, 54 basis points less than the prior-year quarter.

The third quarter of 2015 gross margin, excluding the impact of Medicare Cap, was 23.3%, which is 64 basis points above the third quarter of 2014.

Selling, general and administrative expense was $22.2 million in the third quarter of 2015, which is an increase of 10.0% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $45.3 million in the quarter, an increase of 11.0% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 15.9% in the quarter which is 65 basis points favorable to the prior-year period.

Roto-Rooter

Roto-Rooter generated sales of $101 million for the third quarter of 2015, an increase of $8.2 million, or 8.8%, over the prior-year quarter. Water restoration accounted for $2.8 million of this revenue growth, with water and flood remediation services aggregating $8.2 million in the quarter.

Roto-Rooter’s gross margin in the quarter was 47.1%, a 13 basis point improvement when compared to the third quarter of 2014. Adjusted EBITDA in the third quarter of 2015 totaled $19.8 million, an increase of 14.6%, and the Adjusted EBITDA margin was 19.5% in the quarter, 98 basis points higher than the prior year.

Chemed Consolidated

As of September 30, 2015, Chemed had total cash and cash equivalents of $38 million and debt of $138 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 September 30, 2015, the Company had approximately $268 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through September 30, 2015, aggregated $30.2 million and compares to depreciation and amortization during the same period of $26.1 million.

The Company repurchased $18.2 million of Chemed stock during the quarter. This equates to 135,765 shares of Chemed stock repurchased at an average cost of $134.28. Chemed currently has $63.8 million of authorization remaining under this share repurchase plan.

Guidance for 2015

Full-year 2015 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 4% to 5%. Admissions in 2015 are estimated to increase 4% to 5% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14% to 15%. Medicare Cap billing limitations for calendar year 2015 are estimated to be $1.0 million.

Roto-Rooter is forecasted to achieve full-year 2015 revenue growth of 6% to 7%. This revenue estimate is based upon continued expansion in water restoration services coupled with increased job pricing of approximately 1%. Adjusted EBITDA margin for 2015 is forecasted to be in the range of 19.5% to 20.0%.

Management estimates that full-year 2015 adjusted earnings per diluted share, which excludes non-cash expense for stock options, costs related to litigation, and other discrete items, will be in the range of $6.75 to $6.80. This compares to Chemed’s 2014 reported adjusted earnings per diluted share of $6.07.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Friday, October 23, 2015, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (877) 703-6103 for U.S. and Canadian participants and (857) 244-7302 for international participants. The participant passcode is 66337784. 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 pass code is 92492254. 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 15,000 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 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 Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Service revenues and sales $ 386,226   $ 358,389   $ 1,144,799   $ 1,076,871  
Cost of services provided and goods sold 272,089 256,445 811,637 771,271
Selling, general and administrative expenses (aa) 55,197 53,566 171,779 162,886
Depreciation 8,075 7,450 24,189 21,871
Amortization   737     717     1,895     2,461  
Total costs and expenses   336,098     318,178     1,009,500     958,489  
Income from operations 50,128 40,211 135,299 118,382
Interest expense (908 ) (980 ) (2,846 ) (7,224 )
Other income/(expense)--net (bb)   (2,355 )   705     (1,256 )   2,277  
Income before income taxes 46,865 39,936 131,197 113,435
Income taxes   (18,032 )   (15,351 )   (50,852 )   (43,913 )
Net income $ 28,833   $ 24,585   $ 80,345   $ 69,522  
 
 
 
Earnings Per Share
Net income $ 1.71   $ 1.44   $ 4.76   $ 4.03  
Average number of shares outstanding   16,865     17,039     16,887     17,263  
 
Diluted Earnings Per Share
Net income $ 1.65   $ 1.39   $ 4.61   $ 3.87  
Average number of shares outstanding   17,422     17,627     17,430     17,968  
 
 
 
                               
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
SG&A expenses before the impact of market
gain/(losses) related to deferred compensation
plans, long-term incentive compensation
and O.I.G. expenses $ 55,010 $ 51,218 $ 165,067 $ 156,582
Market value gains/(losses) related to deferred
compensation plans (2,328 ) 896 (880 ) 2,708
Long-term incentive compensation 1,364 1,002 3,755 1,988
O.I.G. expenses   1,151     450     3,837     1,608  
Total SG&A expenses $ 55,197   $ 53,566   $ 171,779   $ 162,886  
 
(bb) Other income/(expense)--net comprises (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Market value gains/(losses) related to deferred
compensation plans $ (2,328 ) $ 896 $ (880 ) $ 2,708
Loss on disposal of property and equipment (116 ) (167 ) (131 ) (493 )
Interest income 77 (13 ) 207 (5 )
Other   12     (11 )   (452 )   67  
Total other income/(expense)--net $ (2,355 ) $ 705   $ (1,256 ) $ 2,277  
 

         
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
             
 
September 30,
2015 2014
Assets
Current assets
Cash and cash equivalents $ 38,450 $ 18,562
Accounts receivable less allowances 123,665 132,340
Inventories 6,545 6,385
Current deferred income taxes 17,323 14,543
Prepaid income taxes 3,299 3,488
Prepaid expenses   11,493     13,420  
Total current assets 200,775 188,738
Investments of deferred compensation plans held in trust 49,951 47,780
Properties and equipment, at cost less accumulated depreciation 111,221 101,845
Identifiable intangible assets less accumulated amortization 55,834 56,158
Goodwill 472,407 466,844
Other assets   7,450     8,143  
Total Assets $ 897,638   $ 869,508  
 
Liabilities
Current liabilities
Accounts payable $ 52,468 $ 57,067
Current portion of long-term debt 7,500 20,425
Income taxes 736 4,608
Accrued insurance 42,356 39,927
Accrued compensation 59,533 50,412
Accrued legal 1,698 685
Other current liabilities   22,472     24,131  
Total current liabilities 186,763 197,255
Deferred income taxes 29,370 27,853
Long-term debt 130,625 153,125
Deferred compensation liabilities 49,282 47,736
Other liabilities   13,022     11,108  
Total Liabilities   409,062     437,077  
 
Stockholders' Equity
Capital stock 33,816 33,199
Paid-in capital 581,342 528,973
Retained earnings 839,979 745,077
Treasury stock, at cost (968,946 ) (877,067 )
Deferred compensation payable in Company stock   2,385     2,249  
Total Stockholders' Equity   488,576     432,431  
Total Liabilities and Stockholders' Equity $ 897,638   $ 869,508  
 

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
 
 
Nine Months Ended September 30,
2015   2014  
Cash Flows from Operating Activities
Net income $ 80,345 $ 69,522
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 26,084 24,332
Provision for uncollectible accounts receivable 11,100 9,573
Noncash long-term incentive compensation 3,755 1,988
Stock option expense 3,600 3,430
Provision for deferred income taxes (2,694 ) 5,630
Amortization of debt issuance costs 392 697
Amortization of discount on convertible notes - 3,392
Changes in operating assets and liabilities, excluding
amounts acquired in business combinations:
Increase in accounts receivable (10,110 ) (50,027 )
Decrease/(increase) in inventories (373 ) 318
Decrease in prepaid expenses 68 4,398
Increase/(decrease) in accounts payable
and other current liabilities 5,956 (29,680 )
Increase in income taxes 3,049 8,186
Increase in other assets (605 ) (3,138 )
Increase in other liabilities 524 5,370
Excess tax benefit on share-based compensation (8,474 ) (3,737 )
Other sources   467     755  

Net cash provided by operating activities

  113,084     51,009  
Cash Flows from Investing Activities
Capital expenditures (30,194 ) (31,745 )
Business combinations, net of cash acquired (6,614 ) (250 )
Other sources   396     189  
Net cash used by investing activities   (36,412 )   (31,806 )
Cash Flows from Financing Activities
Payments on revolving line of credit (108,200 ) (233,800 )
Proceeds from revolving line of credit 103,200 308,600
Purchases of treasury stock (36,682 ) (99,103 )
Dividends paid (11,542 ) (10,558 )
Capital stock surrendered to pay taxes on stock-based compensation (11,226 ) (6,121 )
Proceeds from exercise of stock options 11,193 22,123
Excess tax benefit on share-based compensation 8,474 3,737
Payments on other long-term debt (4,375 ) (188,206 )
Increase/(decrease) in cash overdrafts payable (1,745 ) 22,233
Proceeds from other long-term debt - 100,000
Retirement of warrants - (2,645 )
Debt issuances costs - (939 )
Other sources/(uses)   (1,451 )   (380 )
Net cash used by financing activities   (52,354 )   (85,059 )
Increase/(Decrease) in Cash and Cash Equivalents 24,318 (65,856 )
Cash and cash equivalents at beginning of year   14,132     84,418  
Cash and cash equivalents at end of period $ 38,450   $ 18,562  
 

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(in thousands)(unaudited)
               
Chemed
VITAS Roto-Rooter Corporate Consolidated
2015        
Service revenues and sales $ 285,008   $ 101,218   $ -   $ 386,226  
Cost of services provided and goods sold 218,528 53,561 - 272,089
Selling, general and administrative expenses (a) 22,241 27,437 5,519 55,197
Depreciation 4,631 3,300 144 8,075
Amortization   186     172     379     737  
Total costs and expenses   245,586     84,470     6,042     336,098  
Income/(loss) from operations 39,422 16,748 (6,042 ) 50,128
Interest expense (a) (54 ) (80 ) (774 ) (908 )
Intercompany interest income/(expense) 1,979 858 (2,837 ) -
Other income/(expense)—net   (11 )   (15 )   (2,329 )   (2,355 )
Income/(loss) before income taxes 41,336 17,511 (11,982 ) 46,865
Income taxes (a)   (15,613 )   (6,550 )   4,131     (18,032 )
Net income/(loss) $ 25,723   $ 10,961   $ (7,851 ) $ 28,833  
 
2014        
Service revenues and sales $ 265,384   $ 93,005   $ -   $ 358,389  
Cost of services provided and goods sold 207,105 49,340 - 256,445
Selling, general and administrative expenses (b) 20,224 25,682 7,660 53,566
Depreciation 4,530 2,772 148 7,450
Amortization   205     114     398     717  
Total costs and expenses   232,064     77,908     8,206     318,178  
Income/(loss) from operations 33,320 15,097 (8,206 ) 40,211
Interest expense (b) (55 ) (87 ) (838 ) (980 )
Intercompany interest income/(expense) 1,660 760 (2,420 ) -
Other income/(expense)—net   (189 )   (2 )   896     705  
Income/(loss) before income taxes 34,736 15,768 (10,568 ) 39,936
Income taxes (b)   (13,143 )   (5,920 )   3,712     (15,351 )
Net income/(loss) $ 21,593   $ 9,848   $ (6,856 ) $ 24,585  
 
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, 2015 AND 2014
(in thousands)(unaudited)
               
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2015        
Service revenues and sales $ 831,081   $ 313,718   $ -   $ 1,144,799  
Cost of services provided and goods sold 646,801 164,836 - 811,637
Selling, general and administrative expenses (a) 66,449 84,439 20,891 171,779
Depreciation 14,141 9,598 450 24,189
Amortization   523     408     964     1,895  
Total costs and expenses   727,914     259,281     22,305     1,009,500  
Income/(loss) from operations 103,167 54,437 (22,305 ) 135,299
Interest expense (a) (164 ) (274 ) (2,408 ) (2,846 )
Intercompany interest income/(expense) 5,461 2,501 (7,962 ) -
Other income/(expense)—net   (395 )   19     (880 )   (1,256 )
Income/(loss) before income taxes 108,069 56,683 (33,555 ) 131,197
Income taxes (a)   (41,230 )   (21,561 )   11,939     (50,852 )
Net income/(loss) $ 66,839   $ 35,122   $ (21,616 ) $ 80,345  
 
2014        
Service revenues and sales $ 789,822   $ 287,049   $ -   $ 1,076,871  
Cost of services provided and goods sold 618,315 152,956 - 771,271
Selling, general and administrative expenses (b) 62,939 78,569 21,378 162,886
Depreciation 13,709 7,732 430 21,871
Amortization   829     397     1,235     2,461  
Total costs and expenses   695,792     239,654     23,043     958,489  
Income/(loss) from operations 94,030 47,395 (23,043 ) 118,382
Interest expense (b) (167 ) (295 ) (6,762 ) (7,224 )
Intercompany interest income/(expense) 4,520 2,090 (6,610 ) -
Other income/(expense)—net   (577 )   137     2,717     2,277  
Income/(loss) before income taxes 97,806 49,327 (33,698 ) 113,435
Income taxes (b)   (37,161 )   (18,728 )   11,976     (43,913 )
Net income/(loss) $ 60,645   $ 30,599   $ (21,722 ) $ 69,522  
 
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, 2015 AND 2014
(in thousands)(unaudited)
             
 
Chemed
VITAS Roto-Rooter Corporate Consolidated
2015            
Net income/(loss) $ 25,723 $ 10,961 $ (7,851 ) $ 28,833
Add/(deduct):
Interest expense 54 80 774 908
Income taxes 15,613 6,550 (4,131 ) 18,032
Depreciation 4,631 3,300 144 8,075
Amortization   186     172     379     737  
EBITDA 46,207 21,063 (10,685 ) 56,585
Add/(deduct):
Intercompany interest expense/(income) (1,979 ) (858 ) 2,837 -
Interest income (68 ) (9 ) - (77 )
Expenses related to OIG investigation 1,151 - - 1,151
Advertising cost adjustment (c) - (456 ) - (456 )
Acquisition expenses - 30 - 30
Long-term incentive compensation - - 1,364 1,364
Stock option expense   -     -     813     813  
Adjusted EBITDA $ 45,311   $ 19,770   $ (5,671 ) $ 59,410  
 
2014            
Net income/(loss) $ 21,593 $ 9,848 $ (6,856 ) $ 24,585
Add/(deduct):
Interest expense 55 87 838 980
Income taxes 13,143 5,920 (3,712 ) 15,351
Depreciation 4,530 2,772 148 7,450
Amortization   205     114     398     717  
EBITDA 39,526 18,741 (9,184 ) 49,083
Add/(deduct):
Intercompany interest expense/(income) (1,660 ) (760 ) 2,420 -
Interest income 23 (9 ) (1 ) 13
Expenses related to OIG investigation 450 - - 450
Net recoveries related to litigation settlements - (234 ) - (234 )
Advertising cost adjustment (c) - (483 ) - (483 )
Long-term incentive compensation - - 1,002 1,002
Stock option expense - - 977 977
Expenses of securities litigation   -     -     138     138  
Adjusted EBITDA $ 38,339   $ 17,255   $ (4,648 ) $ 50,946  
 
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, 2015 AND 2014
(in thousands)(unaudited)
             
 
Chemed
VITAS Roto-Rooter   Corporate Consolidated
2015            
Net income/(loss) $ 66,839 $ 35,122 $ (21,616 ) $ 80,345
Add/(deduct):
Interest expense 164 274 2,408 2,846
Income taxes 41,230 21,561 (11,939 ) 50,852
Depreciation 14,141 9,598 450 24,189
Amortization   523     408     964     1,895  
EBITDA 122,897 66,963 (29,733 ) 160,127
Add/(deduct):
Intercompany interest expense/(income) (5,461 ) (2,501 ) 7,962 -
Interest income (179 ) (27 ) (1 ) (207 )
Expenses related to OIG investigation 3,837 - - 3,837
Advertising cost adjustment (c) - (1,367 ) - (1,367 )
Acquisition expenses - 161 - 161
Net expenses related to litigation settlements - 5 - 5
Long-term incentive compensation - - 3,755 3,755
Stock option expense - - 3,600 3,600
Expenses of securities litigation   -     -     37     37  
Adjusted EBITDA $ 121,094   $ 63,234   $ (14,380 ) $ 169,948  
 
2014            
Net income/(loss) $ 60,645 $ 30,599 $ (21,722 ) $ 69,522
Add/(deduct):
Interest expense 167 295 6,762 7,224
Income taxes 37,161 18,728 (11,976 ) 43,913
Depreciation 13,709 7,732 430 21,871
Amortization   829     397     1,235     2,461  
EBITDA 112,511 57,751 (25,271 ) 144,991
Add/(deduct):
Intercompany interest expense/(income) (4,520 ) (2,090 ) 6,610 -
Interest income 43 (28 ) (10 ) 5
Expenses related to OIG investigation 1,608 - - 1,608
Net expenses/(recoveries) related to litigation settlements 113 (9 ) - 104
Acquisition expenses 1 - - 1
Advertising cost adjustment (c) - (1,623 ) - (1,623 )
Stock option expense - - 3,430 3,430
Long-term incentive compensation - - 1,988 1,988
Expenses of securities litigation   -     -     327     327  
Adjusted EBITDA $ 109,756   $ 54,001   $ (12,926 ) $ 150,831  
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 

               
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
(in thousands, except per share data)(unaudited)
           
 
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014   2015 2014
Net income as reported $ 28,833 $ 24,585 $ 80,345 $ 69,522
 
Add/(deduct) after-tax costs of:
Long-term incentive compensation 863 634 2,375 1,258
Net expenses related to OIG investigation 711 279 2,369 997
Stock option expense 509 615 2,268 2,159
Acquisition expenses 18 - 98 1
Net expenses/(recoveries) related to litigation settlements - (143 ) 3 64
Securities litigation - 88 - 207
Litigation settlements - - 23 -
Additional interest expense resulting from the change in
accounting for the conversion feature of the convertible notes   -   -     -   2,143
 
Adjusted net income $ 30,934 $ 26,058   $ 87,481 $ 76,351
 
 
Diluted Earnings Per Share As Reported
Net income $ 1.65 $ 1.39   $ 4.61 $ 3.87
Average number of shares outstanding   17,422   17,627     17,430   17,968
 
 
Adjusted Diluted Earnings Per Share
Net income $ 1.78 $ 1.48   $ 5.02 $ 4.28
Adjusted average number of shares outstanding (e)   17,422   17,627     17,430   17,833
 
The "Footnotes to Financial Statements" are integral parts of this financial information.
 

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)
                 
 

Three Months Ended

Nine Months Ended
September 30, September 30,
OPERATING STATISTICS 2015 2014   2015 2014  
Net revenue ($000) (d)
Homecare $ 222,952 $ 204,965 $ 640,867 $ 600,780
Inpatient 24,271 25,012 76,485 77,037
Continuous care   37,785   37,907     113,564   113,801  
Total before Medicare cap allowance 285,008 267,884 830,916 791,618
Medicare cap allowance   -   (2,500 )   165   (1,796 )
Total $ 285,008 $ 265,384   $ 831,081 $ 789,822  
Net revenue as a percent of total before Medicare cap allowance
Homecare 78.2 % 76.5 % 77.1 % 75.9 %
Inpatient 8.5 9.3 9.2 9.7
Continuous care   13.3   14.2     13.7   14.4  
Total before Medicare cap allowance 100.0 100.0 100.0 100.0
Medicare cap allowance   -   (0.9 )   -   (0.2 )
Total   100.0 %   99.1   %   100.0 %   99.8   %
Average daily census ("ADC") (days)
Homecare 11,607 10,662 11,259 10,562
Nursing home   3,150   2,999     3,026   2,940  
Routine homecare 14,757 13,661 14,285 13,502
Inpatient 404 417 424 429
Continuous care   561   561     571   568  
Total   15,722   14,639     15,280   14,499  
 
Total Admissions 16,131 15,653 50,082 47,777
Total Discharges 15,949 15,460 48,979 47,139
Average length of stay (days) 78.6 83.7 78.9 82.4
Median length of stay (days) 16.0 15.0 15.0 15.0
ADC by major diagnosis
Cerebro 28.8 % 18.5 % 28.6 % 15.1 %
Neurological 22.9 32.7 23.3 35.0
Cancer 16.6 17.3 16.7 17.4
Cardio 17.4 17.6 17.5 16.6
Respiratory 7.9 8.0 7.9 7.9
Other   6.4   5.9     6.0   8.0  
Total   100.0 %   100.0   %   100.0 %   100.0   %
Admissions by major diagnosis
Cerebro 18.7 % 13.5 % 18.8 % 9.3 %
Neurological 12.5 18.2 12.3 20.6
Cancer 33.3 34.0 32.1 33.3
Cardio 14.5 15.2 15.3 14.8
Respiratory 9.2 9.1 10.0 9.5
Other   11.8   10.0     11.5   12.5  
Total   100.0 %   100.0   %   100.0 %   100.0   %
Direct patient care margins (f)
Routine homecare 53.7 % 53.8 % 52.9 % 53.4 %
Inpatient 3.8 4.9 6.1 5.4
Continuous care 15.7 17.4 16.1 17.2
Homecare margin drivers (dollars per patient day)
Labor costs $ 54.92 $ 53.65 $ 56.14 $ 54.31
Drug costs 6.64 6.64 6.70 7.04
Home medical equipment 6.66 6.68 6.55 6.69
Medical supplies 2.81 3.22 2.93 3.20
Inpatient margin drivers (dollars per patient day)
Labor costs $ 355.30 $ 345.18 $ 347.52 $ 344.05
Continuous care margin drivers (dollars per patient day)
Labor costs $ 569.39 $ 584.99 $ 591.26 $ 586.60
Bad debt expense as a percent of revenues 1.0 % 1.0 % 1.0 % 1.0 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 38.1 38.1 n.a. n.a.
Days of revenue outstanding- including unapplied Medicare payments 32.3 36.3 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, 2015 AND 2014
(unaudited)
             
 
(a) Included in the results of operations 2015 are the following significant credits/(charges) which may not be indicative of ongoing operations
(in thousands):
Three Months Ended September 30, 2015
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,151 ) $ - $ - $ (1,151 )
Acquisition expenses - (30 ) - (30 )
Long-term incentive compensation - - (1,364 ) (1,364 )
Stock option expense   -     -     (813 )   (813 )
Pretax impact on earnings (1,151 ) (30 ) (2,177 ) (3,358 )
Income tax benefit/(cost) on the above   440     12     805     1,257  
After-tax impact on earnings $ (711 ) $ (18 ) $ (1,372 ) $ (2,101 )
 
Nine Months Ended September 30, 2015
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (3,837 ) $ - $ - $ (3,837 )
Acquisition expenses - (161 ) - (161 )

Net recoveries/(expenses) related to litigation settlements

- (5 ) - (5 )
Long-term incentive compensation - - (3,755 ) (3,755 )
Stock option expense - - (3,600 ) (3,600 )
Expenses of securities litigation   -     -     (37 )   (37 )
Pretax impact on earnings (3,837 ) (166 ) (7,392 ) (11,395 )
Income tax benefit/(cost) on the above   1,468     65     2,726     4,259  
After-tax impact on earnings $ (2,369 ) $ (101 ) $ (4,666 ) $ (7,136 )
 
(b) 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 September 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (450 ) $ - $ - $ (450 )
Net recoveries related to litigation settlements - 234 - 234
Long-term incentive compensation - - (1,002 ) (1,002 )
Stock option expense - - (977 ) (977 )
Expenses of securities litigation   -     -     (138 )   (138 )
Pretax impact on earnings (450 ) 234 (2,117 ) (2,333 )
Income tax benefit/(cost) on the above   171     (91 )   780     860  
After-tax impact on earnings $ (279 ) $ 143   $ (1,337 ) $ (1,473 )
 
Nine Months Ended September 30, 2014
VITAS Roto-Rooter Corporate Consolidated
Selling, general and administrative expenses:
Expenses related to OIG investigation $ (1,608 ) $ - $ - $ (1,608 )

Net recoveries/(expenses) related to litigation settlements

(113 ) 9 - (104 )
Acquisition expenses (1 ) - - (1 )
Stock option expense - - (3,430 ) (3,430 )
Long-term incentive compensation - - (1,988 ) (1,988 )
Expenses of securities litigation - - (327 ) (327 )
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 (1,722 ) 9 (9,134 ) (10,847 )
Income tax benefit/(cost) on the above   654     (3 )   3,367     4,018  
After-tax impact on earnings $ (1,068 ) $ 6   $ (5,767 ) $ (6,829 )
 

(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 third quarters of 2015 and 2014, GAAP advertising expense for Roto-Rooter totaled $6,028,000 and $5,606,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the third quarters of 2015 and 2014 would total $6,484,000 and $6,089,000, respectively.

 
Similarly, for the first nine months of 2015 and 2014, GAAP advertising expense for Roto-Rooter totaled $18,486,000 and $18,208,00, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first nine months of 2015 and 2014 would total $19,853,000 and $19,831,000, respectively.
 
(d)

VITAS has nine large (greater than 450 ADC), 18 medium (greater than 200 but less than 450 ADC) and 20 small (less than 200 ADC) hospice programs. For the current Medicare cap year there are no programs with a cap liability and two programs with a Medicare cap cushion of less than 10%.

 
(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 (impact of 135,000 shares for the nine months ended September 30, 2014) as this impact was entirely offset upon the exercise of the note hedges on May 15, 2014.
 
(f) 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