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Chemed Reports Third-Quarter 2020 Results

·18-min read

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, 2020, versus the comparable prior-year period, as follows:

Consolidated operating results:

  • Revenue increased 9.9% to $528 million

  • GAAP Diluted Earnings-per-Share (EPS) of $4.14, an increase of 16.3%

  • Adjusted Diluted EPS of $4.86, an increase of 40.5%

VITAS segment operating results:

  • Net Patient Revenue of $337 million, an increase of 4.8%

  • Average Daily Census (ADC) of 19,045, a decline of 0.2%

  • Admissions of 17,943 an increase of 4.7%

  • Net Income, excluding certain discrete items, of $55.1 million, an increase of 36.4%

  • Adjusted EBITDA, excluding Medicare Cap, of $68.2 million, an increase of 25.6%

  • Adjusted EBITDA margin, excluding Medicare Cap, of 20.5%, an increase of 367-basis points

Roto-Rooter segment operating results:

  • Revenue of $191 million, an increase of 20.4%

  • Net Income, excluding certain discrete items, of $36.2 million, an increase of 25.5%

  • Adjusted EBITDA of $51.8 million, an increase of 30.2%

  • Adjusted EBITDA margin of 27.1%, an increase of 205-basis points

VITAS

VITAS net revenue was $337 million in the third quarter of 2020, which is an increase of 4.8%, when compared to the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 5.7%, a 0.2% decline in days-of-care, and acuity mix shift which then reduced the blended average Medicare rate increase 242-basis points. In addition, a reduction in Medicare Cap liability increased revenue growth 162-basis points. The combination of Medicaid net room and board pass-through and other contra revenue activity increased revenue growth approximately 9-basis points in the quarter.

In the third quarter of 2020, VITAS reversed $4.1 million in Medicare Cap billing limitations recorded in earlier quarters. This compares favorably to the prior-year third quarter Medicare Cap billing limitation of $1.3 million.

The federal government’s Medicare Cap billing limitation fiscal year end is September 30. At September 30, 2020, VITAS had 30 Medicare provider numbers, four of which have an estimated fiscal 2020 Medicare Cap billing limitation liability of $8.7 million. This compares favorably to the full year fiscal 2019 Medicare Cap billing limitation liability of approximately $11.4 million.

Of VITAS’ 30 Medicare provider numbers, 22 provider numbers have a Medicare Cap cushion of 10% or greater, one provider number has a cap cushion between 5% and 10%, three provider numbers have a cap cushion between 0% and 5%, and four provider numbers have a fiscal 2020 Medicare Cap billing limitation.

Average revenue per patient per day in the third quarter of 2020 was $194.10, which, including acuity mix shift, is 3.2% above the prior-year period. Reimbursement for routine home care and high acuity care averaged $166.51 and $971.71, respectively. During the quarter, high acuity days-of-care were 3.4% of total days of care, 57-basis points less than the prior-year quarter. This 57-basis point mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5.7% to 3.2% in the quarter.

The third quarter 2020 gross margin, excluding Medicare Cap and excluding $7 million of costs for personal protection equipment (PPE), disinfecting facilities and other incremental expenses directly related to the pandemic, was 28.0%, which is a 465-basis point margin improvement when compared to the third quarter of 2019. This increase in gross margin is attributed to a 2% increase in reimbursement from the temporary suspension of sequestration, a level-of-care mix shift to higher margin, lower reimbursement routine home care and efficiencies from utilizing telehealth when appropriate.

Selling, general and administrative expense was $21.8 million in the third quarter of 2020, which is a favorable decrease of 0.8% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $68.2 million in the quarter, an increase of 25.6%. Adjusted EBITDA margin, excluding Medicare Cap, was 20.5% in the quarter, which is a 367-basis point improvement when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $191 million in the third quarter of 2020, an increase of $32.3 million, or 20.4%, over the prior-year quarter. On a unit-for-unit basis, which excludes the Oakland and HSW acquisitions completed in July 2019 and September 2019, respectively, Roto-Rooter generated quarterly revenue of $173 million for the third quarter of 2020, an increase of 11.4% over the prior-year quarter.

Total commercial revenue, excluding acquisitions, decreased 11.6%. This aggregate unit-for-unit commercial revenue decline consisted of drain cleaning revenue declining 13.0%, commercial plumbing and excavation declining 11.2%, and commercial water restoration declining 1.6%.

Total residential revenue, excluding acquisitions, increased 24.6%. This aggregate residential revenue growth consisted of residential drain cleaning increasing 22.0%, plumbing and excavation expanding 31.2%, and residential water restoration increasing 16.1%.

Roto-Rooter started the second quarter of 2020 with weak commercial and residential demand when compared to the prior year. Fortunately, service demand began to improve in the later part of April and continued to strengthen throughout the second quarter. This positive trend continued throughout the third quarter with unit-for-unit commercial revenue declining 15.7%, 8.5% and 10.7% in July, August and September 2020, respectively. Unit-for-unit residential revenue sales increased 22.8% in July, increased 24.1% in August, and increased 26.6% in September 2020.

Roto-Rooter’s gross margin in the quarter was 51.6%, a 232-basis point increase when compared to the third quarter of 2019. Adjusted EBITDA in the third quarter of 2020 totaled $51.8 million, an increase of 30.2%. The Adjusted EBITDA margin in the quarter was 27.1% which is a 205-basis point increase when compared to the prior year. The increase in Adjusted EBITDA margin is attributed to strong residential revenue growth which contribute slightly higher margin than commercial revenue, as well as excellent expense management on costs related to managing Roto-Rooter branch infrastructure.

Chemed Consolidated

As of September 30, 2020, Chemed had total cash and cash equivalents of $113 million and no long-term debt.

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, 2020, the Company had $38 million in outstanding letters of credit resulting in approximately $412 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 50,000 shares of Chemed stock for $25.0 million which equates to a cost per share of $499.48. As of September 30, 2020, there was approximately $207 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time Chemed has repurchased approximately 14.5 million shares, aggregating approximately $1.4 billion at an average share cost of $94.17. Including dividends over this period, Chemed has returned approximately $1.6 billion to shareholders.

Guidance for 2020

Historically, Chemed earnings guidance has been developed using previous years’ key operating metrics which are then modeled and projected out for the calendar year. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. Once we complete this phase of our projected operating results, we would then modify the projections for the timing of price increases, changes in commission structure, wages, marketing programs and a variety of continuous improvement initiatives that our business segments plan on executing over the coming year. This modeling exercise also takes into consideration anticipated industry and macro-economic issues outside of management’s control but are somewhat predictable in terms of timing and impact on our business segments’ operating results.

The 2020 pandemic has made accurate modeling and providing meaningful earnings guidance for Chemed exceptionally challenging. Federal, state and local government authorities are forced to make swift decisions within our healthcare system, labor pools and general economy. These governmental decisions have the potential for an immediate and material impact on VITAS and Roto-Rooter operating results.

Over the past seven months, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue guidance for the remainder of the calendar year. However, this guidance should be taken with the recognition the pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact our ability to achieve this guidance.

Revenue growth for VITAS in 2020, prior to Medicare Cap, is estimated to be 4%. Average Daily Census in 2020 is estimated to expand approximately 1.3%. Full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 21%. We are currently estimating $8.7 million for Medicare Cap billing limitations for calendar year 2020. We also anticipate the $80.2 million of CARES Act funds formulaically calculated by the federal government based upon our 2019 Medicare fee-for-service revenue will be adequate to cover increased costs specifically related to operating our healthcare unit during the pandemic as well as any incremental Medicare Cap billing limitations triggered from declines in Medicare admissions. Chemed’s full year adjusted earnings per share guidance eliminates any financial benefit from the CARES Act funds that relate to lost revenue. We anticipate returning any unused CARES Act funds to the federal government at the end of the pandemic measurement period.

Roto-Rooter is forecasted to achieve full-year 2020 revenue growth of 12.5% to 13.0%. Roto-Rooter’s Adjusted EBITDA margin for 2020 is estimated to be 26.1%.

Based upon the above, full-year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items, is estimated to be in the range of $18.00 to $18.15 and compares to Chemed’s previous 2020 guidance of $16.20 to $16.40. This 2020 guidance assumes an effective corporate tax rate of 25.8%. Chemed’s 2019 reported adjusted earnings per diluted share was $13.95.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Friday, October 30, 2020, 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 Conference ID is 8376498. 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 8376498. 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 19,000 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 STATEMENTS OF INCOME

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

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Service revenues and sales

$

528,297

$

480,613

$

1,546,294

$

1,416,231

Cost of services provided and goods sold

339,240

328,183

1,043,148

973,771

Selling, general and administrative expenses (aa)

88,317

76,836

243,413

222,421

Depreciation

11,714

10,147

34,761

29,744

Amortization

2,511

441

7,476

1,366

Other operating (income)/expenses

12,207

78

(28,935

)

9,001

Total costs and expenses

453,989

415,685

1,299,863

1,236,303

Income from operations

74,308

64,928

246,431

179,928

Interest expense

(379

)

(1,041

)

(2,005

)

(3,402

)

Other income--net (bb)

7,675

3,036

5,723

5,488

Income before income taxes

81,604

66,923

250,149

182,014

Income taxes

(13,882

)

(7,976

)

(44,435

)

(27,671

)

Net income

$

67,722

$

58,947

$

205,714

$

154,343

Earnings Per Share

Net income

$

4.25

$

3.69

$

12.90

$

9.68

Average number of shares outstanding

15,940

15,970

15,948

15,952

Diluted Earnings Per Share

Net income

$

4.14

$

3.56

$

12.53

$

9.35

Average number of shares outstanding

16,373

16,555

16,419

16,514

(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

SG&A expenses before long-term incentive compensation

and the impact of market value adjustments related to

deferred compensation plans

$

79,287

$

72,273

$

232,797

$

212,775

Market value adjustments related to deferred

compensation trusts

7,256

2,886

5,093

5,094

Long-term incentive compensation

1,774

1,677

5,523

4,552

Total SG&A expenses

$

88,317

$

76,836

$

243,413

$

222,421

(bb) Other income--net comprises (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Market value adjustments related to deferred

compensation trusts

$

7,256

$

2,886

$

5,093

$

5,094

Interest income

423

173

647

387

Other

(4

)

(23

)

(17

)

7

Total other income--net

$

7,675

$

3,036

$

5,723

$

5,488

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

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

September 30,

2020

2019

Assets

Current assets

Cash and cash equivalents

$

112,765

$

9,066

Accounts receivable less allowances

110,839

114,480

Inventories

7,546

7,354

Prepaid income taxes

14,224

10,745

Prepaid expenses

25,222

26,150

Total current assets

270,596

167,795

Investments of deferred compensation plans held in trust

86,865

73,714

Properties and equipment, at cost less accumulated depreciation

181,386

172,932

Lease right of use asset

120,382

103,286

Identifiable intangible assets less accumulated amortization

120,401

129,276

Goodwill

578,519

576,600

Other assets

8,805

8,982

Total Assets

$

1,366,954

$

1,232,585

Liabilities

Current liabilities

Accounts payable

$

39,268

$

44,027

Accrued insurance

50,727

47,726

Accrued compensation

101,868

75,208

Accrued legal

9,561

7,283

Short-term lease liability

33,311

33,761

Unutilized CARES Act grant

48,041

-

Other current liabilities

46,387

43,496

Total current liabilities

329,163

251,501

Deferred income taxes

19,222

15,512

Long-term debt

-

130,000

Deferred compensation liabilities

86,875

73,335

Long-term lease liability

99,241

82,012

Other liabilities

31,045

7,845

Total Liabilities

565,546

560,205

Stockholders' Equity

Capital stock

36,137

35,738

Paid-in capital

925,271

841,837

Retained earnings

1,615,465

1,365,303

Treasury stock, at cost

(1,777,809

)

(1,572,844

)

Deferred compensation payable in Company stock

2,344

2,346

Total Stockholders' Equity

801,408

672,380

Total Liabilities and Stockholders' Equity

$

1,366,954

$

1,232,585

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)(unaudited)

For the Nine Months Ended September 30,

2020

2019

Cash Flows from Operating Activities

Net income

$

205,714

$

154,343

Adjustments to reconcile net income to net cash provided

by operating activities:

Unutilized CARES Act grant

48,041

-

Depreciation and amortization

42,237

31,110

Deferred payroll taxes

22,941

-

Stock option expense

13,296

10,729

Noncash long-term incentive compensation

5,301

4,184

Litigation settlement

2,684

6,000

Noncash directors' compensation

1,171

767

Deferred tax provision/(benefit)

831

(6,085

)

Amortization of debt issuance costs

229

229

Asset impairment loss

-

2,266

Changes in operating assets and liabilities, excluding

amounts acquired in business combinations:

Decrease in accounts receivable

27,993

10,558

Increase in inventories

(84

)

(1,649

)

Increase in prepaid expenses

(2,072

)

(6,836

)

Increase in accounts payable and

other current liabilities

34,526

28,622

Change in current income taxes

(4,366

)

(81

)

Net change in lease assets and liabilities

1,583

1,311

Increase in other assets

(9,646

)

(8,145

)

Increase in other liabilities

10,735

9,045

Other sources

1,298

1,277

Net cash provided by operating activities

402,412

237,645

Cash Flows from Investing Activities

Capital expenditures

(42,670

)

(39,753

)

Business combinations

(3,600

)

(138,010

)

Other sources

672

101

Net cash used by investing activities

(45,598

)

(177,662

)

Cash Flows from Financing Activities

Payments on revolving line of credit

(264,900

)

(359,900

)

Proceeds from revolving line of credit

174,900

400,700

Purchases of treasury stock

(147,123

)

(71,926

)

Proceeds from exercise of stock options

31,498

23,383

Capital stock surrendered to pay taxes on stock-based compensation

(18,707

)

(26,108

)

Dividends paid

(15,639

)

(14,657

)

Change in cash overdrafts payable

(9,849

)

(7,535

)

Other (uses)/sources

(387

)

295

Net cash used by financing activities

(250,207

)

(55,748

)

Increase in Cash and Cash Equivalents

106,607

4,235

Cash and cash equivalents at beginning of year

6,158

4,831

Cash and cash equivalents at end of year

$

112,765

$

9,066

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2020 (a)

Service revenues and sales

$

337,097

$

191,200

$

-

$

528,297

Cost of services provided and goods sold

246,636

92,604

-

339,240

Selling, general and administrative expenses

21,799

48,074

18,444

88,317

Depreciation

5,592

6,089

33

11,714

Amortization

18

2,493

-

2,511

Other operating expense

9,052

3,155

-

12,207

Total costs and expenses

283,097

152,415

18,477

453,989

Income/(loss) from operations

54,000

38,785

(18,477

)

74,308

Interest expense

(47

)

(80

)

(252

)

(379

)

Intercompany interest income/(expense)

5,337

1,651

(6,988

)

-

Other income—net

381

38

7,256

7,675

Income/(loss) before income taxes

59,671

40,394

(18,461

)

81,604

Income taxes

(13,934

)

(9,218

)

9,270

(13,882

)

Net income/(loss)

$

45,737

$

31,176

$

(9,191

)

$

67,722

2019 (b)

Service revenues and sales

$

321,748

$

158,865

$

-

$

480,613

Cost of services provided and goods sold

247,551

80,632

-

328,183

Selling, general and administrative expenses

21,965

41,758

13,113

76,836

Depreciation

5,105

5,003

39

10,147

Amortization

18

423

-

441

Other operating expense/(income)

97

(19

)

-

78

Total costs and expenses

274,736

127,797

13,152

415,685

Income/(loss) from operations

47,012

31,068

(13,152

)

64,928

Interest expense

(48

)

(80

)

(913

)

(1,041

)

Intercompany interest income/(expense)

4,618

2,234

(6,852

)

-

Other income—net

121

31

2,884

3,036

Income/(loss) before income taxes

51,703

33,253

(18,033

)

66,923

Income taxes

(11,930

)

(7,113

)

11,067

(7,976

)

Net income/(loss)

$

39,773

$

26,140

$

(6,966

)

$

58,947

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2020 (a)

Service revenues and sales

$

1,002,477

$

543,817

$

-

$

1,546,294

Cost of services provided and goods sold

772,880

270,268

-

1,043,148

Selling, general and administrative expenses

65,141

138,587

39,685

243,413

Depreciation

16,622

18,035

104

34,761

Amortization

53

7,423

-

7,476

Other operating (income)/expense

(31,661

)

2,725

1

(28,935

)

Total costs and expenses

823,035

437,038

39,790

1,299,863

Income/(loss) from operations

179,442

106,779

(39,790

)

246,431

Interest expense

(137

)

(272

)

(1,596

)

(2,005

)

Intercompany interest income/(expense)

14,463

4,422

(18,885

)

-

Other income—net

549

68

5,106

5,723

Income/(loss) before income taxes

194,317

110,997

(55,165

)

250,149

Income taxes

(47,055

)

(26,031

)

28,651

(44,435

)

Net income/(loss)

$

147,262

$

84,966

$

(26,514

)

$

205,714

2019 (b)

Service revenues and sales

$

941,279

$

474,952

$

-

$

1,416,231

Cost of services provided and goods sold

728,397

245,374

-

973,771

Selling, general and administrative expenses

65,182

120,736

36,503

222,421

Depreciation

14,644

14,983

117

29,744

Amortization

53

1,313

-

1,366

Other operating expense

6,521

214

2,266

9,001

Total costs and expenses

814,797

382,620

38,886

1,236,303

Income/(loss) from operations

126,482

92,332

(38,886

)

179,928

Interest expense

(150

)

(273

)

(2,979

)

(3,402

)

Intercompany interest income/(expense)

13,395

6,609

(20,004

)

-

Other income—net

309

86

5,093

5,488

Income/(loss) before income taxes

140,036

98,754

(56,776

)

182,014

Income taxes

(33,636

)

(22,452

)

28,417

(27,671

)

Net income/(loss)

$

106,400

$

76,302

$

(28,359

)

$

154,343

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING SUMMARIES OF EBITDA

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2020

Net income/(loss)

$

45,737

$

31,176

$

(9,191

)

$

67,722

Add/(deduct):

Interest expense

47

80

252

379

Income taxes

13,934

9,218

(9,270

)

13,882

Depreciation

5,592

6,089

33

11,714

Amortization

18

2,493

-

2,511

EBITDA

65,328

49,056

(18,176

)

96,208

Add/(deduct):

Intercompany interest expense/(income)

(5,337

)

(1,651

)

6,988

-

Interest income

(385

)

(38

)

-

(423

)

CARES Act grant

8,805

-

-

8,805

Direct costs related to COVID-19

6,945

1,321

-

8,266

Stock option expense

-

-

3,182

3,182

Litigation settlement

-

3,095

-

3,095

COVID-19 related Medicare cap

(2,250

)

-

-

(2,250

)

Long-term incentive compensation

-

-

1,774

1,774

Medicare cap sequestration adjustment

(852

)

-

-

(852

)

Adjusted EBITDA

$

72,254

$

51,783

$

(6,232

)

$

117,805

2019

Net income/(loss)

$

39,773

$

26,140

$

(6,966

)

$

58,947

Add/(deduct):

Interest expense

48

80

913

1,041

Income taxes

11,930

7,113

(11,067

)

7,976

Depreciation

5,105

5,003

39

10,147

Amortization

18

423

-

441

EBITDA

56,874

38,759

(17,081

)

78,552

Add/(deduct):

Intercompany interest expense/(income)

(4,618

)

(2,234

)

6,852

-

Interest income

(139

)

(34

)

-

(173

)

Acquisition expense

-

3,281

-

3,281

Stock option expense

-

-

2,711

2,711

Long-term incentive compensation

-

-

1,677

1,677

Medicare cap sequestration adjustment

859

-

-

859

Adjusted EBITDA

$

52,976

$

39,772

$

(5,841

)

$

86,907

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING SUMMARIES OF EBITDA

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2020

Net income/(loss)

$

147,262

$

84,966

$

(26,514

)

$

205,714

Add/(deduct):

Interest expense

137

272

1,596

2,005

Income taxes

47,055

26,031

(28,651

)

44,435

Depreciation

16,622

18,035

104

34,761

Amortization

53

7,423

-

7,476

EBITDA

211,129

136,727

(53,465

)

294,391

Add/(deduct):

Intercompany interest expense/(income)

(14,463

)

(4,422

)

18,885

-

Interest income

(566

)

(68

)

(13

)

(647

)

Direct costs related to COVID-19

32,184

3,299

-

35,483

CARES Act grant

(32,184

)

-

-

(32,184

)

Stock option expense

-

-

13,296

13,296

Long-term incentive compensation

-

-

5,523

5,523

Litigation settlement costs

-

3,095

-

3,095

Medicare cap sequestration adjustment

619

-

-

619

Adjusted EBITDA

$

196,719

$

138,631

$

(15,774

)

$

319,576

2019

Net income/(loss)

$

106,400

$

76,302

$

(28,359

)

$

154,343

Add/(deduct):

Interest expense

150

273

2,979

3,402

Income taxes

33,636

22,452

(28,417

)

27,671

Depreciation

14,644

14,983

117

29,744

Amortization

53

1,313

-

1,366

EBITDA

154,883

115,323

(53,680

)

216,526

Add/(deduct):

Intercompany interest expense/(income)

(13,395

)

(6,609

)

20,004

-

Interest (income)/expense

(296

)

(91

)

-

(387

)

Stock option expense

-

-

10,729

10,729

Litigation settlement costs

6,000

-

-

6,000

Long-term incentive compensation

-

-

4,552

4,552

Acquisition expense

-

3,377

120

3,497

Medicare cap sequestration adjustment

3,063

-

-

3,063

Impairment loss on transportation equipment

-

-

2,266

2,266

Non cash ASC 842 expenses/(benefit)

656

55

(163

)

548

Adjusted EBITDA

$

150,911

$

112,055

$

(16,172

)

$

246,794

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

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income as reported

$

67,722

$

58,947

$

205,714

$

154,343

Add/(deduct) pre-tax cost of:

Direct costs related to COVID-19

8,266

-

35,483

-

CARES Act grant

8,805

-

(32,184

)

-

Stock option expense

3,182

2,711

13,296

10,729

Amortization of reacquired franchise agreements

2,352

331

7,056

1,103

Long-term incentive compensation

1,774

1,677

5,523

4,552

Litigation settlement

3,095

-

3,095

6,000

Medicare cap sequestration adjustments

(852

)

859

619

3,063

COVID-19 Medicare cap

(2,250

)

-

-

-

Impairment loss on transportation equipment

-

-

-

2,266

Acquisition expense

-

3,281

-

3,497

Non cash ASC 842 expenses

-

-

-

548

Add/(deduct) tax impacts:

Tax impact of the above pre-tax adjustments (1)

(5,351

)

(1,801

)

(6,165

)

(6,761

)

Excess tax benefits on stock compensation

(7,187

)

(8,792

)

(19,943

)

(18,737

)

Adjusted net income

$

79,556

$

57,213

$

212,494

$

160,603

Diluted Earnings Per Share As Reported

Net income

$

4.14

$

3.56

$

12.53

$

9.35

Average number of shares outstanding

16,373

16,555

16,419

16,514

Adjusted Diluted Earnings Per Share

Adjusted net income

$

4.86

$

3.46

$

12.94

$

9.73

Average number of shares outstanding

16,373

16,555

16,419

16,514

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

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

OPERATING STATISTICS FOR VITAS SEGMENT

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

OPERATING STATISTICS

2020

2019

2020

2019

Net revenue ($000) (c)

Homecare

$

278,856

$

274,746

$

826,954

$

800,059

Inpatient

27,633

23,599

85,983

69,063

Continuous care

30,699

29,446

105,836

92,476

Other

2,910

2,356

8,175

6,598

Subtotal

$

340,098

$

330,147

$

1,026,948

$

968,196

Room and board, net

(3,289

)

(2,846

)

(9,317

)

(8,098

)

Contractual allowances

(3,784

)

(4,236

)

(10,976

)

(10,904

)

Medicare cap allowance

4,072

(1,317

)

(4,178

)

(7,915

)

Net Revenue

$

337,097

$

321,748

$

1,002,477

$

941,279

Net revenue as a percent of total before Medicare cap allowance

Homecare

82.0

%

83.2

%

80.5

%

82.6

%

Inpatient

8.1

7.1

8.4

7.1

Continuous care

9.0

8.9

10.3

9.6

Other

0.9

0.8

0.8

0.7

Subtotal

100.0

100.0

100.0

100.0

Room and board, net

(1.0

)

(0.9

)

(0.9

)

(0.8

)

Contractual allowances

(1.1

)

(1.3

)

(1.1

)

(1.2

)

Medicare cap allowance

1.2

(0.4

)

(0.4

)

(0.8

)

Net Revenue

99.1

%

97.4

%

97.6

%

97.2

%

Days of care

Homecare

1,426,191

1,361,508

4,192,681

3,961,261

Nursing home

261,396

315,566

844,232

909,318

Respite

4,566

8,582

15,416

21,552

Subtotal routine homecare and respite

1,692,153

1,685,656

5,052,329

4,892,131

Inpatient

27,017

30,553

84,907

89,366

Continuous care

33,013

39,670

110,200

125,397

Total

1,752,183

1,755,879

5,247,436

5,106,894

Number of days in relevant time period

92

92

274

273

Average daily census ("ADC") (days)

Homecare

15,502

14,799

15,302

14,510

Nursing home

2,841

3,430

3,081

3,331

Respite

50

93

56

79

Subtotal routine homecare and respite

18,393

18,322

18,439

17,920

Inpatient

294

332

310

327

Continuous care

358

432

402

460

Total

19,045

19,086

19,151

18,707

Total Admissions

17,943

17,131

53,368

52,380

Total Discharges

18,205

16,915

51,281

51,274

Average length of stay (days)

97.1

92.6

92.9

91.6

Median length of stay (days)

14.0

17.0

14.0

16.0

ADC by major diagnosis

Cerebro

35.1

%

35.7

%

35.7

%

35.9

%

Neurological

22.1

20.7

21.7

20.4

Cancer

12.5

12.9

12.6

12.9

Cardio

16.1

16.6

15.9

16.7

Respiratory

8.0

8.1

8.2

8.1

Other

6.2

6.0

5.9

6.0

Total

100.0

%

100.0

%

100.0

%

100.0

%

Admissions by major diagnosis

Cerebro

21.4

%

21.1

%

21.2

%

20.8

%

Neurological

13.2

12.7

13.0

12.6

Cancer

27.4

30.5

27.8

29.2

Cardio

13.6

14.8

14.5

15.7

Respiratory

9.9

10.2

10.6

11.3

Other

14.5

10.7

12.9

10.4

Total

100.0

%

100.0

%

100.0

%

100.0

%

Estimated uncollectible accounts as a percent of revenues

1.1

%

1.3

%

1.1

%

1.1

%

Accounts receivable --

Days of revenue outstanding-excluding unapplied Medicare payments

33.4

32.7

n.a.

n.a.

Days of revenue outstanding-including unapplied Medicare payments

22.1

21.0

n.a.

n.a.

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

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

FOOTNOTES TO FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(a)

Included in the results of operations for 2020 are the following significant credits/(charges) which may not be indicative of ongoing operations

(in thousands):

Three Months Ended September 30, 2020

VITAS

Roto-Rooter

Corporate

Consolidated

CARES Act grant

$

(8,805

)

$

-

$

-

$

(8,805

)

Direct costs related to COVID-19

(6,945

)

(1,321

)

-

(8,266

)

Stock option expense

-

-

(3,182

)

(3,182

)

Litigation settlement

-

(3,095

)

-

(3,095

)

Amortization of reacquired franchise agreements

-

(2,352

)

-

(2,352

)

COVID-19 Medicare cap

2,250

-

-

2,250

Long-term incentive compensation

-

-

(1,774

)

(1,774

)

Medicare cap sequestration adjustment

852

-

-

852

Pretax impact on earnings

(12,648

)

(6,768

)

(4,956

)

(24,372

)

Excess tax benefits on stock compensation

-

-

7,187

7,187

Income tax benefit on the above

3,253

1,794

304

5,351

After-tax impact on earnings

$

(9,395

)

$

(4,974

)

$

2,535

$

(11,834

)

Nine Months Ended September 30, 2020

VITAS

Roto-Rooter

Corporate

Consolidated

Direct costs related to COVID-19

$

(32,184

)

$

(3,299

)

$

-

$

(35,483

)

CARES Act grant

32,184

-

-

32,184

Stock option expense

-

-

(13,296

)

(13,296

)

Amortization of acquired and cancelled franchise agreements

-

(7,056

)

-

(7,056

)

Long-term incentive compensation

-

-

(5,523

)

(5,523

)

Litigation settlement

-

(3,095

)

-

(3,095

)

Medicare cap sequestration adjustment

(619

)

-

-

(619

)

Pretax impact on earnings

(619

)

(13,450

)

(18,819

)

(32,888

)

Excess tax benefits on stock compensation

-

-

19,943

19,943

Income tax benefit on the above

157

3,564

2,444

6,165

After-tax impact on earnings

$

(462

)

$

(9,886

)

$

3,568

$

(6,780

)

(b)

Included in the results of operations for 2019 are the following significant credits/(charges) which may not be indicative of ongoing operations

(in thousands):

Three Months Ended September 30, 2019

VITAS

Roto-Rooter

Corporate

Consolidated

Acquisition expense

$

-

$

(3,281

)

$

-

$

(3,281

)

Stock option expense

-

-

(2,711

)

(2,711

)

Long-term incentive compensation

-

-

(1,677

)

(1,677

)

Medicare cap sequestration adjustment

(859

)

-

-

(859

)

Amortization of reacquired franchise agreements

-

(331

)

-

(331

)

Pretax impact on earnings

(859

)

(3,612

)

(4,388

)

(8,859

)

Excess tax benefits on stock compensation

-

-

8,792

8,792

Income tax benefit on the above

220

957

624

1,801

After-tax impact on earnings

$

(639

)

$

(2,655

)

$

5,028

$

1,734

Nine Months Ended September 30, 2019

VITAS

Roto-Rooter

Corporate

Consolidated

Stock option expense

$

-

$

-

$

(10,729

)

$

(10,729

)

Litigation settlement

(6,000

)

-

-

(6,000

)

Long-term incentive compensation

-

-

(4,552

)

(4,552

)

Acquisition expense

-

(3,377

)

(120

)

(3,497

)

Medicare cap sequestration adjustment

(3,063

)

-

-

(3,063

)

Impairment loss on transportation equipment

-

-

(2,266

)

(2,266

)

Amortization of reacquired franchise agreements

-

(1,103

)

-

(1,103

)

Non cash ASC 842 (expenses)/benefit

(656

)

(55

)

163

(548

)

Pretax impact on earnings

(9,719

)

(4,535

)

(17,504

)

(31,758

)

Excess tax benefits on stock compensation

-

-

18,737

18,737

Income tax benefit on the above

2,474

1,202

3,085

6,761

After-tax impact on earnings

$

(7,245

)

$

(3,333

)

$

4,318

$

(6,260

)

(c)

VITAS has 11 large (greater than 450 ADC), 21 medium (greater than 200 but less than 450 ADC) and 17 small (less than 200 ADC) hospice programs. Of Vitas' 30 Medicare provider numbers, for the current cap year, 22 provider numbers have a Medicare cap cushion of 10% or greater, one provider numbers have a cap cushion between 5% and 10%, three provider numbers have a cap cushion between 0% and 5%, and four provider numbers have a Medicare cap liability.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201029006123/en/

Contacts

David P. Williams
(513) 762-6901