Chemed Reports Fourth-Quarter 2015 Results

CINCINNATI--(BUSINESS WIRE)--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 fourth quarter ended December 31, 2015, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 5.1% to $399 million
• GAAP Diluted EPS increased 0.6% to $1.72
• Adjusted Diluted EPS increased 9.4% to $1.97

VITAS segment operating results:

• Net Patient Revenue of $284 million, an increase of 3.7%
• Average Daily Census (ADC) of 15,697, an increase of 5.8%
• Admissions of 15,790, a decrease of 3.2%
• Net Income, including litigation costs, of $26.5 million, an increase of 3.8%
• Adjusted EBITDA, excluding cap, of $46.4 million, an increase of 2.7%
• Adjusted EBITDA margin, excluding cap, of 16.3%, a decrease of 19 basis points

Roto-Rooter segment operating results:

• Revenue of $114 million, an increase of 8.7%
• Net Income of $13.5 million, an increase of 17.2%
• Adjusted EBITDA of $24.4 million, an increase of 15.5%
• Adjusted EBITDA margin of 21.4%, an increase of 126 basis points

VITAS

Net revenue for VITAS was $284 million in the fourth quarter of 2015, which is an increase of $10.1 million, or 3.7%, when compared to the prior-year period. This revenue increase is comprised of an average Medicare reimbursement rate increase of approximately 0.6%, a 5.8% increase in average daily census, offset by level of care and geographic mix shift, when compared to the prior year.

In the fourth quarter of 2015, VITAS did not record any adjustments in estimated Medicare Cap billing limitations. This compares to $0.5 million of Medicare Cap billing limitations reversed in the fourth quarter of 2014.

At December 31, 2015, VITAS had 31 Medicare provider numbers, none of which has an estimated 2015 Medicare Cap billing limitation.

Of VITAS’ 31 unique Medicare provider numbers, 28 provider numbers have a Medicare Cap cushion of 10% or greater for the trailing twelve-month period, one provider number has a cap cushion between 5% and 10% and two provider numbers have a cap cushion between 0% and 5%. VITAS generated an aggregate cap cushion of $274 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $196.98, which is 1.8% below the prior-year period. Routine home care reimbursement and high acuity care averaged $165.06 and $704.93, respectively. During the quarter, high acuity days of care were 5.9% of total days of care, 78 basis points less than the prior-year quarter.

The fourth quarter of 2015 gross margin, excluding the impact of Medicare Cap, was 24.1%, which is 12 basis points less than the fourth quarter of 2014.

Selling, general and administrative expense was $23.1 million in the fourth quarter of 2015, which is an increase of 5.9% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $46.4 million in the quarter, an increase of 2.7% over the prior-year period. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 16.3% in the quarter which is a decline of 19 basis points when compared to the prior-year.

Roto-Rooter

Roto-Rooter generated sales of $114 million for the fourth quarter of 2015, an increase of $9.1 million, or 8.7%, over the prior-year quarter. This increase consisted of a 10.3% increase in plumbing and a 4.4% increase in sewer and drain services. Water restoration accounted for $2.1 million of this revenue growth, with water and flood remediation services aggregating $10.4 million in the quarter.

Roto-Rooter’s gross margin in the quarter was 47.3%, a 56 basis point improvement when compared to the fourth quarter of 2014. Adjusted EBITDA in the fourth quarter of 2015 totaled $24.4 million, an increase of 15.5%, and the Adjusted EBITDA margin was 21.4% in the quarter, a 126 basis point improvement when compared to the prior year.

Chemed Consolidated

As of December 31, 2015, Chemed had total cash and cash equivalents of $14.7 million and debt of $91.3 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 December 31, 2015, the Company had approximately $312 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through December 31, 2015, aggregated $44.1 million and compares to depreciation and amortization during the same period of $33.5 million.

The Company repurchased $11.3 million of Chemed stock during the quarter. This equates to 75,000 shares of Chemed stock repurchased at an average cost of $151.09. Chemed currently has $52.5 million of authorization remaining under this share repurchase plan.

Guidance for 2016

On January 1, 2016, CMS implemented a revenue neutral rebasing to the Medicare hospice reimbursement per diem. This rebasing eliminated the single-tier per diem for routine home care (RHC) and replaced it with a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care, and a lower rate for days 61 and after. In addition, CMS provided for a Service Intensity Add-on (SIA) payment which provides for reimbursement of care provided by a registered nurse or social worker for RHC patients within seven days prior to death. The reimbursement for continuous care, inpatient care and respite care are not impacted by this rebasing.

The two-tiered national per diem rate for RHC is $186.84 for the first 60 days and $146.83 for RHC provided to patients in hospice beyond 60 days. An individual hospice’s actual per diem rate is adjusted for differences in geographic cost of living. Rebasing in 2016 would be revenue neutral to a hospice if it has 37.6% of total RHC days-of-care being provided to patients in their first 60 days of admission and 62.4% of total RHC days-of-care provided to patients after the 60 days. (Days-of-Care ratio).

Historically, VITAS had a 32/68 aggregate Days-of-Care ratio. High acuity care historically has represented 6% to 7% of VITAS’ total days-of-care. VITAS high acuity days-of-care provided to patients within the first 60 days of admission represented approximately 15% of days-of-care provided to patients in the first 60 days of admission. This results in a VITAS RHC Days-of-Care ratio of approximately 29/71.

The impact to VITAS for the 2016 rebasing is estimated to reduce aggregate 2016 revenue by $16 million when compared to the single-tier reimbursement model. Rebasing is estimated to reduce 2016 RHC revenue by approximately $20 million partially offset by $4 million in SIA payments.

The estimated impact from rebasing is similar to the impact of sequestration. It will have a one-year impact relative to revenue and profitability growth when compared to the prior year. However, similar to sequestration, VITAS anticipates a significant portion of this $16 million reduction in revenue will be offset by increased efficiencies in 2016 and 2017 in the areas of non-bedside field operations and general administration.

Including the impact of rebasing, full-year 2016 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 2.5% to 3.5%. Admissions in 2016 are estimated to increase 3% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14% to 15%. This guidance includes $5.0 million for Medicare Cap billing limitations.

Roto-Rooter is forecasted to achieve full-year 2016 revenue growth of 3.5% to 4.5%. This revenue estimate is based upon increased job pricing of approximately 1% and continued growth in water restoration services. Adjusted EBITDA margin for 2016 is estimated in the range of 20% to 21%.

Based upon the above, full-year 2016 adjusted earnings per diluted share, excluding non-cash expense for stock options, costs related to litigation, and other discrete items, is estimated to be in the range of $7.05 to $7.25. This compares to Chemed’s 2015 reported adjusted earnings per diluted share of $6.98.

The impact on diluted earnings per share from rebasing is approximately $0.56. Excluding rebasing, 2016 guidance for adjusted earnings per diluted share would have been in the range of $7.61 to $7.81.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday, February 18, 2016, 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) 415-3186 for U.S. and Canadian participants and (857) 244-7329 for international participants. The participant passcode is 76740859. 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 33220503. 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.