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 second quarter ended June 30, 2024, versus the comparable prior-year period.

Changes to Non-GAAP Metrics

Chemed uses certain non-GAAP metrics such as EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, to provide additional context and perspective to reported operational results.

Chemed’s previously reported non-GAAP metrics during the four sequential quarters from September 30, 2022 through June 30, 2023 excluded the 12-month pandemic-related licensed healthcare professional retention bonus (Retention Program). Starting with the quarter-ended September 30, 2023, the Company no longer excludes the cost of the Retention Program when presenting non-GAAP operating metrics in current or prior periods.

For the quarter-ended June 30, 2023, the pretax and after-tax Retention Program expense was $12.8 million and $9.7 million, respectively. For the six-months ended June 30, 2023, the pretax and after-tax Retention Program expense was $23.7 million and $18.0 million, respectively. There was no material impact on financial results for the quarter or six months-ended June 30, 2024 as a result of the Retention Program.

Results for Quarter Ended June 30, 2024

Consolidated operating results:

• Revenue increased 7.6% to $595.9 million
• GAAP Diluted Earnings-per-Share (EPS) of $4.65, an increase of 32.5%
• Adjusted Diluted EPS of $5.47, an increase of 34.1%

VITAS segment operating results:

• Net Patient Revenue of $374.6 million, an increase of 16.7%
• Average Daily Census (ADC) of 21,036, an increase of 14.4%
• Admissions of 17,334, an increase of 11.0%
• Net Income, excluding certain discrete items, of $49.9 million, an increase of 91.1%
• Adjusted EBITDA, excluding Medicare Cap, of $67.0 million, an increase of 77.0%
• Adjusted EBITDA margin, excluding Medicare Cap, of 17.8%, an increase of 613-basis points

Roto-Rooter segment operating results:

• Revenue of $221.3 million, a decrease of 5.0%
• Net Income, excluding certain discrete items, of $42.4 million, a decrease of 8.1%
• Adjusted EBITDA of $59.8 million, a decline of 9.2%
• Adjusted EBITDA margin of 27.0%, a decline of 126-basis points

VITAS

As previously announced, VITAS completed its acquisition of the hospice assets and an assisted living facility of Covenant Health and Community Services, Inc. (Covenant Health) on April 17, 2024 for $85.0 million in cash. Before presenting VITAS’ overall results, it is important to disclose the methodology used in determining the impact of Covenant Health’s acquisition on VITAS’ overall results. VITAS had significant operations in 2 of the 3 Florida locations we acquired from Covenant Health. Those locations require that we estimate the Covenant Health impact, as once the operations are integrated, there are not separate results. For instance, there are no VITAS-specific referral sources versus Covenant Health-specific referral sources in these locations. It is very likely that referral sources in the area have historically referred to both VITAS and Covenant Health. We have used historical operating trends in these locations to determine what is “legacy” VITAS activity. All activity above those historical operating trends have been attributed as the Covenant Health impact. We have included the specifically determined impact as it relates to new operating territories acquired. Based on the above, we discuss the range of impact that Covenant had on the overall VITAS operating metrics.

Covenant Health contributed $8.2 million to $8.7 million of revenue in the second quarter of 2024. This revenue translated to net income of approximately $1.6 million to $1.8 million. Adjusted EBITDA in the quarter attributed to Covenant Health is between $2.2 million and $2.4 million.

VITAS net revenue was $374.6 million in the second quarter of 2024, which is an increase of 16.7% when compared to the prior-year period. This revenue increase is comprised primarily of a 14.4% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.5%. Acuity mix shift negatively impacted revenue growth 112-basis points in the quarter when compared to the prior-year period’s revenue and level-of-care mix. The combination of Medicare Cap and other contra revenue changes increased revenue growth by approximately 92-basis points.

In the second quarter of 2024, VITAS accrued $1.4 million in Medicare Cap billing limitations which includes a $1.0 million reversal of prior period accruals. This compares to a $2.8 million Medicare Cap billing limitation in the second quarter of 2023.

Of VITAS’ 32 Medicare provider numbers, 28 provider numbers have a trailing 12-month Medicare Cap cushion of 10% or greater, three provider numbers have a cushion between 0% and 10%, and one provider number has a trailing 12-month Medicare Cap billing limitation totaling $7.5 million.

Average revenue per patient per day in the second quarter of 2024 was $200.03 which is 153-basis points above the prior-year period. Reimbursement for routine home care and high acuity care averaged $176.73 and $1,071.65, respectively. During the quarter, high acuity days-of-care were 2.6% of total days of care, a decline of 21-basis points when compared to the prior-year quarter.

The second quarter 2024 gross margin, excluding Medicare Cap, was 24.1%. This compares to the prior year quarter’s gross margin of 18.7%, excluding Medicare Cap. Approximately 397-basis points of this difference is attributable to the expense associated with the Retention Program. Selling, general and administrative expenses were $24.3 million in the second quarter of 2024 compared to $22.7 million in the prior-year quarter.

Adjusted EBITDA, excluding Medicare Cap, totaled $67.0 million in the quarter, an increase of 77.0%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 17.8%, which is 613-basis points above the prior-year period. Approximately 397-basis points of this difference is attributable to the expense associated with the Retention Program in 2023.

In the second quarter of 2024, VITAS was awarded a Certificate of Need to begin hospice operations in Pasco County, Florida. This represents a new operating territory for VITAS.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $221.3 million in the second quarter of 2024, a decrease of 5.0%, when compared to the prior-year quarter.

Roto-Rooter branch commercial revenue in the quarter totaled $50.9 million, a decrease of 8.2% from the prior-year period. This aggregate commercial revenue decline consisted of drain cleaning revenue declining 6.4%, plumbing declining 10.4%, excavation declining 11.1%, and water restoration declining 8.8%.

Roto-Rooter branch residential revenue in the quarter totaled $155.0 million, a decrease of 1.6%, over the prior-year period. This aggregate residential revenue decline consisted of drain cleaning decreasing 2.6%, plumbing decreasing 3.3%, excavation declining 1.0%, and water restoration decreasing 4.6%.

Roto-Rooter’s gross margin in the quarter was 52.9%, a 60-basis point improvement when compared to the second quarter of 2023. Adjusted EBITDA in the second quarter of 2024 totaled $59.8 million, a decrease of 9.2%. The Adjusted EBITDA margin in the quarter was 27.0%. The second quarter Adjusted EBITDA margin represents a 120-basis point sequential improvement from the first quarter of 2024 based mainly on lower internet marketing costs.

Chemed Consolidated

As of June 30, 2024, Chemed had total cash and cash equivalents of $222.9 million and no current or long-term debt.

In June 2022, Chemed entered into a five-year $550 million Amended and Restated Credit Agreement (Credit Agreement). This Credit Agreement consisted of a $100 million amortizable term loan and a $450 million revolving credit facility. The interest rate on this Credit Agreement has a floating rate that is currently SOFR plus 100-basis points. There is approximately $404.8 million of undrawn borrowing capacity under the Credit Agreement after excluding $45.2 million for Letters of Credit.

During the quarter, the Company repurchased 100,000 shares of Chemed stock for $55.8 million which equates to a cost per share of $557.68. As of June 30, 2024, there was approximately $225.9 million of remaining share repurchase authorization under its plan.

Upward Revision to Guidance for 2024

VITAS 2024 revenue, prior to Medicare Cap, is estimated to increase 16.3% to 17.3% when compared to 2023. ADC is estimated to increase 13.3% to 14.4%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 19.3% to 19.7%. We are currently estimating $8.5 million in Medicare Cap billing limitations in calendar 2024. The cost of the retention program negatively impacted VITAS’ 2023 full year adjusted EBITDA by 159 basis points.

Covenant Health is estimated to contribute approximately $30 million to $32 million of revenue to VITAS’ full year revenue. There is no estimated Medicare Cap billing limitation expected related to Covenant Health. This translates into adjusted net income attributable to Covenant Health of $5.5 million to $6.0 million and adjusted EBITDA of $8.0 million to $8.5 million.

Roto-Rooter is forecasted to have a 4.0% to 5.0% revenue decline in 2024 compared to 2023. Roto-Rooter’s adjusted EBITDA margin for 2024 is expected to be 26.5% to 27.0%.

Based on the above, full-year 2024 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 $23.55 to $23.80. This guidance assumes an effective corporate tax rate on adjusted earnings of 24.3% and a diluted share count of 15.25 million shares. Chemed’s previously issued 2024 guidance range was $23.30 to $23.70. Chemed’s 2023 reported adjusted earnings per diluted share was $20.30.

Conference Call

As previously disclosed, Chemed will host a conference call and webcast at 10 a.m., ET, on Thursday July 25, 2024, to discuss the company's quarterly results and to provide an update on its business. Participants may access a live webcast of the conference call through the investor relations section of Chemed’s website, Investor Relations Home | Chemed Corporation or the hosting website https://edge.media-server.com/mmc/p/unbdyk8k.

Participants may also register via teleconference at: https://register.vevent.com/register/BI1a861ca332ea4e9bbf8c4d66fe30ff51.

Once registration is completed, participants will be provided with a dial-in number containing a personalized conference code to access the call. All participants are instructed to dial-in 15 minutes prior to the start time.

A taped replay of the conference call will be available beginning approximately two hours after the call's conclusion. You may access the replay via webcast through the investor relations section of Chemed’s website.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to 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.