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, 2023, 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 September 30, 2023 quarter, Chemed is no longer excluding the cost of the Retention Program when presenting non-GAAP operating metrics in current or prior periods.
In the September 30, 2023 quarter, there is zero expense related to the Retention Program. In the September 30, 2022 quarter, the pretax and after-tax Retention Program expense was $9.6 million and $7.1 million, respectively.
For the nine months ended September 30, 2023 pretax and after-tax expense for the retention program is $23.8 million and $18.0 million, respectively. For the nine months ended September 30, 2022 pretax and after-tax expense for the Retention Program was $9.6 million and $7.1 million, respectively.
Results for Quarter Ended September 30, 2023
- Revenue increased 7.2% to $565 million
- GAAP Diluted Earnings-per-Share (EPS) of $4.93, an increase of 30.4%
- Adjusted Diluted EPS of $5.32, an increase of 24.9%
VITAS segment operating results:
- Net Patient Revenue of $334 million, an increase of 12.5%
- Average Daily Census (ADC) of 18,859, an increase of 9.4%
- Admissions of 15,774, an increase of 7.5%
- Net Income, excluding certain discrete items, of $42.6 million, an increase of 63.1%
- Adjusted EBITDA, excluding Medicare Cap, of $54.9 million, an increase of 53.4%
- Adjusted EBITDA margin, excluding Medicare Cap, of 16.5%, an increase of 441-basis points
Roto-Rooter segment operating results:
- Revenue of $231 million, an increase of 0.4%
- Net Income, excluding certain discrete items, of $49.0 million, a decrease of 0.6%
- Adjusted EBITDA of $66.9 million, a decline of 3.7%
- Adjusted EBITDA margin of 29.0%, a decline of 124-basis points
VITAS
VITAS net revenue was $334 million in the third quarter of 2023, which is an increase of 12.5% when compared to the prior year period. This revenue increase is comprised primarily of a 9.4% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.7%. Acuity mix shift positively impacted revenue growth 24-basis points in the quarter when compared to the prior-year revenue and level-of-care mix. The combination of Medicare Cap and other contra revenue changes increased revenue growth by approximately 20-basis points.
In the third quarter of 2023, VITAS accrued $0.13 million in Medicare Cap billing limitations. This compares to a $0.6 million Medicare Cap billing limitation in the third quarter of 2022.
Of VITAS’ 30 Medicare provider numbers, 25 provider numbers have a trailing 12-month Medicare Cap cushion of 10% or greater, two provider numbers have a cushion between 5% and 10%, one provider number has a cushion between 0% and 5%, and two provider numbers have a trailing 12-month Medicare Cap billing limitation totaling $8.5 million.
Average revenue per patient per day in the third quarter of 2023 was $196.43 which is 296-basis points above the prior-year period. Reimbursement for routine home care and high acuity care averaged $172.52 and $1,026.48, respectively. During the quarter, high acuity days-of-care were 2.8% of total days of care, an increase of 5-basis points when compared to the prior-year quarter.
The third quarter 2023 gross margin, excluding Medicare Cap, was 24.0%. This compares to the prior year gross margin of 19.3%, excluding Medicare Cap.
Selling, general and administrative expenses were $25.3 million in the third quarter of 2023 and compares to $21.6 million in the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $54.9 million in the quarter, an increase of 53.4%. Adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 16.5%, which is 441-basis points above the prior-year period.
Roto-Rooter
Roto-Rooter generated quarterly revenue of $231 million in the third quarter of 2023, an increase of 0.4%, when compared to the prior-year quarter.
Roto-Rooter branch commercial revenue in the quarter totaled $56.8 million, an increase of 1.5%, over the prior year. This aggregate commercial revenue growth consisted of drain cleaning revenue declining 4.2%, plumbing increasing 1.8%, excavation increasing 11.9%, and water restoration increasing 2.0%.
Roto-Rooter branch residential revenue in the quarter totaled $155 million, an increase of 0.3%, over the prior-year period. This aggregate residential revenue growth consisted of drain cleaning decreasing 6.7%, plumbing increasing 0.3%, excavation expanding 3.2%, and water restoration increasing 4.3%.
Roto-Rooter’s gross margin in the quarter was 52.9%, a 45-basis point decline when compared to the third quarter of 2022. Adjusted EBITDA in the third quarter of 2023 totaled $66.9 million, a decrease of 3.7%. The Adjusted EBITDA margin in the quarter was 29.0%, which is 124-basis points below the prior year period.
Chemed Consolidated
As of September 30, 2023, Chemed had total cash and cash equivalents of $173 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. The Company paid off the remaining portion of the term loan in the second quarter of 2023. There is approximately $405 million of undrawn borrowing capacity under the Credit Agreement after excluding $45 million for Letters of Credit.
During the quarter, the Company repurchased 28,457 shares of Chemed stock for $14.3 million which equates to a cost per share of $504.07. As of September 30, 2023, there was approximately $60 million of remaining share repurchase authorization under its plan.
Guidance for 2023
VITAS 2023 revenue, prior to Medicare Cap, is estimated to increase 9.3% to 9.5% when compared to 2022. Forecasted revenue growth is negatively impacted by 75-basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023. ADC is estimated to increase 7.3% to 7.5%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.4% to 15.7%. The total pretax cost of the Retention Program in 2023 is estimated at $23.8 million, reducing adjusted EBITDA margin by 180-basis points. We are currently estimating $8 million for Medicare Cap billing limitations in calendar year 2023.
Roto-Rooter is forecasted to achieve full-year 2023 revenue growth of 1.6% to 2.0%. Roto-Rooter’s adjusted EBITDA margin for 2023 is expected to be 28.4% to 28.6%.
Based upon the above, full-year 2023 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 $19.82 to $20.02. This guidance includes $1.18 per share of after-tax costs related to the 2023 portion of the Retention Program.
This revised 2023 guidance compares to previous guidance, as recast to no longer exclude costs associated with the Retention Program, of $18.72 to $18.92, including. Current 2023 guidance assumes an effective corporate tax rate on adjusted earnings of 23.6% and a diluted share count of 15.2 million shares. Chemed’s 2022 adjusted earnings per diluted share was $18.78, including $0.97 per share for costs associated with the 2022 portion of the Retention Program.
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