Chemed Reports Second-Quarter 2016 Results

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 second quarter ended June 30, 2016, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 2.2% to $390 million
• GAAP Diluted EPS decreased 4.5% to $1.48
• Adjusted Diluted EPS increased 5.3% to $1.80

VITAS segment operating results:

• Net Patient Revenue of $279 million, an increase of 0.8%
• Average Daily Census (ADC) of 15,952, an increase of 4.4%
• Unit for Unit admissions of 16,180, a decrease of 1.4%
• Net Income, including discrete items, of $18.6 million, a decrease of 14.9%
• Adjusted EBITDA of $38.6 million, a decrease of 3.0%
• Adjusted EBITDA margin of 13.9%, a decrease of 55 basis points

Roto-Rooter segment operating results:

• Revenue of $112 million, an increase of 5.9%
• Net Income of $13.3 million, an increase of 9.8%
• Adjusted EBITDA of $24.2 million, an increase of 9.8%
• Adjusted EBITDA margin of 21.7%, an increase of 77 basis points

VITAS

Net revenue for VITAS was $279 million in the second quarter of 2016, which is an increase of 0.8%, when compared to the prior-year period. This revenue increase is comprised primarily of an average Medicare reimbursement rate increase of approximately 0.6%, a 4.4% increase in average daily census, offset by acuity mix shift which negatively impacted revenue 1.9% and changes in Medicare hospice reimbursement methodology which negatively impacted revenue 2.0%.

On January 1, 2016, CMS implemented a refinement to the Medicare hospice reimbursement per diem. This refinement eliminated the single-tier per diem for routine home care (RHC) and replaced it with a two-tiered rate, with a higher per diem 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 current 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. (RHC Days-of-Care ratio).

In the second quarter of 2016, VITAS had a 25.5/74.5 RHC Days-of-Care ratio and generated approximately $1.0 million in SIA payments. This resulted in 2.0% less revenue than under the previous Medicare reimbursement methodology.

VITAS did not have any adjustments to revenue related to the Medicare Cap billing limitation in the current or prior-year quarter.

At June 30, 2016, VITAS had 31 Medicare provider numbers, none of which has an estimated 2016 Medicare Cap billing limitation.

Of VITAS’ 31 unique Medicare provider numbers, 27 provider numbers have a Medicare Cap cushion of 10% or greater for the 2016 Medicare Cap period, three provider numbers have 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 $266 million during the trailing twelve-month period.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $192.02, which is 3.4% below the prior-year period. Routine home care reimbursement and high acuity care averaged $160.41 and $702.58, respectively. During the quarter, high acuity days of care were 5.8% of total days of care, 66 basis points less than the prior-year quarter.

The second quarter of 2016 gross margin was 21.5%, which is a 41 basis point decline when compared to the second quarter of 2015.

Selling, general and administrative expense, excluding litigation costs, was $21.5 million in the second quarter of 2016, which is an increase of 2.5% when compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $38.6 million in the quarter, a decrease of 3.0% over the prior-year period. Adjusted EBITDA margin was 13.9% in the quarter which is 55 basis points below the prior-year period.

Roto-Rooter

Roto-Rooter’s plumbing and drain cleaning business generated sales of $112 million for the second quarter of 2016, an increase of $6.2 million, or 5.9%, over the prior-year quarter. Revenue from water restoration totaled $12.1 million, an increase of 32.7% over the prior year.

Roto-Rooter’s gross margin in the quarter was 48.5%, a 50 basis point improvement when compared to the second quarter of 2015. Adjusted EBITDA in the second quarter of 2016 totaled $24.2 million, an increase of 9.8%, and the Adjusted EBITDA margin was 21.7% in the quarter, 77 basis points higher than the prior year.

Chemed Consolidated

As of June 30, 2016, Chemed had total cash and cash equivalents of $17 million and debt of $148 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 June 30, 2016, the Company had approximately $253 million of undrawn borrowing capacity under this credit agreement.

Capital expenditures through June 30, 2016, aggregated $20 million and compares to depreciation and amortization during the same period of $17 million.

On March 11, 2016, Chemed’s Board of Directors authorized an additional $100 million for stock repurchase under Chemed’s existing share repurchase program. During the second quarter of 2016, the Company repurchased 380,134 shares of Chemed stock for $49.9 million which equates to a cost per share of $131.15. As of June 30, 2016, there is $50.2 million of share repurchase authorization under this plan.

Guidance for 2016

Including the impact of the change in Medicare hospice reimbursement previously discussed, full-year 2016 revenue growth for VITAS, prior to Medicare Cap, is estimated to be in the range of 1.5% to 3.0%. Average Daily Census (ADC) in 2016 is estimated to expand approximately 4% to 5% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 14% to 15%. This guidance includes $2.5 million for Medicare Cap billing limitations.

Roto-Rooter is forecasted to achieve full-year 2016 revenue growth of 4.0% to 5.0%. 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 20.0% to 21.0%.

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 $7.15 to $7.30. This compares to Chemed’s 2015 reported adjusted earnings per diluted share of $6.98.

The full year impact on diluted earnings per share from rebasing is estimated to be $0.82. Excluding rebasing, 2016 guidance for adjusted earnings per diluted share would be in the range of $7.97 to $8.12.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, July 26, 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 (855) 715-1324 for U.S. and Canadian participants and +1 (503) 343-6664 for international participants. The participant passcode is 46542032. 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 pass code is 46542032. 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 15,500 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 restoration 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.