CHEMED CORP
For the period ended Jun 30, 2024. Filed Jul 26, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 26, 2024
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-29.
0001562762-24-000106
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-26.
0001562762-24-000183
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 49 previous paragraphs and 75 current paragraphs.
24 unchanged; 23 reworded; 17 added; 1 removed; 1 previous and 11 current paragraphs rearranged.
Tables are not compared: 13 previous and 24 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
On April 17, 2024, VITAS completed the purchase of all hospice operations and an assisted living facility from Covenant Health and Community Services, Inc d/b/a/ Covenant Care (“Covenant”) for an aggregated purchase price of $85.0 million in cash.
Current report
The pro forma revenue and earnings for the Company for the three and six months ended June 30, as if the Covenant acquisition made in 2024 was completed on January 1, 2023 are as follows (in thousands, except per share data):
Current report
Revenue and net income from other acquisitions made in 2024 and 2023 are not material.
Current report
VITAS 2024 revenue, prior to Medicare Cap, is estimated to increase 16.0% to 17.0% when compared to 2023. ADC is estimated to increase 13.0% to 14.0%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 19.0% to 19.5%. We are currently estimating $8.5 million in Medicare Cap billing limitations in calendar 2024. The cost of the Retention Bonus Program negatively impacted VITAS’ 2023 full adjusted EBITDA by 159 basis points.
Current report
Covenant Health is estimated to contribute approximately $30.0 million to $32.0 million of revenue to VITAS’ full year revenue. 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.
Current report
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%.
Current report
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.
Current report
A $6.8 million increase in identifiable intangible assets due primarily to the Covenant acquisition at VITAS.
Current report
A $21.0 million decrease in accounts payable due to timing of payments.
Current report
Net cash provided by operating activities decreased $30.7 million from June 30, 2023 to June 30, 2024. The main drivers are an increase in earnings of $28.4 million and a $9.2 million increase in non-cash incentive compensation offset by a decrease of $7.5 million in litigation settlements due to payments of settlements at VITAS and Roto-Rooter, a decline of $12.6 million in current income taxes, a decrease in accounts payable of $28.1 million and a decrease of $22.5 million in accounts receivable.
Current report
The increase in service revenues at VITAS 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 by 110-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 90-basis.
Current report
Other income – net comprise (in thousands):
Current report
Results of Operations
Current report
The decrease in drain cleaning revenues for the first six months of 2024 versus 2023 is attributable to a 2.1% increase in price and service mix offset by a 7.9% decrease in job count. The decrease in plumbing revenues for the first six months of 2024 versus 2023 is attributable to a 1.0% decrease in price and service mix shift and by a 4.1% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues.
Current report
Other income – net comprise (in thousands):
Current report
Net income/(loss) for the first six months of 2024 versus thefirstsix months of 2023 by segment (in thousands):
Current report
After-tax Corporate expenses for thefirst six monthsof 2024 increased 9.2% when compared to thefirst six monthsin 2023 due primarily to a $3.9 million increase in stock-based compensation and $5.3 million in severance expense.
Removed paragraphs (1)
Previous report
Other income/(expense) – net comprise (in thousands):
Reworded paragraphs (23)
Previous wording
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages 27-28.
Current wording
Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages 35-37.
Previous wording
For the three months ended March 31, 2024, the increase in consolidated service revenues and sales was driven by a 14.0% increase at VITAS offset by a 5.8% decrease at Roto-Rooter. The increase in service revenues at VITAS is comprised primarily of a 11.5% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. Acuity mix shift negatively impacted revenue growth 60-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 50-basis points. The decrease in service revenues at Roto-Rooter was driven by a decrease in all service lines.
Current wording
For the six months ended June 30, 2024, the increase in consolidated service revenues and sales was driven by a 15.4% increase at VITAS offset by a 5.4% decrease at Roto-Rooter. The increase in service revenues at VITAS is comprised primarily of a 13.0% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. Acuity mix shift negatively impacted revenue growth by 90-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 70-basis points. The decrease in service revenues at Roto-Rooter was driven by a decrease in all service lines.
Previous wording
The pandemic resulted in a significant shortage of licensed healthcare workers industry wide. VITAS has not been immune to this shortage. As a result, on July 1, 2022, VITAS implemented a hiring and retention bonus program for its licensed healthcare workers. It was a temporary program that helped VITAS attract and retain licensed healthcare workers during the pandemic- induced healthcare worker shortage. An eligible employee must continue in employment for a period of one-year from July 1, 2022 to receive a bonus. Additionally, employees hired between July 1, 2022 and June 30, 2023 were eligible if they continue employment for a one-year period from their hire date. A total of $39.7 million has been accrued since the start of the program. Payments totaling $33.6 million have been made from July 2023 to March 2024. The remaining accrued amount will be paid over the next two quarters. For the quarter ended March 31, 2023, the pre-tax cost of the retention program was $10.9 million. There was no material impact on the financial results for the quarter ended March 31, 2024. See page 29 for additional VITAS operating metrics.
Current wording
The pandemic resulted in a significant shortage of licensed healthcare workers industry wide. VITAS was not immune to this shortage. As a result, on July 1, 2022, VITAS implemented a hiring and Retention Bonus Program for its licensed healthcare workers. It was a temporary program that helped VITAS attract and retain licensed healthcare workers during the pandemic- induced healthcare worker shortage. An eligible employee must have continued in employment for a period of one-year from July 1, 2022 to receive a bonus. Additionally, employees hired between July 1, 2022 and June 30, 2023 were eligible if they continued employment for a one-year period from their hire date. A total of $39.5 million has been accrued since the start of the program. Payments totaling $36.5 million have been made from July 2023 to June 2024. The remaining accrued amount will be paid in the third quarter of 2024. There was no material impact on the financial results for the quarter ended June 30, 2024. See page 38 for additional VITAS operating metrics.
Previous wording
Starting September 30, 2023, Chemed no longer excluded the cost of the Retention Program when presenting non-GAAP operating metrics in current or prior periods.
Current wording
Starting September 30, 2023, Chemed no longer excluded the cost of the Retention Bonus Program when presenting non-GAAP operating metrics in current or prior periods.
Previous wording
On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $450.0 million revolver as well as a five-year $100.0 million term loan. Principal payments of $1.25 million on the term loan are due on the last day of each fiscal quarter, with a final payment due at the end of the agreement. The 2022 Credit Facilities have a floating interest rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of March 31, 2024, the interest rate is SOFR plus 100 basis points. The 2022 Credit
Current wording
On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $450.0 million revolver as well as a five-year $100.0 million term loan. The 2022 Credit Facilities have a floating interest rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of June 30, 2024, the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and/or term loan by an additional $250.0 million.
Previous wording
A $11.5 million increase in investments of deferred compensation plans due mainly to market valuation gains. This resulted in a similar increase in the liability associated with deferred compensation plans.
Current wording
A $14.7 million increase in investments of deferred compensation plans due mainly to market valuation gains. This resulted in a similar increase in the liability associated with deferred compensation plans.
Previous wording
A $5.4 million increase in lease right of use asset due to lease renewals. This resulted in a similar increase in the long-term lease liability.
Current wording
A $5.9 million increase in lease right of use asset due to lease renewals. This resulted in a similar increase in the lease liability accounts.
Previous wording
A $6.5 million increase in goodwill due to acquisitions at Roto-Rooter.
Current wording
A $77.1 million increase in goodwill due primarily to the Covenant acquisition at VITAS.
Previous wording
A $20.5 million increase in income taxes due to timing of payments.
Current wording
A $6.9 million decrease in income taxes payable due to timing of payments.
Previous wording
A $38.6 million decline in accrued compensation due primarily to the payment of 2023 bonuses in the first quarter of 2024.
Current wording
A $10.0 million decline in accrued compensation due primarily to the payment of 2023 bonuses in the first quarter of 2024.
Previous wording
A $9.1 million decrease in other current liabilities due to payments of the retention bonus program implemented at VITAS and a decrease in the Medicare Cap liability at VITAS.
Current wording
A $16.3 million decrease in other current liabilities due to payments of legal settlements at VITAS and Roto-Rooter, payments of the Retention Bonus Program implemented at VITAS and a decrease in the Medicare Cap liability at VITAS.
Previous wording
Net cash provided by operating activities increased $24.1 million from March 31, 2023 to March 31, 2024. The main drivers are an increase in earnings of $10.9 million and an increase of $7.1 million in noncash long-term incentive compensation. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $51.0 million from the Federal government for hospice services every other Friday. The timing of a period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two-year period, as cash flow variations in one year are offset in the following year.
Current wording
Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $51.0 million from the Federal government for hospice services every other Friday. The timing of a period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two-year period, as cash flow variations in one year are offset in the following year.
Previous wording
The decrease in plumbing revenues for the first quarter of 2024 versus 2023 is attributable to a 2.2% decrease in price and service mix shift and by a 2.5% decrease in job count. The decrease in drain cleaning revenues for the first quarter of 2024 versus 2023
Current wording
The decrease in drain cleaning revenues for the second quarter of 2024 versus 2023 is attributable to a 2.4% increase in price and service mix offset by a 6.5% decrease in job count. The decrease in plumbing revenues for the second quarter of 2024 versus 2023
Previous wording
-22- is attributable to a 9.2% decrease in job count offset by a 1.9% increase in price and service mix. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues.
Current wording
-25- is attributable to a 0.2% increase in price and service mix shift offset by a 5.7% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues.
Previous wording
The consolidated gross margin was 34.6% in the first quarter of 2024 as compared with 33.8% in the first quarter of 2023. On a segment basis, VITAS’ gross margin was 23.2% in the first quarter of 2024 as compared with 18.3%, in the first quarter of 2023. The increase in gross margin at VITAS is mostly the result of increased revenues and the expiration of the licensed healthcare worker retention bonus program in 2023. The Roto-Rooter segment’s gross margin was 51.9% for the first quarter of 2024 as compared with 53.1% in the first quarter of 2023. This decline was mainly the result of declining revenue.
Current wording
The consolidated gross margin was 34.6% in the second quarter of 2024 as compared with 32.4% in the second quarter of 2023. On a segment basis, VITAS’ gross margin was 23.8% in the second quarter of 2024 as compared with 18.0%, in the second quarter of 2023. The increase in gross margin at VITAS is mostly the result of increased revenues and the expiration of the licensed healthcare worker Retention Bonus Program in 2023. The expense recorded in the second quarter of 2023 related to the VITAS Retention Bonus Program was $12.8 million. The Roto-Rooter segment’s gross margin was 52.9% for the second quarter of 2024 as compared with 52.3% in the second quarter of 2023.
Previous wording
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first quarter of 2024 were up 0.5% when compared to first quarter of 2023.
Current wording
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for thesecond quarter of 2024 were up 4.7% when compared tosecond quarter of 2023 due mainly to normal salary increases and an increase in variable selling expenses.
Previous wording
We invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. In 2023, Chemed began investing excess cash in a money market fund holding US Treasuries. Deposits and withdrawals are made daily, based on the Company’s excess cash balance. There are no penalties associated with withdrawals. The accounts bear interest at a normal market rate.
Current wording
We invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. In 2023, Chemed began investing excess cash in money market funds holding US Treasuries. Deposits and withdrawals are made daily, based on the Company’s excess cash balance. There are no penalties associated with withdrawals. The accounts bear interest at a normal market rate.
Previous wording
Net income/(loss) for thefirst quarter of 2024 versus thefirst quarter of 2023 by segment (in thousands):
Current wording
Net income/(loss) for thesecond quarter of 2024 versus thesecond quarter of 2023 by segment (in thousands):
Previous wording
After-tax earnings as a percent of revenue at VITAS in thefirst quarter of 2024 was 12.4% as compared to 8.0% in thefirst quarter of 2023. VITAS’ after-tax earnings increased primarily due to increased revenues and the expiration of the licensed healthcare worker retention bonus program in 2023.
Current wording
After-tax earnings as a percent of revenue at VITAS in thesecond quarter of 2024 was 13.1% as compared to 8.1% in thesecond quarter of 2023. VITAS’ after-tax earnings increased primarily due to increased revenues and the expiration of the licensed healthcare worker Retention Bonus Program in 2023.
Previous wording
Roto-Rooter’s net income was negatively impacted in thefirst quarter of 2024 compared to thefirst quarter of 2023 primarily due to declining revenue. After-tax earnings as a percent of revenue at Roto-Rooter in thefirst quarter of 2024 was 17.4%, as compared to 19.1% in thefirst quarter of 2023.
Current wording
Roto-Rooter’s net income was negatively impacted in thesecond quarter of 2024 compared to thesecond quarter of 2023 primarily due to declining revenue. After-tax earnings as a percent of revenue at Roto-Rooter in thesecond quarter of 2024 was 18.3%, as compared to 19.0% in thesecond quarter of 2023.
Previous wording
After-tax Corporate expenses for thefirst quarter of 2024 increased 8.3% when compared to the first quarter in 2023 due primarily to a $1.7 million increase in stock-based compensation.
Current wording
After-tax Corporate expenses for thesecond quarter of 2024 increased 10.3% when compared to thesecond quarter in 2023 due primarily to a $2.1 million increase in stock-based compensation.
Previous wording
Our service revenues and sales for the first quarter of 2024 increased 5.2% versus services and sales revenues for the first quarter of 2023. Of this increase, a $43.5 million increase was attributable to VITAS, offset by a $14.5 million decrease at Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):
Current wording
Our service revenues and sales for the first six months of 2024 increased 6.4% versus services and sales revenues for the first six months of 2023. Of this increase, a $97.2 million increase was attributable to VITAS, offset by a $26.1 million decrease at Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):
Previous wording
The increase in service revenues at VITAS is comprised primarily of an 11.5% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. Acuity mix shift negatively impacted revenue growth by 60-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 50-basis.
Current wording
The increase in service revenues at VITAS is comprised primarily of a 13.0% increase in days-of-care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.6%. Acuity mix shift negatively impacted revenue growth by 90-basis points 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 70-basis points.
Rearranged current paragraphs (11)
Current report — wording carried from elsewhere
For the three months ended June 30, 2024, the increase in consolidated service revenues and sales was driven by a 16.7% increase at VITAS offset by a 5.0% decrease at Roto-Rooter. The increase in service revenues at VITAS 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 by 110-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 90-basis points. The decrease in service revenues at Roto-Rooter was driven by a decrease in all significant service lines.
Current report — wording carried from elsewhere
Our service revenues and sales for the second quarter of 2024 increased 7.6% versus services and sales revenues for the second quarter of 2023. Of this increase, a $53.7 million increase was attributable to VITAS, offset by an $11.6 million decrease at Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):
Current report — wording carried from elsewhere
Six months ended June 30, 2024 versus 2023 - Consolidated Results
Current report — wording carried from elsewhere
Days of care at VITAS during the six months ended June 30 were as follows:
Current report — wording carried from elsewhere
The consolidated gross margin was 34.6% in thefirst six months of 2024 as compared with 33.1% in thefirst six months of 2023. On a segment basis, VITAS’ gross margin was 23.5% in thefirst six months of 2024 as compared with 18.2%, in thefirst six months of 2023. The increase in gross margin at VITAS is mostly the result of increased revenues and the expiration of the licensed healthcare worker Retention Bonus Program in 2023. The expense recorded in the first six months of 2023 related to the VITAS Retention Bonus Program was $23.8 million. The Roto-Rooter segment’s gross margin was 52.4% for thefirst six months of 2024 as compared with 52.7% in thefirst six months of 2023. This decline was mainly the result of declining revenue.
Current report — wording carried from elsewhere
Selling, general andadministrative expenses (“SG&A”) comprise (in thousands):
Current report — wording carried from elsewhere
SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for thefirst six monthsof 2024 were up 2.5% when compared to thefirst six months of 2023 due mainly to normal salary increases and an increase in variable selling expenses.
Current report — wording carried from elsewhere
Net income for both periods included the following after-tax items/adjustments that (reduced) or increased after-tax earnings (in thousands):
Current report — wording carried from elsewhere
Six months ended June 30, 2024 versus 2023 - Segment Results
Current report — wording carried from elsewhere
After-tax earnings as a percent of revenue at VITAS in thefirst six monthsof 2024 was 12.8% as compared to 8.1% in thefirst six monthsof 2023. VITAS’ after-tax earnings increased primarily due to increased revenues and the expiration of the licensed healthcare worker Retention Bonus Program in 2023.
Current report — wording carried from elsewhere
Roto-Rooter’s net income was negatively impacted in thefirst six monthsof 2024 compared to thefirst six monthsof 2023 primarily due to declining revenue. After-tax earnings as a percent of revenue at Roto-Rooter in thefirst six months of 2024 was 17.8%, as compared to 19.1% in the first six months of 2023.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and/or term loan by an additional $250.0 million.