Chemed Corporation — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter report. It includes some fourth-quarter VITAS operating statistics, but does not provide a clear standalone consolidated Q4 income statement in the supplied text. Chemed operates VITAS, a hospice and palliative-care provider, and Roto-Rooter, a plumbing, drain-cleaning and water-restoration business.
Financial performance and position
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $2.264 billion | $2.135 billion | +6.1% |
| Operating income | $340.6 million | $343.5 million | -0.9% |
| Net income | $272.5 million | $249.6 million | +9.2% |
| Diluted EPS | $17.93 | $16.53 | +8.5% |
| Adjusted diluted EPS | $20.30 | $18.78 | +8.1% |
| Adjusted EBITDA | $451.9 million | $432.7 million | +4.4% |
| Adjusted EBITDA margin | 20.0% | 20.3% | -0.3 percentage points |
| Operating cash flow | $330.3 million | $309.9 million | +$20.4 million |
| Cash and cash equivalents | $264.0 million | $74.1 million | +$189.8 million |
| Debt outstanding at year-end | $0 | $97.5 million | Debt repaid |
Capital expenditures were $56.9 million, leaving $273.4 million of operating cash flow after capital expenditures. The company paid $23.5 million in dividends, repurchased $67.7 million of shares, and repaid $97.5 million of debt. Current ratio improved to 1.6 from 0.92. Chemed had approximately $404.8 million of available revolving credit after $45.2 million of standby letters of credit. It reported compliance with debt covenants.
Consolidated gross margin excluding depreciation was 35.3%, versus 35.8%. VITAS gross margin excluding depreciation was 22.6%, compared with 22.4%; Roto-Rooter’s was 52.8%, compared with 53.1%. Reported operating income margin was approximately 15.0% and net income margin approximately 12.0% in 2023. The effective tax rate declined to 22.2% from 24.3%, including a one-time $4.2 million tax benefit from a state and local tax structure realignment. Adjusted figures are non-GAAP measures and should be considered alongside GAAP results.
Material changes versus prior periods
- VITAS revenue rose 9.4% to $1.315 billion, supported mainly by a 7.4% increase in days of care and an approximately 2.4% increase in geographically weighted Medicare reimbursement rates. Total days of care reached 6.79 million; average daily census rose to 18,613 from 17,325.
- Roto-Rooter revenue increased 1.7% to $949.4 million. Water restoration rose 9.5% and excavation rose 4.6%, while drain-cleaning revenue declined 4.8%. Management cited lower job counts in plumbing and drain cleaning, partly offset by higher pricing and service mix.
- Net income increased, although operating income edged down. Higher VITAS revenue and a favorable swing in other income contributed to the improvement; other income included $6.3 million of interest income and $6.4 million of deferred-compensation trust gains, versus a $9.2 million total other expense in 2022.
- Operating cash flow improved, but year-end accounts receivable increased $42.1 million, primarily due to timing of federal VITAS payments. The company cautions that this timing effect can reverse across periods.
- VITAS’s temporary hiring and retention program accrued $40.5 million in total; $31.6 million had been paid by year-end, with $8.9 million remaining accrued for payment through June 2024. The 2023 adjusted EPS included $1.04 per share of retention-program costs.
Outlook, risks and contingencies
For 2024, management forecasts VITAS revenue before Medicare cap adjustments to increase 9.0%–9.8%, average daily census to increase 6.5%–7.0%, and adjusted EBITDA margin before Medicare cap to be 17.8%–18.3%. It estimates $9.5 million of Medicare cap billing limitations. Roto-Rooter revenue growth is forecast at 3.5%–4.0%, with adjusted EBITDA margin of 28.7%–29.1%. Chemed’s adjusted diluted EPS guidance is $23.30–$23.65, assuming a 25.2% adjusted effective tax rate and 15.2 million diluted shares; guidance excludes stock-option expense, tax benefits from option exercises, litigation costs and other discrete items.
- VITAS reimbursement and regulation: More than 95% of VITAS revenue is from Medicare and Medicaid. Rate changes, payment caps, claim audits, reimbursement delays or denials, and labor-cost inflation could pressure results. CMS’s hospice Special Focus Program became effective January 1, 2024, with selection expected to begin later in 2024; management notes possible operational and reputational effects.
- Significant audit dispute: An OIG audit of selected 2017–2019 elevated-level-of-care claims recommended repayment of approximately $140 million. The Medicare Administrative Contractor separately demanded $50.3 million. VITAS deposited the $50.3 million to preserve appeal rights, recorded it as a long-term asset, and has received a $3.34 million refund; appeals continue. The filing describes the audit methodology as disputed. The ultimate outcome and potential exposure remain uncertain.
- Other legal and regulatory matters: A prior VITAS Corporate Integrity Agreement concluded in June 2023 after OIG confirmed requirements were satisfied. The filing also describes ongoing regulatory scrutiny and ordinary-course litigation; outcomes and potential losses are not generally estimable from the disclosed information.
- Environmental contingency: Chemed recorded $1.7 million for legacy DuBois cleanup obligations and is contingently liable for up to an additional $14.9 million. Management believes payment of the additional amount is not probable and has not accrued it.
- Operating risks: The businesses face competition and challenges hiring and retaining skilled workers, including nurses and aides. Roto-Rooter revenue and results are weather-sensitive; VITAS has significant Florida operations and hurricane exposure. Cyberattacks, service disruptions, referral-source changes and supplier concentration also pose risks.
Most important facts for investors to verify
- Track the $50.3 million VITAS audit deposit, appeal progress, refunds and any change in the estimated exposure; distinguish the MAC demand from the OIG’s larger audit recommendation.
- Assess whether VITAS can deliver forecast growth and margins while managing Medicare caps, reimbursement updates, staffing costs and the new CMS Special Focus Program.
- Monitor Roto-Rooter job volumes, especially plumbing and drain cleaning, alongside pricing, service mix and weather effects.
- Reconcile GAAP performance with management’s non-GAAP adjusted EPS and EBITDA, including the treatment of retention costs, stock compensation, tax benefits and other discrete items.
- Review cash-flow quality and working-capital movements, given the timing-driven increase in receivables, and evaluate capital allocation, share repurchases and available credit.