Chemed Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Chemed operates VITAS Healthcare, a hospice provider, and Roto-Rooter, a plumbing, drain-cleaning, and water-restoration business. Financial amounts are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $527.4 million | $515.8 million |
| Operating income | $80.4 million | $79.4 million |
| Net income | $65.4 million | $55.9 million |
| Diluted EPS | $4.01 | $3.38 |
| Adjusted net income (non-GAAP) | $72.4 million | $60.7 million |
| Adjusted diluted EPS (non-GAAP) | $4.44 | $3.68 |
| Adjusted EBITDA (non-GAAP) | $108.5 million | $93.0 million |
| Adjusted EBITDA margin (non-GAAP) | 20.6% | 18.0% |
| Operating cash flow | $106.7 million | $89.3 million |
| Capital expenditures | $17.7 million | $19.9 million |
Management reported consolidated gross margin of 35.4%, up from 31.8%. Cash and cash equivalents were $210.2 million at March 31, 2021, versus $162.7 million at year-end 2020. There was no debt outstanding; $412.1 million of revolving credit capacity was available after standby letters of credit. Current assets were $347.0 million and current liabilities $290.2 million. The quarterly dividend was $0.34 per share.
Material changes and operating drivers
- Revenue increased 2.2%, as Roto-Rooter revenue rose 18.9% to $211.6 million, offsetting a 6.5% decline in VITAS revenue to $315.8 million.
- Roto-Rooter growth reflected higher residential job counts across major service lines and improved labor costs. Its after-tax income rose to $37.2 million from $24.3 million.
- VITAS days of care declined 7.1%; management cited a 2.8% increase in geographically weighted average Medicare reimbursement rates, including sequestration suspension, as a partial offset. Acuity mix reduced revenue by approximately $9.1 million, or 2.7%. VITAS after-tax income was $40.8 million versus $41.3 million.
- Consolidated net income benefited from other income of $3.6 million, compared with other expense of $9.5 million in Q1 2020. This largely reflected a $3.0 million gain on deferred-compensation trust assets versus a $9.6 million loss in the prior-year quarter.
- SG&A rose to $91.6 million from $70.6 million, substantially affected by the deferred-compensation market-value swing; excluding that effect and long-term incentive compensation, management said SG&A increased 10.6%.
Outlook, risks, and unusual items
- Management said pandemic uncertainty made earnings forecasting unusually difficult and expected to provide updated 2021 guidance in July 2021. It expected operating income and cash flows to be sufficient for foreseeable needs. No specific full-year earnings guidance was provided in this filing.
- The company said COVID-19 materially affected operations, results, cash flow, and financial position. The subsidiaries were classified as critical infrastructure businesses and were not materially restricted by operating regulations, but the duration and economic effects of the pandemic remained uncertain.
- VITAS recognized approximately $6.0 million of revenue in Q1 from the temporary suspension of the 2% Medicare sequestration reduction. Legislation enacted in April extended the suspension through December 31, 2021. Chemed had also deferred $36.4 million of employer payroll taxes under the CARES Act. VITAS’s $80.2 million Relief Fund payment received in 2020 had been fully recognized by year-end 2020.
- VITAS recorded $1.5 million of Medicare cap revenue reduction in Q1. Separately, it disputed CMS’s “as if sequestration did not occur” Medicare-cap methodology and reported $8.7 million owed for prior measurement periods, with deductions from payments ongoing; the company had appealed.
- VITAS received a DOJ Civil Investigative Demand in October 2020 regarding claims for hospice services for 32 Florida patients and was cooperating. The filing did not provide a loss estimate or predicted outcome. VITAS also remained subject to a five-year corporate integrity agreement; breach could result in penalties or exclusion from federal healthcare programs.
- Two previously accrued employment settlements totaling $8.35 million plus employment taxes were paid in Q1 2021. The company repurchased 100,000 shares for $44.8 million and had $133.7 million of repurchase authorization remaining.
Important facts for investors to verify
- Whether VITAS patient days, patient mix, Medicare-cap exposure, and reimbursement trends recover or continue to pressure revenue and earnings.
- The status, potential financial exposure, and timing of the DOJ investigation and the Medicare-cap appeal and withholdings.
- How much of Q1 earnings improvement reflects operating performance versus deferred-compensation market gains and other non-GAAP adjustments.
- Updated 2021 guidance and the continuing effects of COVID-19, sequestration policy, labor costs, and economic conditions.
- Future cash deployment, including share repurchases, dividends, acquisitions, and any borrowing under the available credit facility.