Chemed Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Chemed operates VITAS, a hospice-care provider, and Roto-Rooter, a plumbing, drain-cleaning, excavation and water-restoration business. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $589.2 | $560.2 | +5.2% |
| Income from operations | $72.3 | $72.8 | -0.7% |
| Net income | $65.0 | $54.1 | +20.1% |
| Diluted EPS | $4.24 | $3.58 | +18.4% |
| Adjusted net income (non-GAAP) | $79.8 | $64.7 | +23.3% |
| Adjusted diluted EPS (non-GAAP) | $5.20 | $4.28 | +21.5% |
| Adjusted EBITDA (non-GAAP) | $114.6 | $100.1 | +14.5% |
| Adjusted EBITDA margin (non-GAAP) | 19.5% | 17.9% | +1.6 percentage points |
| Operating cash flow | $84.5 | $60.5 | +$24.1 |
Reported net income included $12.6 million of other income, principally an $8.3 million market-value gain on deferred-compensation trust assets and $4.2 million of interest income. The effective tax rate was 23.0%, versus 23.9%; stock-option tax benefits reduced tax expense by $3.3 million, compared with $1.7 million in the prior-year quarter. Cash dividends were $0.40 per share, up from $0.38.
Consolidated gross margin was 34.6%, compared with 33.8%. VITAS gross margin increased to 23.2% from 18.3%; Roto-Rooter gross margin declined to 51.9% from 53.1%.
Segment performance and material changes
- VITAS: Revenue rose 14.0% to $354.0 million. Days of care increased 11.5%, and management cited an approximately 2.6% geographically weighted average Medicare reimbursement-rate increase. VITAS net income rose to $44.0 million from $24.8 million; management attributed the improvement principally to revenue growth and the prior-year licensed-healthcare-worker retention program’s expiration. The program had no material impact on Q1 2024 results.
- Roto-Rooter: Revenue fell 5.8% to $235.2 million, with declines across core services, water restoration and independent contractors. Net income fell to $40.9 million from $47.7 million. Management cited lower revenue; drain-cleaning job count declined 9.2%, and plumbing job count declined 2.5%.
- SG&A increased to $115.9 million from $100.1 million. It included $5.3 million of one-time severance-related PSU compensation for the former CFO and higher long-term incentive compensation and deferred-compensation trust valuation expense. Adjusted results exclude specified items and are non-GAAP measures; see the filing’s reconciliations.
Cash, liquidity and capital
- Cash and cash equivalents were $313.4 million at March 31, 2024, versus $264.0 million at year-end 2023. Operating cash flow was $84.5 million; investing used $19.4 million, including $12.2 million of capital expenditures and $7.3 million for acquisitions. Financing used $15.8 million, including $38.5 million of treasury-stock purchases, partly offset by $37.2 million of stock-option proceeds.
- Chemed had no variable-rate debt outstanding at quarter-end. Its $450 million revolving facility had $404.8 million of unused availability after $45.2 million of standby letters of credit. The company reported compliance with debt covenants. Management said liquidity and expected operating cash flows were satisfactory for foreseeable needs.
- Chemed repurchased 50,000 shares in March for $32.3 million, at a weighted average price of $646.87 per share; $281.7 million remained authorized under the repurchase program.
- Current assets were $539.6 million and current liabilities were $282.0 million. Total liabilities were $544.1 million. Lease liabilities totaled $146.1 million; these are operating lease obligations.
Outlook, risks and unusual items
The filing provides no specific numerical revenue or earnings guidance. Management expects operating income and cash flow to meet business needs and commitments for the foreseeable future, while cautioning that quarterly results are not necessarily indicative of full-year results. Chemed completed an $85.0 million purchase of Covenant Care hospice operations and an assisted-living facility on April 17, 2024, after quarter-end.
- VITAS audit and appeal: An OIG audit report recommended repayment of approximately $140.0 million based on a review of hospice claims from April 2017 through March 2019. The Medicare Administrative Contractor separately demanded $50.3 million. VITAS deposited that amount to preserve appeal rights; $3.34 million had been refunded, leaving approximately $47.0 million recorded as a long-term asset while appeals continue. The company disputes the audit’s methods and conclusions; ultimate outcome and potential losses are uncertain.
- VITAS depends substantially on government reimbursement: Medicare, Medicaid and managed Medicaid represented approximately 83% of consolidated net accounts receivable at quarter-end. The filing also notes reliance on a primary pharmacy-services provider and a major medical-supplies vendor.
- Hospice operations face regulatory, billing-audit, reimbursement-cap and litigation risks. The company says it cannot estimate the timing or outcome of many matters or any reasonably possible loss range. It reported no other material changes to previously disclosed risk factors.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Track VITAS days of care, admissions, patient mix, reimbursement and Medicare-cap adjustments alongside the trend in Roto-Rooter job volume and revenue.
- Follow the VITAS OIG/MAC audit appeals, refunds, asset recoverability and any change in the company’s loss assessment or disclosures.
- Assess earnings quality and comparability, including deferred-compensation market gains, interest income, the one-time former-CFO award, non-GAAP exclusions and stock-based compensation.
- Confirm the funding and balance-sheet effects of the post-quarter $85.0 million Covenant Care acquisition, future capital deployment and share repurchases.
- Monitor operating cash-flow variability, government-payor receivables, vendor concentration, lease obligations and continued compliance with credit-facility covenants.