Chemed Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Chemed operates VITAS, a hospice-care provider, and Roto-Rooter, a plumbing, drain-cleaning and water-restoration business. Financial statements are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $532.3 million | $502.2 million | $1,059.6 million | $1,018.0 million |
| Operating income | $71.7 million | $92.8 million | $152.1 million | $172.1 million |
| Net income | $56.5 million | $82.1 million | $121.9 million | $138.0 million |
| Diluted EPS | $3.51 | $5.01 | $7.52 | $8.39 |
| Adjusted diluted EPS (non-GAAP) | $4.60 | $4.41 | $9.04 | $8.08 |
| Adjusted EBITDA (non-GAAP) | $110.9 million | $108.7 million | $219.5 million | $201.8 million |
Q2 consolidated gross margin was 34.1%, versus 29.9%; first-half gross margin was 34.8%, versus 30.9%. Q2 adjusted EBITDA margin was 20.8%, versus 21.7%; first-half margin was 20.7%, versus 19.8%. Management states adjusted results are non-GAAP measures and provides reconciliations in the filing.
Q2 operating cash flow was not separately stated in the supplied filing text. For the first six months, operating cash flow was $132.0 million, down from $277.8 million. Capital expenditures were $33.6 million. Cash and equivalents were $92.1 million at June 30, 2021, compared with $162.7 million at year-end 2020. Chemed had no debt outstanding and approximately $403.7 million of available revolving-credit capacity after letters of credit.
Changes versus the prior comparable period
- Consolidated revenue increased 6.0% in Q2 and 4.1% in the first half. Roto-Rooter revenue rose 26.1% in Q2 and 22.5% year to date, reflecting higher job counts, pricing and service mix; comparisons benefited from COVID-related disruption to 2020 activity.
- VITAS revenue declined 4.7% in Q2 and 5.7% in the first half. Days of care fell 6.3% and 6.7%, respectively; management cited lower census, particularly in nursing homes, and an unfavorable acuity mix.
- GAAP net income and EPS declined, in part because 2020 included CARES Act grant income and larger stock-option tax benefits. Adjusted net income and adjusted EPS increased in both comparison periods.
- Operating cash flow fell by $145.8 million year to date. Management cited the prior-year CARES Act grant and payroll-tax deferral, lower net income, and higher cash outflows for accounts payable and current income taxes.
- Chemed repurchased 350,000 shares for $166.6 million in the first half, versus 275,000 shares for $122.1 million in 2020. The board authorized an additional $300 million in May; $311.8 million remained authorized at June 30.
Outlook, risks and notable items
- Management raised full-year 2021 adjusted diluted EPS guidance to $18.20–$18.50, excluding specified stock-option, tax, litigation and other discrete items, from initial guidance of $17.00–$17.50. Guidance assumes a 24.7% adjusted effective tax rate; 2020 adjusted diluted EPS was $18.08.
- VITAS guidance: revenue before Medicare cap expected to decline approximately 4.5%; average daily census expected to decline approximately 5.0%; adjusted EBITDA margin before Medicare cap estimated at 18.3%; and Medicare cap billing limitations estimated at $7.5 million. The outlook assumes senior-housing occupancy begins to normalize in the second half of 2021.
- Roto-Rooter guidance: 2021 revenue growth of 15.0%–15.5% and adjusted EBITDA margin of 28%–29%. Management cautioned that the pandemic and potential government actions could materially affect the company’s ability to achieve guidance.
- COVID-19 continued to materially affect operations and results. Both businesses were classified as critical infrastructure and were not materially restricted by operating regulations, but management said the pandemic’s duration and economic effects remained uncertain. The Medicare sequestration reduction suspension was extended through December 31, 2021; Chemed recognized approximately $11.9 million of revenue from the suspension in the first half.
- VITAS recorded a $3.5 million Medicare cap revenue reduction in the first half. It disputes an additional $8.7 million in Medicare cap amounts withheld or subject to withholding under CMS’s “as if” sequestration methodology and has appealed.
- VITAS received a DOJ Civil Investigative Demand concerning hospice claims for 32 patients in Florida and is cooperating; the outcome and timing are uncertain. VITAS also remains subject to a five-year corporate integrity agreement following a 2017 settlement. The filing notes potential costs and operational effects from regulatory matters and litigation.
- The company intended to report its use of CARES Act funds by the September 30, 2021 deadline. It had deferred $36.4 million of employer payroll taxes under the CARES Act.
Important facts for investors to verify
- Whether VITAS census and senior-housing occupancy recover as assumed, and whether Medicare cap adjustments remain within guidance.
- Whether Roto-Rooter can sustain forecast growth and margins as comparisons with pandemic-affected 2020 periods normalize.
- Cash generation after substantial share repurchases, and the company’s planned use of remaining repurchase authorization and available credit.
- Developments in the DOJ investigation, Medicare cap appeal, and other regulatory or legal matters, including any resulting liabilities or restrictions.
- How much reported versus adjusted earnings depends on exclusions and non-GAAP adjustments; compare the filing’s reconciliations with GAAP results.