Chemed Corporation — FY2021 Form 10-K
Business context and reporting period. Chemed operates VITAS, a hospice and palliative-care provider, and Roto-Rooter, a plumbing, drain-cleaning and water-restoration business. This is the annual report for the year ended December 31, 2021, not a standalone fourth-quarter filing. The filing text provides selected VITAS fourth-quarter operating statistics but does not provide a clear consolidated fourth-quarter income statement.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $2,139.3 million | $2,079.6 million | +2.9% |
| Operating income | $343.0 million | $389.7 million | −12.0% |
| Net income | $268.6 million | $319.5 million | −15.9% |
| Diluted EPS | $16.85 | $19.48 | −13.5% |
| Adjusted diluted EPS | $19.33 | $18.08 | +6.9% |
| Adjusted EBITDA | $461.4 million | $444.8 million | +3.7% |
| Operating cash flow | $308.6 million | $489.3 million | −$180.7 million |
Adjusted EPS and Adjusted EBITDA are non-GAAP measures; the company cautions they should not be viewed as substitutes for GAAP results. The GAAP earnings decline partly reflects the absence of the $80.2 million CARES Act grant income recognized in 2020. Adjusted EBITDA margin was 21.6%, versus 21.4% in 2020. Consolidated gross margin excluding depreciation was 36.0%, compared with 33.7%.
- VITAS: Revenue was $1,261.2 million, down 5.5%; after-tax segment earnings were $162.4 million, down from $238.8 million. Days of care fell 5.7%; management also cited a 1.7% unfavorable acuity mix shift, partly offset by a 1.7% increase in geographically weighted reimbursement rates. VITAS gross margin excluding depreciation was 24.4%, versus 24.3%.
- Roto-Rooter: Revenue was $878.0 million, up 17.9%; after-tax segment earnings rose to $166.3 million from $120.4 million. Growth reflected higher revenue across major service lines, including job-count growth and higher prices/service mix. Gross margin excluding depreciation increased to 52.6% from 50.7%.
Liquidity, debt and capital allocation
Cash and cash equivalents were $32.9 million at year-end, down from $162.7 million. Operating cash flow less capital expenditures was $249.9 million; capital expenditures were $58.7 million. The company attributed lower operating cash flow principally to lower earnings, tax-payment timing, repayment of deferred payroll taxes and VITAS receivables timing.
Chemed had $185.0 million of revolving-credit debt, compared with no debt at December 31, 2020. It reported $218.8 million of eligible unused revolver capacity, $46.2 million of standby letters of credit, and compliance with debt covenants. The current ratio was 0.76, versus 1.10. The $450 million revolving facility matures in June 2023 and carries a variable rate; outstanding debt was at LIBOR plus 100 basis points at year-end. The company reported a 22.9% debt-to-total-capital ratio.
Chemed repurchased 1.20 million shares for approximately $576.5 million at a weighted-average price of $482.20 per share and paid $22.0 million in dividends. It had $201.9 million of repurchase authorization remaining at year-end. Management said operating cash flow and available credit were sufficient for near- and long-term obligations.
Outlook, risks and unusual items
For 2022, management forecast diluted EPS of $19.10–$19.50, excluding stock-option expense, stock-option tax benefits, litigation costs and other discrete items. The forecast assumes a 25.1% adjusted effective tax rate and 15.25 million diluted shares. It is subject to significant uncertainty from pandemic-related disruption and future rules, regulations and mandates.
- VITAS forecast 2022 revenue before Medicare cap reductions to decline 1.5%–2.5%, average daily census to decline 1.0%–1.5%, and Adjusted EBITDA margin before Medicare cap to be 15.5%–16.0%. Management estimated $12 million of Medicare cap billing limitations. It cited continued weak senior-housing occupancy, labor shortages and wage pressure, and the phase-out of sequestration relief; approximately $15 million of the expected revenue reduction relates to that phase-out.
- Roto-Rooter forecast 2022 revenue growth of 8.0%–9.5% and Adjusted EBITDA margin of 28.5%–29.5%.
- Medicare and Medicaid are central reimbursement sources for VITAS. Risks include reimbursement reductions, caps and claim reviews, regulatory enforcement, nursing and aide shortages, referral changes, and the ability to recruit and retain staff. The Medicare sequestration cut was scheduled to resume at 1% from April 1 through June 30, 2022, then at 2%.
- VITAS remains subject to a Department of Justice investigation concerning claims for 32 patients in Florida and an OIG audit of elevated-level-of-care hospice services. The filing says potential outcomes and losses cannot presently be predicted or reasonably estimated; the audit could lead to repayment claims, including extrapolated amounts. VITAS’s five-year Corporate Integrity Agreement, entered in 2017, was in its final year.
- The company recorded a $1.7 million reserve for environmental cleanup obligations related to the former DuBois business and disclosed possible additional contingent liability up to $14.9 million, for which it recorded no provision because payment was not considered probable.
- Other notable items include $18.8 million of direct COVID-related costs in 2021 and a $6.6 million VITAS Medicare-cap revenue reduction. VITAS recorded $11.5 million of implicit price concessions, an estimate identified by the auditor as a critical audit matter.
Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements and internal controls.
Investor facts to verify
- Review the full 2022 guidance assumptions and monitor actual VITAS census, referral trends, labor costs and Medicare-cap accruals against the forecast.
- Track the status and financial exposure, if any, from the DOJ investigation and OIG elevated-care audit, as well as VITAS’s completion of the Corporate Integrity Agreement.
- Assess the sensitivity of earnings and cash flow to the resumption of Medicare sequestration reductions and any changes in Medicare or Medicaid reimbursement.
- Review cash generation, receivables timing, variable-rate debt exposure, credit-facility maturity and the pace of share repurchases relative to available liquidity.
- Compare reported GAAP results with non-GAAP adjusted measures, particularly given the prior-year CARES Act grant and the exclusions used in 2022 guidance.