Chemed Reports Third-Quarter 2018 Results - Earnings Guidance Increased

Chemed Corporation (Chemed) CHE, which operates VITAS Healthcare Corporation (VITAS), one of the nation's largest providers of end-of-life care, and Roto-Rooter, the nation's largest commercial and residential plumbing and drain cleaning services provider, reported financial results for its third quarter ended September 30, 2018, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 6.4% to $444 million
• GAAP Diluted Earnings-per-Share (EPS) of $3.06, an increase of 43.7%
• Adjusted Diluted EPS of $3.07, an increase of 42.8%

VITAS segment operating results:

• Net Patient Revenue of $302 million, an increase of 4.4%
• Average Daily Census (ADC) of 17,957, an increase of 7.8%
• Admissions of 16,403, an increase of 2.5%
• Net Income, excluding special items, of $36.4 million, an increase of 35.9%
• Adjusted EBITDA, excluding cap, of $50.9 million, an increase of 15.9%

Roto-Rooter segment operating results:

• Revenue of $142 million, an increase of 10.8%
• Net Income of $24.6 million, an increase of 53.2%
• Adjusted EBITDA of $34.0 million, an increase of 18.2%
• Adjusted EBITDA margin of 23.9%, an increase of 123-basis points

Effective January 1, 2018, the Financial Accounting Standards Board (FASB) mandated changes in revenue recognition under Generally Accepted Accounting Principles (GAAP). For Chemed, the accounting standard mandated reclassification of certain costs within the 2018 income statement when compared to prior-year formats. These reclassifications do not impact EBITDA, Adjusted EBITDA, pretax income or net income. This accounting standard has been adopted on a modified retrospective basis, meaning prior-year results are not reclassified and are reported using historical revenue recognition accounting standards.

This resulted in the reclassification of net room and board expenses associated with certain patients residing in nursing homes to be reclassified from cost of services to revenue, effectively reducing VITAS' third-quarter 2018 revenue and cost of sales by $2.6 million. In addition, uncollectable accounts receivable, commonly referred to as bad debt expense, historically has been included in selling, general and administrative expenses for VITAS and Roto-Rooter, are now netted against service revenue and sales.

The discussion and analysis of operating results in this third-quarter 2018 earnings release narrative does reclassify the third-quarter 2017 net room and board and estimated uncollectable receivables to facilitate analysis of operating results in a format consistent with the 2018 revenue recognition accounting standard.

VITAS

VITAS net revenue was $302 million in the third quarter of 2018, which is an increase of 6.5%, when compared to the prior-year period. This revenue increase is comprised primarily of a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%; a 7.8% increase in average daily census; and a Medicare Cap liability that reduced revenue growth by 0.6%. This growth is partially offset by acuity mix shift that negatively impacted revenue growth 1.8% when compared to the prior-year period.

In the third quarter of 2018, VITAS accrued $1.9 million in Medicare Cap billing limitations. At September 30, 2018, VITAS had 30 Medicare provider numbers, two of which have a current estimated 2018 Medicare Cap billing limitation liability of approximately $2.9 million.

Of VITAS' 30 Medicare provider numbers, 25 provider numbers have a Medicare Cap cushion of 10% or greater, two provider numbers have a cap cushion between 5% and 10%, one provider number has a cap cushion between 0% and 5%, and two provider numbers have a Medicare Cap billing limitation for the 2018 Medicare Cap period.

Average revenue per patient per day in the quarter was $187.19, which is 0.8% below the prior-year period. Reimbursement for routine home care and high acuity care averaged $163.58 and $744.15, respectively. During the quarter, high acuity days-of-care were 4.1% of total days of care, 54-basis points less than the prior-year quarter.

The third quarter of 2018 gross margin, excluding Medicare Cap, was 23.3%, which is an 85-basis point increase when compared to the third quarter of 2017.

Selling, general and administrative expense was $20.4 million in the third quarter of 2018, which is a decrease of 0.6% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $50.9 million in the quarter, an increase of 15.9%. Adjusted EBITDA margin, excluding Medicare Cap, was 16.8% in the quarter which is a 125-basis point increase when compared to the prior-year period.

Roto-Rooter

Roto-Rooter generated quarterly revenue of $142 million for the third quarter of 2018, an increase of $15.4 million, or 12.1%, over the prior-year quarter. Revenue from the water restoration service segment totaled $25.0 million, an increase of $3.9 million, or 18.3%, when compared to the prior-year quarter. Approximately 90% of the water restoration revenue is generated from residential customers and the remaining 10% is generated from commercial accounts.

Commercial drain cleaning revenue increased 9.7%, commercial plumbing and excavation increased 1.7% and commercial water restoration declined 13.1%. Overall, commercial revenue increased 3.5%.

Residential drain cleaning increased 13.1%, plumbing and excavation increased 15.1% and residential water restoration increased 23.5%. Aggregate residential sales increased 16.1%.

Roto-Rooter's gross margin in the quarter was 49.2%, a 112-basis point increase when compared to the third quarter of 2017. Adjusted EBITDA in the third quarter of 2018 totaled $34.0 million, an increase of 18.2%. The Adjusted EBITDA margin in the quarter was 23.9% which is a 123-basis point improvement over the prior year.

Chemed Consolidated

As of September 30, 2018, Chemed had total cash and cash equivalents of $67 million and debt of $130 million.

In June 2018, Chemed entered into a five-year Amended and Restated Credit Agreement that consists of a $450 million revolving credit facility. The interest rate on this facility has a floating rate that is currently LIBOR plus 100-basis points. At September 30, 2018, the Company had approximately $284 million of undrawn borrowing capacity under this credit agreement.

During the quarter, the Company repurchased 120,622 shares of Chemed stock for $37.7 million which equates to a cost per share of $312.31. On March 6, 2018, Chemed's Board of Directors authorized an additional $150 million for stock repurchase under Chemed's existing share repurchase program. As of September 30, 2018, there was approximately $84 million of remaining share repurchase authorization under this plan.

Chemed restarted its share repurchase program in 2007. Since that time Chemed has repurchased 13.7 million shares, aggregating over $1.0 billion at an average share cost of $79.00. Including dividends over this period, Chemed has returned over $1.2 billion to shareholders.

Guidance for 2018

Revenue growth for VITAS in 2018, prior to Medicare Cap, is estimated to be in the range of 4.5% to 5.0%. Admissions are estimated to expand approximately 3.5% to 4.0% and Average Daily Census in 2018 is estimated to expand approximately 6.7% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.9%. We are currently estimating $1.3 million for Medicare Cap billing limitations in the fourth quarter of 2018.

Roto-Rooter is forecasted to achieve full-year 2018 revenue growth of 13.0% to 14.0%. This revenue estimate is based upon increased job pricing of approximately 2%, continued growth in core plumbing and drain cleaning services as well as revenue growth from water restoration services. Roto-Rooter's adjusted EBITDA margin for 2018 is estimated at 23.6%.

Based upon the above, full-year 2018 adjusted earnings per diluted share, excluding non-cash expense for stock options, costs related to litigation, and other discrete items, is estimated to be in the range of $11.80 to $11.90. This compares to our initial 2018 guidance of $10.60 to $10.85. This revised 2018 guidance assumes an effective corporate tax rate of 25.2%. Chemed's 2017 reported adjusted earnings per diluted share was $8.43.

Conference Call

Chemed will host a conference call and webcast at 10 a.m., ET, on Tuesday, October 30, 2018, to discuss the Company's quarterly results and to provide an update on its business. The dial-in number for the conference call is (844) 743-2500 for U.S. and Canadian participants and +1 (661) 378-9533 for international participants. The participant passcode/Conference ID is 9353956. A live webcast of the call can be accessed on Chemed's website at www.chemed.com by clicking on Investor Relations Home.

A taped replay of the conference call will be available beginning approximately 24 hours after the call's conclusion. It can be accessed by dialing (855) 859-2056 for U.S. and Canadian callers and +1 (404) 537-3406 for international callers and will be available for one week following the live call. The replay Conference ID is 9353956. An archived webcast will also be available at www.chemed.com.

Chemed Corporation operates in the healthcare field through its VITAS Healthcare Corporation subsidiary. VITAS provides daily hospice services to approximately 18,000 patients with severe, life-limiting illnesses. This type of care is focused on making the terminally ill patient's final days as comfortable and pain-free as possible.

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing, drain cleaning, and water cleanup services through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in the republics of Indonesia and Singapore, and the Philippines.

This press release contains information about Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed's financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company's operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed's management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed's management to estimate the resources required to meet Chemed's future financial obligations and expenditures. Chemed's EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed's net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements.

These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed's dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed's most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.

The "Footnotes to Financial Statements" are integral parts of this financial information.

The "Footnotes to Financial Statements" are integral parts of this financial information.

The "Footnotes to Financial Statements" are integral parts of this financial information.

The "Footnotes to Financial Statements" are integral parts of this financial information.

The "Footnotes to Financial Statements" are integral parts of this financial information.