CHE
#Thank you, <UNK>.
Good morning.
Welcome to Chemed Corporation's Second Quarter 2017 Conference Call.
I will begin with highlights for the quarter, and <UNK> and Nick will follow with additional operating detail.
I will then open the call up for questions.
As most of you are aware, in the quarter, Chemed recorded an after-tax charge of $55.8 million or $3.49 per share for potential litigation settlement relating to a U.S. Department of Justice complaint filed against the company in May of 2013.
We are required by U.S. Generally Accepted Accounting Principles to accrue for any contingent litigation claim when it is probable that a liability have been incurred and the amount can be reasonably estimated.
Based on recent case developments, including recent mediation discussions with the U.S. Department of Justice, I believe it is probable that this matter can be settled accordingly.
However, the achievement of final definitive settlement will require the parties to resolve several outstanding issues, and there can be no assurance that a final definitive settlement will be reached.
Now let's focus on what was an excellent quarter in terms of operational performance and financial results.
In the second quarter of 2017, Chemed generated $415 million of revenue, an increase of 6.3%.
Consolidated net income in the quarter, excluding potential litigation settlement and other discrete items, generated adjusted earnings per share ---+ diluted share of $2.15, an increase of 19.4%.
Both VITAS and Roto-Rooter performed well, exceeding the high end of our internal projections.
VITAS, after lapping the disruption triggered by the 2016 rebasing, generated on a Unit-for-Unit basis admissions growth in the quarter of 1.3%, an average daily census growth of 3.4%.
Roto-Rooter continues to show excellent results in our core Plumbing and Drain Cleaning service segments as well as strong growth in water restoration.
This resulted in Roto-Rooter having record revenue, adjusted EBITDA and adjusted ---+ and EBITDA and adjusted EBITDA margin in the quarter.
During the quarter, the company repurchased 150,000 shares of Chemed stock for $30.8 million, which equates to a cost per share of $205.34.
With that, I would like to turn this teleconference over to <UNK> <UNK>, our Chief Financial Officer.
Thanks, <UNK>.
Net revenue for VITAS was $285 million in the second quarter of 2017, which is an increase of 2.1% when compared to the prior year period.
This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 1.7%, a 2.8% increase in average daily census, offset by acuity mix shift, which negatively impacted revenue 2.5% when compared to the prior year period.
VITAS recorded $247,000 in Medicare Cap billing limitations in the quarter, all of which related to prior years' Medicare Cap billing periods.
At June 30, 2017, VITAS had 30 Medicare provider numbers, none of which has an estimated 2017 Medicare Cap billing limitations.
Our average revenue per patient per day in the quarter was $190.96, which is 0.6% below the prior year period.
Routine home care reimbursement and high acuity care averaged $163.11 and $722.16, respectively.
During the quarter, high acuity days of care were 5.0% of total days of care, which is 85 basis points less than the prior year quarter.
The second quarter of 2017 gross margin, excluding Medicare Cap, was 22.9%, which is 133 basis point improvement when compared to the second quarter of 2016.
Our routine home care direct gross margin was 52.8% in the quarter, an increase of 90 basis points when compared to the second quarter of 2016.
Direct inpatient margin in the quarter was 3.7% and compares to 4.6% in the prior year period.
Occupancy of our 29 dedicated inpatient units averaged 68.8% in the quarter and compare to a 74.3% occupancy rate in the second quarter of 2016.
Continuous care had a direct gross margin of 18.0%, an increase of 420 basis points when compared to the prior year quarter.
Average hours billed per day of continuous care was 17.9 in the quarter, which is a slight decrease when compared to the 18.2 average hours billed for continuous care patient in the second quarter of 2016.
Now let's turn to the Roto-Rooter segment.
Roto-Rooter's Plumbing and Drain Cleaning business generated sales of $130 million for the second quarter of 2017, an increase of $18.7 million or 16.7% over the prior year quarter.
Commercial drain cleaning revenue increased 1.4% and commercial plumbing and excavation increased 10.6%.
Overall, commercial revenue increased 6.4%.
Residential plumbing and excavation increased 14.5%, and drain cleaning increased 6.7% and our aggregate residential sales increased 22.3%.
Revenue from water restoration totaled $20.9 million, an increase of 72.1% over the prior year.
We have also updated our guidance for 2017, which is as follows: revenue growth for VITAS in 2017 prior to Medicare Cap is estimated to be in the range of 2% to 3%.
Admissions and average daily census in 2017 are estimated to expand in the range of 3% to 5%, and full year adjusted EBITDA margin prior to Medicare Cap is estimated to be 15.0% to 15.5%.
We are currently estimating $2.5 million for Medicare Cap billing limitations in the second half of 2017.
Roto-Rooter is forecasted to achieve full year 2017 revenue growth of 12% to 13%.
This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services.
Roto-Rooter's adjusted EBITDA margin for 2017 is estimated in the range of 22.0% to 22.5%.
Based upon the above, our full year 2017 adjusted earnings per diluted share, excluding noncash expense for stock options, costs related to litigation and other discrete items, is estimated to be in the range of $8.10 to $8.20.
This compares to Chemed's 2016 reported adjusted earnings per diluted share of $7.24.
I'll now turn this call over to Nick <UNK>, Chief Executive Officer of VITAS.
Thanks, <UNK>.
VITAS had a solid quarter, financially and operationally.
On a Unit-for-Unit Average Daily Census in second quarter was ---+ of 2017 was 16,398 patients, an increase of 3.4% over the prior year.
Total Unit-for-Unit Admissions in the quarter were 16,311, an increase of 1.3%.
During the quarter, admissions generated from hospital referrals, which typically represent over 50% of our admissions, increased 1.6%.
Home-based admissions increased 2.8%.
Nursing home admissions decreased 2.2%, and assisted living facility admissions declined 0.6% in the quarter.
Our per patient per day ancillary costs, which include durable medical equipment, supplies and pharmaceutical costs, averaged $14.51 and are 8.9% favorable when compared to the $15.92, the cost of these items incurred in the prior year quarter.
Our inpatient care currently consists of 29 dedicated units as well as contract beds.
We evaluate inpatient capacity on a market-by-market basis to ensure these facilities are appropriately positioned to meet the needs of our patients in every community we serve.
This process involves reviewing all of our existing and potential future inpatient contractual arrangements, and where necessary, working with our partners to renew, restructure or exit the facility to best service the community.
Within continuous care, we have also enhanced our focus on the labor management of continuous care related to appropriate nursing to aide staffing assignments and the appropriate utilization of outside nursing agencies based upon the patient's location and the individual needs.
These efforts improved our continuous care margins 420 basis points when compared to the second quarter of 2016.
VITAS's average length of stay in the quarter was 85.2 days, which compares to 84.2 days in the prior year quarter.
Median length of stay was 16 days in the quarter and is equal to the prior year quarter.
Median length of stay is a key indicator of our penetration into the high acuity sector of the market.
With that, I'd like to turn this call back over to <UNK>.
Thank you, Nick.
I will now open this teleconference to questions.
Well, my only closing remarks is to thank our operating executives who are here for achieving another very good quarter.
And we've raised guidance and I'm ---+ I have a degree of confidence that, that is certainly achievable, and we'll do our best to do so.
But thank you for your kind attention, and we'll reconvene in about 3 months.
