Chemed second-quarter consolidated revenues increase 6.7% to $315.0 million

Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation's largest provider 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 second quarter ended June 30, 2010, versus the comparable prior-year period, as follows:

Consolidated operating results:

• Revenue increased 6.7% to $315.0 million
• Net Income increased 9.3% to $18.9 million
• Adjusted Net Income increased 3.1% to $22.7 million

VITAS segment operating results:

• Net Patient Revenue of $226.6 million, an increase of 7.3%
• Average Daily Census (ADC) of 12,584, an increase of 5.6%
• Admissions of 14,423, an increase of 4.2%
• Net Income of $18.3 million, an increase of 6.8%
• Adjusted EBITDA of $33.1 million, an increase of 5.6%
• Adjusted EBITDA margin of 14.6%, a decrease of 24 basis points

Roto-Rooter segment operating results:

• Revenue of $88.4 million, an increase of 5.2%
• Job count of 166,848, a decrease of 0.7%
• Net Income of $8.9 million, an increase of 0.7%
• Adjusted EBITDA of $15.1 million, a decrease of 2.8%
• Adjusted EBITDA margin of 17.1%, a decrease of 141 basis points

VITAS

Net revenue for VITAS was $226.6 million in the second quarter of 2010, which is an increase of 7.3% over the prior-year period. This revenue growth was the result of increased ADC of 5.6%, driven by an increase in admissions of 4.2%, combined with Medicare price increases of approximately 1.3%. The remaining growth was driven by geographic mix shift of the patient base.

The 4.2% admissions growth in the second quarter of 2010 compares favorably to the 0.8% decline in admissions in the prior-year quarter and a 0.7% decline in admissions for full-year 2009.

Average revenue per patient per day in the quarter, excluding the impact of Medicare Cap, was $197.89, which is 1.8% above the prior-year period. Routine home care reimbursement and high acuity care averaged $155.33 and $682.40, respectively, per patient per day in the second quarter of 2010. During the quarter, high acuity days of care were 8.1% of total days of care. This is essentially equal to the prior-year quarter.

In the second quarter of 2010, VITAS recorded a net revenue increase of $35,000 due to the reversal of the estimated Medicare Cap limitations recorded for a small program in the first quarter of 2010.

Of VITAS' 33 unique Medicare provider numbers, 31 provider numbers, or 94%, have a Medicare Cap cushion greater than 10% for most recent twelve-month period. Two provider numbers have Medicare Cap cushion below 5%. VITAS generated an aggregate Medicare Cap cushion of $199 million, or 25%, during the trailing twelve-month period.

The second quarter of 2010 gross margin, excluding the impact of Medicare Cap, was 22.7%, which is 41 basis points lower than the second quarter of 2009. Increased expenses relating to field-based admissions, expansion of inpatient units and increased documentation requirements in Medicare certification all contributed to this margin decline.

Selling, general and administrative expense was $18.4 million in the second quarter of 2010, which is an increase of 2.9% when compared to the prior-year quarter. Adjusted EBITDA totaled $33.1 million in the quarter. Adjusted EBITDA margin, excluding the impact from Medicare Cap, was 14.6% in the quarter which was essentially equal to the prior-year quarter.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $88.4 million for the second quarter of 2010, an increase of 5.2% over the prior-year quarter. Roto-Rooter's gross margin was 45.2% in the quarter, a 103 basis point decline when compared to the second quarter of 2009. Adjusted EBITDA in the second quarter of 2010 totaled $15.1 million, a decline of 2.8%, and the Adjusted EBITDA margin was 17.1% in the quarter, a decline of 141 basis points, when compared to the prior-year quarter.

Job count in the second quarter of 2010 declined a modest 0.7% when compared to the prior-year period. During the second quarter of 2010, total residential jobs increased 0.7%, as residential plumbing jobs increased 6.6% and residential drain cleaning jobs declined 2.2%, when compared to the second quarter of 2009. Residential jobs represented 72% of total job count in the quarter. Total commercial jobs declined 4.1%, with commercial plumbing job count declining 1.0% and commercial drain cleaning decreasing 5.6% when compared to the prior-year quarter. The "Other" job category declined 2.6%.

Management continues to have discussions with existing franchisees to acquire Roto-Rooter franchise territories. This activity is attributed to the current state of the capital markets, the potential increase in tax rates and the recessionary difficulties our franchisees are experiencing. Management will continue to be highly disciplined in terms of valuation, risk assessment and overall return on investment of any potential acquisition. However, the timing or actual completion of any acquisition cannot be predicted.

Chemed Consolidated Debt and Cash Flows

Chemed had total debt of $155.6 million at June 30, 2010. This debt is net of the discount taken as a result of convertible debt accounting requirements. Excluding this discount, aggregate debt is $187.0 million and is due in May 2014. Chemed's total debt equates to less than one times trailing twelve-month adjusted EBITDA.

Chemed's $175.0 million revolving credit facility expires in May 2012. At June 30, 2010, this credit facility had approximately $146.7 million of undrawn borrowing capacity after deducting $28.3 million for letters of credit issued under this facility to secure the Company's workers' compensation insurance.

Capital expenditures for the second quarter of 2010 aggregated $6.5 million and compares favorably to depreciation and amortization during the same period of $7.5 million.

Total cash and cash equivalents as of June 30, 2010, was $109.1 million, which represents 44.7% of total current assets. Net cash provided from operations in the second quarter of 2010 aggregated $12.6 million.

The Company increased its quarterly dividend per share in the third quarter of 2009, from $0.06 per share to $0.12 per share. During the second quarter of 2010, the company purchased $6.3 million of treasury stock in the open market and has approximately $45 million of remaining authorization under its previously announced share repurchase program. Management continually evaluates cash utilization alternatives, including share repurchase, debt repurchase, acquisitions and increased dividends to determine the most beneficial use of available capital resources.

Guidance for 2010

VITAS expects to achieve full-year 2010 revenue growth, prior to Medicare Cap and BNAF, of 6.0% to 7.0%. Admissions in 2010 are estimated to increase 3.0% to 4.0% and full-year Adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 15.0% to 15.5%. Effective October 1, 2009, Medicare increased average hospice reimbursement rates by approximately 1.3%. Our 2010 full-year guidance includes $2.5 million of estimated Medicare contractual billing limitations for the remaining two quarters of 2010.

Roto-Rooter expects to achieve full-year 2010 revenue growth of 4.0% to 4.5%. The revenue estimate is a result of increased pricing of approximately 3.0%, a favorable mix shift to higher revenue jobs, offset by a job count decline estimated at 2.0% to 4.0%. Adjusted EBITDA margin for 2010 is estimated in the range of 17.5% to 18.5%.

Based upon these factors, an effective tax rate of 39.0% and a full-year average diluted share count of 23.1 million shares, management estimates 2010 earnings per diluted share from continuing operations, excluding non-cash expenses for stock options, the non-cash increase in interest expense related to the accounting change for convertible debt and other items not indicative of ongoing operations will be in the range of $4.05 to $4.20.