Chemed Corp

Ladies and gentlemen, thank you for standing by. And welcome to ChemEd Corporation's second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Sherry Warner, with investor relations. Please go ahead, ma'am.

Good morning. Our conference call this morning will review the financial results for the second quarter of 2020 and the June 30, 2020. Before we begin, let me remind you that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of July 29th and in various other filings with the SEC. Viewer caution that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation, and amortization, or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release, dated July 29th, which is available on the company's website at ChemEd.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of ChemEd Corporation, Dave Williams, Executive Vice President and Chief Financial Officer of ChemEd, and Nick Westphal, President and Chief Executive Officer of ChemEd's Phytos Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherry. Good morning. Welcome to ChemEd Corporation's second quarter 2020 conference call. I will begin with highlights for the quarter, and David and Nick will follow up with additional operating detail. I will then open up the call for questions. First, let's start with the obvious. Operating two separate and distinct service business segments with 17,000 employees during a national pandemic brings unique, unpredictable, and abrupt challenges. Fortunately, VITAS and Rotorooter have been classified as essential services, allowing ChemEd to operate during the pandemic. Maintaining operations in this environment is far from business as usual, First and foremost, our number one focus has been and will remain on the safety and well-being of our employees, patients, and customers. We will maintain this focus regardless of the cost to safely operate during the pandemic. April 2020 was probably the most challenging month we have ever seen. Significant operating issues emerged daily, triggered primarily from incredibly fast-moving and sometimes contradictory federal, state, and local government regulations. Logistical operating issues were identified, analyzed, and solutions were put in practice immediately. We were able to develop and continuously refine effective workarounds on supply chain issues, labor and scheduling issues, patient access restrictions, employee safety, healthcare protocols, technology solutions, as well as information security protocols allowing our employees to continuously serve our local communities in a safe, agile manner. We closely followed the myriad of federal, state, and local regulations in the development and implementation of infrastructure necessary to safely allow our field support and corporate support staff to safely limit as much as practical physical interaction among our 17,000 employees. On the VITAS segment, the federal government, and specifically HHS and CMS, have been exceptionally supportive in terms of relaxing regulations, allowing the use of telehealth capabilities where appropriate, and providing pragmatic flexibility in caring for our 19,000-plus patient census. As most of you are aware, on March 27, 2020, the CARES Act was signed into law. The CARES Act includes financial support for health care providers to maintain operational capacity, as well as assist providers with issues caused by the coronavirus panic. On April 10, 2020, VITAS, without application, received $80.2 million of CARES Act funds that was formulaically determined by the federal government based on our 2019 Medicare fee-for-service revenues. These CARES Act funds are specified to be used to prevent, prepare for, and respond to the coronavirus and shall reimburse the recipient for healthcare-related expenses or lost revenues that are attributable to coronavirus. The ability of VITAS to retain and utilize the full $80.2 million from the relief fund will depend on the magnitude, timing, and nature of the economic impact of COVID-19 within VITAS, as well as the guidelines and rules of the relief fund program. This financial support is material for VITAS in maintaining its operational capacity and to safely care for our 19,000 patients. In our first quarter earnings conference call, I stated we anticipated disruption within our patient referral and admission patterns due to significant health care system service restrictions in the coming quarter. This disruption did materialize in our second quarter 2020 admissions, declining 3.8% over the prior year. However, the admissions trend did materially improve throughout the quarter. Our April 2020 admissions were challenging and had a decline of 6.6%. may improve slightly with an admission decline of 5.8%. June showed significant improvement generated in admissions growth of 1.1%. Nick will provide additional detail on the admissions trend later in this call. Roto-Rooter operations were also severely impacted at the start of the pandemic. In late March 2020, we observed significant disruption in our Roto-Rooter commercial business. As a reminder, historically, Commercial services represented approximately 28% of Rotoroo's consolidated revenue. We made the decision for Rotoroo to maintain full staffing and operating capacity with no employee layoffs as we entered the second quarter. This decision to maintain our full operating strength was potentially an expensive strategic move, and we monitored our demand metrics daily. The decision to operate at full capacity is a classic risk-reward calculation weighing brand awareness, customer satisfaction, and the financial needs of our employees. We also wanted to be positioned to capitalize on any potential snapback in commercial and residential demand, both to protect existing market share as well as maximize our opportunities to grow market share. I believe this has proven to be the correct strategic course. Roto-Rooter services demand began to show weekly improvement beginning in the later part of April and had strengthened unabated throughout the remainder of the second quarter. This is reflected in our monthly performance with Roto-Rooter unit for unit, commercial revenue declining 38.6% in April, improving slightly to a 31.8% decline in May, and declining 19.7% in June. Our residential services have proven to be exceptionally resilient, with our unit-for-unit residential revenue declining a modest 1.6% in April, increasing 11.7% in May and 18.7% in June. All this translated into Rotary, on a unit-for-unit basis, having a second quarter 2020 commercial revenue declining 29.1%, residential revenue increasing 10.4%, and rotor-consolidated unit-for-unit revenue declining a modest 1.6% when compared to the prior year quarter. Although we did have a modest decline in unit-for-unit revenue in the second quarter, including acquisitions, rotor-generated consolidated revenue growth of 8.6%. Overall, Rotoroo's solid revenue growth was excellent adjusted EBITDA margins and adjusted EBITDA growth. Rotoroo's adjusted EBITDA in the second quarter of 2020 totaled $46.8 million, an increase of 20.7%. The adjusted EBITDA margin was 26.8%, which is a 269 basis point increase when compared to the private sector. The increase in Rotoroo's adjusted EBITDA margin is attributed to our residential services having a higher margin than commercial services, as well as increased residential excavation and water restoration services, which have a significantly higher direct contribution margin compared to commercial plumbing and drain cleaning services. I'm very appreciative of the hard work, creative solutions, and willingness of our 7,000 employees to adjust their operational routines and embrace new procedures. Their sheer dedication made it possible for us to provide care to our patients, families, and customers. I want to personally thank every one of our employees for these incredible efforts. With that, I would like to turn the teleconference over to David.