Chemed Corp

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Chemical Operation Third Quarter 2021 Earnings Conference Call. At this time, all participants are on 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 will need to press the star, then the one key on your touch-tone telephone. Please be advised that today's conference may be recorded. If you recall operating systems, please press star, then zero. I would now like to hand the conference over to your speaker host today, Sherry Werner with Investor Relations. Please go ahead.

Good morning. Our conference call this morning will review the financial results for the third quarter of 2021 and it's September 30th, 2021. 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 October 28 and in various other filings with the SEC. You are cautioned 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 October 28, 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 Westfall, President and Chief Executive Officer of ChemEd's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherry. And thank you, Sherry, for your services over the years. Sherry's retiring at the end of the year, and this is her last introduction to a quarterly conference call, but we do want to thank her for all her efforts. Good morning. Good morning. Welcome to ChemEd Corporation's third quarter 2021 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow up with additional operating detail. I will then open the call up for questions. Our third quarter 2021 operating results released last night reflect very solid performance for both VITAS and RoadRouter. On a go-forward basis, I would like to share with you some of the macro issues we are dealing with as we approach the end of the second year of the pandemic. For VITAS, the most important issue we are managing is labor. Staffing of licensed professionals has been exceptionally challenging to ensure an adequate mix of licensed healthcare workers on a market-by-market basis. This is particularly challenging during the pandemic as we deal with dynamic fluctuations in patient census in every market. Turnover within our licensed staff remains above our pre-pandemic rates, but we are seeing indications of normalization. as we continue to expand our hiring and retention initiatives in many markets. Beyond managing our staffing levels, we are observing increasing pressure on salaries and wages. To date, we've managed these pressures with increased paid time off, or PTO. We view it as inevitable that health care wages will increase if we continue to have a nationwide and systemic imbalance in supply and demand for licensed health care professionals. Fortunately for VITAS and the hospice industry, there is a natural hedge against the inflationary pressures on costs, specifically labor. The annual increase in the Medicare and Medicaid hospice reimbursement rates is based primarily on inflation in the hospital wage index basket, as measured by the federal government's Bureau of Labor Statistics. Typically, the annual inflation measured as of March 31st is used to determine the following October 1 reimbursement increase. This should give the hospice industry a reasonable stability in operating margins in an inflationary environment, albeit with a six-month lag from the inflation measurement to the actual reimbursement increase. The second critical challenge for VITAS is the continued disruption to senior housing occupancy and the latent hospice referrals. Recent admission data suggests senior housing is in the process of recovery. Pre-pandemic, nursing home-based patients represented 18% of our total average daily census, or ADC. The nursing home ADC ratio hit a low of 14.3% in the first quarter of 2021. In the second quarter of 2021, nursing home-based patients increased 60 basis points to 14.9%, and in the third quarter of 2021, our nursing home patients represented 15.6% of our total ADC. Our updated 2021 guidance anticipates sequential improvement in senior housing-based patients in the fourth quarter of 2021, with acceleration in senior housing admissions anticipated in 2022. For Roto-Rooter, our most significant challenge has been to increase manpower. We have expanded technician manpower by 8% in 2021. However, based on our current demand levels, we continue to remain understaffed in many of our markets. Technician compensation plays a role in recruiting new employees as well as retention of our existing employee base. Our average 2021 technician and field sales force compensation is over $81,000 per year. Most of our technicians are paid on a commission basis on revenue generated. As a result, pricing for our services is a critical component in increasing technician wages. We anticipate passing through inflationary price increases in all our markets in the fourth quarter of this year. Demand for plumbing, drain cleaning, excavation, and water restoration services remain at record levels. I want to give additional color on the depth and breadth of this increase in demand. Let's compare Q3 2021 revenue to Q3 2019, excluding the HSW acquisition which was completed in September 2019. Under this unit-for-unit comparison, Residential services have experienced incredible growth. In aggregate, residential branch revenue increased 46.2% over this two-year period. On a service segment basis, residential plumbing revenue increased 37.1%, drain cleaning expanded 36%, excavation increased 65.6%, and water restoration increased 48.1%. Commercial demand has been more challenging. However, commercial revenue has experienced a significant recovery since the 40% decline in commercial demand noted in April 2020. Overall, commercial revenue declined 3.1% over this two-year period. On an individual service segment basis, commercial plumbing service declined 4.9%. Drain cleaning expanded 1.8%. Excavation declined 10.2%. and water restoration increased 7%. We anticipate continued strengthening in commercial demand in the fourth quarter of 2021, as well as throughout 2022. Over the past 20 years, the country has faced 9-11, the Great Recession, and now a global pandemic. In each of these crises, Rotorua remained operating and materially increased market share, revenue, and operating margins. Just as important, post-crisis, Roto-Rooter held on to these increases in revenue, market share, and margins. Roto-Rooter is well-positioned post-pandemic, and we anticipate continued expansion of market share by pressing our core competitive advantages in terms of brand awareness, customer response time, 24-7 call centers, and Internet presence. With that, I would like to turn the teleconference over to David.