Chemed Corp

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 needs projected by those forward-looking statements as a result of a variety of factors, including those identified in the company's news release of July 26 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 July 26, which is available on the company's website at chemmed.com. I would now like to turn, 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 Healthcare Corporation Subsidiaries. I will now turn the call over to Kevin McNamara.

Thank you, Holly. Good morning. Welcome to ChemEd Corporation's second quarter 2023 conference call. I will begin with highlights for the quarter, and Dave and Nick will follow up with additional operating details. I will then open up the call for questions. Our second quarter 2023 operating results, released last night, reflect significant improvement in VITAS's operational metrics post-pandemic. In the quarter, our admissions increased 5.9% over the prior period. These strengthening admissions continue to drive higher patient census. In the second quarter, our average daily census, or ADC, expanded 1,077, an increase of 6.2% when compared to the prior year, and 3.2% when compared with the first quarter of 2023. METAS's improving operating metrics are a direct result of our retention and hiring program launched July 1st of last year. This program was designed to stabilize turnover in our tenured staff as well as expand employment patient capacity. Since July 1, 2022, our staffing has methodically increased on a sequential basis over this 12-month period. This increase in staffing and related patient capacity has been converted into increased admissions and census. The retention program has generated an aggregate increase of 784 licensed healthcare professionals, the majority of which are licensed nurses. Over the last four quarters, VITAS has increased bedside professionals on a net sequential basis by 172, 103, 200, and 309, respectively. The majority of the expanded capacity from the 309 net hires in the second quarter of 2023 is forecast to benefit admissions and census growth in the second half of the year. On June 30, 2023, our end of the month census was 18,542 patients. This compares to our June 30, 2022 ending census of 17,360 for a net increase of 1,182 patients. This raw patient increase translates into $84 million of annualized billable revenue. Our revised guidance does assume sequential ADC growth to moderate in the second half of 2023 when compared to the first six months of the year. Now let's turn to Roto-Rooter. By all indications, Roto-Rooter is encountering what I can only describe as headwinds on consumer spending. As noted during our first quarter teleconference call, in the last few weeks of the first quarter, we observed an increase in weekly revenue volatility, indicating a potential softening in consumer demand. Since March, we have observed increased weakness in weekly call volume and revenue. This weakness has continued throughout the second quarter. Overall, our call volume is down approximately 13% when compared to the prior year quarter. Although call volume is a crude measurement, it does indicate consumers are moderating their behavior in terms of discretionary plumbing and drain cleaning services. Rotor has offset a portion of this softening demand with material increase in close rates. Our call center's conversion rate, the rate at which a call is converted into a technician-scheduled ticket, has increased 230 basis points. Our technician conversion rate, the percentage of time a tech arrives at the home or business and converts a scheduled ticket into billable work, has increased 160 basis points. These improved conversion rates have materially reduced the impact of softening consumer demand. We have seen some recent signs of improvement in overall demand over the last few weeks. However, our guidance assumes Roto-Rooter continues to be modestly impacted by consumer spending headwinds for the remainder of the year. To summarize, I am pleased with the accelerated improvement in VITAS post-pandemic. Our increased growth in licensed healthcare professionals, strong admissions, and corresponding growth in patient census has positioned VITAS to return to normalized operating metrics in early 2024. Rotary is well-positioned in spite of economic headwinds on consumer spending. We anticipate continued expansion of market share by pressing Rotary's core competitive advantages in terms of excellent brand awareness, customer response time, 24-7 call centers, and aggressive Internet presence. With that, I would like to turn this teleconference over to David.

Thanks, Kevin. VITAS's net revenue was $321 million in the second quarter of 2023, an increase of 7.8% when compared to the prior year period. This revenue increase is comprised primarily of a 6.2% increase in our days of care a geographically weighted average Medicare reimbursement rate increase of approximately 2.7%, partially offset by 100 basis points from sequestration. The combination of Medicare cap and other contra-revenue changes negatively impacted revenue growth by 10 basis points in the quarter. Average revenue per patient per day in the second quarter of 2023 was $197.02, which is 178 basis points above the prior year period. Reimbursement for reaching home care and high-acuity care averaged $172.91 and $1,031.58, respectively. During the quarter, high-acuity days of care were 2.8% of total days of care, essentially equal to the prior year quarter. The gross margin and adjusted EBITDA for VITAS were both negatively impacted by CMS re-implementing sequestration, which reduced these margins by 100 basis points when compared to the prior year quarter. Gross margin in the second quarter of 2023, excluding Medicare cap and the retention bonus program, was 22.7%. This is a 143 basis point increase when compared to the second quarter of 2022. Our adjusted EBITDA, excluding Medicare cap, totaled $50.7 million in the quarter, an increase of 1.4%. Adjusted EBITDA margin in the quarter, excluding Medicare cap, was 15.7%, which is 101 basis points below the prior year period, really all of which contributed to sequestration. As Kevin noted earlier, VITAS increased the licensed healthcare staff by 309 professionals in the quarter, This results in total licensed staff increasing by 784 professionals since the inception of the retention program on July 1st of 22. The increase of 309 net professionals hired during the quarter of 2023, think of it as basically underutilized labor capacity, is estimated to have negatively impact margins in the second quarter by approximately 80 basis points. Now let's turn to Roto-Rooter. Rutter Rutter generated revenue of $233 million in the second quarter of 2023, which is a decline of 0.2% when compared to the prior year quarter. Rutter Rutter's branch commercial revenue in the quarter totaled $55.5 million, which is an increase of 1.3% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning revenue declining 3%, plumbing increasing 5.4%, excavation increasing 2.9%, and water restoration increasing 9.7%. Road workers' branch residential revenue in the quarter totaled $158 million, which is the decline of 1.1% over the prior year period. The aggregate residential revenue growth consisted of drain cleaning decreasing 8.6%, plumbing declining 2.8%, excavation expanding 3.8%, and water restoration increasing 2.5%. Rutter-Rutter's gross margin in the quarter was 52.3%, which is an 89 basis point decline when compared to the second quarter of 22. Adjusted EBITDA in the second quarter of 2023 totaled $65.9 million, a decrease of 4.5%, and the adjusted EBITDA margin in the quarter was 28.3%, 128 basis points below the prior year period. Now let's take a look at our guidance. VITAS's 2023 revenue prior to Medicare cap is estimated to increase 8.5% to 9.5% when compared to 2022. VITAS's forecasted full-year revenue growth is negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023. ADC is estimated to increase 6.5% to 7.5% And full-year adjusted EBITDA margin prior to Medicare cap and accrued bonuses related to our retention program is estimated to be between 16.5% and 17%. And we're currently estimating $11 million of Medicare cap billing limit in calendar year 2023. Roto-Rooter is forecasted to achieve full-year 2023 revenue growth of 1% to 2%. and Reuters' adjusted EBITDA margin for 2023 is expected to be between 28% and 28.5%. So based on this discussion, our full year 2023 earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to certain litigation settlements in our retention bonus program, is estimated to be in the range of $19.90 to $20.10. Current 2023 guidance assumes an effective corporate tax rate on adjusted earnings of 24.7% and a diluted share count of 15.2 million shares. For comparison, Roto-Rooter's 2022 reported adjusted earnings per diluted share was $19.75. I'll now turn this call over to Nick Westphal, President and Chief Executive Officer of our BTOS healthcare business segment.