Chemed Corp

Good morning. Our conference call this morning will review the financial results for the third quarter of 2023, ended September 30, 2023. 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 25th 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 25th, which is available on the company's website at chemmed.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, Holly. Good morning. Welcome to ChemEd Corporation's third 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 third quarter 2023 operating results released last night reflect continued improvement in VITAS's operational metrics. In the quarter, our admissions increased 7.5% over the prior year period. These strengthening admissions continued to drive higher patient census. In the third quarter, our average daily census, or ADC, expanded 1,617, an increase of 9.4% when compared with the prior year, and 2.5% when compared with the second quarter of 2023. VITAS'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 and expand patient capacity. Since July 1st, 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 in roughly 60 to 90 days. This 12-month retention program generated an aggregate increase of 784 licensed healthcare professionals, the majority of which are licensed nurses. This retention bonus program ended in the second quarter of 2023. However, in the third quarter, we continued to expand our licensed staff and related patient capacity. VTAS net bedside headcount increased by 157 licensed professionals in the quarter. In September 2023, our ADC was 19,047 patients. This compares to our September 2022 ADC of 17,325 for a net increase of 1,722 patients. This raw ADC patient increase translates into $123 million of increased annualized billable revenue. A revised guidance assumes continued sequential ADC growth in the fourth quarter of 2023. Now let's turn to Roto-Rooter. As I discussed last quarter, Roto-Rooter continues to manage through what I can only describe as headwinds on consumer spending. Overall, our call volume is down approximately 13.6%. 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 significant portion of this softening demand with a material increase in close rates. Our call center's conversion rate, the rate at which a call is converted into a technician's scheduled ticket, has improved 4.8%. Our ticket void rate, which is the rate of canceled jobs before a technician can be dispatched, improved 4.6%. Our technician conversion rate, the percentage of time a tech arrives at a home or business and converts a scheduled ticket into billable work, was essentially equal to the prior year. These improved conversion rates, combined with price increases, resulted in Roto-Rooter increasing revenue 40 basis points when compared to the prior year. We continue to see stabilization of our demand in our weekly revenue. Our guidance assumes Roto-Rooter will have modest fourth quarter sequential growth when compared to our third quarter of 2023. Its conservative revenue guidance for Roto-Rooter's fourth quarter seasonality demand assumes continued consumer spending headwinds for the remainder of the year. To summarize, I'm pleased with the accelerated improvement in VITAS post-pandemic. our increased growth in licensed healthcare professionals, strong admissions, and corresponding growth in patient census have returned VITAS to normalized operating conditions. Roto-Rooter is well-positioned, in spite of economic headwinds on consumer spending. We anticipate continued expansion of market share by pressing Roto-Rooter'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 conference over to David.

Thanks, Kevin. VTES's net revenue was $334 million in the third quarter of 2023, which is an increase of 12.5% when compared to the prior year period. This revenue increase is comprised primarily of a 9.4% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.7%. The acuity mix shift positively impacted revenue growth 24 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare cap and other contract revenue changes increased revenue growth by approximately 20 basis points. Our average revenue per patient per day in the third quarter of 2023 was $196.43 which is 296 basis points above the prior year period. Reimbursement for reaching home care and high acuity care averaged $172.52 and $1,026.48, respectively. During the quarter, high acuity days of care were 2.8% of our total days of care, which is an increase of five basis points compared to the prior year quarter. Adjusted EBITDA, excluding Medicare cap, totaled $54.9 million in the quarter, which is an increase of 53.4%. Adjusted EBITDA margin in the quarter, excluding Medicare gap, was 16.5%, which is 441 basis points above the prior year period. Now let's take a look at Roto-Rooter. Roto-Rooter generated quarterly revenue of $231 million in the third quarter of 2023, an increase of 4 tenths of 1% compared to the prior year quarter. Roto-Rooter Branch commercial revenue in the quarter was $56.8 million, an increase of 1.5% over the prior year. The aggregate commercial revenue growth consisted of drain cleaning revenue declining 4.2%, plumbing increasing 1.8%, excavation expanding 11.9%, and water restoration increasing 2%. Roto-Rooter Branch residential revenue in the quarter totaled $155 million, an increase of three-tenths of 1% over the prior year period. This aggregate residential revenue growth consisted of drain cleaning decreasing 6.7%, plumbing expanding three-tenths of 1%, excavation expanding 3.2%, and water restoration increasing 4.3%. Adjusted EBITDA in the third quarter of 2023 totaled $66.9 million, a decrease of 3.7%. The adjusted EBITDA margin in the quarter was 29%, which is 124 basis points below the prior year period. Now let's take a look at our updated guidance. VITAS's 2023 revenue prior to Medicare cap is estimated to increase 9.3% to 9.5% when compared to 2022. Full-year 2023 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. Our average daily census, or ADC, is estimated to increase 7.3% to 7.5%. And full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15.4% to 15.7%. The total pre-tax cost of the retention program in 2023 is estimated at $23.8 million. This reduced our adjusted EBITDA margin guidance for 2023 by approximately 180 basis points. We are currently estimating $8 million for Medicare cap billing limitations in calendar year 2023. Roto-Rooter is forecasted to achieve the full year 2023 revenue growth of 1.6% to 2%. Redwater's adjusted EBITDA margin for 2023 is guided to 28.4% to 28.6%. Based upon the above, full-year 2023 earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation, and other discrete items, is estimated to be in the range of $19.82 to $20.02. This guidance includes $1.18 per share of after-tax costs related to the 2023 portion of the retention program. This revised 2023 guidance compares to previous guidance as recast to no longer exclude costs related to the retention program of $18.72 to $18.92. Current 2023 guidance assumes an effective corporate tax rate and adjusted earnings of 23.6% in a diluted share count of 15.2 million shares. KEMET's 2022 adjusted earnings per diluted share was $18.78. That includes $0.97 per share for costs associated with a 2022 retention program. During the third quarter, the company finalized a realignment of its state and local corporate tax structure. This realignment, effective January 1st of 2022, was based on the location of operating resources and profitability by business segment. This reduced state taxes for 2022 and 2023 and is estimated to result in a 24th 24.3% effective tax rate starting in 2024. I will now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS healthcare business segment.