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CHEMED CORP - Quarter Report: 2022 September (Form 10-Q)

che-20220930x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x    Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2022

o    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 1-8351

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

31-0791746

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

255 E. Fifth Street, Suite 2600, Cincinnati, Ohio

45202

(Address of principal executive offices)

(Zip code)

(513) 762-6690

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  

x

No  

o  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  

x

No  

o  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer

x

Accelerated Filer

o

Non-accelerated Filer

o

Smaller Reporting Company

o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  

 o 

No  

x  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange

on which Registered

Amount

Date

Capital Stock $1 Par Value

CHE

New York Stock Exchange

14,870,305 Shares

September 30, 2022

 


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CHEMED CORPORATION AND

SUBSIDIARY COMPANIES

Index

Page No.

PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets -

September 30, 2022 and December 31, 2021

3

Unaudited Consolidated Statements of Income -

Three and nine months ended September 30, 2022 and 2021

4

Unaudited Consolidated Statements of Cash Flows -

Nine months ended September 30, 2022 and 2021

5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-

Three and nine months ended September 30, 2022 and 2021

6

Notes to Unaudited Consolidated Financial Statements

8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3. Quantitative and Qualitative Disclosures about Market Risk

40

Item 4. Controls and Procedures

40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3. Defaults Upon Senior Securities

41

Item 4. Mine Safety Disclosures

41

Item 5. Other Information

41

Item 6. Exhibits

42

EX – 31.1

EX – 31.2

EX – 31.3

EX – 32.1

EX – 32.2

EX – 32.3

EX – 101

EX – 104


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

September 30, 2022

December 31, 2021

ASSETS

Current assets

Cash and cash equivalents

$

7,781

$

32,895 

Accounts receivable

121,662

137,217 

Inventories

10,469

10,109 

Prepaid income taxes

27,526

17,377 

Prepaid expenses

31,431

32,688 

Total current assets

198,869

230,286 

Investments of deferred compensation plans

90,097

98,884 

Properties and equipment, at cost, less accumulated depreciation of $337,528 (2021- $317,911)

193,705

193,680 

Lease right of use asset

131,430

125,048 

Identifiable intangible assets less accumulated amortization of $65,203 (2021 - $57,648)

102,103

108,096 

Goodwill

579,887

578,591 

Other assets

60,104

8,138 

Total Assets

$

1,356,195

$

1,342,723 

LIABILITIES

Current liabilities

Accounts payable

$

77,170

$

73,024 

Current portion of long-term debt

5,000

-

Income taxes

-

41 

Accrued insurance

56,732

55,918 

Accrued compensation

67,230

95,598 

Accrued legal

653

872 

Short-term lease liability

39,813

37,913 

Other current liabilities

51,552

39,033 

Total current liabilities

298,150

302,399 

Deferred income taxes

33,590

23,183 

Long-term debt

95,850

185,000 

Deferred compensation liabilities

89,873

98,597 

Long-term lease liability

105,594

100,629 

Other liabilities

11,722

9,642 

Total Liabilities

634,779

719,450 

Commitments and contingencies (Note 10)

 

 

STOCKHOLDERS' EQUITY

Capital stock - authorized 80,000,000 shares $1 par; issued 36,670,460 shares (2021 - 36,513,857 shares)

36,670

36,514 

Paid-in capital

1,100,161

1,044,341 

Retained earnings

2,141,418

1,970,311 

Treasury stock - 21,866,038 shares (2021 - 21,601,325 shares)

(2,559,141)

(2,430,094)

Deferred compensation payable in Company stock

2,308

2,201 

Total Stockholders' Equity

721,416

623,273 

Total Liabilities and Stockholders' Equity

$

1,356,195

$

1,342,723 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Service revenues and sales

$

526,472 

$

538,667 

$

1,588,309 

$

1,598,283 

Cost of services provided and goods sold (excluding depreciation)

346,934 

342,164 

1,020,307 

1,033,130 

Selling, general and administrative expenses

83,992 

89,217 

261,799 

274,654 

Depreciation

12,154 

11,844 

37,006 

37,171 

Amortization

2,520 

2,510 

7,558 

7,530 

Other operating expense/(income)

15 

63 

(530)

789 

Total costs and expenses

445,615 

445,798 

1,326,140 

1,353,274 

Income from operations

80,857 

92,869 

262,169 

245,009 

Interest expense

(1,271)

(583)

(2,983)

(1,343)

Other (expense)/income - net

(3,115)

3,134 

(11,907)

10,521 

Income before income taxes

76,471 

95,420 

247,279 

254,187 

Income taxes

(19,598)

(23,417)

(59,781)

(60,262)

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Earnings Per Share:

Net income

$

3.82 

$

4.62 

$

12.55 

$

12.27 

Average number of shares outstanding

14,888 

15,587 

14,935 

15,808 

Diluted Earnings Per Share:

Net income

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

Cash Dividends Per Share

$

0.38 

$

0.36 

$

1.10 

$

1.04 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,

2022

2021

Cash Flows from Operating Activities

Net income

$

187,498 

$

193,925 

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

44,564 

44,701 

Stock option expense

19,343 

16,342 

Provision/(benefit) for deferred income taxes

10,408 

(561)

Noncash long-term incentive compensation

4,343 

5,344 

Noncash directors' compensation

1,170 

1,173 

Amortization of debt issuance costs

247 

229 

Litigation settlements paid previously accrued

-

(9,440)

Changes in operating assets and liabilities:

Decrease in accounts receivable

16,166 

9,247 

Increase in inventories

(360)

(1,299)

Decrease/(increase) in prepaid expenses

1,257 

(6,117)

Increase/(decrease) in accounts payable and other current liabilities

(15,765)

6,330 

Change in current income taxes

(10,277)

(15,749)

Net change in lease assets and liabilities

313 

15 

Increase in other assets

(42,424)

(13,561)

(Decrease)/increase in other liabilities

(6,555)

13,474 

Other (uses)/sources

(241)

974 

Net cash provided by operating activities

209,687 

245,027 

Cash Flows from Investing Activities

Capital expenditures

(39,066)

(44,472)

Proceeds from sale of fixed assets

2,037 

-

Business combinations, net of cash acquired

(2,044)

-

Other (uses)/sources

(841)

760 

Net cash used by investing activities

(39,914)

(43,712)

Cash Flows from Financing Activities

Payments on revolving line of credit

(299,400)

(1,500)

Proceeds from revolving line of credit

116,500 

1,500 

Proceeds from other long-term debt

100,000 

-

Payments on other long-term debt

(1,250)

-

Purchases of treasury stock

(101,539)

(330,380)

Proceeds from exercise of stock options

17,128 

17,918 

Dividends paid

(16,391)

(16,457)

Capital stock surrendered to pay taxes on stock-based compensation

(12,497)

(9,445)

Change in cash overdrafts payable

5,535 

3,054 

Debt issuance costs

(1,584)

-

Other (uses)/sources

(1,389)

63 

Net cash used by financing activities

(194,887)

(335,247)

Decrease in Cash and Cash Equivalents

(25,114)

(133,932)

Cash and cash equivalents at beginning of year

32,895 

162,675 

Cash and cash equivalents at end of period

$

7,781 

$

28,743 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except per share data)

For the three months ended September 30, 2022 and 2021:

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at June 30, 2022

36,651 

1,089,129 

2,090,214 

(2,533,306)

2,272 

$

684,960 

Net income

-

-

56,873 

-

-

56,873 

Dividends paid ($0.38 per share)

-

-

(5,669)

-

-

(5,669)

Stock awards and exercise of stock options

19 

12,295 

-

(1,916)

-

10,398 

Purchases of treasury stock

-

-

-

(23,884)

-

(23,884)

Other

-

(1,263)

-

(35)

36 

(1,262)

Balance at September 30, 2022

$

36,670 

$

1,100,161 

$

2,141,418 

$

(2,559,141)

$

2,308 

$

721,416 

Deferred

Compensation

`

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at June 30, 2021

36,385 

999,697 

1,834,835 

(2,002,326)

2,183 

870,774 

Net income

-

-

72,003 

-

-

72,003 

Dividends paid ($0.36 per share)

-

-

(5,593)

-

-

(5,593)

Stock awards and exercise of stock options

17 

8,233 

-

(1,426)

-

6,824 

Purchases of treasury stock

-

-

-

(163,731)

-

(163,731)

Other

-

(424)

-

(157)

23 

(558)

Balance at September 30, 2021

$

36,402 

$

1,007,506 

$

1,901,245 

$

(2,167,640)

$

2,206 

$

779,719 

See Accompanying Notes to Unaudited Consolidated Financial Statements.


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CHEMED CORPORATION AND SUBSIDIARY COMPANIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except per share data)

For the nine months ended September 30, 2022 and 2021:

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at December 31, 2021

36,514 

1,044,341 

1,970,311 

(2,430,094)

2,201 

623,273 

Net income

-

-

187,498 

-

-

187,498 

Dividends paid ($1.10 per share)

-

-

(16,391)

-

-

(16,391)

Stock awards and exercise of stock options

156 

57,172 

-

(27,842)

-

29,486 

Purchases of treasury stock

-

-

-

(101,098)

-

(101,098)

Other

-

(1,352)

-

(107)

107 

(1,352)

Balance at September 30, 2022

$

36,670 

$

1,100,161 

$

2,141,418 

$

(2,559,141)

$

2,308 

$

721,416 

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at December 31, 2020

36,259 

961,404 

1,723,777 

(1,822,579)

2,339 

901,200 

Net income

-

-

193,925 

-

-

193,925 

Dividends paid ($1.04 per share)

-

-

(16,457)

-

-

(16,457)

Stock awards and exercise of stock options

143 

45,870 

-

(14,681)

-

31,332 

Purchases of treasury stock

-

-

-

(330,380)

-

(330,380)

Other

-

232 

-

-

(133)

99 

Balance at September 30, 2021

$

36,402 

$

1,007,506 

$

1,901,245 

$

(2,167,640)

$

2,206 

$

779,719 

See Accompanying Notes to Unaudited Consolidated Financial Statements.


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Ye

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

Notes to Unaudited Consolidated Financial Statements

1.    Basis of Presentation

As used herein, the terms “We,” “Company” and “Chemed” refer to Chemed Corporation or Chemed Corporation and its consolidated subsidiaries.

We have prepared the accompanying unaudited consolidated financial statements of Chemed in accordance with Rule 10-01 of SEC Regulation S-X. Consequently, we have omitted certain disclosures required under generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. The December 31, 2021 balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, in our opinion, the financial statements presented herein contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and we make no representations related thereto. These financial statements are prepared on the same basis as and should be read in conjunction with the audited Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

CORONAVIRUS IMPACT

We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The length and severity of the pandemic, coupled with related governmental actions including relief acts and actions relating to our workforce at federal, state and local levels, and underlying economic disruption will determine the ultimate short-term and long-term impact to our business operations and financial results. We are unable to predict the myriad of possible issues that could arise or the ultimate effect to our businesses as a result of the unknown short, medium and long-term impacts that the pandemic will have on the United States economy and society as a whole.

CLOUD COMPUTING

As of September 30, 2022, Roto-Rooter has one cloud computing arrangement that is a service contract. The system is a single source data warehouse that is to be integrated with our enterprise software. We have capitalized $497,000 related to this project. The data warehouse was placed into service in August 2022 and is being amortized over 36 months. For the three and nine months ended September 30, 2022, $28,000 has been amortized.

VITAS utilizes a human resources system that is considered a cloud computing arrangement. We have capitalized approximately $5.6 million related to implementation of this project which is included in prepaid assets in the accompanying balance sheets. The VITAS human resource system was placed into service in January 2020 and is being amortized over 5.7 years. For the three months ended September 30, 2022 and 2021, $249,000 has been amortized. For the nine months ended September 30, 2022 and 2021, $746,000 and $697,000, respectively, has been amortized.

INCOME TAXES

Our effective income tax rate was 25.6% in the third quarter of 2022 compared to 24.5% during the third quarter of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $450,000 and $1.2 million, respectively for the quarters ended September 30, 2022 and 2021.

Our effective income tax rate was 24.2% in the first nine months of 2022 compared to 23.7% during the first nine months of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $4.4 million and $5.3 million, respectively for the first nine months ended September 30, 2022 and 2021

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are $1.6 million and $1.9 million of capitalized property and equipment which were not paid for as of September 30, 2022 and December 31, 2021, respectively. Accrued property and equipment purchases have been excluded from capital expenditures in the accompanying Consolidated Statements of Cash Flow. There are no material non-cash amounts included in interest expense for any period presented.

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BUSINESS COMBINATIONS

We account for acquired businesses using the acquisition method of accounting. All assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair value involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in accordance with accepted valuation models, primarily the income approach. The significant assumptions used in developing fair values include, but are not limited to, revenue growth rates, the amount and timing of future cash flows, discount rates, useful lives, royalty rates and future tax rates. The excess of purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. See Note 16 for discussion of recent acquisitions.

Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying Notes. Actual results could differ from those estimates. Disclosures of after-tax expenses and adjustments are based on estimates of the effective income tax rates for the applicable segments.

2.    Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update “ASU No. 2014-09 – Revenue from Contracts with Customers.” The standard and subsequent amendments are intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide for more useful information to users through improved disclosure requirements and simplify the preparation of financial statements. The standard is also referred to as Accounting Standards Codification No. 606 (“ASC 606”).

VITAS

Service revenue for VITAS is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and include variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations. Amounts are generally billed monthly or subsequent to patient discharge. Subsequent changes in the transaction price initially recognized are not significant.

Hospice services are provided on a daily basis and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and associated reimbursement model for each are as follows:

Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting.  The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care.  For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after.  In addition, there is a Service Intensity Add-on payment which covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to 4 hours per day in 15 minute increments at the continuous home care rate.

General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management which cannot be managed in other settings.  General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility or at a freestanding inpatient hospice facility with the required registered nurse staffing.

Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or

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management of acute medical symptoms.  Continuous home care requires a minimum of 8 hours of care within a 24-hour day, which begins at midnight.  The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner.  While the published Medicare continuous home care rates are daily rates, Medicare pays for continuous home care in 15 minute increments.  This 15 minute rate is calculated by dividing the daily rate by 96.

Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient.  A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.

Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. However, the clinical criteria used to determine a patient’s level of care is consistent across all patients, given that, each patient is subject to the same payor rules and regulations. As a result, we have concluded that each level of care is capable of being distinct and is distinct in the context of the contract. Furthermore, we have determined that each level of care represents a stand ready service provided as a series of either days or hours of patient care. We believe that the performance obligations for each level of care meet criteria to be satisfied over time. VITAS recognizes revenue based on the service output. VITAS believes this to be the most faithful depiction of the transfer of control of services as the patient simultaneously receives and consumes the benefits provided by our performance. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Therefore, VITAS has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially satisfied performance obligations referred to above relate to bereavement services provided to patients’ families for at least 12 months after discharge.

Care is provided to patients regardless of their ability to pay. Patients who meet our criteria for charity care are provided care without charge. There is no revenue or associated accounts receivable in the accompanying Consolidated Financial Statements related to charity care. The cost of providing charity care during the quarters ended September 30, 2022 and 2021 was $1.9 million and $2.1 million, respectively. The cost of providing charity case during the first nine months ended September 30, 2022 and 2021 was $5.9 million and $6.4 million, respectively. The cost of charity care is included in cost of services provided and goods sold and is calculated by taking the ratio of charity care days to total days of care and multiplying by the total cost of care.

Generally, patients who are covered by third-party payors are responsible for related deductibles and coinsurance which vary in amount. VITAS also provides service to patients without a reimbursement source and may offer those patients discounts from standard charges. VITAS estimates the transaction price for patients with deductibles and coinsurance, along with those uninsured patients, based on historical experience and current conditions. The estimate of any contractual adjustments, discounts or implicit price concessions reduces the amount of revenue initially recognized. Subsequent changes to the estimate of the transaction price are recorded as adjustments to patient service revenue in the period of change. Subsequent changes that are determined to be the result of an adverse change in the patients’ ability to pay (i.e. change in credit risk) are recorded as bad debt expense. VITAS has no material adjustments related to subsequent changes in the estimate of the transaction price or subsequent changes as the result of an adverse change in the patient’s ability to pay for any period reported.

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. Medicare and Medicaid programs have broad authority to audit and review compliance with such laws and regulations, and impose payment suspensions when merited. Additionally, the contracts we have with commercial health insurance payors provide for retroactive audit and review of claims. Settlement with third party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. The variable consideration is estimated based on the terms of the payment agreement, existing correspondence from the payor and our historical settlement activity. These estimates are adjusted in future periods, as new information becomes available.

We are subject to certain limitations on Medicare payments for services which are considered variable consideration, as follows:

Inpatient Cap. If the number of inpatient care days any hospice program provides to Medicare beneficiaries exceeds 20% of the total days of hospice care such program provided to all Medicare patients for an annual period beginning September 28, the days in excess of the 20% figure may be reimbursed only at the routine homecare rate. None of VITAS’ hospice programs exceeded the payment limits on inpatient services during the three months ended September 30, 2022 and 2021.

Medicare Cap. We are also subject to a Medicare annual per-beneficiary cap (“Medicare cap”). Compliance with the Medicare cap is measured in one of two ways based on a provider election. The “streamlined” method compares total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by that Medicare provider number with the product of

-10-


the per-beneficiary cap amount and the number of Medicare beneficiaries electing hospice care for the first time from that hospice program or programs from September 28 through September 27 of the following year. At September 30, 2022, all our programs except one are using the “streamlined” method.

The “proportional” method compares the total Medicare payments received under a Medicare provider number with respect to services provided to all Medicare hospice care beneficiaries in the program or programs covered by the Medicare provider number between September 28 and September 27 of the following year with the product of the per beneficiary cap amount and a pro-rated number of Medicare beneficiaries receiving hospice services from that program during the same period. The pro-rated number of Medicare beneficiaries is calculated based on the ratio of days the beneficiary received hospice services during the measurement period to the total number of days the beneficiary received hospice services.

We actively monitor each of our hospice programs, by provider number, as to their specific admission, discharge rate and median length of stay data in an attempt to determine whether revenues are likely to exceed the annual per-beneficiary Medicare cap. Should we determine that revenues for a program are likely to exceed the Medicare cap based on projected trends, we attempt to institute corrective actions, which include changes to the patient mix and increased patient admissions. However, should we project our corrective action will not prevent that program from exceeding its Medicare cap, we estimate revenue recognized during the government fiscal year that will require repayment to the Federal government under the Medicare cap and record an adjustment to revenue of an amount equal to a ratable portion of our best estimate for the year.

In 2013, the U.S. government implemented automatic budget reductions of 2.0% for all government payees, including hospice benefits paid under the Medicare program. In 2015, Centers for Medicare and Medicaid Services (“CMS”) determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS had received notification from our third-party intermediary that an additional $9.0 million was owed for Medicare cap in three programs for the 2013 through 2022 measurement periods. The amounts were automatically deducted from our semi-monthly PIP payments and we did not recognize any revenue for these disputed amounts, but recorded a receivable offset by a reserve of equal amount. We did not believe that CMS was authorized under the sequestration authority or the statutory methodology for establishing the Medicare cap to the amounts they have withheld and intend to withhold under their current “as if” methodology. However, due to recent court decisions, we are no longer appealing the CMS’s methodology change. During the quarter ended September 30, 2022 we reversed the related receivable and reserve. There was no impact on the consolidated balance sheets or the consolidated statements of income as of and for the period ended September 30, 2022.

During the quarter ended September 30, 2022, we recorded $618,000 in net Medicare cap revenue reduction related to two programs for the 2022 government fiscal year. During the quarter ended September 30, 2021, we recorded $97,000 in net Medicare cap revenue reduction related to two programs for the 2021 government fiscal year.

During the first nine months ended September 30, 2022, we recorded $5.1 million in net Medicare cap revenue reduction related to two programs for the 2022 government fiscal year. During the first nine months ended September 30, 2021, we recorded $3.6 million in net Medicare cap revenue reduction related to two programs for the 2021 government fiscal year.

For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. We are responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses us for 95% of the amount we have paid. This results in a 5% net expense for VITAS related to nursing home room and board. This transaction creates a performance obligation in that VITAS is facilitating room and board being delivered to our patient. As a result, the 5% net expense is recognized as a contra-revenue account under ASC 606 in the accompanying financial statements.


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The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2022 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

239,670 

$

10,822 

5,761 

$

256,253 

Continuous care

17,083 

787 

730 

18,600 

Inpatient care

21,391 

1,838 

1,297 

24,526 

$

278,144 

$

13,447 

$

7,788 

$

299,379 

All other revenue - self-pay, respite care, etc.

3,240 

Subtotal

$

302,619 

Medicare cap adjustment

(618)

Implicit price concessions

(2,952)

Room and board, net

(2,513)

Net revenue

$

296,536 

The composition of patient care service revenue by payor and level of care for the quarter ended September 30, 2021 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

249,633 

$

12,102 

$

6,402 

$

268,137 

Continuous care

20,000 

1,105 

922 

22,027 

Inpatient care

25,249 

2,628 

1,491 

29,368 

$

294,882 

$

15,835 

$

8,815 

$

319,532 

All other revenue - self-pay, respite care, etc.

3,225 

Subtotal

$

322,757 

Medicare cap adjustment

(97)

Implicit price concessions

(3,119)

Room and board, net

(2,130)

Net revenue

$

317,411 

The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2022 is as follows (in thousands):

 

Medicare

Medicaid

Commercial

Total

Routine home care

$

722,035 

$

32,848 

$

16,637 

$

771,520 

Continuous care

53,103 

2,337 

2,277 

57,717 

Inpatient care

66,412 

5,608 

3,694 

75,714 

$

841,550 

$

40,793 

$

22,608 

$

904,951 

All other revenue - self-pay, respite care, etc.

9,461 

Subtotal

$

914,412 

Medicare cap adjustment

(5,118)

Implicit price concessions

(8,992)

Room and board, net

(6,796)

Net revenue

$

893,506 


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The composition of patient care service revenue by payor and level of care for the nine months ended September 30, 2021 is as follows (in thousands):

Medicare

Medicaid

Commercial

Total

Routine home care

$

742,759 

$

35,190 

$

18,868 

$

796,817 

Continuous care

66,916 

3,601 

3,141 

73,658 

Inpatient care

74,594 

7,168 

4,133 

85,895 

$

884,269 

$

45,959 

$

26,142 

$

956,370 

All other revenue - self-pay, respite care, etc.

9,241 

Subtotal

$

965,611 

Medicare cap adjustment

(3,597)

Implicit price concessions

(9,428)

Room and board, net

(7,451)

Net revenue

$

945,135 

Roto-Rooter

Roto-Rooter provides plumbing, drain cleaning, excavation, water restoration and other related services to both residential and commercial customers primarily in the United States. Services are provided through a network of company-owned branches, independent contractors and franchisees. Service revenue for Roto-Rooter is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for providing services.

Roto-Rooter owns and operates branches focusing mainly on large population centers in the United States. Roto-Rooter’s primary lines of business in company-owned branches consist of plumbing, sewer and drain cleaning, excavation and water restoration. For purposes of ASC 606 analysis, plumbing, sewer and drain cleaning, and excavation have been combined into one portfolio and are referred to as “short-term core services”. Water restoration is analyzed as a separate portfolio. The following describes the key characteristics of these portfolios:

Short-term Core Services are plumbing, drain and sewer cleaning and excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category range from a few hours to a few days. There are no significant warranty costs or on-going obligations to the customer once a service has been completed. For residential customers, payment is received at the time of job completion before the Roto-Rooter technician leaves the residence. Commercial customers may be granted credit subject to internally designated authority limits and credit check guidelines. If credit is granted, payment terms are generally 30 days or less.

Each job in this category is a distinct service with a distinct performance obligation to the customer. Revenue is recognized at the completion of each job. Variable consideration consists of pre-invoice discounts and post-invoice discounts. Pre-invoice discounts are given in the form of coupons or price concessions. Post-invoice discounts consist of credit memos generally granted to resolve customer service issues. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days. There are no significant warranties or on-going obligations to the customer once service has been completed. The majority of these services are paid by the customer’s insurance company. Variable consideration relates primarily to allowances taken by insurance companies upon payment. Variable consideration is estimated based on historical activity and recorded at the time service is completed.

For both short-term core services and water restoration services, Roto-Rooter satisfies its performance obligation at a point in time. The services provided generally involve fixing plumbing, drainage or flood-related issues at the customer’s property. At the time service is complete, the customer acknowledges its obligation to pay for service and its satisfaction with the service performed. This provides evidence that the customer has accepted the service and Roto-Rooter is now entitled to payment. As such, Roto-Rooter recognizes revenue for these services upon completion of the job and receipt of customer acknowledgement. Roto-Rooter’s performance obligations for short-term core services and water restoration services relate to contracts with an expected duration of less than a year. Therefore, Roto-Rooter has elected to apply the optional exception provided in ASC 606 and is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. Roto-Rooter does not have significant unsatisfied or partially unsatisfied performance obligations at the time of initial revenue recognition for short-term core or water restoration services.

Roto-Rooter owns the rights to certain territories and contracts with independent third-parties to operate the territory under Roto-Rooter’s registered trademarks (“Independent Contractors”). Such contracts are for a specified term but cancellable by either party without penalty with 90 days’ advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back office support and advertising along with a limited license to use Roto-Rooter’s registered trademarks. The Independent Contractor is responsible for

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all day-to-day management of the business including staffing decisions and pricing of services provided. All performance obligations of Roto-Rooter cease at the termination of the arrangement.

Independent Contractors pay Roto-Rooter a standard fee calculated as a percentage of their cash collection from weekly sales. The primary value for the Independent Contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from Independent Contractors over-time (weekly) as the Independent Contractor’s labor sales are completed and payment from customers are received. Payment from Independent Contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the Independent Contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.

Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. Each such contract is for a 10 year term but cancellable by Roto-Rooter for cause with 60 day advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day- to-day management of the business including staffing decisions, pricing of services provided and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.

Franchisees pay Roto-Rooter a standard monthly fee based on the population within the franchise territory. The standard fee is revised on a yearly basis based on changes in the Consumer Price Index for All Urban Consumers. The primary value for the franchisees under this arrangement is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from franchisees over-time (monthly). Payment from franchisees is also received on a monthly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the franchisees as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided. There is no significant variable consideration related to these arrangements.

The composition of disaggregated revenue for the third quarter is as follows (in thousands):

September 30,

2022

2021

Drain cleaning

$

62,764 

$

63,072 

Plumbing

48,737 

45,124 

Excavation

54,164 

52,607 

Other

193 

254 

Subtotal - short term core

165,858 

161,057 

Water restoration

43,645 

39,786 

Independent contractors

20,474 

18,969 

Franchisee fees

1,559 

1,260 

Other

4,030 

3,773 

Gross revenue

235,566 

224,845 

Implicit price concessions and credit memos

(5,630)

(3,589)

Net revenue

$

229,936 

$

221,256 


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The composition of disaggregated revenue for the first nine months is as follows (in thousands):

September 30,

2022

2021

Drain cleaning

$

193,983 

$

187,477 

Plumbing

145,294 

131,045 

Excavation

164,898 

159,714 

Other

513 

853 

Subtotal - short term core

504,688 

479,089 

Water restoration

127,678 

115,804 

Independent contractors

62,897 

56,754 

Franchisee fees

4,246 

3,842 

Other

12,462 

11,601 

Gross revenue

711,971 

667,090 

Implicit price concessions and credit memos

(17,168)

(13,942)

Net revenue

$

694,803 

$

653,148 

3.    Segments

Service revenues and sales by business segment are shown in Note 2. After-tax income/(loss) by business segment are as follows (in thousands):

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

VITAS

$

26,086 

$

42,950 

$

97,779 

$

113,430 

Roto-Rooter

47,586 

44,554 

138,595 

124,504 

Total

73,672 

87,504 

236,374 

237,934 

Corporate

(16,799)

(15,501)

(48,876)

(44,009)

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 

We report corporate administrative expenses and unallocated investing and financing income and expense not directly related to either segment as “Corporate”.

 

4.    Earnings per Share

Earnings per share (“EPS”) are computed using the weighted average number of shares of capital stock outstanding. Earnings and diluted earnings per share are computed as follows (in thousands, except per share data):

Net Income

For the Three Months Ended September 30,

Income

Shares

Earnings per Share

2022

Earnings

$

56,873

14,888

$

3.82

Dilutive stock options

-

118

Nonvested stock awards

-

36

Diluted earnings

$

56,873

15,042

$

3.78

2021

Earnings

$

72,003

15,587

$

4.62

Dilutive stock options

-

215

Nonvested stock awards

-

40

Diluted earnings

$

72,003

15,842

$

4.55

-15-


Net Income

For the Nine Months Ended September 30,

Income

Shares

Earnings per Share

2022

Earnings

$

187,498 

14,935 

$

12.55 

Dilutive stock options

-

140 

Nonvested stock awards

-

39 

Diluted earnings

$

187,498 

15,114 

$

12.41 

2021

Earnings

$

193,925 

15,808 

$

12.27 

Dilutive stock options

-

233 

Nonvested stock awards

-

42 

Diluted earnings

$

193,925 

16,083 

$

12.06 

For the three and nine months ended September 30, 2022, there were 592,000 and 593,000, respectively, stock options excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.

For the three and nine months ended September 30, 2021, there were 297,000 and 299,000, respectively, stock options excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.

5.    Long-Term Debt and Lines of Credit

On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $450 million revolver as well as a five-year $100 million term loan. Principal payments of $1.25 million on the term loan are due on the last day of each fiscal quarter, with a final payment due at the end of the agreement. The 2022 Credit Facilities have a floating interest rate that is generally the secured overnight financing rate (“SOFR”) plus an additional tiered rate which varies based on our current leverage ratio. As of September 30, 2022, the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities include an expansion feature that provides the Company the opportunity to increase its revolver and or term loan by an additional $250 million.

The debt outstanding as of September 30, 2022 consists of the following:

Revolver

$

2,100 

Term loan

98,750 

Total

100,850 

Current portion of long-term debt

(5,000)

Long-term debt

$

95,850 

Debt issuance costs associated with the prior credit agreement were not written off as the lenders did not change and their relative percentage participation in the facility was substantially the same. Deferred financing cost of $1.5 million for the 2022 Credit Facilities were capitalized during the quarter ended September 30, 2022.

Scheduled payments of the 2022 Credit Facilities are as follows:

2022

$

1,250 

2023

5,000 

2024

5,000 

2025

5,000 

2026

5,000 

Thereafter

79,600 

$

100,850 

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The 2022 Credit Facilities contain the following quarterly financial covenants effective as of September 30, 2022:

Description

Requirement

Leverage Ratio (Consolidated Indebtedness/Consolidated Adj. EBITDA)

< 3.50 to 1.00

Interest Coverage Ratio (Consolidated Adj. EBITDA/Consolidated Interest Expense)

> 3.00 to 1.00

We are in compliance with all debt covenants as of September 30, 2022. We have issued $47.2 million in standby letters of credit as of September 30, 2022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of September 30, 2022, we have approximately $400.7 million of unused lines of credit available and eligible to be drawn down under revolving credit facility.

6.    Other (Expense)/Income – Net

Other (expense)/income – net comprises the following (in thousands):

 

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Market value adjustment on assets held in

deferred compensation trust

$

(3,176)

$

3,078 

$

(12,196)

$

9,770 

Interest income

62 

57 

288 

288 

Other-net

(1)

(1)

1 

463 

Total other (expense)/income - net

$

(3,115)

$

3,134 

$

(11,907)

$

10,521 

 

7.    Leases

Chemed and each of its operating subsidiaries are service companies. As such, real estate leases comprise the largest lease obligation (and conversely, right of use asset) in our lease portfolio. VITAS has leased office space, as well as space for inpatient units (“IPUs”) and/or contract beds within hospitals. Roto-Rooter mainly has leased office space. Our leases have remaining terms of under 1 year to 10 years, some of which include options to extend the lease for up to 5 years, and some of which include options to terminate the lease within 1 year.

Roto-Rooter purchases equipment and leases it to certain of its Independent Contractors. We analyzed these leases in accordance with ASC 842 and determined they are operating leases. As a result, Roto-Rooter will continue to capitalize the equipment underlying these leases, depreciate the equipment and recognize rental income.

We do not currently have any finance leases, therefore all lease information disclosed is related to operating leases.

The components of balance sheet information related to leases were as follows:

September 30,

December 31,

2022

2021

Assets

Operating lease assets

$

131,430 

$

125,048 

Liabilities

Current operating leases

39,813 

37,913 

Noncurrent operating leases

105,594 

100,629 

Total operating lease liabilities

$

145,407 

$

138,542 


-17-


The components of lease expense for the third quarter is as follows (in thousands):

Three months ended September 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

12,936 

$

15,342 

Sublease income

(45)

(45)

Net lease expense

$

12,891 

$

15,297 

The components of lease expense for the first nine months is as follows (in thousands):

 

Nine months ended September 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

39,230 

$

46,255 

Sublease income

(136)

(135)

Net lease expense

$

39,094 

$

46,120 

(a)Includes short-term leases and variable lease costs, which are immaterial. Included in both cost of services provided and goods sold and selling, general and administrative expenses.

The components of cash flow information related to leases were as follows:

Nine months ended September 30,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from leases

$

37,650 

$

38,796 

Leased assets obtained in exchange for new operating lease liabilities

$

41,855 

$

43,143 

Weighted Average Remaining Lease Term at September 30, 2022

Operating leases

4.5

years

Weighted Average Discount Rate at September 30, 2022

Operating leases

2.44

%

Maturity of Operating Lease Liabilities (in thousands)

2022

$

11,900

2023

43,317

2024

33,840

2025

26,416

2026

19,965

Thereafter

18,530

Total lease payments

$

153,968

Less: interest

(8,561)

Total liability recognized on the balance sheet

$

145,407

For leases commencing prior to April 2019, minimum rental payments exclude payments to landlords for real estate taxes and common area maintenance. Operating lease payments include $2.7 million related to extended lease terms that are reasonably certain of being exercised and exclude $4.3 million of lease payments for leases signed but not yet commenced.

 

8.    Stock-Based Compensation Plans

On February 18, 2022, the Compensation/Incentive Committee of the Board of Directors (“CIC”) granted 7,983 Performance Stock Units (“PSUs”) contingent upon the achievement of certain total shareholder return (“TSR”) targets as compared to the TSR of a group of peer companies for the three year period ending December 31, 2024, the date at which such awards vest. The cumulative compensation cost of the TSR-based PSU award to be recorded over the three year service period is $4.8 million.

On February 18, 2022, the CIC also granted 7,983 PSUs contingent upon the achievement of certain earnings per share (“EPS”) targets for the three year period ending December 31, 2024. At the end of each reporting period, the Company estimates the number of

-18-


shares that it believes will ultimately be earned and records the corresponding expense over the service period of the award. We currently estimate the cumulative compensation cost of the EPS-based PSUs to be recorded over the three year service period is $3.7 million.  

9.    Retirement Plans

All of the Company’s plans that provide retirement and similar benefits are defined contribution plans. These expenses include the impact of market gains and losses on assets held in deferred compensation plans and are recorded in selling, general and administrative expenses. Net gains for the Company’s retirement and profit-sharing plans, excess benefit plans and other similar plans are as follows (in thousands):

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

$

2,091

$

7,006

$

5,647

$

23,609

 

10.    Legal and Regulatory Matters

The VITAS segment of the Company’s business operates in a heavily-regulated industry. As a result, the Company is subjected to inquiries and investigations by various government agencies, which can result in penalties including repayment obligations, funding withholding, or debarment, as well as to lawsuits, including qui tam actions. The following sections describe the various ongoing material lawsuits and investigations of which the Company is currently aware. Other than as described below, it is not possible at this time for us to estimate either the timing or outcome of any of those matters, or whether any potential loss, or range of potential losses, is probable or reasonably estimable.

Regulatory Matters and Litigation

On October 30, 2017, the Company entered into a settlement agreement to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (“DOJ”) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri. The Company denied any violation of law and agreed to settlement without admission of wrongdoing.

In connection with the settlement, VITAS and certain of its subsidiaries entered into a corporate integrity agreement (“CIA”) on October 30, 2017. The CIA formalizes various aspects of VITAS’ already existing Compliance Program and contains requirements designed to document compliance with federal healthcare program requirements. It has a term of five years during which it imposes monitoring, reporting, certification, oversight, screening and training obligations, certain of which had previously been implemented by VITAS. It also requires VITAS to engage an Independent Review Organization to perform audit and review functions and to prepare reports regarding compliance with federal healthcare programs. In the event of breach of the CIA, VITAS could become liable for payment of stipulated penalties or could be excluded from participation in federal healthcare programs.

On October 16, 2020, VITAS received a Civil Investigative Demand (“CID”) issued by the U.S. Department of Justice pursuant to the False Claims Act concerning allegations of the submission of false claims for hospice services for which reimbursement was sought from federal healthcare programs, including Medicare. The CID has requested information regarding 32 patients from our Florida operations. We are cooperating with the U.S. Department of Justice with respect to this investigation. The Company cannot predict when the investigation will be resolved or the outcome of the investigation.

VITAS is one of a group of hospice providers selected by the OIG’s Office of Audit Services (“OAS”) for inclusion in an audit of the provision of elevated level-of-care hospice services. On July 14, 2022, VITAS received the final audit report from OAS. Per this report, the OAS audit examined VITAS inpatient and continuous care claims for the period April 2017 to March 2019. The audit covered a total population of 50,850 claims representing total Medicare reimbursement of $210.0 million during this two-year time period. From this population, OAS selected 100 claims, representing $688,000 of reimbursement, for detailed review. The final OAS audit report includes a series of recommendations, including that VITAS repay approximately $140.0 million of the $210.0 million VITAS received from Medicare for hospice services during this two-year period, despite the fact that at the time of the release of the results of the audit, many of the disputed claims were time-barred from being challenged. VITAS believes that the OAS audit process and related final report contains significant flaws including its methodology, medical reviews, technical reviews, proposed extrapolation methodology, and contravenes the “reasonable physician standard” set forth in the appliable Aseracare precedent.

On August 29, 2022, six weeks subsequent to the OAS finalizing its audit, VITAS received a demand letter from its Medicare Administrative Contractor (“MAC”) seeking repayment of $50.3 million. This demand letter is $90.0 million lower than the final OAS audit recommendation, as a significant portion of the 100 claims reviewed are closed pursuant to applicable law and ineligible to be reopened. VITAS intends to appeal the overpayment decision. In order to preserve its appeal rights, and to remain compliant under the CMS mandated 60-Day Rule, VITAS has deposited $50.3 million under the “Immediate Recoupment” process. The amount deposited has been recorded as an “other long-term asset” in the consolidated balance sheets, as detailed in Note 13. VITAS intends to vigorously

-19-


defend the claims brought; however, the Company cannot predict the eventual outcome, or reasonably estimate any potential loss, from any such claims at this time.

Regardless of the outcome of any of the preceding matters, dealing with the various regulatory agencies and opposing parties can adversely affect us through defense costs, potential payments, withholding of governmental funding, diversion of management time, and related publicity. Although the Company intends to defend them vigorously, there can be no assurance that those suits will not have a material adverse effect on the Company.

11.    Concentration of Risk

As of September 30, 2022, and December 31, 2021, approximately 66% and 73%, respectively, of VITAS’ total accounts receivable balance were from Medicare and 28% and 21%, respectively, of VITAS’ total accounts receivable balance were due from various state Medicaid or managed Medicaid programs. Combined accounts receivable from Medicare, Medicaid, and managed Medicaid represent approximately 73% of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of September 30, 2022.

VITAS has a pharmacy services contract with one service provider for specified pharmacy services related to its hospice operations. Similarly, effective January 1, 2022, VITAS obtains the majority of its medical supplies from a single vendor. A large majority of VITAS’ pharmaceutical and medical supplies purchases are from these vendors. The pharmaceutical and medical supplies purchased by VITAS are available through many providers in the United States. However, a disruption from VITAS’ main service providers could adversely impact VITAS’ operations, including temporary logistical challenges and increased cost associated with getting medication and medical supplies to our patients.

 

12.    Cash Overdrafts and Cash Equivalents

There are $17.4 million in cash overdrafts payable included in accounts payable at September 30, 2022. There were $11.9 million in cash overdrafts payable included in accounts payable at December 31, 2021.

From time to time throughout the year, we invest excess cash in money market funds with major commercial banks. We closely monitor the creditworthiness of the institutions with which we invest our overnight funds. The amount invested was not material for each balance sheet date presented.

13. Other Assets

Other assets comprise the following (in thousands):

 

September 30,

December 31,

2022

2021

Deposit with OAS

$

50,274 

$

-

Cash surrender value life insurance

3,632 

3,640 

Noncurrent advances and deposits

2,374 

2,130 

Deferred debt costs

1,797 

1,894 

Other long-term receivable

2,027 

474 

$

60,104 

$

8,138 

14.    Financial Instruments

FASB’s authoritative guidance on fair value measurements defines a hierarchy which prioritizes the inputs in fair value measurements. Level 1 measurements are measurements using quoted prices in active markets for identical assets or liabilities. Level 2 measurements use significant other observable inputs. Level 3 measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available.

-20-


The following shows the carrying value, fair value and the hierarchy for our financial instruments as of September 30, 2022 (in thousands):

Fair Value Measure

Carrying Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments of deferred compensation

plans held in trust

$

90,097 

$

90,097 

$

-

$

-

Long-term debt and current portion of

long-term debt

100,850 

-

100,850 

-

The following shows the carrying value, fair value and the hierarchy for our financial instruments as of December 31, 2021 (in thousands):

Fair Value Measure

Carrying Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments of deferred compensation

plans held in trust

$

98,884 

$

98,884 

$

-

$

-

Long-term debt

185,000 

-

185,000 

-

For cash and cash equivalents, accounts receivable and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments. As further described in Note 5, our outstanding long-term debt has a floating interest rate that is reset at short-term intervals, generally 30 or 60 days. The interest rate we pay also includes an additional amount based on our current leverage ratio. As such, we believe our borrowings reflect significant nonperformance risks, mainly credit risk. Based on these factors, we believe the fair value of our long-term debt approximates its carrying value.

15.    Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock:

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Total cost of repurchased shares (in thousands)

$

23,884

$

163,731

$

101,098

$

330,380

Shares repurchased

50,000

350,000

207,500

700,000

Weighted average price per share

$

477.68

$

467.80

$

487.22

$

471.97

In May and November 2021, the Board of Directors authorized a total of $600.0 million for additional stock repurchase under Chemed’s existing share repurchase program. We currently have $100.8 million of authorization remaining under this share repurchase plan.

 


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16.    Acquisitions

On January 28, 2022 VITAS purchased the hospice assets of Broward Health Hospital System for $1.24 million in cash. On February 1, 2022, Roto-Rooter completed the acquisition of a franchise and the related assets in Linden, NJ for $400,000 in cash. On July 1, 2022 Roto-Rooter completed the acquisition of a franchise and related assets in Hunterdon County, NJ for $400,000 in cash.

Goodwill is assessed for impairment on a yearly basis as of October 1. All goodwill recognized is deductible for tax purposes.

Shown below is movement in Goodwill (in thousands):

VITAS

Roto-Rooter

Total

Balance at December 31, 2021

$

333,331 

$

245,260 

$

578,591 

Business combinations

732 

676

1,408

Foreign currency adjustments

-

(112)

(112)

Balance at September 30, 2022

$

334,063 

$

245,824

$

579,887


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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

We operate through our two wholly-owned subsidiaries, VITAS Healthcare Corporation and Roto-Rooter Group, Inc. VITAS focuses on hospice care that helps make terminally ill patients’ final days as comfortable as possible. Through its teams of doctors, nurses, home health aides, social workers, clergy and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families. Roto-Rooter’s services are focused on providing plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers. Through its network of company-owned branches, Independent Contractors and franchisees, Roto-Rooter offers plumbing and drain cleaning service to over 90% of the U.S. population.

The following is a summary of the key operating results (in thousands except per share amounts):

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021

Service revenues and sales

$

526,472 

$

538,667 

$

1,588,309 

$

1,598,283 

Net income

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Diluted EPS

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Adjusted net income

$

71,247 

$

80,084 

$

217,117 

$

226,554 

Adjusted diluted EPS

$

4.74 

$

5.06 

$

14.37 

$

14.09 

Adjusted EBITDA

$

108,728 

$

119,373 

$

329,842 

$

338,840 

Adjusted EBITDA as a % of revenue

20.7 

%

22.2 

%

20.8 

%

21.2 

%

Adjusted net income, adjusted diluted EPS, earnings before interest, taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA and Adjusted EBITDA as a percent of revenue are not measures derived in accordance with US GAAP. We provide non-GAAP measures to help readers evaluate our operating results and to compare our operating performance with that of similar companies that have different capital structures. Our non-GAAP measures should not be considered in isolation or as a substitute for comparable measures presented in accordance with GAAP. A reconciliation of our non-GAAP measures is presented on pages 36-38.

For the three months ended September 30, 2022, the decrease in consolidated service revenues and sales was driven by a 3.9% increase at Roto-Rooter offset by a 6.6% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven mainly by an increase in plumbing, excavation, and water restoration. The decrease in service revenues at VITAS is comprised primarily of a 4.4% decrease in days-of-care and by a geographically weighted average Medicare reimbursement rate decrease of approximately 0.2%. Reimbursement rates in the quarter were negatively impacted by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately $5.3 million, or 1.7% in the quarter when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 30 basis points.

The pandemic has resulted in a significant shortage of licensed healthcare workers industry wide. VITAS has not been immune to this shortage. As a result, on July 1, 2022, VITAS implemented a hiring and retention bonus program for its licensed healthcare workers. It is a temporary program intended to help VITAS attract and retain licensed healthcare workers in light of the pandemic induced healthcare worker shortage. An eligible employee must continue in employment for a period of one-year from July 1st to receive a bonus. Additionally, employees hired between July 1, 2022 and June 30, 2023 are eligible if they continue employment for a one-year period from their hire date. The Company accrued $9.6 million in the third quarter of 2022 related to this retention bonus program. See page 39 for additional VITAS operating metrics.

For the nine months ended September 30, 2022, the decrease in consolidated service revenues and sales was driven by a 6.4% increase at Roto-Rooter offset by a 5.5% decrease at VITAS. The increase in service revenues at Roto-Rooter was driven by an increase in all major service lines. The decrease in service revenues at VITAS is comprised primarily of a 4.1% decrease in days-of-care, offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.6%. Reimbursement rates for the nine months ended September 30, 2022 were negatively impacted by 90-basis points as a result of CMS reimplementing the sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately 1.9% over the nine months when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 10 basis points. See page 39 for additional VITAS operating metrics.

We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. The length and severity of the pandemic, coupled with related governmental actions including relief acts and actions relating to our workforce at federal, state and local levels, and underlying economic disruption will determine the ultimate short-term and long-term impact to our business operations and financial results. We are unable to predict the myriad of possible issues

-23-


that could arise or the ultimate effect to our businesses as a result of the unknown short, medium and long-term impacts that the pandemic will have on the United States economy and society as a whole.

Historically, Chemed earnings guidance has been developed using previous periods’ key operating metrics which are then modeled and projected out for future periods. Critical within these projections is the understanding of traditional patterned correlations among key operating metrics. This modeling exercise also takes into consideration anticipated industry and macro-economic issues outside of management’s control but are somewhat predictable in terms of timing and impact on our business segments’ operating results.

The COVID-19 pandemic, uncertainty regarding forward looking inflation, and a potential economic recession, has made accurate modeling and providing meaningful earnings guidance exceptionally challenging. Since the start of the pandemic, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue earnings guidance for the remainder of the 2022 calendar year. However, this guidance should be taken with the recognition the above macro issues could materially impact the company’s ability to achieve this guidance.

Based upon the above discussion, VITAS 2022 revenue, prior to Medicare Cap, is estimated to decline 4.5% to 5.0% when compared to 2021. A portion of the estimated revenue decline, approximately $15 million or 118-basis points, is the result of the phase out of sequestration relief over the first half of 2022 compared to a full year of sequestration relief in 2021. ADC is estimated to decline 3.4%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 17.1% to 17.2%. We are currently estimating $8.1 million for Medicare Cap billing limitations in calendar year 2022.

Roto-Rooter is forecasted to achieve full-year 2022 revenue growth of 6.2% to 6.5%. Roto-Rooter’s adjusted EBITDA margin for 2022 is expected to be 29.5% to 29.7%.

Based upon the above, full-year 2022 earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock option exercises, costs related to litigation, retention program for licensed healthcare employees, and other discrete items, is estimated to be in the range of $19.60 to $19.70. This compares to our previous 2022 adjusted earnings per share guidance of $19.30 to $19.50. Current 2022 guidance assumes an effective corporate tax rate on adjusted earnings of 25.1% and a diluted share count of 15.12 million shares. Chemed’s 2021 reported adjusted earnings per diluted share was $19.33.

On June 28, 2022, we replaced our existing credit facility with a fifth amended and restated Credit Agreement (“2022 Credit Facilities”). Terms of the 2022 Credit Facilities consist of a five-year $450 million revolver as well as a five-year $100 million term loan. Principal payments of $1.25 million on the term loan are due on the last day of each fiscal quarter, with a final payment due at the end of the agreement. The 2022 Credit Facilities have a floating interest rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of September 30, 2022, the interest rate is SOFR plus 100 basis points. The 2022 Credit Facilities includes an expansion feature that provides the Company the opportunity to increase its revolver and or term loan by an additional $250 million.

We have issued $47.2 million in standby letters of credit as of September 30, 2022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of September 30, 2022, we have approximately $400.7 million of unused lines of credit available and eligible to be drawn down under our revolving credit facility. Management believes its liquidity and sources of capital are satisfactory for the Company’s needs in the foreseeable future.

We anticipate that our operating income and cash flows will be sufficient to operate our businesses and meet any commitments for the foreseeable future.

Financial Condition

Liquidity and Capital Resources

Material changes in the balance sheet accounts from December 31, 2021 to September 30, 2022 include the following:

A $15.6 million decrease in accounts receivable due to timing of receipts.

A $10.1 million increase in prepaid income taxes due to timing of payments.

An $8.8 million decrease in investments of deferred compensation plans due to market valuation losses.

A $52.0 million increase in other assets due mainly to the OAS deposit, as discussed in Note 10.

A $28.4 million decline in accrued compensation due to the timing of payroll accruals at VITAS and a decline in accrued bonus and profit-sharing due to lower company earnings in 2022.

A $12.5 million increase in other current liabilities mainly due to the retention bonus program implemented at VITAS for clinical staff in the third quarter of 2022.

-24-


A $10.4 million increase in long-term deferred income taxes related to the OAS deposit, as discussed in Note 10.

An $89.2 million decrease in long-term debt due to repayments.

 

A $129.0 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities decreased $35.3 million from September 30, 2021 to September 30, 2022. The main drivers of the decrease are a decrease in net income of $6.4 million, and a $28.9 million increase in other assets due to OAS deposit. Significant changes in our accounts receivable balances are typically driven by the timing of payments received from the Federal government at our VITAS subsidiary. We typically receive a payment in excess of $42.0 million from the Federal government for hospice services every other Friday. The timing of a period end will have a significant impact on the accounts receivable at VITAS. These changes generally normalize over a two year period, as cash flow variations in one year are offset in the following year.

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.

Commitments and Contingencies

Collectively, the terms of the 2022 Credit Facilities require us to meet various financial covenants, to be tested quarterly. We are in compliance with all financial and other debt covenants as of September 30, 2022 and anticipate remaining in compliance throughout the foreseeable future.

We are subject to various lawsuits and claims in the normal course of our business. In addition, we periodically receive communications from governmental and regulatory agencies concerning compliance with Medicare and Medicaid billing requirements at our VITAS subsidiary. We establish reserves for specific, uninsured liabilities in connection with regulatory and legal action that we deem to be probable and estimable. We disclose the existence of regulatory and legal actions when we believe it is reasonably possible that a loss could occur in connection with the specific action. In most instances, we are unable to make a reasonable estimate of any reasonably possible liability due to the uncertainty of the outcome and stage of litigation. We record legal fees associated with legal and regulatory actions as the costs are incurred.

See Note 10 in the Notes to the Unaudited Consolidated Financial Statements in Item 1 above for a description of current material legal matters.


-25-


Results of Operations

Three months ended September 30, 2022 versus 2021 - Consolidated Results

Our service revenues and sales for the third quarter of 2022 decreased 2.3% versus services and sales revenues for the third quarter of 2021. Of this decrease, a $8.7 million increase was attributable to Roto-Rooter, offset by a $20.9 million decrease attributable to VITAS. The following chart shows the components of revenue by operating segment (in thousands):

Three months ended September 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

256,253 

$

268,137 

(4.4)

Continuous care

18,600 

22,027 

(15.6)

General inpatient

24,526 

29,368 

(16.5)

Other

3,240 

3,225 

0.5 

Subtotal

302,619 

322,757 

(6.2)

Medicare cap adjustment

(618)

(97)

(537.1)

Room and board - net

(2,513)

(2,130)

(18.0)

Implicit price concessions

(2,952)

(3,119)

5.4 

Net revenue

$

296,536 

$

317,411 

(6.6)

Roto-Rooter

Drain cleaning

$

62,764 

$

63,072 

(0.5)

Plumbing

48,737 

45,124 

8.0 

Excavation

54,164 

52,607 

3.0 

Other

193 

254 

(24.0)

Subtotal - short term core

165,858 

161,057 

3.0 

Water restoration

43,645 

39,786 

9.7 

Independent Contractors

20,474 

18,969 

7.9 

Outside franchisee fees

1,559 

1,260 

23.7 

Other

4,030 

3,773 

6.8 

Gross revenue

235,566 

224,845 

4.8 

Implicit price concessions

(5,630)

(3,589)

(56.9)

Net revenue

229,936 

221,256 

3.9 

Total Revenues

$

526,472 

$

538,667 

(2.3)

Days of care at VITAS during the quarter ended September 30 were as follows:

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

1,271,678 

1,342,841 

(5.3)

Nursing home

264,407 

258,700 

2.2 

Respite

6,635 

5,331 

24.5 

Subtotal routine homecare and respite

1,542,720 

1,606,872 

(4.0)

General inpatient

23,435 

27,962 

(16.2)

Continuous care

20,097 

24,299 

(17.3)

Total days of care

1,586,252 

1,659,133 

(4.4)

The decrease in service revenues at VITAS is comprised primarily of a 4.4% decrease in days-of-care and by a geographically weighted average Medicare reimbursement rate decrease of approximately 0.2%. Reimbursement rates in the quarter were negatively impacted by 200-basis points as a result of CMS reimplementing the 2% sequestration cut that was suspended at the start of the pandemic Acuity mix shift had a net impact of reducing revenue approximately $5.3 million, or 1.7% in the quarter when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 30 basis points.

The increase in plumbing revenues for the third quarter of 2022 versus 2021 is attributable to a 10.8% increase in price and service mix shift offset by a 2.8% decrease in job count. Drain cleaning revenues for the third quarter of 2022 versus 2021 reflect a 7.6% increase in price and service mix shift offset by an 8.1% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues. As a result, the 3.0% increase in excavation revenue and the 9.7% increase in water restoration revenue are mainly a function of the numbers and size of drain cleaning issues we encounter on a quarterly basis. Independent Contractor revenue increased 7.9% due mainly to increased expansion into water restoration.

-26-


The consolidated gross margin was 34.1% in the third quarter of 2022 as compared with 36.5% in the third quarter of 2021. On a segment basis, VITAS’ gross margin was 19.1% in the third quarter of 2022 as compared with 25.0%, in the third quarter of 2021. The decrease in gross margin at VITAS is mostly the result of the $9.6 million expense recorded in the third quarter of 2022 for the licensed healthcare worker retention bonus program. The Roto-Rooter segment’s gross margin was 53.4% for the third quarter of 2022 as compared with 53.0% in the third quarter of 2021.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

Three months ended September 30,

2022

2021

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

$

85,118

$

84,197 

Impact of market value adjustments related to assets held in deferred compensation trusts

(3,176)

3,078 

Long-term incentive compensation

2,050

1,942 

Total SG&A expenses

$

83,992 

$

89,217 

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the third quarter of 2022 were up 1.1% when compared to the third quarter of 2021. This increase was mainly a result of variable selling and general administrative expenses and normal salary increases.

Amortization for the third quarter of 2022 was flat when compared to the third quarter of 2021. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

Other (expense)/income – net comprise (in thousands):

Three months ended September 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(3,176)

$

3,078 

Interest income

62 

57 

Other

(1)

(1)

Total (expense)/other income - net

$

(3,115)

$

3,134 

Our effective tax rate reconciliation is as follows (in thousands):

Three months ended September 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

16,059 

$

20,038 

Stock compensation tax benefits

(450)

(1,199)

State and local income taxes

2,946 

3,153 

Other--net

1,043 

1,425 

Income tax provision

$

19,598 

$

23,417 

Effective tax rate

25.6 

%

24.5 

%


-27-


Net income for both periods included the following after-tax items/adjustments that (reduced) or increased after-tax earnings (in thousands):

Three months ended September 30,

2022

2021

VITAS

Licensed healthcare worker retention bonus

$

(7,131)

$

-

Direct costs related to COVID-19

-

(1,866)

Roto-Rooter

Amortization of reacquired franchise agreements

(1,729)

(1,729)

Direct costs related to COVID-19

-

(305)

Corporate

Stock option expense

(4,060)

(3,462)

Excess tax benefits on stock compensation

450

1,199

Long-term incentive compensation

(1,836)

(1,752)

Direct costs related to COVID-19

(68)

-

Other

-

(166)

Total

$

(14,374)

$

(8,081)

Three months ended September 30, 2022 versus 2021 - Segment Results

Net income/(loss) for the third quarter of 2022 versus the third quarter of 2021 by segment (in thousands):

Three months ended September 30,

2022

2021

VITAS

$

26,086

$

42,950

Roto-Rooter

47,586

44,554

Corporate

(16,799)

(15,501)

$

56,873

$

72,003

VITAS’ after-tax earnings decreased primarily due to lower revenue and $7.1 million in after-tax expense related to VITAS’ licensed healthcare worker retention bonus program, in the third quarter of 2022 when compared to the third quarter of 2021. After-tax earnings as a percent of revenue at VITAS in the third quarter of 2022 was 8.8% as compared to 13.5% in the third quarter of 2021.

Roto-Rooter’s net income was impacted in the third quarter of 2022 compared to the third quarter of 2021 primarily by higher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in the third quarter of 2022 was 20.7%, as compared to 20.1% in the third quarter of 2021.

After-tax Corporate expenses for the third quarter of 2022 increased 8.4% when compared to 2021 due to an increase in stock-based compensation and a decrease in the excess tax benefits on stock compensation.


-28-


Results of Operations

Nine months ended September 30, 2022 versus 2021 - Consolidated Results

Our service revenues and sales for the first nine months of 2022 decreased 0.6% versus services and sales revenues for the first nine months of 2021. Of this decrease, $51.6 million was attributable to VITAS, offset by a $41.7 million increase attributable to Roto-Rooter. The following chart shows the components of revenue by operating segment (in thousands):

Nine months ended September 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

771,520 

$

796,817 

(3.2)

Continuous care

57,717 

73,658 

(21.6)

General inpatient

75,714 

85,895 

(11.9)

Other

9,461 

9,241 

2.4 

Subtotal

914,412 

965,611 

(5.3)

Medicare cap adjustment

(5,118)

(3,597)

(42.3)

Room and board - net

(6,796)

(7,451)

8.8 

Implicit price concessions

(8,992)

(9,428)

4.6 

Net revenue

$

893,506 

$

945,135 

(5.5)

Roto-Rooterf

Drain cleaning

$

193,983 

$

187,477 

3.5 

Plumbing

145,294 

131,045 

10.9 

Excavation

164,898 

159,714 

3.2 

Other

513 

853 

(39.9)

Subtotal - short term core

504,688 

479,089 

5.3 

Water restoration

127,678 

115,804 

10.3 

Independent Contractors

62,897 

56,754 

10.8 

Outside franchisee fees

4,246 

3,842 

10.5 

Other

12,462 

11,601 

7.4 

Gross revenue

711,971 

667,090 

6.7 

Implicit price concessions

(17,168)

(13,942)

(23.1)

Net revenue

694,803 

$

653,148 

6.4 

Total Revenues

$

1,588,309 

$

1,598,283 

(0.6)

Days of care at VITAS during the nine months ended September 30 were as follows:

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

3,796,954 

4,008,215 

(5.3)

Nursing home

771,921 

735,906 

4.9 

Respite

18,098 

15,509 

16.7 

Subtotal routine homecare and respite

4,586,973 

4,759,630 

(3.6)

General inpatient

71,177 

82,129 

(13.3)

Continuous care

61,981 

79,385 

(21.9)

Total days of care

4,720,131 

4,921,144 

(4.1)

The decrease in service revenues at VITAS is comprised primarily of a 4.1% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.6%. Reimbursement rates for the nine months ended September 30, 2022 were negatively impacted by 90-basis points as a result of CMS reimplementing the sequestration cut that was suspended at the start of the pandemic. Acuity mix shift had a net impact of reducing revenue approximately 1.9% in the nine months period when compared to the prior year revenue and level-of-care mix. The combination of an increase in Medicare cap and other contra revenue changes negatively impacted revenue growth by approximately 10 basis points.

The increase in plumbing revenues for the first nine months of 2022 versus 2021 is attributable to a 12.3% increase in price and service mix shift and 1.4% decrease in job count. Drain cleaning revenues for the first nine months of 2022 versus 2021 reflect an 10.1% increase in price and service mix shift offset by a 6.6% decrease in job count. Excavation and water restoration jobs are generally sold as a result of initial calls from customers regarding drain cleaning issues. As a result, the 3.2% increase in excavation revenue and the 10.3% increase in water restoration revenue are mainly a function of the numbers and size of drain cleaning issues we encounter on a quarterly basis. Independent Contractor revenue increased 10.8% due mainly to increased expansion into water restoration.

-29-


The consolidated gross margin was 35.8% in the first nine months of 2022 as compared with 35.4% in the first nine months of 2021. On a segment basis, VITAS’ gross margin was 22.3% in the first nine months of 2022 as compared with 23.4%, in the first nine months of 2021 primarily due to reduced revenue and $9.6 million of expense related to VITAS’ licensed healthcare worker retention bonus program. The Roto-Rooter segment’s gross margin was 53.1% for the first nine months of 2022 as compared with 52.7% in the first nine months of 2021 primarily due to increased revenue.

Selling, general and administrative expenses (“SG&A”) comprise (in thousands):

Nine months ended September 30,

2022

2021

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts

$

269,118 

$

259,376 

Impact of market value adjustments related to assets held in deferred compensation trusts

(12,196)

9,770 

Long-term incentive compensation

4,877 

5,508 

Total SG&A expenses

$

261,799 

$

274,654 

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first nine months of 2022 were up 3.8% when compared to the first nine months of 2021. This increase was mainly a result of the increase in variable selling and general administrative expenses and due to normal salary increases.

Amortization for the first nine months of 2022 was flat when compared to the first nine months of 2021. Quarterly amortization of intangible assets is mainly driven by two Roto-Rooter franchise acquisitions completed in 2019. The total purchase price of these acquisitions was $138.0 million. As part of the purchase price allocation, approximately $59.2 million was determined to be the value of reacquired franchise rights which are being amortized over the remaining life of each franchise agreement. The average remaining life on the reacquired franchise agreements was approximately seven years. Quarterly amortization of reacquired franchise rights for these two acquisitions is approximately $2.0 million ($8.1 million annualized through 2026). This contrasts to quarterly franchise fees historically collected from these two franchisees of approximately $470,000 ($1.9 million annualized).

Other (expense)/income – net comprise (in thousands):

Nine months ended September 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(12,196)

$

9,770 

Interest income

288 

288 

Other

463 

Total other (expense)/income - net

$

(11,907)

$

10,521 

Our effective tax rate reconciliation is as follows (in thousands):

Nine months ended September 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

51,929 

$

53,379 

Stock compensation tax benefits

(4,390)

(5,305)

State and local income taxes

9,329 

9,332 

Other--net

2,913 

2,856 

Income tax provision

$

59,781 

$

60,262 

Effective tax rate

24.2 

%

23.7 

%


-30-


Net income for both periods included the following after-tax items/adjustments that (reduced) or increased after-tax earnings (in thousands):

Nine months ended September 30,

2022

2021

VITAS

Licensed healthcare worker retention bonus

$

(7,131)

$

-

Direct costs related to COVID-19

(231)

(11,442)

Medicare cap sequestration adjustment

(103)

-

Facility relocation costs

-

(1,384)

Roto-Rooter

Amortization of reacquired franchise agreements

(5,186)

(5,186)

Direct costs related to COVID-19

(727)

(1,140)

Litigation settlements

-

72

Corporate

Stock option expense

(16,220)

(13,695)

Excess tax benefits on stock compensation

4,390

5,305

Long-term incentive compensation

(4,343)

(4,964)

Direct costs related to COVID-19

(68)

(29)

Other

-

(166)

Total

$

(29,619)

$

(32,629)

Nine months ended September 30, 2022 versus 2021 - Segment Results

Net income/(loss) for the first nine months of 2022 versus the first nine months of 2021 by segment (in thousands):

Nine months ended September 30,

2022

2021

VITAS

$

97,779

$

113,430

Roto-Rooter

138,595

124,504

Corporate

(48,876)

(44,009)

$

187,498

$

193,925

VITAS’ after-tax earnings decreased primarily due to lower revenue, lower depreciation, and $7.1 million in after-tax expense related to VITAS’ licensed healthcare worker retention bonus program for the first nine months of 2022 when compared to the first nine months of 2021. After-tax earnings as a percent of revenue at VITAS in the first nine months of 2022 was 10.9% as compared to 12.0% in the first nine months of 2021.

Roto-Rooter’s net income was impacted in the first nine months of 2022 compared to the first nine months of 2021 primarily by higher revenue and improved labor costs. After-tax earnings as a percent of revenue at Roto-Rooter in the first nine months of 2022 was 19.9%, as compared to 19.1% in the first nine months of 2021.

After-tax Corporate expenses for the first nine months of 2022 increased 11.1% when compared to the first nine months of 2021 due to a $2.5 million increase in stock-based compensation expense and a $1.4 million increase in after tax interest expense.


-31-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

296,536 

$

229,936 

$

-

$

526,472 

Cost of services provided and goods sold

239,755 

107,179 

-

346,934 

Selling, general and administrative expenses

21,581 

53,225 

9,186 

83,992 

Depreciation

5,281 

6,855 

18 

12,154 

Amortization

26 

2,494 

-

2,520 

Other operating (income)/expense

26 

(11)

-

15 

Total costs and expenses

266,669 

169,742 

9,204 

445,615 

Income/(loss) from operations

29,867 

60,194 

(9,204)

80,857 

Interest expense

(44)

(91)

(1,136)

(1,271)

Intercompany interest income/(expense)

4,842 

2,371 

(7,213)

-

Other income—net

26 

36 

(3,177)

(3,115)

Income/(expense) before income taxes

34,691 

62,510 

(20,730)

76,471 

Income taxes

(8,605)

(14,924)

3,931 

(19,598)

Net income/(loss)

$

26,086 

$

47,586 

$

(16,799)

$

56,873 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Licensed healthcare worker retention bonus

$

(9,559)

$

-

$

-

$

(9,559)

Stock option expense

-

-

(4,676)

(4,676)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Long-term incentive compensation

-

-

(2,050)

(2,050)

Direct costs related to COVID-19

-

-

(89)

(89)

Total

$

(9,559)

$

(2,352)

$

(6,815)

$

(18,726)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Licensed healthcare worker retention bonus

$

(7,131)

$

-

$

-

$

(7,131)

Stock option expense

-

-

(4,060)

(4,060)

Long-term incentive compensation

-

-

(1,836)

(1,836)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Direct costs related to COVID-19

-

-

(68)

(68)

Excess tax benefits on stock compensation

-

-

450 

450 

Total

$

(7,131)

$

(1,729)

$

(5,514)

$

(14,374)


-32-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

317,411 

$

221,256 

$

-

$

538,667 

Cost of services provided and goods sold

238,212 

103,952 

-

342,164 

Selling, general and administrative expenses

21,372 

51,914 

15,931 

89,217 

Depreciation

5,286 

6,539 

19 

11,844 

Amortization

18 

2,492 

-

2,510 

Other operating expense

65 

(3)

63 

Total costs and expenses

264,953 

164,894 

15,951 

445,798 

Income/(loss) from operations

52,458 

56,362 

(15,951)

92,869 

Interest expense

(43)

(285)

(255)

(583)

Intercompany interest income/(expense)

4,513 

1,847 

(6,360)

-

Other income—net

22 

34 

3,078 

3,134 

Income/(expense) before income taxes

56,950 

57,958 

(19,488)

95,420 

Income taxes

(14,000)

(13,404)

3,987 

(23,417)

Net income/(loss)

$

42,950 

$

44,554 

$

(15,501)

$

72,003 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

$

(3,998)

$

(3,998)

Direct costs related to COVID-19

(2,501)

(415)

-

(2,916)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Long-term incentive compensation

-

-

(1,942)

(1,942)

Other

-

(218)

(218)

Total

$

(2,501)

$

(2,767)

$

(6,158)

$

(11,426)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(3,462)

$

(3,462)

Direct costs related to COVID-19

(1,866)

(305)

-

(2,171)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Long-term incentive compensation

-

-

(1,752)

(1,752)

Other

-

(166)

(166)

Excess tax benefits on stock compensation

-

-

1,199 

1,199 

Total

$

(1,866)

$

(2,034)

$

(4,181)

$

(8,081)


-33-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

893,506 

$

694,803 

$

-

$

1,588,309 

Cost of services provided and goods sold

694,528 

325,779 

-

1,020,307 

Selling, general and administrative expenses

67,181 

165,162 

29,456 

261,799 

Depreciation

16,894 

20,058 

54 

37,006 

Amortization

76 

7,482 

-

7,558 

Other operating (income)/expense

(929)

399 

-

(530)

Total costs and expenses

777,750 

518,880 

29,510 

1,326,140 

Income/(loss) from operations

115,756 

175,923 

(29,510)

262,169 

Interest expense

(142)

(319)

(2,522)

(2,983)

Intercompany interest income/(expense)

14,181 

6,751 

(20,932)

-

Other income—net

183 

107 

(12,197)

(11,907)

Income/(expense) before income taxes

129,978 

182,462 

(65,161)

247,279 

Income taxes

(32,199)

(43,867)

16,285 

(59,781)

Net income/(loss)

$

97,779 

$

138,595 

$

(48,876)

$

187,498 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

-

$

(19,343)

$

(19,343)

Licensed healthcare worker retention bonus

(9,559)

-

-

(9,559)

Amortization of reacquired franchise agreements

-

(7,056)

-

(7,056)

Long-term incentive compensation

-

-

(4,877)

(4,877)

Direct costs related to COVID-19

(310)

(988)

(89)

(1,387)

Medicare cap sequestration adjustment

(138)

-

-

(138)

Total

$

(10,007)

$

(8,044)

$

(24,309)

$

(42,360)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(16,220)

$

(16,220)

Licensed healthcare worker retention bonus

(7,131)

-

-

(7,131)

Amortization of reacquired franchise agreements

-

(5,186)

-

(5,186)

Long-term incentive compensation

-

-

(4,343)

(4,343)

Direct costs related to COVID-19

(231)

(727)

(68)

(1,026)

Medicare cap sequestration adjustment

(103)

-

-

(103)

Excess tax benefits on stock compensation

-

-

4,390 

4,390 

Total

$

(7,465)

$

(5,913)

$

(16,241)

$

(29,619)


-34-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

945,135 

$

653,148 

$

-

$

1,598,283 

Cost of services provided and goods sold

724,398 

308,732 

-

1,033,130 

Selling, general and administrative expenses

66,094 

158,791 

49,769 

274,654 

Depreciation

17,749 

19,359 

63 

37,171 

Amortization

53 

7,477 

-

7,530 

Other operating expense

655 

133 

789 

Total costs and expenses

808,949 

494,492 

49,833 

1,353,274 

Income/(loss) from operations

136,186 

158,656 

(49,833)

245,009 

Interest expense

(129)

(464)

(750)

(1,343)

Intercompany interest income/(expense)

13,524 

5,116 

(18,640)

-

Other income—net

654 

97 

9,770 

10,521 

Income/(expense) before income taxes

150,235 

163,405 

(59,453)

254,187 

Income taxes

(36,805)

(38,901)

15,444 

(60,262)

Net income/(loss)

$

113,430 

$

124,504 

$

(44,009)

$

193,925 

(a) The following amounts are included in net income (in thousands):

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Direct costs related to COVID-19

$

(15,338)

$

(1,551)

$

(38)

$

(16,927)

Stock option expense

-

-

(16,342)

(16,342)

Amortization of reacquired franchise agreements

-

(7,056)

-

(7,056)

Long-term incentive compensation

-

-

(5,508)

(5,508)

Facility relocation costs

(1,855)

-

-

(1,855)

Litigation settlements

-

98 

-

98 

Other

-

-

(218)

(218)

Total

$

(17,193)

$

(8,509)

$

(22,106)

$

(47,808)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(13,695)

$

(13,695)

Direct costs related to COVID-19

(11,442)

(1,140)

(29)

(12,611)

Amortization of reacquired franchise agreements

-

(5,186)

-

(5,186)

Long-term incentive compensation

-

-

(4,964)

(4,964)

Facility relocation costs

(1,384)

-

-

(1,384)

Litigation settlements

-

72 

-

72 

Other

-

-

(166)

(166)

Excess tax benefits on stock compensation

-

-

5,305 

5,305 

Total

$

(12,826)

$

(6,254)

$

(13,549)

$

(32,629)


-35-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the three months ended September 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

26,086 

$

47,586 

$

(16,799)

$

56,873 

Add/(deduct):

Interest expense

44 

91 

1,136 

1,271 

Income taxes

8,605 

14,924 

(3,931)

19,598 

Depreciation

5,281 

6,855 

18 

12,154 

Amortization

26 

2,494 

-

2,520 

EBITDA

40,042 

71,950 

(19,576)

92,416 

Add/(deduct):

Intercompany interest expense/(income)

(4,842)

(2,371)

7,213 

-

Interest income

(27)

(35)

-

(62)

Licensed healthcare retention bonus

9,559 

-

-

9,559 

Stock option expense

-

-

4,676 

4,676 

Long-term incentive compensation

-

-

2,050 

2,050 

Direct costs related to COVID-19

-

-

89 

89 

Adjusted EBITDA

$

44,732 

$

69,544 

$

(5,548)

$

108,728 

Chemed

For the three months ended September 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

42,950 

$

44,554 

$

(15,501)

$

72,003 

Add/(deduct):

Interest expense

43 

285 

255 

583 

Income taxes

14,000 

13,404 

(3,987)

23,417 

Depreciation

5,286 

6,539 

19 

11,844 

Amortization

18 

2,492 

-

2,510 

EBITDA

62,297 

67,274 

(19,214)

110,357 

Add/(deduct):

Intercompany interest expense/(income)

(4,513)

(1,847)

6,360 

-

Interest income

(24)

(34)

-

(58)

Stock option expense

-

-

3,998 

3,998 

Direct costs related to COVID-19

2,501 

415 

-

2,916 

Long-term incentive compensation

-

-

1,942 

1,942 

Other

-

-

218 

218 

Adjusted EBITDA

$

60,261 

$

65,808 

$

(6,696)

$

119,373 


-36-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the nine months ended September 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

97,779 

$

138,595 

$

(48,876)

$

187,498 

Add/(deduct):

Interest expense

142 

319 

2,522 

2,983 

Income taxes

32,199 

43,867 

(16,285)

59,781 

Depreciation

16,894 

20,058 

54 

37,006 

Amortization

76 

7,482 

-

7,558 

EBITDA

147,090 

210,321 

(62,585)

294,826 

Add/(deduct):

Intercompany interest expense/(income)

(14,181)

(6,751)

20,932 

-

Interest income

(181)

(107)

-

(288)

Stock option expense

-

-

19,343 

19,343 

Licensed healthcare retention bonus

9,559 

-

-

9,559 

Long-term incentive compensation

-

-

4,877 

4,877 

Direct costs related to COVID-19

310 

988 

89 

1,387 

Medicare cap sequestration adjustment

138 

-

-

138 

Adjusted EBITDA

$

142,735 

$

204,451 

$

(17,344)

$

329,842 

Chemed

For the nine months ended September 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

113,430 

$

124,504 

$

(44,009)

$

193,925 

Add/(deduct):

Interest expense

129 

464 

750 

1,343 

Income taxes

36,805 

38,901 

(15,444)

60,262 

Depreciation

17,749 

19,359 

63 

37,171 

Amortization

53 

7,477 

-

7,530 

EBITDA

168,166 

190,705 

(58,640)

300,231 

Add/(deduct):

Intercompany interest expense/(income)

(13,524)

(5,116)

18,640 

-

Interest income

(191)

(97)

-

(288)

Direct costs related to COVID-19

15,338 

1,551 

38 

16,927 

Stock option expense

-

-

16,342 

16,342 

Long-term incentive compensation

-

-

5,508 

5,508 

Litigation settlement

-

(98)

-

(98)

Other

-

-

218 

218 

Adjusted EBITDA

$

169,789 

$

186,945 

$

(17,894)

$

338,840 


-37-


RECONCILIATION OF ADJUSTED NET INCOME

(in thousands, except per share data)(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Net income as reported

$

56,873 

$

72,003 

$

187,498 

$

193,925 

Add/(deduct) pre-tax cost of:

Stock option expense

4,676 

3,998 

19,343 

16,342 

Licensed healthcare worker retention bonus

9,559 

-

9,559 

-

Amortization of reacquired franchise agreements

2,352 

2,352 

7,056 

7,056 

Long-term incentive compensation

2,050 

1,942 

4,877 

5,508 

Direct costs related to COVID-19

89 

2,916 

1,387 

16,927 

Medicare cap sequestration adjustment

-

-

138 

-

Facility relocation cost

-

-

-

1,855 

Litigation settlements

-

-

-

(98)

Other

-

218 

-

218 

Add/(deduct) tax impacts:

Tax impact of the above pre-tax adjustments (1)

(3,902)

(2,146)

(8,351)

(9,874)

Excess tax benefits on stock compensation

(450)

(1,199)

(4,390)

(5,305)

Adjusted net income

$

71,247 

$

80,084 

$

217,117 

$

226,554 

Diluted Earnings Per Share As Reported

Net income

$

3.78 

$

4.55 

$

12.41 

$

12.06 

Average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

Adjusted Diluted Earnings Per Share

Adjusted net income

$

4.74 

$

5.06 

$

14.37 

$

14.09 

Adjusted average number of shares outstanding

15,042 

15,842 

15,114 

16,083 

(1) The tax impact of pre-tax adjustments was calculated using the effective tax rate of the operating unit for which each adjustment is associated.


-38-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

OPERATING STATISTICS FOR VITAS SEGMENT

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

OPERATING STATISTICS

2022

2021

2022

2021

Net revenue ($000)

Homecare

$

256,253

$

268,137

$

771,520

$

796,817

Inpatient

24,526

29,368

75,714

85,895

Continuous care

18,600

22,027

57,717

73,658

Other

3,240

3,225

9,461

9,241

Subtotal

$

302,619

$

322,757

$

914,412

$

965,611

Room and board, net

(2,513)

(2,130)

(6,796)

(7,451)

Contractual allowances

(2,952)

(3,119)

(8,992)

(9,428)

Medicare cap allowance

(618)

(97)

(5,118)

(3,597)

Total

$

296,536

$

317,411

$

893,506

$

945,135

Net revenue as a percent of total before Medicare cap allowances

Homecare

84.7

%

83.1

%

84.4

%

82.5

%

Inpatient

8.1

9.1

8.3

8.9

Continuous care

6.1

6.8

6.3

7.6

Other

1.1

1.0

1.0

1.0

Subtotal

100.0

100.0

100.0

100.0

Room and board, net

(0.8)

(0.7)

(0.7)

(0.8)

Contractual allowances

(1.0)

(1.0)

(1.0)

(1.0)

Medicare cap allowance

(0.2)

-

(0.6)

(0.3)

Total

98.0

%

98.3

%

97.7

%

97.9

%

Days of care

Homecare

1,271,678

1,342,841

3,796,954

4,008,215

Nursing home

264,407

258,700

771,921

735,906

Respite

6,635

5,331

18,098

15,509

Subtotal routine homecare and respite

1,542,720

1,606,872

4,586,973

4,759,630

Inpatient

23,435

27,962

71,177

82,129

Continuous care

20,097

24,299

61,981

79,385

Total

1,586,252

1,659,133

4,720,131

4,921,144

Number of days in relevant time period

92

92

273

273

Average daily census (days)

Homecare

13,823

14,596

13,908

14,682

Nursing home

2,874

2,812

2,828

2,696

Respite

72

58

66

57

Subtotal routine homecare and respite

16,769

17,466

16,802

17,435

Inpatient

255

304

261

301

Continuous care

218

264

227

291

Total

17,242

18,034

17,290

18,027

Total Admissions

14,680

17,598

45,945

52,573

Total Discharges

14,603

17,686

46,139

52,747

Average length of stay (days)

106.2

96.0

104.9

95.0

Median length of stay (days)

17.0

13.0

16.0

13.0

ADC by major diagnosis

Cerebro

39.3

%

36.4

%

38.5

%

36.7

%

Neurological

22.0

22.7

22.3

22.5

Cancer

10.7

12.0

11.0

12.1

Cardio

15.4

15.5

15.6

15.5

Respiratory

7.2

7.5

7.3

7.5

Other

5.4

5.9

5.3

5.7

Total

100.0

%

100.0

%

100.0

%

100.0

%

Admissions by major diagnosis

Cerebro

25.9

20.3

%

24.2

%

21.1

%

Neurological

12.4

12.1

12.7

12.2

Cancer

26.6

27.0

26.2

26.9

Cardio

14.9

14.1

14.8

14.4

Respiratory

9.5

11.3

10.3

10.9

Other

10.7

15.2

11.8

14.5

Total

100.0

%

100.0

%

100.0

%

100.0

%

Estimated uncollectible accounts as a percent of revenues

1.0

%

1.0

%

1.0

%

1.0

%

Accounts receivable --

Days of revenue outstanding- excluding unapplied Medicare payments

33.8

33.7

n.a.

n.a.

Days of revenue outstanding- including unapplied Medicare payments

24.9

23.4

n.a.

n.a.


-39-


Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information

Certain statements contained in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe”, “expect”, “hope”, “anticipate”, “plan” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. These forward-looking statements are based on current expectations and assumptions and involve various known and unknown risks, uncertainties, contingencies and other factors, which could cause Chemed’s actual results to differ from those expressed in such forward-looking statements. Variances in any or all of the risks, uncertainties, contingencies, and other factors from our assumptions could cause actual results to differ materially from these forward-looking statements and trends. In addition, our ability to deal with the unknown outcomes of these events, many of which are beyond our control, may affect the reliability of projections and other financial matters. Investors are cautioned that such forward-looking statements are subject to inherent risk and there are no assurances that the matters contained in such statements will be achieved. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of a new information, future events or otherwise.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest line of credit. At September 30, 2022, the Company had $100.9 million of variable rate debt outstanding. For each $10 million borrowed under the credit facility, an increase or decrease of 100 basis points (1%), increases or decreases the Company’s annual interest expense by $100,000.

The Company continually evaluates this interest rate exposure and periodically weighs the cost versus the benefit of fixing the variable interest rates through a variety of hedging techniques.

Item 4.    Controls and Procedures

We carried out an evaluation, under the supervision of our President and Chief Executive Officer and with the participation of the Executive Vice President and Chief Financial Officer and the Vice President and Controller, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

For information regarding the Company’s legal proceedings, see Note 10, Legal and Regulatory Matters, under Part I, Item I of this Quarterly Report on Form 10-Q.

Item 1A.    Risk Factors

There have been no other material changes from the risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K.


-40-


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Item 2(c).    Purchases of Equity Securities by Issuer and Affiliated Purchasers

The following table shows the activity related to our share repurchase program for the first nine months of 2022:

Total Number

Weighted Average

Cumulative Shares

Dollar Amount

of Shares

Price Paid Per

Repurchased Under

Remaining Under

Repurchased

Share

the Program

The Program

February 2011 Program 

January 1 through January 31, 2022

-

$

-

10,225,654 

$

201,941,318 

February 1 through February 28, 2022

-

-

10,225,654 

201,941,318 

March 1 through March 31, 2022

57,500 

475.71 

10,283,154 

$

174,587,938 

First Quarter Total

57,500 

$

475.71 

April 1 through April 30, 2022

4,932 

$

493.78 

10,288,086 

$

172,152,453 

May 1 through May 31, 2022

95,068 

498.86 

10,383,154 

124,726,992 

June 1 through June 30, 2022

-

-

10,383,154 

$

124,726,992 

Second Quarter Total

100,000 

$

498.61 

July 1 through July 31, 2022

-

$

-

10,383,154 

$

124,726,992 

August 1 through August 31, 2022

50,000 

477.68 

10,433,154 

100,842,823 

September 1 through September 30, 2022

-

-

10,433,154 

$

100,842,823 

Third Quarter Total

50,000 

$

477.68 

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

None.

Item 5.    Other Information

None.


-41-


Item 6.    Exhibits

Exhibit No.

Description

31.1

Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.2

Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

31.3

Certification by Michael D. Witzeman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.

32.1

Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3

Certification by Michael D. Witzeman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 

The following materials from Chemed Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) The Condensed Consolidated Balance Sheet, (ii) The Condensed Consolidated Statement of Income, (iii) The Condensed Consolidated Statement of Cash Flows, (iv) The Condensed Statement of Equity, and (v) Notes to the Condensed Consolidated Financial Statements.

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL and contained in Exhibit 101.


-42-


SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Chemed Corporation

(Registrant)

Dated:

November 2, 2022

By:

/s/ Kevin J. McNamara

Kevin J. McNamara

(President and Chief Executive Officer)

Dated:

November 2, 2022

By:

/s/ David P. Williams

David P. Williams

(Executive Vice President and Chief Financial Officer)

Dated:

November 2, 2022

By:

/s/ Michael D. Witzeman

Michael D. Witzeman

(Vice President and Controller)

-43-