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

che-20220630x10q

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 June 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

14,904,946 Shares

June 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 -

June 30, 2022 and December 31, 2021

3

Unaudited Consolidated Statements of Income -

Three and six months ended June 30, 2022 and 2021

4

Unaudited Consolidated Statements of Cash Flows -

Six months ended June 30, 2022 and 2021

5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity-

Three and six months ended June 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

21

Item 3. Quantitative and Qualitative Disclosures about Market Risk

38

Item 4. Controls and Procedures

38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

38

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

39

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

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)

June 30, 2022

December 31, 2021

ASSETS

Current assets

Cash and cash equivalents

$

9,640

$

32,895 

Accounts receivable

136,555

137,217 

Inventories

10,696

10,109 

Prepaid income taxes

17,256

17,377 

Prepaid expenses

28,999

32,688 

Total current assets

203,146

230,286 

Investments of deferred compensation plans

96,061

98,884 

Properties and equipment, at cost, less accumulated depreciation of $329,967 (2021- $317,911)

192,005

193,680 

Lease right of use asset

128,290

125,048 

Identifiable intangible assets less accumulated amortization of $62,685 (2021 - $57,648)

103,837

108,096 

Goodwill

579,653

578,591 

Other assets

9,972

8,138 

Total Assets

$

1,312,964

$

1,342,723 

LIABILITIES

Current liabilities

Accounts payable

$

73,975

$

73,024 

Current portion of long-term debt

5,000 

-

Income taxes

-

41 

Accrued insurance

54,828

55,918 

Accrued compensation

68,290

95,598 

Accrued legal

808

872 

Short-term lease liability

39,062

37,913 

Other current liabilities

43,105

39,033 

Total current liabilities

285,068

302,399 

Deferred income taxes

21,054

23,183 

Long-term debt

111,800

185,000 

Deferred compensation liabilities

95,624

98,597 

Long-term lease liability

103,389

100,629 

Other liabilities

11,069

9,642 

Total Liabilities

628,004

719,450 

Commitments and contingencies (Note 10)

 

 

STOCKHOLDERS' EQUITY

Capital stock - authorized 80,000,000 shares $1 par; issued 36,651,151 shares (2021 - 36,513,857 shares)

36,651

36,514 

Paid-in capital

1,089,129

1,044,341 

Retained earnings

2,090,214

1,970,311 

Treasury stock - 21,812,013 shares (2021 - 21,601,325 shares)

(2,533,306)

(2,430,094)

Deferred compensation payable in Company stock

2,272

2,201 

Total Stockholders' Equity

684,960

623,273 

Total Liabilities and Stockholders' Equity

$

1,312,964

$

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 June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Service revenues and sales

$

531,288 

$

532,256 

$

1,061,837 

$

1,059,616 

Cost of services provided and goods sold (excluding depreciation)

336,821 

350,493 

673,373 

690,966 

Selling, general and administrative expenses

87,853 

93,838 

177,807 

185,437 

Depreciation

12,714 

13,612 

24,852 

25,327 

Amortization

2,520 

2,510 

5,038 

5,020 

Other operating (income)/expense

(558)

104 

(545)

726 

Total costs and expenses

439,350 

460,557 

880,525 

907,476 

Income from operations

91,938 

71,699 

181,312 

152,140 

Interest expense

(902)

(379)

(1,712)

(760)

Other (expense)/income - net

(4,930)

3,785 

(8,792)

7,387 

Income before income taxes

86,106 

75,105 

170,808 

158,767 

Income taxes

(19,650)

(18,583)

(40,183)

(36,845)

Net income

$

66,456 

$

56,522 

$

130,625 

$

121,922 

Earnings Per Share:

Net income

$

4.45 

$

3.57 

$

8.73 

$

7.66 

Average number of shares outstanding

14,932 

15,829 

14,959 

15,919 

Diluted Earnings Per Share:

Net income

$

4.40 

$

3.51 

$

8.62 

$

7.52 

Average number of shares outstanding

15,111 

16,101 

15,152 

16,205 

Cash Dividends Per Share

$

0.36 

$

0.34 

$

0.72 

$

0.68 

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)

Six Months Ended June 30,

2022

2021

Cash Flows from Operating Activities

Net income

$

130,625 

$

121,922 

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

29,890 

30,347 

Stock option expense

14,667 

12,345 

(Benefit)/provision for deferred income taxes

(2,129)

1,051 

Noncash long-term incentive compensation

2,497 

3,402 

Noncash directors' compensation

1,170 

1,173 

Amortization of debt issuance costs

153 

153 

Provision for bad debts

-

40 

Litigation settlements paid previously accrued

-

(9,440)

Changes in operating assets and liabilities:

Decrease in accounts receivable

887 

4,722 

Increase in inventories

(587)

(316)

Decrease in prepaid expenses

3,689 

3,337 

Decrease in accounts payable and other current liabilities

(24,001)

(10,815)

Change in current income taxes

27 

(26,242)

Net change in lease assets and liabilities

705 

(436)

Decrease/(increase) in other assets

2,071 

(10,088)

(Decrease)/increase in other liabilities

(1,491)

10,088 

Other (uses)/sources

(503)

796 

Net cash provided by operating activities

157,670 

132,039 

Cash Flows from Investing Activities

Capital expenditures

(25,610)

(33,604)

Proceeds from sale of fixed assets

1,757 

522 

Business combinations, net of cash acquired

(1,650)

-

Other sources

(132)

(220)

Net cash used by investing activities

(25,635)

(33,302)

Cash Flows from Financing Activities

Payments on revolving line of credit

(263,300)

-

Proceeds from revolving line of credit

95,100 

-

Proceeds from other long-term debt

100,000 

-

Purchases of treasury stock

(77,214)

(166,649)

Proceeds from exercise of stock options

12,869 

16,186 

Capital stock surrendered to pay taxes on stock-based compensation

(12,115)

(8,598)

Dividends paid

(10,722)

(10,864)

Change in cash overdrafts payable

1,716 

-

Debt issuance costs

(1,510)

-

Other (uses)/sources

(114)

633 

Net cash used by financing activities

(155,290)

(169,292)

Decrease in Cash and Cash Equivalents

(23,255)

(70,555)

Cash and cash equivalents at beginning of year

32,895 

162,675 

Cash and cash equivalents at end of period

$

9,640 

$

92,120 

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 June 30, 2022 and 2021:

Deferred

Compensation

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at March 31, 2022

36,579 

$

1,064,448 

$

2,029,158 

$

(2,465,716)

$

2,236 

$

666,705 

Net income

-

-

66,456 

-

-

66,456 

Dividends paid ($0.36 per share)

-

-

(5,400)

-

-

(5,400)

Stock awards and exercise of stock options

72 

25,274 

-

(17,693)

-

7,653 

Purchases of treasury stock

-

-

-

(49,861)

-

(49,861)

Other

-

(593)

-

(36)

36 

(593)

Balance at June 30, 2022

$

36,651 

$

1,089,129 

$

2,090,214 

$

(2,533,306)

$

2,272 

$

684,960 

Deferred

Compensation

`

Treasury

Payable in

Capital

Paid-in

Retained

Stock-

Company

Stock

Capital

Earnings

at Cost

Stock

Total

Balance at March 31, 2021

36,345 

$

982,739 

$

1,783,740 

$

(1,876,315)

$

2,375 

$

928,884 

Net income

-

-

56,522 

-

-

56,522 

Dividends paid ($0.34 per share)

-

-

(5,427)

-

-

(5,427)

Stock awards and exercise of stock options

40 

16,630 

-

(4,323)

-

12,347 

Purchases of treasury stock

-

-

-

(121,882)

-

(121,882)

Other

-

328 

-

194 

(192)

330 

Balance at June 30, 2021

$

36,385 

$

999,697 

$

1,834,835 

$

(2,002,326)

$

2,183 

$

870,774 

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 six months ended June 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

-

-

130,625 

-

-

130,625 

Dividends paid ($0.72 per share)

-

-

(10,722)

-

-

(10,722)

Stock awards and exercise of stock options

137 

44,877 

-

(25,926)

-

19,088 

Purchases of treasury stock

-

-

-

(77,214)

-

(77,214)

Other

-

(89)

-

(72)

71 

(90)

Balance at June 30, 2022

$

36,651 

$

1,089,129 

$

2,090,214 

$

(2,533,306)

$

2,272 

$

684,960 

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

-

-

121,922 

-

-

121,922 

Dividends paid ($0.68 per share)

-

-

(10,864)

-

-

(10,864)

Stock awards and exercise of stock options

126 

37,637 

-

(13,255)

-

24,508 

Purchases of treasury stock

-

-

-

(166,649)

-

(166,649)

Other

-

656 

-

157 

(156)

657 

Balance at June 30, 2021

$

36,385 

$

999,697 

$

1,834,835 

$

(2,002,326)

$

2,183 

$

870,774 

See Accompanying Notes to Unaudited Consolidated Financial Statements.


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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 six months ended June 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 AID, RELIEF AND ECONOMIC STIMULUS (CARES) ACT

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 June 30, 2022, Roto-Rooter has two cloud computing arrangements that are service contracts. The two projects consist of the development of a single source data warehouse and human resource system integration with our enterprise software. We have capitalized $471,000 for the two projects. No amortization has been recorded for these as they have not been placed into service.

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 June 30, 2022 and 2021, $249,000 has been amortized. For the six months ended June 30, 2022 and 2021, $497,000 and $448,000, respectively, has been amortized.

INCOME TAXES

Our effective income tax rate was 22.8% in the second quarter of 2022 compared to 24.7% during the second quarter of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $2.5 million and $868,000, respectively for the quarters ended June 30, 2022 and 2021.

Our effective income tax rate was 23.5% in the first six months of 2022 compared to 23.2% during the first six months of 2021. Excess tax benefit on stock options exercised reduced our income tax expenses by $3.9 million and $4.1 million, respectively for the first six months ended June 30, 2022 and 2021

NON-CASH TRANSACTIONS

Included in the accompanying Consolidated Balance Sheets are $836,000 and $1.9 million of capitalized property and equipment which were not paid for as of June 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.

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

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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 15 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 theoretically 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 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,

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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 June 30, 2022 and 2021 was $1.9 million and $2.3 million, respectively. The cost of providing charity case during the first six months ended June 30, 2022 and 2021 was $4.0 million and $4.4 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 June 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 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 June 30, 2022, all our programs except one are using the “streamlined” method.

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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, CMS determined that the Medicare cap should be calculated “as if” sequestration did not occur. As a result of this decision, VITAS has received notification from our third-party intermediary that an additional $8.8 million is owed for Medicare cap in three programs arising during the 2013 through 2022 measurement periods. The amounts are automatically deducted from our semi-monthly PIP payments. We do not believe that CMS is 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. We have appealed CMS’s methodology change.

During the quarter ended June 30, 2022, we recorded $2.0 million in net Medicare cap revenue reduction related to two programs for the 2022 government fiscal year. During the quarter ended June 30, 2021, we recorded $2.0 million in net Medicare cap revenue reduction related to two programs for the 2021 government fiscal year.

During the first six months ended June 30, 2022, we recorded $4.5 million in net Medicare cap revenue reduction related to two programs for the 2022 government fiscal year. During the first six months ended June 30, 2021, we recorded $3.5 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.

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

Medicare

Medicaid

Commercial

Total

Routine home care

$

241,028 

$

11,119 

5,484 

$

257,631 

Continuous care

18,044 

735 

759 

19,538 

Inpatient care

21,595 

1,807 

1,217 

24,619 

$

280,667 

$

13,661 

$

7,460 

$

301,788 

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

3,213 

Subtotal

$

305,001 

Medicare cap adjustment

(2,000)

Implicit price concessions

(3,054)

Room and board, net

(2,166)

Net revenue

$

297,781 

-11-


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

Medicare

Medicaid

Commercial

Total

Routine home care

$

247,061 

$

11,509 

$

6,356 

$

264,926 

Continuous care

22,010 

1,237 

1,035 

24,282 

Inpatient care

23,905 

2,069 

1,397 

27,371 

$

292,976 

$

14,815 

$

8,788 

$

316,579 

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

3,078 

Subtotal

$

319,657 

Medicare cap adjustment

(2,000)

Implicit price concessions

(3,065)

Room and board, net

(2,657)

Net revenue

$

311,935 

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

Medicare

Medicaid

Commercial

Total

Routine home care

$

482,365 

$

22,026 

$

10,876 

$

515,267 

Continuous care

36,020 

1,550 

1,546 

39,116 

Inpatient care

45,022 

3,770 

2,397 

51,189 

$

563,407 

$

27,346 

$

14,819 

$

605,572 

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

6,220 

Subtotal

$

611,792 

Medicare cap adjustment

(4,500)

Implicit price concessions

(6,039)

Room and board, net

(4,283)

Net revenue

$

596,970 

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

Medicare

Medicaid

Commercial

Total

Routine home care

$

493,125 

$

23,088 

$

12,467 

$

528,680 

Continuous care

46,917 

2,496 

2,218 

51,631 

Inpatient care

49,346 

4,539 

2,642 

56,527 

$

589,388 

$

30,123 

$

17,327 

$

636,838 

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

6,016 

Subtotal

$

642,854 

Medicare cap adjustment

(3,500)

Implicit price concessions

(6,309)

Room and board, net

(5,322)

Net revenue

$

627,723 

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

-12-


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 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.

-13-


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 second quarter is as follows (in thousands):

June 30,

2022

2021

Drain cleaning

$

64,532 

$

62,649 

Plumbing

48,885 

44,609 

Excavation

55,546 

55,114 

Other

155 

311 

Subtotal - short term core

169,118 

162,683 

Water restoration

43,673 

38,583 

Independent Contractors

21,005 

19,026 

Franchisee fees

1,370 

1,255 

Other

4,240 

3,882 

Gross revenue

239,406 

225,429 

Implicit price concessions and credit memos

(5,899)

(5,108)

Net revenue

$

233,507 

$

220,321 

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

June 30,

2022

2021

Drain cleaning

$

131,219 

$

124,406 

Plumbing

96,557 

85,922 

Excavation

110,734 

107,106 

Other

321 

598 

Subtotal - short term core

338,831 

318,032 

Water restoration

84,033 

76,018 

Independent Contractors

42,423 

37,785 

Franchisee fees

2,688 

2,582 

Other

8,430 

7,828 

Gross revenue

476,405 

442,245 

Implicit price concessions and credit memos

(11,538)

(10,352)

Net revenue

$

464,867 

$

431,893 

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 June 30,

Six months ended June 30,

2022

2021

2022

2021

VITAS

$

35,212 

$

29,712 

$

71,694 

$

70,481 

Roto-Rooter

47,072 

42,773 

91,009 

79,950 

Total

82,284 

72,485 

162,703 

150,431 

Corporate

(15,828)

(15,963)

(32,078)

(28,509)

Net income

$

66,456 

$

56,522 

$

130,625 

$

121,922 

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

 

-14-


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 June 30,

Income

Shares

Earnings per Share

2022

Earnings

$

66,456

14,932

$

4.45

Dilutive stock options

-

139

Nonvested stock awards

-

40

Diluted earnings

$

66,456

15,111

$

4.40

2021

Earnings

$

56,522

15,829

$

3.57

Dilutive stock options

-

235

Nonvested stock awards

-

37

Diluted earnings

$

56,522

16,101

$

3.51

Net Income

For the Six Months Ended June 30,

Income

Shares

Earnings per Share

2022

Earnings

$

130,625 

14,959 

$

8.73 

Dilutive stock options

-

152 

Nonvested stock awards

-

41 

Diluted earnings

$

130,625 

15,152 

$

8.62 

2021

Earnings

$

121,922 

15,919 

$

7.66 

Dilutive stock options

-

242 

Nonvested stock awards

-

44 

Diluted earnings

$

121,922 

16,205 

$

7.52 

For the three and six months ended June 30, 2022, there were 596,000 stock options excluded from the computation of dilutive earnings per share because they would have been anti-dilutive.

For the three and six months ended June 30, 2021, there were 298,000 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 interest rate on the 2022 Credit Facilities has a floating 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 June 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 June 30, 2022 consists of the following:

Revolver

$

16,800 

Term loan

100,000 

Total

116,800 

Current portion of long-term debt

(5,000)

Long-term debt

$

111,800 

-15-


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 June 30,2022.

Scheduled payments of the 2022 Credit Facilities are as follows:

2022

$

2,500 

2023

5,000 

2024

5,000 

2025

5,000 

2026

5,000 

Thereafter

94,300 

$

116,800 

The 2022 Credit Facilities contain the following quarterly financial covenants effective as of June 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 June 30, 2022. We have issued $46.2 million in standby letters of credit as of June 30, 2022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of June 30, 2022, we have approximately $387.0 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 June 30,

Six months ended June 30,

2022

2021

2022

2021

Market value adjustment on assets held in

deferred compensation trust

$

(5,086)

$

3,655 

$

(9,020)

$

6,693 

Interest income

154 

138 

226 

230 

Other-net

2 

(8)

2 

464 

Total other (expense)/income - net

$

(4,930)

$

3,785 

$

(8,792)

$

7,387 

 

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.


-16-


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

June 30,


December 31,

2022

2021

Assets

Operating lease assets

$

128,290 

$

125,048 

Liabilities

Current operating leases

39,062 

37,913 

Noncurrent operating leases

103,389 

100,629 

Total operating lease liabilities

$

142,451 

$

138,542 

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

Three months ended June 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

13,249 

$

15,550 

Sublease income

(45)

(46)

Net lease expense

$

13,204 

$

15,504 

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

Six months ended June 30,

2022

2021

Lease Expense (a)

Operating lease expense

$

26,300 

$

30,911 

Sublease income

(91)

(90)

Net lease expense

$

26,209 

$

30,821 

(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:

Six months ended June 30,

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from leases

$

25,173 

$

25,901 

Leased assets obtained in exchange for new operating lease liabilities

$

27,589 

$

25,685 

Weighted Average Remaining Lease Term at June 30, 2022

Operating leases

4.52

years

Weighted Average Discount Rate at June 30, 2022

Operating leases

2.39

%

-17-


Maturity of Operating Lease Liabilities (in thousands)

2022

$

23,263

2023

40,947

2024

31,752

2025

24,501

2026

18,212

Thereafter

12,183

Total lease payments

$

150,858

Less: interest

(8,407)

Total liability recognized on the balance sheet

$

142,451

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 $5.8 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 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 June 30,

Six months ended June 30,

2022

2021

2022

2021

$

639

$

7,904

$

3,556

$

16,603

 

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.

-18-


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 to a sample of patients. On July 14, 2022, VITAS received the final audit report from OAS, which includes a series of recommendations to VITAS, including that it repay approximately $140 million previously received from Medicare. As a result of the report, VITAS anticipates receiving a demand letter from CMS through its fiscal intermediary for a portion of the suggested repayment amount. To the extent a demand is received, VITAS believes that the demand will be reduced significantly from the amount requested in the report due mainly to the expiration of certain claims, but the amount demanded may likely appear material. Any claims pursued by CMS will proceed in accordance with the standard reconsideration and appeals process for claims that arise out of CMS audits. VITAS believes that the audit report contains significant flaws including its methodology, medical reviews, technical reviews, and proposed extrapolation, and contravenes the “reasonable physician standard” set forth in the appliable Aseracare precedent. VITAS intends to vigorously defend any 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 June 30, 2022, and December 31, 2021, approximately 71% and 73%, respectively, of VITAS’ total accounts receivable balance were from Medicare and 24% 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 75% of the consolidated net accounts receivable in the accompanying consolidated balance sheets as of June 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 $13.6 million in cash overdrafts payable included in accounts payable at June 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.    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.


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The following shows the carrying value, fair value and the hierarchy for our financial instruments as of June 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

$

96,061 

$

96,061 

$

-

$

-

Long-term debt and current portion of long-term debt

116,800 

-

116,800 

-

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.

14.    Capital Stock Repurchase Plan Transactions

We repurchased the following capital stock:

Three months ended June 30,

Six months ended June 30,

2022

2021

2022

2021

Total cost of repurchased shares (in thousands)

$

49,861

$

121,882 

$

77,214

$

166,649 

Shares repurchased

100,000

250,000 

157,500

350,000 

Weighted average price per share

$

498.61

$

487.52 

$

491.81

$

476.14 

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 $124.7 million of authorization remaining under this share repurchase plan.

 

15.    Acquisitions

On January 28, 2022 VITAS purchased the hospice assets of Broward Health Hospital System for $1.25 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.

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 

336 

1,068 

Foreign currency adjustments

-

(6)

(6)

Balance at June 30, 2022

$

334,063 

$

245,590

$

579,653

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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 June 30,

Six months ended June 30,

2022

2021

2022

2021

Service revenues and sales

$

531,288 

$

532,256 

$

1,061,837 

$

1,059,616 

Net income

$

66,456 

$

56,522 

$

130,625 

$

121,922 

Diluted EPS

$

4.40 

$

3.51 

$

8.62 

$

7.52 

Adjusted net income

$

73,090 

$

74,100 

$

145,870 

$

146,470 

Adjusted diluted EPS

$

4.84 

$

4.60 

$

9.63 

$

9.04 

Adjusted EBITDA

$

110,907 

$

110,948 

$

221,114 

$

219,467 

Adjusted EBITDA as a % of revenue

20.9 

%

20.8 

%

20.8 

%

20.7 

%

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 34-36.

For the three months ended June 30, 2022, the decrease in consolidated service revenues and sales was driven by a 6.0% increase at Roto-Rooter offset by a 4.5% 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 3.8% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%. Acuity mix shift had a net impact of reducing revenue approximately 1.6% 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 positively impacted revenue growth by approximately 10 basis points. See page 37 for additional VITAS operating metrics.

For the six months ended June 30, 2022, the increase in consolidated service revenues and sales was driven by a 7.6% increase at Roto-Rooter offset by a 4.9% 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 3.9% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 1.0%. Acuity mix shift had a net impact of reducing revenue approximately 1.9% over the six 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 37 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 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.

-21-


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 will continue to disrupt our healthcare system and general economy to such an extent that future rules, regulations and government mandates 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 reduction, approximately $15 million, 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 3.5%. Full year adjusted EBITDA margin, prior to Medicare Cap, is estimated to be 17.0% to 17.2%. We are currently estimating $10 million for Medicare Cap billing limitations in calendar year 2022.

Roto-Rooter is forecasted to achieve full-year 2022 revenue growth of 5.5% to 5.7%. Roto-Rooter’s adjusted EBITDA margin for 2022 is expected to be 29.2% to 29.5%.

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 and other discrete items, is estimated to be in the range of $19.30 to $19.50. This 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 interest rate on the 2022 Credit Facilities has a floating rate that is generally SOFR plus an additional tiered rate which varies based on our current leverage ratio. As of June 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 $46.2 million in standby letters of credit as of June 30, 2022, mainly for insurance purposes. Issued letters of credit reduce our available credit under the 2022 Credit Facilities. As of June 30, 2022, we have approximately $387.0 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 June 30, 2022 include the following:

A $5.0 million increase in the current portion of long-term debt due to the new term loan established with the 2022 Credit Facilities.

A $27.3 million decrease in accrued compensation due to the payment of 2021 bonuses in the first quarter of 2022.

A $73.2 million decrease in long-term debt due to repayments.

A $103.2 million increase in treasury stock due mainly to stock repurchases.

Net cash provided by operating activities increased $25.6 million from June 30, 2021 to June 30, 2022. The main drivers of the increase are an increase in net income of $8.7 million, coupled with changes in current assets and liabilities. 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.

-22-


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 June 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.


-23-


Results of Operations

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

Our service revenues and sales for the second quarter of 2022 decreased 0.2% versus services and sales revenues for the second quarter of 2021. Of this decrease, a $13.2 million increase was attributable to Roto-Rooter, offset by a $14.2 million decrease attributable to VITAS. The following chart shows the components of revenue by operating segment (in thousands):

Three months ended June 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

257,631 

$

264,926 

(2.8)

Continuous care

19,538 

24,282 

(19.5)

General inpatient

24,619 

27,371 

(10.1)

Other

3,213 

3,078 

4.4 

Subtotal

305,001 

319,657 

(4.6)

Medicare cap adjustment

(2,000)

(2,000)

-

Room and board - net

(2,166)

(2,657)

18.5 

Implicit price concessions

(3,054)

(3,065)

0.4 

Net revenue

$

297,781 

$

311,935 

(4.5)

Roto-Rooter

Drain cleaning

$

64,532 

$

62,649 

3.0 

Plumbing

48,885 

44,609 

9.6 

Excavation

55,546 

55,114 

0.8 

Other

155 

311 

(50.2)

Subtotal - short term core

169,118 

162,683 

4.0 

Water restoration

43,673 

38,583 

13.2 

Independent Contractors

21,005 

19,026 

10.4 

Outside franchisee fees

1,370 

1,255 

9.2 

Other

4,240 

3,882 

9.2 

Gross revenue

239,406 

225,429 

6.2 

Implicit price concessions

(5,899)

(5,108)

(15.5)

Net revenue

233,507 

220,321 

6.0 

Total Revenues

$

531,288 

$

532,256 

(0.2)

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

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

1,266,604 

1,335,482 

(5.2)

Nursing home

259,046 

244,423 

6.0 

Respite

6,095 

5,338 

14.2 

Subtotal routine homecare and respite

1,531,745 

1,585,243 

(3.4)

General inpatient

23,155 

26,493 

(12.6)

Continuous care

20,802 

25,786 

(19.3)

Total days of care

1,575,702 

1,637,522 

(3.8)

The decrease in service revenues at VITAS is comprised primarily of a 3.8% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 0.8%. Acuity mix shift had a net impact of reducing revenue approximately 1.6% 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 positively impacted revenue growth by approximately 10 basis points.

The increase in plumbing revenues for the second quarter of 2022 versus 2021 is attributable to a 12.5% increase in price and service mix shift offset by a 2.9% decrease in job count. Drain cleaning revenues for the second quarter of 2022 versus 2021 reflect an 10.7% increase in price and service mix shift offset by a 7.7% 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 0.8% increase in excavation revenue and

-24-


the 13.2% 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 10.4% due mainly to increased expansion into water restoration.

The consolidated gross margin was 36.6% in the second quarter of 2022 as compared with 34.1% in the second quarter of 2021. On a segment basis, VITAS’ gross margin was 23.6% in the second quarter of 2022 as compared with 20.7%, in the second quarter of 2021 primarily due to improved labor and ancillary costs. The Roto-Rooter segment’s gross margin was 53.2% for the second quarter of 2022 which is essentially equal to the second quarter of 2021.

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

Three months ended June 30,

2022

2021

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

$

91,422

$

88,510

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

(5,086)

3,655

Long-term incentive compensation

1,517

1,673

Total SG&A expenses

$

87,853

$

93,838

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the second quarter of 2022 were up 3.3% when compared to the second quarter 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 second quarter of 2022 was flat when compared to the second 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 June 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(5,086)

$

3,655 

Interest income

154 

138 

Other

(8)

Total (expense)/other income - net

$

(4,930)

$

3,785 

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

Three months ended June 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

18,082 

$

15,772 

Stock compensation tax benefits

(2,499)

(868)

State and local income taxes

2,744 

2,671 

Other--net

1,323 

1,008 

Income tax provision

$

19,650 

$

18,583 

Effective tax rate

22.8 

%

24.7 

%


-25-


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

Three months ended June 30,

2022

2021

VITAS

Medicare cap sequestration adjustment

$

(103)

$

-

Direct costs related to COVID-19

60

(8,268)

Facility relocation costs

-

(1,384)

Roto-Rooter

Amortization of reacquired franchise agreements

(1,729)

(1,729)

Direct costs related to COVID-19

-

(428)

Litigation settlements

-

72

Other

(20)

-

Corporate

Stock option expense

(5,993)

(5,166)

Excess tax benefits on stock compensation

2,499

868

Long-term incentive compensation

(1,348)

(1,543)

Total

$

(6,634)

$

(17,578)

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

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

Three months ended June 30,

2022

2021

VITAS

35,212

$

29,712

Roto-Rooter

47,072

42,773

Corporate

(15,828)

(15,963)

$

66,456

$

56,522

VITAS’ after-tax earnings increased primarily due to margin improvement and lower depreciation in the second quarter of 2022 when compared to the second quarter of 2021. After-tax earnings as a percent of revenue at VITAS in the second quarter of 2022 was 11.8% as compared to 9.5% in the second quarter of 2021.

Roto-Rooter’s net income was impacted in the second quarter of 2022 compared to the second quarter of 2021 primarily by higher revenue. After-tax earnings as a percent of revenue at Roto-Rooter in the second quarter of 2022 was 20.2%, as compared to 19.4% in the second quarter of 2021.

After-tax Corporate expenses for the second quarter of 2022 were essentially flat when compared to the second quarter of 2021.


-26-


Results of Operations

Six months ended June 30, 2022 versus 2021 - Consolidated Results

Our service revenues and sales for the first six months of 2022 increased 0.2% versus services and sales revenues for the first six months of 2021. Of this increase, a $33.0 million increase was attributable to Roto-Rooter offset by a $30.7 million decrease attributable to VITAS. The following chart shows the components of revenue by operating segment (in thousands):

Six months ended June 30,

Increase/(Decrease)

2022

2021

Percent

VITAS

Routine homecare

$

515,267 

$

528,680 

(2.5)

Continuous care

39,116 

51,631 

(24.2)

General inpatient

51,189 

56,527 

(9.4)

Other

6,220 

6,016 

3.4 

Subtotal

611,792 

642,854 

(4.8)

Medicare cap adjustment

(4,500)

(3,500)

(28.6)

Room and board - net

(4,283)

(5,322)

19.5 

Implicit price concessions

(6,039)

(6,309)

4.3 

Net revenue

$

596,970 

$

627,723 

(4.9)

Roto-Rooter

Drain cleaning

$

131,219 

$

124,406 

5.5 

Plumbing

96,557 

85,922 

12.4 

Excavation

110,734 

107,106 

3.4 

Other

321 

598 

(46.3)

Subtotal - short term core

338,831 

318,032 

6.5 

Water restoration

84,033 

76,018 

10.5 

Independent Contractors

42,423 

37,785 

12.3 

Outside franchisee fees

2,688 

2,582 

4.1 

Other

8,430 

7,828 

7.7 

Gross revenue

476,405 

442,245 

7.7 

Implicit price concessions

(11,538)

(10,352)

(11.5)

Net revenue

464,867 

$

431,893 

7.6 

Total Revenues

$

1,061,837 

$

1,059,616 

0.2 

Days of care at VITAS during the six months ended June 30 were as follows:

Days of Care

Increase/(Decrease)

2022

2021

Percent

Routine homecare

2,525,276 

2,665,374 

(5.3)

Nursing home

507,514 

477,206 

6.4 

Respite

11,463 

10,178 

12.6 

Subtotal routine homecare and respite

3,044,253 

3,152,758 

(3.4)

General inpatient

47,742 

54,167 

(11.9)

Continuous care

41,884 

55,086 

(24.0)

Total days of care

3,133,879 

3,262,011 

(3.9)

The decrease in service revenues at VITAS is comprised primarily of a 3.9% decrease in days-of-care offset by a geographically weighted average Medicare reimbursement rate increase of approximately 1.0%. Acuity mix shift had a net impact of reducing revenue approximately 1.9% in the six 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 six months of 2022 versus 2021 is attributable to a 13.1% increase in price and service mix shift and 0.7% decrease in job count. Drain cleaning revenues for the first six months of 2022 versus 2021 reflect an 11.3% increase in price and service mix shift offset by a 5.8% 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 3.4% increase in excavation revenue and the

-27-


10.5% 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 12.3% due mainly to increased expansion into water restoration.

The consolidated gross margin was 36.6% in the first six months of 2022 as compared with 34.8% in the first six months of 2021. On a segment basis, VITAS’ gross margin was 23.8% in the first six months of 2022 as compared with 22.5%, in first six months of 2021 primarily a result of improved labor and ancillary costs. The Roto-Rooter segment’s gross margin was 53.0% for the first six months of 2022 as compared with 52.6% in the first six months of 2021 primarily due to increased revenue and improved labor costs.

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

Six months ended June 30,

2022

2021

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

$

184,000 

$

175,178 

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

(9,020)

6,693 

Long-term incentive compensation

2,827 

3,566 

Total SG&A expenses

$

177,807 

$

185,437 

SG&A expenses before long-term incentive compensation and the impact of market value adjustments related to deferred compensation trusts for the first six months of 2022 were up 5.0% when compared to the first six 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 six months of 2022 was flat when compared to the first six 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):

Six months ended June 30,

2022

2021

Market value adjustment on assets held in deferred compensation trusts

$

(9,020)

$

6,693 

Interest income

226 

230 

Other

464 

Total other (expense)/income - net

$

(8,792)

$

7,387 

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

Six months ended June 30,

2022

2021

Income tax provision calculated at the statutory federal rate

$

35,870 

$

33,341 

Stock compensation tax benefits

(3,940)

(4,106)

State and local income taxes

6,427 

5,627 

Other--net

1,826 

1,983 

Income tax provision

$

40,183 

$

36,845 

Effective tax rate

23.5 

%

23.2 

%


-28-


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

Six months ended June 30,

2022

2021

VITAS

Direct costs related to COVID-19

$

(231)

$

(9,576)

Medicare cap sequestration adjustment

(103)

-

Facility relocation costs

-

(1,384)

Roto-Rooter

Amortization of reacquired franchise agreements

(3,457)

(3,457)

Direct costs related to COVID-19

(707)

(835)

Litigation settlements

-

72

Other

(20)

-

Corporate

Stock option expense

(12,160)

(10,232)

Excess tax benefits on stock compensation

3,940

4,106

Long-term incentive compensation

(2,507)

(3,212)

Direct costs related to COVID-19

-

(30)

Total

$

(15,245)

$

(24,548)

Six months ended June 30, 2022 versus 2021 - Segment Results

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

Six months ended June 30,

2022

2021

VITAS

$

71,694

$

70,481

Roto-Rooter

91,009

79,950

Corporate

(32,078)

(28,509)

$

130,625

$

121,922

VITAS’ after-tax earnings increased primarily due to lower revenue offset by improved margins and lower depreciation for the first six months of 2022 when compared to the first six months of 2021. After-tax earnings as a percent of revenue at VITAS in the first six months of 2022 was 12.0% as compared to 11.2% in the first six months of 2021.

Roto-Rooter’s net income was impacted in the first six months of 2022 compared to the first six 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 six months of 2022 was 19.6%, as compared to 18.5% in the first six months of 2021.

After-tax Corporate expenses for the first six months of 2022 increased 12.5% when compared to the first six months of 2021 due to an $1.2 million increase in stock-based compensation expense, increase in interest expense, and a decrease in excess tax benefits on stock compensation.


-29-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

297,781 

$

233,507 

$

-

$

531,288 

Cost of services provided and goods sold

227,533 

109,288 

-

336,821 

Selling, general and administrative expenses

23,148 

54,982 

9,723 

87,853 

Depreciation

6,062 

6,634 

18 

12,714 

Amortization

26 

2,494 

-

2,520 

Other operating (income)/expense

(807)

249 

-

(558)

Total costs and expenses

255,962 

173,647 

9,741 

439,350 

Income/(loss) from operations

41,819 

59,860 

(9,741)

91,938 

Interest expense

(44)

(115)

(743)

(902)

Intercompany interest income/(expense)

4,683 

2,205 

(6,888)

-

Other income—net

119 

37 

(5,086)

(4,930)

Income/(expense) before income taxes

46,577 

61,987 

(22,458)

86,106 

Income taxes

(11,365)

(14,915)

6,630 

(19,650)

Net income/(loss)

$

35,212 

$

47,072 

$

(15,828)

$

66,456 

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

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

-

$

(7,216)

$

(7,216)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Long-term incentive compensation

-

-

(1,517)

(1,517)

Medicare cap sequestration adjustment

(138)

-

-

(138)

Direct costs related to COVID-19

80 

-

-

80 

Other

-

(28)

-

(28)

Total

$

(58)

$

(2,380)

$

(8,733)

$

(11,171)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(5,993)

$

(5,993)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Long-term incentive compensation

-

-

(1,348)

(1,348)

Medicare cap sequestration adjustment

(103)

-

-

(103)

Direct costs related to COVID-19

60 

-

-

60 

Other

-

(20)

-

(20)

Excess tax benefits on stock compensation

-

-

2,499 

2,499 

Total

$

(43)

$

(1,749)

$

(4,842)

$

(6,634)


-30-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

311,935 

$

220,321 

$

-

$

532,256 

Cost of services provided and goods sold

247,519 

102,974 

-

350,493 

Selling, general and administrative expenses

22,631 

53,556 

17,651 

93,838 

Depreciation

7,125 

6,468 

19 

13,612 

Amortization

18 

2,492 

-

2,510 

Other operating expense

87 

17 

-

104 

Total costs and expenses

277,380 

165,507 

17,670 

460,557 

Income/(loss) from operations

34,555 

54,814 

(17,670)

71,699 

Interest expense

(43)

(89)

(247)

(379)

Intercompany interest income/(expense)

4,486 

1,649 

(6,135)

-

Other income—net

99 

32 

3,654 

3,785 

Income/(expense) before income taxes

39,097 

56,406 

(20,398)

75,105 

Income taxes

(9,385)

(13,633)

4,435 

(18,583)

Net income/(loss)

$

29,712 

$

42,773 

$

(15,963)

$

56,522 

(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

$

(11,084)

$

(582)

$

-

$

(11,666)

Stock option expense

-

-

(6,239)

(6,239)

Amortization of reacquired franchise agreements

-

(2,352)

-

(2,352)

Facility relocation costs

(1,855)

(1,855)

Long-term incentive compensation

-

-

(1,673)

(1,673)

Litigation settlements

98 

98 

Total

$

(12,939)

$

(2,836)

$

(7,912)

$

(23,687)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Direct costs related to COVID-19

$

(8,268)

$

(428)

$

-

$

(8,696)

Stock option expense

-

-

(5,166)

(5,166)

Amortization of reacquired franchise agreements

-

(1,729)

-

(1,729)

Long-term incentive compensation

-

-

(1,543)

(1,543)

Facility relocation costs

(1,384)

(1,384)

Litigation settlements

72 

72 

Excess tax benefits on stock compensation

-

-

868 

868 

Total

$

(9,652)

$

(2,085)

$

(5,841)

$

(17,578)


-31-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2022

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2022 (a)

                         

                         

                         

                         

Service revenues and sales

$

596,970 

$

464,867 

$

-

$

1,061,837 

Cost of services provided and goods sold

454,773 

218,600 

-

673,373 

Selling, general and administrative expenses

45,600 

111,937 

20,270 

177,807 

Depreciation

11,613 

13,203 

36 

24,852 

Amortization

49 

4,989 

-

5,038 

Other operating (income)/expense

(955)

410 

-

(545)

Total costs and expenses

511,080 

349,139 

20,306 

880,525 

Income/(loss) from operations

85,890 

115,728 

(20,306)

181,312 

Interest expense

(96)

(229)

(1,387)

(1,712)

Intercompany interest income/(expense)

9,339 

4,381 

(13,720)

-

Other income—net

156 

72 

(9,020)

(8,792)

Income/(expense) before income taxes

95,289 

119,952 

(44,433)

170,808 

Income taxes

(23,595)

(28,943)

12,355 

(40,183)

Net income/(loss)

$

71,694 

$

91,009 

$

(32,078)

$

130,625 

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

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

Pretax benefit/(cost):

Stock option expense

$

-

$

-

$

(14,667)

$

(14,667)

Amortization of reacquired franchise agreements

-

(4,704)

-

(4,704)

Long-term incentive compensation

-

-

(2,827)

(2,827)

Direct costs related to COVID-19

(310)

(960)

-

(1,270)

Medicare cap sequestration adjustment

(138)

-

-

(138)

Other

-

(28)

-

(28)

Total

$

(448)

$

(5,692)

$

(17,494)

$

(23,634)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Stock option expense

$

-

$

-

$

(12,160)

$

(12,160)

Amortization of reacquired franchise agreements

-

(3,457)

-

(3,457)

Long-term incentive compensation

-

-

(2,507)

(2,507)

Direct costs related to COVID-19

(231)

(707)

-

(938)

Medicare cap sequestration adjustment

(103)

-

-

(103)

Other

-

(20)

(20)

Excess tax benefits on stock compensation

-

-

3,940 

3,940 

Total

$

(334)

$

(4,184)

$

(10,727)

$

(15,245)


-32-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATING STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2021

(in thousands)(unaudited)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

2021 (a)

                         

                         

                         

                         

Service revenues and sales

$

627,723 

$

431,893 

$

-

$

1,059,616 

Cost of services provided and goods sold

486,186 

204,780 

-

690,966 

Selling, general and administrative expenses

44,721 

106,878 

33,838 

185,437 

Depreciation

12,462 

12,821 

44 

25,327 

Amortization

36 

4,984 

-

5,020 

Other operating expense

590 

136 

-

726 

Total costs and expenses

543,995 

329,599 

33,882 

907,476 

Income/(loss) from operations

83,728 

102,294 

(33,882)

152,140 

Interest expense

(85)

(179)

(496)

(760)

Intercompany interest income/(expense)

9,011 

3,269 

(12,280)

-

Other income—net

632 

63 

6,692 

7,387 

Income/(expense) before income taxes

93,286 

105,447 

(39,966)

158,767 

Income taxes

(22,805)

(25,497)

11,457 

(36,845)

Net income/(loss)

$

70,481 

$

79,950 

$

(28,509)

$

121,922 

(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

$

(12,836)

$

(1,136)

$

(38)

$

(14,010)

Stock option expense

-

-

(12,345)

(12,345)

Amortization of reacquired franchise agreements

-

(4,704)

-

(4,704)

Long-term incentive compensation

-

-

(3,566)

(3,566)

Facility relocation costs

(1,855)

-

-

(1,855)

Litigation settlements

-

98 

-

98 

Total

$

(14,691)

$

(5,742)

$

(15,949)

$

(36,382)

Chemed

VITAS

Roto-Rooter

Corporate

Consolidated

After-tax benefit/(cost):

Direct costs related to COVID-19

$

(9,576)

$

(835)

$

(30)

$

(10,441)

Stock option expense

-

-

(10,232)

(10,232)

Amortization of reacquired franchise agreements

-

(3,457)

-

(3,457)

Long-term incentive compensation

-

-

(3,212)

(3,212)

Facility relocation costs

(1,384)

(1,384)

Litigation settlements

72 

72 

Excess tax benefits on stock compensation

-

-

4,106 

4,106 

Total

$

(10,960)

$

(4,220)

$

(9,368)

$

(24,548)


-33-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the three months ended June 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

35,212 

$

47,072 

$

(15,828)

$

66,456 

Add/(deduct):

Interest expense

44 

115 

743 

902 

Income taxes

11,365 

14,915 

(6,630)

19,650 

Depreciation

6,062 

6,634 

18 

12,714 

Amortization

26 

2,494 

-

2,520 

EBITDA

52,709 

71,230 

(21,697)

102,242 

Add/(deduct):

Intercompany interest expense/(income)

(4,683)

(2,205)

6,888 

-

Interest income

(118)

(37)

(154)

Stock option expense

-

-

7,216 

7,216 

Long-term incentive compensation

-

-

1,517 

1,517 

Medicare cap sequestration adjustment

138 

-

-

138 

Direct costs related to COVID-19

(80)

-

-

(80)

Other

-

28 

-

28 

Adjusted EBITDA

$

47,966 

$

69,016 

$

(6,075)

$

110,907 

Chemed

For the three months ended June 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

29,712 

$

42,773 

$

(15,963)

$

56,522 

Add/(deduct):

Interest expense

43 

89 

247 

379 

Income taxes

9,385 

13,633 

(4,435)

18,583 

Depreciation

7,125 

6,468 

19 

13,612 

Amortization

18 

2,492 

-

2,510 

EBITDA

46,283 

65,455 

(20,132)

91,606 

Add/(deduct):

Intercompany interest expense/(income)

(4,486)

(1,649)

6,135 

-

Interest income

(106)

(32)

-

(138)

Direct costs related to COVID-19

11,084 

582 

-

11,666 

Stock option expense

-

-

6,239 

6,239 

Long-term incentive compensation

-

-

1,673 

1,673 

Litigation settlement

-

(98)

-

(98)

Adjusted EBITDA

$

52,775 

$

64,258 

$

(6,085)

$

110,948 


-34-


Unaudited Consolidating Summary and Reconciliation of Adjusted EBITDA

Chemed Corporation and Subsidiary Companies

(in thousands)

Chemed

For the six months ended June 30, 2022

VITAS

Roto-Rooter

Corporate

Consolidated

                         

                         

                         

Net income/(loss)

$

71,694 

$

91,009 

$

(32,078)

$

130,625 

Add/(deduct):

Interest expense

96 

229 

1,387 

1,712 

Income taxes

23,595 

28,943 

(12,355)

40,183 

Depreciation

11,613 

13,203 

36 

24,852 

Amortization

49 

4,989 

-

5,038 

EBITDA

107,047 

138,373 

(43,010)

202,410 

Add/(deduct):

Intercompany interest expense/(income)

(9,339)

(4,381)

13,720 

-

Interest income

(155)

(71)

-

(226)

Stock option expense

-

-

14,667 

14,667 

Long-term incentive compensation

-

-

2,827 

2,827 

Direct costs related to COVID-19

310 

960 

-

1,270 

Medicare cap sequestration adjustment

138 

-

-

138 

Other

-

28 

-

28 

Adjusted EBITDA

$

98,001 

$

134,909 

$

(11,796)

$

221,114 

Chemed

For the six months ended June 30, 2021

VITAS

Roto-Rooter

Corporate

Consolidated

Net income/(loss)

$

70,481 

$

79,950 

$

(28,509)

$

121,922 

Add/(deduct):

Interest expense

85 

179 

496 

760 

Income taxes

22,805 

25,497 

(11,457)

36,845 

Depreciation

12,462 

12,821 

44 

25,327 

Amortization

36 

4,984 

-

5,020 

EBITDA

105,869 

123,431 

(39,426)

189,874 

Add/(deduct):

Intercompany interest expense/(income)

(9,011)

(3,269)

12,280 

-

Interest income

(167)

(63)

-

(230)

Direct costs related to COVID-19

12,836 

1,136 

38 

14,010 

Stock option expense

-

-

12,345 

12,345 

Long-term incentive compensation

-

-

3,566 

3,566 

Litigation settlement

-

(98)

(98)

Adjusted EBITDA

$

109,527 

$

121,137 

$

(11,197)

$

219,467 


-35-


RECONCILIATION OF ADJUSTED NET INCOME

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

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Net income as reported

$

66,456 

$

56,522 

$

130,625 

$

121,922 

Add/(deduct) pre-tax cost of:

Stock option expense

7,216 

6,239 

14,667 

12,345 

Amortization of reacquired franchise agreements

2,352 

2,352 

4,704 

4,704 

Long-term incentive compensation

1,517 

1,673 

2,827 

3,566 

Direct costs related to COVID-19

(80)

11,666 

1,270 

14,010 

Medicare cap sequestration adjustment

138 

-

138 

-

Other

28 

-

28 

-

Facility relocation cost

-

1,855 

-

1,855 

Litigation settlements

-

(98)

-

(98)

Add/(deduct) tax impacts:

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

(2,038)

(5,241)

(4,449)

(7,728)

Excess tax benefits on stock compensation

(2,499)

(868)

(3,940)

(4,106)

Adjusted net income

$

73,090 

$

74,100 

$

145,870 

$

146,470 

Diluted Earnings Per Share As Reported

Net income

$

4.40 

$

3.51 

$

8.62 

$

7.52 

Average number of shares outstanding

15,111 

16,101 

15,152 

16,205 

Adjusted Diluted Earnings Per Share

Adjusted net income

$

4.84 

$

4.60 

$

9.63 

$

9.04 

Adjusted average number of shares outstanding

15,111 

16,101 

15,152 

16,205 

(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.


-36-


CHEMED CORPORATION AND SUBSIDIARY COMPANIES

OPERATING STATISTICS FOR VITAS SEGMENT

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

OPERATING STATISTICS

2022

2021

2022

2021

Net revenue ($000)

Homecare

$

257,631

$

264,926

$

515,267

$

528,680

Inpatient

24,619

27,371

51,189

56,527

Continuous care

19,538

24,282

39,116

51,631

Other

3,213

3,078

6,220

6,016

Subtotal

$

305,001

$

319,657

$

611,792

$

642,854

Room and board, net

(2,166)

(2,657)

(4,283)

(5,322)

Contractual allowances

(3,054)

(3,065)

(6,039)

(6,309)

Medicare cap allowance

(2,000)

(2,000)

(4,500)

(3,500)

Total

$

297,781

$

311,935

$

596,970

$

627,723

Net revenue as a percent of total before Medicare cap allowances

Homecare

84.5

%

82.9

%

84.2

%

82.2

%

Inpatient

8.1

8.6

8.4

8.8

Continuous care

6.4

7.6

6.4

8.0

Other

1.0

0.9

1.0

1.0

Subtotal

100.0

100.0

100.0

100.0

Room and board, net

(0.7)

(0.8)

(0.7)

(0.8)

Contractual allowances

(1.0)

(1.0)

(1.0)

(1.0)

Medicare cap allowance

(0.7)

(0.6)

(0.7)

(0.6)

Total

97.6

%

97.6

%

97.6

%

97.6

%

Days of care

Homecare

1,266,604

1,335,482

2,525,276

2,665,374

Nursing home

259,046

244,423

507,514

477,206

Respite

6,095

5,338

11,463

10,178

Subtotal routine homecare and respite

1,531,745

1,585,243

3,044,253

3,152,758

Inpatient

23,155

26,493

47,742

54,167

Continuous care

20,802

25,786

41,884

55,086

Total

1,575,702

1,637,522

3,133,879

3,262,011

Number of days in relevant time period

91

91

181

181

Average daily census (days)

Homecare

13,918

14,676

13,952

14,726

Nursing home

2,847

2,686

2,804

2,636

Respite

67

59

63

57

Subtotal routine homecare and respite

16,832

17,421

16,819

17,419

Inpatient

254

291

264

299

Continuous care

229

283

231

304

Total

17,315

17,995

17,314

18,022

Total Admissions

14,735

16,840

31,265

34,975

Total Discharges

14,603

16,525

31,465

35,054

Average length of stay (days)

103.7

94.5

104.3

94.4

Median length of stay (days)

17.0

14.0

16.0

13.0

ADC by major diagnosis

Cerebro

37.6

%

36.8

%

37.5

%

36.5

%

Neurological

22.7

22.4

22.8

22.3

Cancer

11.2

12.1

11.2

12.2

Cardio

15.8

15.6

15.8

15.6

Respiratory

7.2

7.3

7.3

7.5

Other

5.5

5.8

5.4

5.9

Total

100.0

%

100.0

%

100.0

%

100.0

%

Admissions by major diagnosis

Cerebro

23.8

21.4

%

23.4

%

21.5

%

Neurological

13.0

12.3

12.9

12.3

Cancer

27.3

28.9

26.0

26.9

Cardio

15.4

14.8

14.7

14.5

Respiratory

9.9

10.5

10.6

10.7

Other

10.6

12.1

12.4

14.1

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

33.7

36.3

n.a.

n.a.

Days of revenue outstanding- including unapplied Medicare payments

28.2

21.0

n.a.

n.a.


-37-


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 June 30, 2022, the Company had $116.8 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.


-38-


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 six 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

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

None.

Item 5.    Other Information

None.


-39-


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 June 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 June 30, 2022, formatted in iXBRL and contained in Exhibit 101.


-40-


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:

July 29, 2022

By:

/s/ Kevin J. McNamara

Kevin J. McNamara

(President and Chief Executive Officer)

Dated:

July 29, 2022

By:

/s/ David P. Williams

David P. Williams

(Executive Vice President and Chief Financial Officer)

Dated:

July 29, 2022

By:

/s/ Michael D. Witzeman

Michael D. Witzeman

(Vice President and Controller)

-41-