Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to be Chemed Corporation first quarter 2020 earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation will be a question answer session asking question during the session you'll need to Chris Star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, Sherri Warner with Investor Relations. Please go ahead now.
Good morning, Our conference call. This morning will review the financial results for the first quarter of 2020 ended March 31st 2020 before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 applied at this conference.
Recall during the course of this call the company will make various remarks concerning managements expectations predictions plans and prospects that constitute forward looking statements actual results may differ materially from those projected by these forward looking statements as a result of.
Variety of factors, including those identified in the company's news release of April 28, and various other filings with the FCC you were cautions that any forward looking statements reflect management's current views only and that the company undertakes no obligation to revise or update.
Such statements in the future. In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA.
A reconciliation of these non-GAAP results is provided in the company's press release dated April 28, which is available on the company's website at Chemed Dot Com I would now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave will.
I am executive Vice President and Chief Financial Officer of Chemed, and Mick Westfall, President and Chief Executive Officer, I cannot be tough Health Care Corporation subsidiary I will now turn the call over to Kevin Mcnamara.
Thank you Sherri good morning, welcome to Chemed Corporation's first quarter 2020 conference call.
I will begin with highlights for the quarter and David and Mick will follow up with additional sporting detail I will then open the call for questions.
First let's start with the obvious.
Look quarter virus and related shutdown of significant portions of the U.S. economy. In March 2020 has triggered significant operational issues of disruption in both of our business segments. That's specifically.
Our labor scheduling goes by change Fortunately, both VITAS and Roto Rooter are classified as a central services along came up the opportunity to continue to operate both operating units throughout the pandemic.
Well ever make no mistake this is that business as usual.
Operating during a pandemic with an incredibly infectious and deadly virus creates unique challenges first and foremost our number one focus is the safety and well being of our employees patients and customers. We will maintain their focus regardless of the cost to safety.
To operate during the panic pandemic.
And panic starting in March you've seen us significant escalation in cost of.
Some supplies primarily in the area of personal protection equipment or PPD.
Additionally, our exposure is experiencing increased labor costs as Weve robustly staff schedules to increase our ability to meet the immediate needs of our patients family and industrial customers.
We've also followed state and federal guidelines and are providing the infrastructure necessary to allow field support and corporate staff to work from home and limit as much as practical physical interaction among our 17000 employees.
On the vehicle segment, the federal government, and specifically HHS and CMS has been exceptionally supportive in terms of relaxing regulations, and creating pragmatic flexibility and caring for our patients.
During the term of this pandemic I anticipate some disruption around our patient referrals.
Total patterns admissions expanded 4.8% in the first quarter of 2020, however, as we began to experience disruption to the health care system in the second half March admissions increased the modest 1.1% for the month when compared to the prior year.
Hospital referral admissions typically represent roughly 50% of our total admissions and our key portal for identifying terminal patients.
In fact, our admissions from hospital referrals increased 7.9% in the quarter.
However, as hospital shift their focus to covert 19 patients. It is likely for short term disruptions to emerge in our hospital referral patterns.
We have continued working closely with our hospital partners to identify patients within the hospital care continuum, who are hospice appropriate.
As most of you are aware on March 27 2020.
Cares Act was passed and signed into law by President Trump. The cares that contains provisions related to health care providers operations and issues caused by the CRO to virus pandemic.
On April 10th 2023 times without application received $80.2 billion from the Cures Act really fun as a formulaic calculation applied to Vitaros.
40, 19, Medicare fee for service revenue.
While specific granular details of the program not been announced further specified to be used prepare for and respond to corona virus and shell reimbursed. The recipient for healthcare related expenses are lost revenues that are attributable to the quota virus.
The ability of the task to retain and utilize the full 80.2 billion from the relief I will depend on the magnitude timing and nature of the economic impact of Cobot 19 within Vitaros as well as the guidelines of rules of the federal Leap program.
This financial support this material for Vitaros and maintaining its operational capacity to safely and appropriately care for over 19000 patients daily.
The cares that funding provides for vitaros to operate in the near term with increased labor costs higher PPD and equipment costs as well as disruption to hospital referrals without a material negative impact to our operating results and their overall financial condition.
Roto Rooter continued continues to operate at full capacity. However in March of 2020, we noticed disruption in our commercial business.
Commercial plumbing and drain cleaning services represented 28% of total revenue in 2019 with the shutdown of most restaurants that retail businesses. We've noticed the demand impact on this subset of our commercial business. Fortunately, our first quarter 2020 revenue service demand, which typically represents over six.
The 1% of road Roto Rooter revenue continues to remain solid.
David will provide additional color on rotor revenue later in the call with that I would like to turn this teleconference over to David.
Thanks Scott.
Does this net revenue was $338 million in the first quarter of 2020, which is an increase of 10.1% when compared to our prior year period. This revenue increases comprised primarily of a 5.9% increase and days of care geographically weighted average Medicare reimbursement rate increase of approximately 5%.
In acuity mix shift, which then reduce the Medicare rate increase approximately 90 basis points.
The combination of a decline in Medicare cap increase in Medicaid net room and board pass through and other Contra revenue activity had minimal impact on overall revenue growth in the quarter.
Our average revenue per patient per day in the first quarter of 2020 was $198, a 99 cents, which including acuity mix shift is 4.1% above the prior year period.
Reimbursement for routine homecare and high acuity care averaged $164 in 14 cents and $990.72 respectively.
During the quarter high acuity days of care were 4.2% of total days of care 21 basis points less than the prior year quarter.
21 basis point mix shift in high acuity days of care reduce the increase in average revenue per patient per day from 5% to 4.1% in the quarter.
In the first quarter 2020 beat asset grew $2.5 million and Medicare cap billing limitations. This compares to prior year Medicare cap billing limitations of $3.4 million.
Because currently has 30 Medicare provider numbers during the first six months of fiscal 2020, Medicare cap year 23 of these provider numbers have a Medicare cap cushion of 10% or greater two provider numbers have a cap cushion between 5% and 10% to provider numbers have a cap cushion between zero and 5%.
And three of our provider numbers have an estimated 2020 Medicare cap billing limitation.
The first quarter 2020 gross margin for VITAS, excluding Medicare cap was 23.8%, which is 108 basis point margin improvement when compared to the first quarter of 2019.
Selling general and administrative expense was $22.3 million and the first quarter of 2020, which is an increase of 3.4% compared to the prior year quarter.
Adjusted EBITDA, excluding Medicare cap totaled $60.2 million in the quarter, an increase of 21.2% and our adjusted EBITDA margin, excluding Medicare cap was 17.7% in the quarter, which is 167 basis point improvement compared to the prior year period.
Now, let's look at Roto Rooter, Roto Rooter generated quarterly revenue of $178 million for the first quarter of 2020, which is an increase of $22.6 million or 14.6% over the prior year.
On a unit per unit basis, which excludes our Oakland and HW acquisitions completed in July and September 2019, respectively, Roto Rooter generated quarterly revenue of $158 million for the first quarter of 2020, which is an increase of 1.6% over the prior year.
Excluding acquisitions commercial drain cleaning revenue was equal to the prior year commercial plumbing and excavation declined 4.3% and.
And commercial water restoration declined 15.5%.
Commercial water restoration represents approximately 10% of our total water restoration service revenue and overall commercial revenue, excluding acquisitions decreased 3.5% 3.5%.
It's on a residential side, if we exclude acquisitions residential drain cleaning increased 4.1% plumbing and excavation for residential increased 4.4% and residential water restoration decreased 1.9% overall residential sales excluding acquisitions increased 2.4% in the quarter.
Right or would have gross margin in the quarter was 48.1% 105 basis point increase compared to the first quarter of 2019.
Adjusted EBITDA in the first quarter of 2020 totaled $40 million was an increase of 19.5%.
The adjusted EBITDA margin in the quarter for Roto Rooter was 22.5%, which is a 92 basis point improvement compared to the prior year.
As of March 30, Onest 2020, Chemed had total cash and cash equivalents of $29 million and long term debt of $160 million.
Regarding our outlook for 2020, certainly operating during the pandemic has the potential to materially impact the operational metrics and overall operating results of the company.
However, it is expected at the care that funds received by the das will be sufficient to substantially offset anticipated costs and lost revenue related to the cobot 19 pandemic.
Roto Rooter is anticipated to receive minimal financial support from the cares Act. However, it's important to consider Roto Rooters main service is to stop water and raw sewage from flowing and causing disruption to residential and commercial structures is primarily a necessity and Greg service that has historically been resistant to even the deepest.
Recessions.
We are early into the disruption caused by cobot, 19, pandemic and and related shutdown as significant portions of our economy.
It is premature premature and in fact impossible to reasonably measure or predict the impacted cobot 19 will have on roto rooters full year 2020 operating results.
Recognizing these issues, we anticipate providing updated 2020, earning guidance when we issue our second quarter 2020 operating results.
Ill now turn this call over to Nicholas fall, President and Chief Executive Officer of our beat our subsidiary.
Thanks, Dave.
Before I discuss our first quarter metrics and provide some additional color on lot VITAS has been doing operationally during this unprecedented pandemic.
I first wanted to thank every member of our VITAS team for their passion commitment and unwavering dedication being displayed each and every day.
As hurricanes wildfires and other natural disasters have taught us in the past. This pandemic has brought our organization together to remind ourselves we will persevere through even the toughest of challenges and do it together.
Now, let's dive into the first quarter of 2020 operating metrics.
The first quarter, our average daily census was 19215 patients an increase of 4.7% over the prior year.
Total admissions in the quarter were 18603.
This is a 4.8% increase in admissions when compared to the first quarter of 2019 and is a continuation of admissions improvement over the previous five quarters.
This admissions performance as a result of our collective organization striving to improve all aspects of our ability to differentiate between us.
And efficiently serve the patients families and referral sources in each of the communities we operate.
As Kevin mentioned in his opening remarks, the need to be the best partner in the communities. We serve is only amplified during his pandemic.
During the quarter admissions increased in the three largest contributing premium at locations when compared to the first quarter of 2019.
Hospitals, which typically represent roughly 50% of our admissions increased 7.9%.
Home based admissions increased 2.8%.
In nursing home admissions expanded 20 basis points.
Assisted living facilities had a decline in estimates of 4%.
Our average length of stay in the quarter was 90.7 days. This compares to 91.3 days in the first quarter of 2019 and sequentially to 95.2 days in the fourth quarter of 2019.
Our median length of stay was 14 days in the current quarter, which is one day less than the 15 day medium in the prior year quarter in compared sequentially to a 16 day median length of stay in the fourth quarter of 2019.
Median length of stay is a key indicator of our penetration in the high acuity sector of the market.
Before I turn this call back over to Kevin I want to provide some additional color as to why VITAS is doing operationally during this unprecedented time.
As Kevin mentioned in his opening comments, our top priority has been ensuring the safety of our employees the patients we serve and their families.
Im proud to say, we've been able to achieve this priority to date through Swift prudent decision, making to anticipate in here to all CDC guidance.
And leverage the supportive relief, we partner to vocalize with CMS and HHS.
This includes leveraging our own vitaphone devices to provide tele health when needed for our team members healthcare partners patients and their loved ones.
Additionally, we've been successful in our tireless efforts to source appropriate ERP by any means possible, allowing us to not negatively impact our ability to admit new patients as well as service our existing patients since the start of the pandemic.
Additionally, we've taken a proactive approach to communicate and collaborate with our local partners and all the communities we serve to minimize the patient access disruption occurring as a result of the prescribed changes to the healthcare system.
This approach is specific to the market and the partner, whether a hospital nursing home assisted living facility or physician practice as each are uniquely navigating how this pandemic has impacted their ability to service their communities.
For example for the most bar we've been successful working with our nursing home and facility partners to continue to access these locations given the importance of our role for placement of new admissions along with caring for existing residents that are on VITAS service.
As certain markets across the country prepare to reopen in a phased approach. We are similarly, working with our partners to remind them, we will adjust in lockstep to help support them to receive care for eligible patients as we plan for this new normal.
I couldn't be more proud of the team and what we're going to continue to accomplish and serving our communities. During these times.
With that I'd like to turn the call back over to Kevin.
Thank you Mick.
I will now open this teleconference to questions.
Thank you as a reminder to ask your question you'll need to press star one on your telephone.
Good question first thank you. Please stand by we composite using roster.
First question comes from.
With bank of America.
Good question.
Hi, everybody as you actually about bad Bowers on for Kevin today, Thanks for taking question.
So I appreciate the color that you gave on.
Renewed or being constructed resistant to recession I appreciate that.
So are you talking about that on a relative basis or is there any sort of decline or deterioration in the business that we should be thinking about it.
In case or a session.
Yes. This is Dave Williams.
So, let's just compare the difference between what we're seeing early on between our recession have pandemic. The recession typically results in a slowdown of volumes through some of our commercial account for example restaurant volume may be down, although we do a fair amount of retail business, where we'll fix in repair.
Say bathrooms, and Baker and break rooms for our retail customers think of our stores.
So unlike our recession. This pandemic in many states has resulted to a complete shutdown of retail.
As people are hunkering down in home. So that volume is obviously down massively not completely but massively overseen by a lot of strength has a lot of people are in their residents and utilizing their plumbing and drain cleaning capacity so without a doubt we're seeing strength in residential weakness in some aspects of our comes.
Arsenal and the real wildcard is frankly, how long will retail be shut down versus just reduce capacity because of lower shopping rates and the same theory applies to restaurants restaurants that are doing phenomenal takeout that business is holding up nicely sit down restaurants that don't have the ability to do take.
Got it in our shutdown by state mandate, we're getting zero business. So we'll see keep in mind, a one critical aspect of the roto rooter.
Business model is it's substantially a variable cost model. Our technicians are paid on commission if the revenue doesn't happen the labor doesn't happen, we don't have labor expense in that regard.
I'll turn it over to Kevin No nothing I would say with regard to the rollover business.
They have you wishful thinking, but we really think fit to the extent that we were saying.
Sector weakness.
But.
Basically as Dave implied we're holding onto our servicemen and technician centric mish technicians were continuing to add people.
We really think.
That is going to be a flipping a switch with regard to roto rooter, one of the where businesses that to the extent of these businesses have gone from closed the open.
Our expectation is that business too would return in short order so.
Roto Rooters, one end the spectrum of that with regard to VITAS. You said, if we say that Oh my gosh the business of hospitals have been totally disruptive to have a totally different mix of patients were we have a high dependence on.
Hospital admissions it may take a while for that to return to normalcy.
Roto Rooter I would that I would anticipate being available spectrum with more of a flipping a switch and Kevin actually brings up an extremely positive point again on the road or model and that is.
When the economy returns to normal Roto Rooter is up and running our customer relations are intact. Our technician employee base is intact and quite frankly, we're looking at the possibility of even stronger commercial business down the road because.
We compete predominantly against mom and pop plumbing and drain cleaning companies and those smaller businesses actually tend to focus on certain sectors, our plumbing emergency plumbing and repair and has a number all competitors in all of our markets that focus exclusively on commercial they're going to have a tougher time coming back and roto rooter.
So we're actually anticipating an opportunity to pick up share in commercial post pandemic.
So we've been saying is that those companies have furloughed or terminated.
They are working staff, because they can't afford to pay him.
And there is no business from the do.
Got it Thats very.
Very very helpful. I appreciate all the color on that.
Just.
And to the because there is a little better I guess actually in both sides of business would you be able to breakout.
The difference in volumes between.
First two months in the quarter and then maybe the last two weeks in March or whenever you start to see the disruption.
And then.
Good.
So in in it generality as you look at our overall admissions number for the quarter being at 4.8%.
We are running at that high for low 5% throughout the entire duration and as Kevin alluded to in his opening comments. The net result for March.
Ended up being up just 1.1% from an emissions perspective, but the phasing of sort of the referral disruption to the healthcare system was very much.
Picked up at different points of March so the on March 4th I know specifically across the country. There were mandates around access restrictions both from a hospital perspective as well as our facility partners and as you got through the middle part of March as bed capacity got reduced in the hospital systems really prepared.
To focus on managing the pandemic across different markets.
As well as physician practices move towards shutdown and really operating in a exclusive tele health capacity, we saw degradation in the referral and admission patterns, but with that being said, it's not large it's not catastrophic the need for.
Appropriate patients and the value of our partnership to continue to work with those healthcare systems. So that they understood. We are ready and available to an educated and safe to respond to those patients needs respond to the family needs and bring them on the service appropriately we've really been.
Really proud of the team as we navigated what is by definition.
Slightly lower referral volumes, but but nothing dramatic at this stage as the only thing I'd say roto Rooter and again this is.
Started going to generalize sense.
What we've seen the roto rooter is the residential.
Business.
As far as sales being up okay, not you know.
Not the upper flat on an ongoing basis.
We're shooting for flat.
But the problem is more but other commercial again, we view that is relatively.
A short term issue.
Yeah, it's kind of by that would really characterize both businesses given the strength of our balance sheet and the variable cost of what I would say is are the major expenses labor.
We've got rotor it on a technician side just all commission days are predominately commission based and details quite frankly is just scrambling to deal with our 19300 patients we have but both of the businesses are going to hold up well I can't make any prediction on 2020 earnings except will have earnings will have good.
Strong cash flow, but the reality of what we're looking at for the business. This is intact our capabilities, our ONTAP, our ability to manage patient inflow and roto rooter demand when the pandemic ends and we normalized wont be impeded in the least but what we can't say as well.
Certainly not with the last 25 cents, what will Q2 look like but frankly to a great degree we don't care.
We're managing our business, we're managing to take care of all of our customers and patients and the business won't be hobbled in the lease from the pandemic.
That's all very helpful. That's it for me Thanks Stacy guys.
Thank you. Our next question comes from Anton Hie with.
RBC capital markets. You May proceed with your question.
Okay.
Hey, Frank Morgan here.
Question on.
Obviously, you gave some color about the sequential well within the quarter Im just curious if you could give us any color about where either you or.
80 cents is as of today or kind of what you're seeing is the current run rate.
In.
In the second quarter I know, we've had some providers.
To give some insights into where they are in the.
In the second quarter and.
So I guess it would be my first question second one on the same topic have you had many discussions with your referral sources.
A lot of hospitals are now in discussions about sort of the the rebuilding and the preparation for the return.
I'm just curious if you're having those conversations and then my last one is.
You talked about share gain opportunities on the commercial said some of these specialized.
Plumbing.
Predators, but I'm just curious about.
Are you thinking too about acquisitions or is it just is it just cheaper to take market share that is actually by mark here. Thanks.
Let me start by good one element of this I'll turn over to deck, but let me start by saying that our view on be tosses.
Yes, we're seeing.
Some of the first of all our census is.
The strong and firm.
With regard to the business.
What we've talked about this.
Disruption in the admitting patterns, which we've got to remember that.
More than half michelle's come from hospitals, which are.
Totally screwed up right now, but getting back to normal, but I guess from the way we look at.
As a general rule generally will be passes look we have disruptions. We have situation. We are paid we will pay more for PPD, but the government gave us $80 million to cover.
Elements like that and it's hard for us to imagine we're not going to get through this period of the pandemic and back to normal with all those disruptions.
We have got remember we also have sequestration is.
Relax through the big first the or we're going to be covered on that I think very solidly theres all sorts of operational issues and I'll turn it over Nicholas nickleby dealing with but.
That is not something we're looking to be looking to see as a problem financially.
Through the expected course of the pandemic and lastly, I'll say with regard to erode were building acquisitions. We just we just take market share the acquisitions we.
Only purchased Roto rooter.
Branded plumbing and and.
So typically higher there plumbers thatll be great.
The business will come but no. We look we look forward just grinded out.
Market by market.
Louvers in the on the road or side, but Nick anything more you'd want to say with the Frank with regard to that just reiterate kevins point for what we've experienced to date AIDC is.
Stabilized and as I alluded to in my comments were able to safely service all of our existing patients and new patients regarding the second question for referral sources as they begin to reopen we absolutely are sitting hand in hand, and by definition is dependent on the strength of the relation.
Chip, where we're working with them to navigate not only how we're servicing them today, but when they are expected phasing of say modifying the current discharge planning process looks like so that we are in lockstep.
With them as patients continue to now traverse hospital systems as well as some of the other some of the other facilities. So.
The strength of partnerships has really just been amplified like I mentioned inside of mine and side of my comments and we feel good about that.
And where we are right now, but recognizing the need to be in lock step as an.
Waiting for them to pick up the phone and call. It three weeks later, so we're doing all that we can to make them become aware were.
Educated committed and ready to help service them in every capacity and in some of the CMS and HHS provisions of really helped with that.
Go back to the telehealth component so that weekend.
Really service patients families and referral source needs in this new normal right now.
Okay. Thank you very much.
Thank you.
And I'm not showing any further questions at this time I would now like turn the call back over to Kevin Mcnamara.
Okay well.
Mobile World, we were very pleased with our with our quarter and.
Again, I think bill good handle on the business going through the second quarter and then this type of environment.
The one I'd man the inland the blind the one I van is king so.
We're very happy with how things are going and bell.
Leave it at that and prepare shaking their heads and.
So in three months.
Thank you I'm not showing any further questions at this.
Ladies and gentlemen, this concludes todays conference call. Thank you for participation you may now disconnect.
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