Q1 2022 Chemed Corp Earnings Call
Good day and thank you for standing by welcome to the Chemed Corporation first quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode. After.
After the Speakers' presentation, there will be a question and answer session. Please.
Please be advised that today's conference is being recorded to.
To ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Holly Schmidt. Please go ahead.
Good morning, Our conference call. This morning will review the financial results for the first quarter of 2022 and at March 31, 2022, before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call the company.
Will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements actual actual results may differ materially from those projected by the <unk>.
These forward looking statements as a result of a variety of factors, including those identified in the company's news release of April 26, and in various other filings with the SEC.
You are cautioned that any forward looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future.
In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA.
A reconciliation of these non-GAAP results is provided in the company's press release dated April 26, which is available on the company's website at Chemed Dot Com I would like now to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams, Executive Vice President and Chief Financial Officer of Chemed.
And Nick Westfall, President and Chief Executive Officer of cabinets, VITAS Healthcare Corporation subsidiary I will now turn the call over to Kevin Mcnamara.
Thank you Holly.
Good morning, welcome to Chemed Corporation's first quarter 2022 conference call I will begin with highlights for the quarter and David and Nick will follow up with additional operating detail.
I will then open up the call for questions.
Our first quarter 2022 operating results released last night reflect very solid performance for both VITAS and Roto Rooter.
Both operating segments financial results exceeded our internal estimates despite the continued disruption triggered by the pandemic.
For VITAS. This disruption remains elevated with regard to the hiring and retention licensed health care professionals.
<unk> news and we will report is estimated as many as 20% of licensed health care workers exited the labor market during the pandemic.
This is impacted turnover within VITAS is licensed staff.
Our turnover rate continues to be above our.
Pandemic rates in several of our professional classifications.
Fortunately, we are beginning to see indications of normalization as we continue to expand resources focused on hiring and retention initiatives in our markets.
Beyond managing staffing levels, we are absorbing increased pressure on salaries and wages.
Date, we manage these pressures with increased paid time off or PTO. We view. It is inevitable that health care wages will permanently increase if we continue to have a nationwide systemic imbalance in supply and demand for license health care professionals.
The guidance, we issued earlier this year and anticipate significant increases in overall compensation.
Licensed health care professionals, when compared to pre pandemic annual compensation rates.
Fortunately for VITAS and the hospice industry, there is a natural hedge against inflationary pressures on cost specifically labor.
The annual increase in Medicare and Medicaid hospice reimbursement rates is based primarily on inflation in the hospital wage index basket as measured by the Federal government's Bureau of Labor statistics.
Typically.
The annual inflation measured as of March 31 is used to determine the following October one reimbursement increase.
This should give the hospice industry reasonable long term stability and operating margins and an inflationary environment.
Albeit with a six to 18 month lag from inflation measurement to the actual reimbursement increase.
The second pandemic triggered challenge for VITAS is the continued disruption to senior housing occupancy and related hospice referrals. Our recent admission data suggests senior housing is in the process of recovery.
Pre pandemic nursing home based patients represented 18% of our total average daily census, or AUC.
The nursing home ADC ratio to the low of 14, 3% through the pandemic and the.
The fourth quarter of 2021.
Home based patients represented 15, 6%.
However, total ADC.
This increase an additional 30 basis points to 15, 9% in the first quarter of 2022.
Our 2022 guidance anticipated sequential improvement in senior housing based patients in the first quarter of 2022 with an acceleration in senior housing emissions anticipated throughout 2022.
Roto Rooter.
Our most significant challenge has been to increase manpower.
Kris technician headcount by 8% in 2021.
Technician manpower in April 2022 .
As expanded six 8%.
When compared to the average.
Q1, 2021 head count.
The April 2022 head count has expanded three 3% when compared to our average manpower in the fourth quarter of 2021.
Based on current service demand levels Roto Rooter continues to remain understaffed and many of our markets.
A technician compensation.
Plays a crucial role in recruiting new employees as well as retention of our existing base.
Our average 2021 technician in field sales force compensation is over $81000 per year.
Most of our technicians are paid on a commission base.
Banner on revenue generated as a result pricing for our services is a critical component and increasing technician wages.
We successfully implemented an inflation based price increase at the beginning of 2022.
We'll carefully monitor key inflation metrics for consideration of additional price increases in the second half of 2022.
Roto Rooter is well well positioned post pandemic and.
And we anticipate continued expansion of market share by pressing our core competitive advantages in terms of brand awareness customer response time.
Four seven call centers and Internet presence with that I would like to turn this teleconference over to David.
Thanks, Kevin.
VITAS is net revenue was $299 million in our first quarter of 2022, which is a decline of five 3% when compared to the prior year period.
The revenue decline is comprised primarily of a four 1% decrease in our days of care, partially offset by a geographically weighted average Medicare reimbursement rate increase of approximately one 3%.
Acuity mix shift had a net impact of reducing our revenue approximately $7 $1 million or two 2% in the quarter when compared to the prior year revenue and level of care mix.
The combination of Medicare cap and other contra revenue changes offset a portion of this revenue decline by approximately 30 basis points and.
In the first quarter of 2020 to VITAS accrued $2 $5 million in Medicare cap billing limitations. This compares to $1 5 million of Medicare cap billing limitations in the first quarter of 2021.
Our VITAS has 30 Medicare provider numbers 28 of these provider numbers have a Medicare cap cushion of 10% or greater and only two provider numbers have an estimated fiscal 2022, Medicare cap billing limitation liability.
Roto Rooter generated revenue of $231 million in the first quarter of 2022, which is an increase of $19 $8 million or nine 4% when compared to the prior year quarter.
Roto Rooter branch commercial revenue in the quarter totaled $54 $4 million, which is an increase of $6 $9 million or 14, 4% over the prior year quarter.
This aggregate commercial revenue growth consisted of drain cleaning revenue, increasing 17% plumbing, increasing 17, 1% water restoration, expanding eight 6% and excavation increasing seven 1%.
Roto Rooter branch revenue in the quarter totaled $157 million, which is an increase of $10 $5 million or seven 2% over the prior year period.
This aggregate residential revenue growth consisted of drank lenient, increasing three 1%.
Flemming expanded 14, 6% and excavation increasing five 9% with water restoration, increasing seven 7%.
Now, let's turn to <unk>.
Kim at on a consolidated basis.
During the quarter Chemed repurchased 57500 shares of stock for $27 $4 million, which equates to a cost per share of $475 and 71.
As of March 31, 2022, there was approximately $175 million of remaining share repurchase authorization under this plan.
Chemed restarted its share repurchase program in 2007 since that time 10 minutes repurchased approximately $15 8 million shares aggregating approximately $2 billion at an average share cost of $126 and 42.
Including dividends over this period Kemet has returned approximately $2 2 billion to our shareholders.
We anticipate providing two.
2022 updated guidance as part of our June 32022 earnings press release, I'll now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS subsidiary.
Dave and.
In the first quarter, our average daily census was 17313 patients a decline of four 1% over the prior year.
This year over year decline in average daily census is a direct result of the pandemic related disruptions across the entire health care system since March of 2020.
In the first quarter of 2020 to VITAS admissions in total were 16530. This is an eight 9% decline when compared to the first quarter of 2021 admissions and a one 7% sequential increase when compared to the fourth quarter of 2021.
In the first quarter on a year over year basis, Our hospital directed admissions declined 15, 7%.
Total home based pre admit admissions expanded to 8% nursing home admissions increased seven 8% and assisted living facility admissions declined seven 4%.
Our average length of stay in the quarter was $104 eight days. This compares to $94 four days in the first quarter of 2021 and $97 nine days in the fourth quarter of 'twenty.
'twenty one.
Our median length of stay was 14 days in the quarter and compares to 12 days in the first quarter of 2021, and 15 days in the fourth quarter of 2021.
With that I'd like to turn this call back over to Kevin.
Thank you Nick.
Now it's appropriate to consider any questions that come before the group.
As a reminder to ask a question you will need to press star one on your telephone.
Draw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Joanna <unk> of Bank of America. Please proceed.
Yes. Good morning. Thank you so much for taking the question. So I guess a couple of follow ups first though.
<unk> said that the quarter was better than internal expectations. So can you quantify the magnitude of how much better with the partners internal and I guess, what drove that I mean versus our model and the street estimates seems like margins were better. So can you kind of plateau.
Any major <unk>.
<unk> for that and then our dose or doses staying at home.
Let me start just by.
I made that comment and I would just benefit.
We gave guidance in February and obviously, we're a little ahead of that guidance and.
Yes.
Gratified by that overall performance, but Dave pointed out obviously, our margins were a little bit higher than we anticipated.
That's right and so it really comes down to is what I just call. The the sequential acceleration of inflation. So on average we certainly expect more inflation in say Q2, three and four than Q1 or say differently more inflation cost escalations in Q2 over Q1, and we expect Q3 to be a little more difficult with inflation in Q2.
Two so sequential pressure all other things held constant assuming we don't do anything too.
Remediate some of the inflation pressures, but with that said Joanna yes.
VITAS beat on margin they were like what Nick roughly a fraction of 1% below where we thought on revenue margins were a little stronger to the tune of call. It.
A couple of million dollars.
So we try to avoid parsing things in terms of internal guidance on quarters, but.
VITAS basically came in at revenue stronger by slightly by you know.
100 ish basis points on margin that we're pleased with roto rooter beat a little bit on revenue and definitely beat on margin not to the magnitude of VITAS, but pretty solid quarter as well.
Relative to our internal estimates Joanna again, I'll use adjectives not not specific numbers, but underlying roto rooter. We were exceptionally pleased for a couple of reasons one of which was we kept talking about what we expected was the pivot from residential to commercial as the kids go back to bricks and mortar schools.
Parents start returning to a place of work at least for a few days a week. So we fully expected commercial do increase restaurant retail business all of the above and that happened at 14 plus percent inquiries on revenue and the commercial side that was a little higher than our internal estimates, but what we were super pleased that as we continue to have some really.
Really really solid growth in roto rooter residential and that grew at a little over 7%. So from our internal estimates were seeing a great pivot to commercial without really what I would consider any weakness on the residential side margins are stronger because we were conservative on inflationary pressures starting right away in Q1, clearly it will.
Boyle throughout the year.
VITAS side, obviously, we're taking more effort to just maintain what I'd call.
Strong labor presence to maintain quality of care and plans of care and we're just like I said trying to manage the balance of licensed health care workers on the Roto Rooter side more dynamic if we see inflationary pressures will continue to raise prices if that's appropriate and we have to look at pricing as a major tool because that maintain.
James or plumbers, and drain cleaners, and SD enticement for people to come on board to the Roto Rooter team.
So, yes, we outperformed internally.
We'll say.
Modestly better than I would've realistically thought at the high end, but the reality is we are going to have a little bit of pressure going forward, but I feel exceptionally comfortable on our macro guidance.
No that's great color I appreciate the details and I guess to this last point talking about the labor pressures. So you said that you know you.
Your guidance or the headaches that go I assume.
Significant increases in compensation I guess in your prepared remarks, you guys made that statement. So so can you quantify for us what exactly.
In terms of Oh, it's in now.
We don't give that granular detail and certainly within a quarter.
Okay, and then when I was talking about a quarter about talking about a full year.
No no no because.
No we won't go into that kind of detail either.
Okay.
And then I guess on the flip side, where the Medicare rate update the proposal came out calling for you now.
Roughly 4% rate update so what was this kind of how you were expecting and modeling.
Including in the guidance and I guess anything Allison that proposal that.
Are you looking at that.
It should be also focus on.
I'll comment on the proposed rate increase and I'll defer to Nick and Kevin on some of the other components in that proposed rule, but no actually I was surprised at how low the number wise and then I was also a little surprised that they actually didn't give the underlying metrics to do that calculation. Historically CMS is to utilize the hospital wage index basket from.
April one to March 31, and that's the that's the solid data from the BLS day used for the October the following October one increase.
And with the slight re basing that they did in October one of 2021, there was a little bit more shift of CPI, a little less emphasis on the hospital wage index basket, but the way the ratio of roughly works is 65% of the increase is the hospital wage index basket, 35% is based upon CPI or inflation.
So I was surprised when they came out in the second or third week of March before that data is finalized with their proposed rule, but more importantly, the headline number on CPI at March 31, 2022 was eight 5%. If you just take 35% of eight 5% as sundar hostile way.
The index basket will lease lat no increases in that regard.
You would come up with obviously, a larger number than theyre proposing even after you take out the 40 bps of productivity factor that they included an of course most of that is supposed to relate to that hospital wage index basket, but I really want to see the underlying data and it does seem like CMS is building in more of a lag from the <unk>.
<unk> of inflationary pressures in hospice and to the point, where they pass it through to reimbursement on October one we obviously didn't use the march numbers at the very least literally but even still I think the CPI pressures than what was the previous what was the number through February with $7 nine or something like that so we're curious to see the underlying data at the end of the day they.
Could create more of a lag but at some point.
The way the reimbursement factors work reimbursement will catch up in totality to the total inflation over whatever time period, and we want to talk about.
So as it relates to the other aspects of the of the rule in general.
As well as guidance, we put a realistic estimate in inside of that last quarter. So wont materially impact our full year guidance will be able to talk more specific about it after the second quarter, when we update guidance and we have more clarity as the final rule starts to come out.
For the non wage related aspects, which are almost as equally important in some years more important than the rate itself. We were pleased to see it was consistent with our expectation that there were not a lot of material.
Regulatory changes, which then in turn create process changes additional administrative burdens, which over the past year a lot of those things had a had been incorporated in so pleasantly surprised but consistent with expectations given everything else going on in the industry.
It was everything that was anticipated and we will continue to have a minimal disruption by implementing any minor.
Minor items that would go final.
In August for the October one effective date.
No. Thank you I appreciate the comment on especially at the fact that there were no additional changes at Oh, it's good, especially with everything that's going on but yes on the on.
On that front in the last question on Vita. So you talk about actually you gave us a great start in terms of including.
Increasing your workforce on the photo side. So can you give us some stats on that on Davita side in terms of your.
Net hiring are you you mentioned that turnover was still high but it sounds like Youre still.
You know so we're not where you were expecting or maybe not where it should be so its opinion give us some kind of.
The pieces in terms of turnover improving in recent months and also net hiring or any kind of mass.
Measurements you can provide.
<unk>.
I know that the head count on Davita side. Thank you.
So consistent with how Dave was talking about and Kevin was talking about first quarter performance based upon adjectives from a description perspective I'll do that as it relates to some of the hiring components since we don't release those aspects publicly.
Overall is our net hiring rate and turnover rate performing better than our 2019 levels pre pandemic no its not thats, what we alluded to inside of our commentary however, there have been.
Some encouraging signs from a trend perspective inside of the quarter as VITAS no different than any other health care provider continues to double and triple down with an absolute focus on both recruiting and retention retention for in particular, our clinical workforce like we've been.
Consistently talking about for the last last few quarters.
Positive progress, but yet like everything in hospice. It is a market specific impacts. So there are some markets where we're seeing.
Real positive progress Theres, others, where we're continuing to flip the proverbial pancake too.
Can you just try to make headwinds, but at the end of the day that we will have the biggest impact on.
<unk> 2022, 2023, no different than it does for every other hospice provider out there in terms of our ability to continue to attract and retain high quality clinicians.
Okay. So I guess that you're seeing some improvement and thought there's like the kind of the net head count on the beta side is also improving.
We're seeing positive trends as it relates to it and.
You know and and so day to day, it's a day to day battle not only amongst a competing with others in the industry, but others outside of home care and the nursing home segment and the hospital segment in the travel nurse.
Contract Agency segment. So we're all we're all searching for similar resources and like I said, it's <unk>.
Day in day out, but but I'm happy with the level of effort and focus the team has put in and I promise you. We'll continue to put in as we traverse the rest of 'twenty two.
Okay, great. Thank you and I guess so.
And my last question I guess onto Roto Rooter side and I'll go back to the queue. So you mentioned the price increase is that.
It seems like I guess they start their work.
As you implemented early in the year, Andy you might consider additional price increases so what would that trigger I assume it is just the inflationary.
Data points and so so can you kind of give us a flavor of the magnitude of thinks in terms of peace.
You know price increases that you data and Nielsen said Theyre doing thank you.
And I'll start and just say that we consider.
Premium priced.
Service offering.
And.
We look at that market by market very closely being careful not to.
You have to be premium priced overpriced and.
Again, if inflation continues at its current elevated rates I mean, we.
Sure.
In the second half of the year, we will make those calculations and.
Not hesitate to make a price increase it was indicated David any other color on that no I mean part of the issue is that variability.
Compare Baltimore to Cincinnati, they are completely different increases that pass through and then within each market. We would have a different rate increase for excavation versus say drain cleaning and then water restoration that price increase come from exact domain as well. So the reality is it's a <unk>.
Hodgepodge in Baltimore was completely different than Cincinnati on average, though we were actually based upon the headline number of eight 5% at the end of March we got a little room to go for price increases still to catch up to inflation and its supply and demand. We said we have we have.
Okay.
Many more than more than several programs, where we have more calls than we have people to service them.
You can imagine that the classic.
Classic response to that is.
Grease prices to bring the two.
In alignment.
The supply and demand so that's okay.
But I guess data point is.
We are not limited to doing that once a year at the beginning of the year.
Normally we do it when low inflation it would be it would be crazy to lag by 12 months when inflation is already in our economic model you pass through the price increases, but Joanna. The reason, we actually gave granular numbers on roto rooter is because of the consistency of what I consider strong hiring and retention trends. So we can actually use it to produce.
<unk> out how roto rooters performing Nick is just reacting to an extremely volatile labor market, where it's hard to discern any trend one way or the other whether it's with Iran nurse practitioners or home health aide, but on the roto decide the reason we spent so much time talking about labor labor is a critical component of just driving commission.
Revenue and then their commission, but the fact that we were able to grow labor consistently throughout 2021, the ear of the great recession. The fact that we continue to grow labor both in the skilled and unskilled technician areas throughout the first four months of 2022 I think is just a good indicator of the strength of Ryder and that's why.
We get so granular is we werent.
Very predictable trend line at this point throughout the year momentum is with Roto rooter, both in demand as well as in our ability to service that demand with a growing head count.
No it definitely does the 8%.
2%.
A number that you pay for a bedroom, let's say at that point I think it's good to.
So here to have that indicator for where we are at a business is coming so I guess I'll go back to the queue. Thanks, so much for answering all these questions.
Thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone to withdraw your question press the pound key one moment.
Our next question comes from Dan Hendrick.
RBC capital markets. Please proceed.
Hey, guys. Thanks, a lot just a quick question here I noticed that with for about a 4% decline in days of care versus your ADC guidance of down one and one 5%.
I know you noted that kind of.
Decreased hospital admissions.
Went down pretty significantly and it looks like it shifted youre kind of days of care mix.
How are you trying to get an idea for cadence through the year, how does that how does that develop through the year kind of in terms of maybe topline impact and then.
What pace would you expect kind of labor inflation to impact cost over the course of the year, just really just trying to get an idea of how youre thinking about cadence. Thanks.
So from our ADC perspective, you're spot on regarding the actual prints.
But as we as we think about it and we think about the entire calendar year one of the other aspects. We included in our comments last quarter for guidance is keep in mind, while we don't provide quarterly guidance. We did provide some directional guidance towards ADC growth accelerating in the second half.
Over the year and a lot of that.
Start to see some leading indicators of that of the execution out in the marketplace. As we continue to focus on the community base segment as well as the broader segment, but you can pick up on that as it relates to the disparity in our admission numbers with the non hospital segment, having positive both year over year comparisons.
And even more positive sequential Q4 of last year to Q1 as well so.
At the time.
<unk>.
Internally now we don't talk about overall admissions I mean in fact.
Other than the fact that.
So as you're used to hearing that from hospice providers internally.
We are talking.
Only in terms of from whence they arrive that's right that's exactly.
Right. So from a Q4 of last year to Q1 of this year. The non hospital segment emissions sequentially increased a little over about five 5% and so you know from an ADC perspective.
OMA Crown variant in the first you know in January does have an impact of total days of care inside of the quarter, but we continue to see it as a good.
Hello, hopefully launching point for the remainder of the calendar year as many of the disruption pieces inside of the pandemic are behind us and we're dealing with more of a regular referral flow and a continual shift of focus as we look to ensure we are deploying our.
And resources to respond to the most appropriate.
Referrals out there and and go from there to bring on all appropriate and eligible patients that that we respond to.
So that's from an from an ADC perspective. Your other question Ben right was pacing cadence as it relates to labor salary and wage and from an inflationary perspective, and we are in line to through the first quarter with what where we anticipated it.
From a wage and salary standpoint, you know we have some.
Prudent programs and course throughout the course of the year, including a.
Annual merit cycle that hits in the middle of the year and all of that's incorporated into our guidance. The biggest barometer that we are looking at on a day in and day out basis is really growing our net.
Head count as it relates to our licensed clinical resources and more and more hoping as we bring those resources in that theyre coming in and a full time capacity versus a part time capacity or a per diem capacity, which adds a degree of complexity towards.
Some of that labor management on a go forward basis, but feel good about where we are right now consistent with our full year guidance, but time will tell over the next eight months from today.
Thanks, a lot guys.
Okay.
Thank you.
At this time I would like to turn it back to Kevin Mcnamara for closing remark.
Well my own.
When we iterate.
Remarks that we were gratified with our.
Towards our operating units and.
Certainly.
Generally in line with what we expected when we gave guidance in February and a little above that.
Thank everyone for their attention.
We'll be back in three months with the discussion of the second quarter. Thank you.
Yeah.
Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
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