Q3 2022 Chemed Corp Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
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Yeah.
Yeah.
Good day, and thank you for standing by.
She was the Chemed Corporation's.
Third quarter 2022 earnings conference call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone.
<unk> got them here, an automated message advising your hand is Reyes please.
Please be advised that today's conference is being recorded.
I would now like to hand conference over to your speaker today.
Paul Schmidt. Please go ahead.
Good morning, Our conference call. This morning will review the financial results for the third quarter of 2022 ended September 32022 before.
Before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call. The company will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements.
Actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors, including those identified in the company's news release of October 31, and in various other filings with the SEC.
Cautioned that any forward looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future.
In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated October 31, which is available on the Companys web.
At the site at <unk> Dot com.
I would now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation.
Dave Williams Executive Vice President and Chief Financial Officer of Chemed, and Nick Westfall, President and Chief Executive Officer of Chemed, VITAS Healthcare Corporation subsidiary.
I'll now turn the call over to Kevin Mcnamara.
Thank you Holly.
Welcome to Chemed Corporation's third 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 third quarter 2022 operating results released last night reflect good earnings performance for VITAS and Roto Rooter.
Both operating segments financial results continued to exceed our internal estimates despite continued disruption from the pandemic.
For VITAS. This disruption remains concentrated on the hiring and retention of licensed health care professionals.
I believe this industry wide shortage of licensed healthcare workers, where will persist for the foreseeable future.
Accordingly, we implemented targeted hiring and retention bonus program effective July one 2022.
This program is focused substantially on licensed nurses nurse managers home health care aides and social workers.
These one time retention bonuses range from $2000 to $15000 per licensed health care professional.
The total estimated 12 months forward looking cost of this program, including payroll taxes and government mandated overtime calculations will be approximately $38 million.
Retention bonus payments are individually cliff vested after the employee has successfully completed 12 additional months of continuous employment.
During the quarter VITAS expanded our licensed health care professional staff by 172 employees the majority consisting of licensed nurses.
This is the first significant expansion of our clinical workforce and related patient capacity since the pandemic began in early 2020.
We continue to see disruption does senior housing occupancy and related hospice referrals, our recent admission data.
Continues to reflect a recovery in senior housing based patients pre pandemic.
Homebase patients represented 18% of our total average daily census, or ADC.
<unk> ADC ratio hit a low of 14, 3% during the pandemic.
By the fourth quarter of 2021, our nursing home based patients increased to 15, 6% of total ABC.
This is.
This increase an additional 110 basis points to 16, 7% in the third quarter of 2022.
Our 2022 updated guidance anticipates continued improvement in the senior housing based census.
For Roto Rooter.
The challenge has been to increase manpower technician manpower on September 32022 expanded one 8% when compared to the average Q3 2021 head count.
Roto Rooter is well positioned post pandemic and we anticipate continued expansion of market share by pressing our core competitive advantages in terms of brand awareness.
Customer response time, 27 call centers and Internet presence because that I would like to turn this teleconference over to David.
Thanks, Kevin.
VITAS net revenue was $297 million in the third quarter of 2022, which is the decline of six 6% when compared to the prior year period.
This revenue decline is comprised primarily of about four 4% reduction in days of care in a geographically weighted average Medicare reimbursement rate decrease of approximately two tenths of 1%.
Reimbursement rates in the quarter were negatively impacted by 200 basis points as a result of CMS re implementing the 2% sequestration cut that was suspended at the start of the pandemic.
Acuity mix shift had a net impact of reducing revenue of approximately $5 $3 million or one 7% in the quarter when compared to the prior year revenue and level of care mix that.
The combination of Medicare cap and other contract revenue changes negatively impacted revenue growth by 30 basis points.
In the third quarter of 2020 to VITAS accrued $600000 in Medicare cap billing limitations vicks.
This compares to $100000 of Medicare cap billing limitations in the third quarter of 2021.
Of our 30 Medicare provider numbers 25 of these provider numbers have a Medicare cap cushion of 10% or greater.
Two of our provider numbers have a cushion between 5% and 10%.
One provider number has a cushion between zero and 5% and two of our provider numbers have an estimated fiscal 2022, Medicare cap billing limitation liability.
The third quarter 2022 gross margin for VITAS, excluding Medicare cap related too.
Expenses related to VITAS is 12 months hiring and retention program.
And other increased costs directly related to operating during the pandemic was 22, 5%.
This is a 323 basis point margin decline when compared to the third quarter of 2021.
However, approximately 200 basis points of this decline is from Medicare re implementing the sequestration effective July one 2022.
An additional 70 basis points of this margin decline is also attributed to our increased staffing and patient capacity from VITAS is hiring and retention program.
Adjusted EBITDA, excluding Medicare cap totaled $45 4 million in the quarter, which is a decrease of 24, 9%.
Our adjusted EBITDA margin in the quarter, excluding Medicare cap was 15, 3%, which is 375 basis points below the prior year period.
However, as I mentioned earlier, the adjusted EBITDA margin was also negatively impact by the 200 basis point cut in reimbursement from sequestration and approximately 70 basis points of the decline in EBITDA margin is also due to our success in expanding staffing and patient capacity from our retention program.
Roto Rooter generated revenue of $230 million in the third quarter of 2022, which is an increase of three 9% when compared to the prior year quarter.
Roto Rooter branch commercial revenue in the quarter totaled $55 9 million, which is an increase of six 9% over the prior year.
This aggregate commercial revenue growth consisted of drain cleaning revenue, increasing two 9% plumbing, increasing 11, 6%.
<unk>, expanding nine 8% and water restoration growing six 7%.
Roto Rooter branch residential revenue in the quarter totaled $155 million.
Which is an increase of two 5% over the prior year.
This aggregate residential revenue growth consisted of drain cleaning increased two 9% plumbing expanding five 9% excavation increase a nine tenths of 1% and our water restoration, increasing seven 6%.
Roto Rooters gross margin in the quarter was 53, 4% at 37 basis point increase when compared to the third quarter of 2021.
Adjusted EBITDA in the third quarter totaled $69 5 million, an increase of five 7% and the adjusted EBITDA margin in the quarter was 32%, which is 50 basis points higher than the prior year period.
Now, let's talk about <unk> on a consolidated basis.
During the quarter. The company purchased 50000 shares of Chemed stock for $23 9 million, which.
Which equates to a cost per share of $477 68.
As of September 32022, there was approximately $101 million of remaining share repurchase authorization under this plan.
Now, let's turn to our guidance.
The COVID-19 pandemic the.
The uncertainty regarding forward looking at inflation and potential economic recession has made accurate modeling and providing meaningful earnings guidance exceptionally challenging.
Since the start of the pandemic <unk> has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provides us with the ability to issue earnings guidance for the remainder of 2022 calendar year.
However, this guidance should be taken with the recognition the above macro issues could materially impact our ability to achieve this guidance.
Based upon the above discussion detailed 2022 revenue prior to Medicare cap is estimated to decline between four 5% and 5% compared to the prior year.
Portion of the estimated revenue decline approximately $15 million or 118 basis points is the result of the phase out of sequestration relief over the first half of 2022 compared to a full year of sequestration in 2021.
Average daily census is estimated declined three 4%.
But our full year adjusted EBITDA margin prior to Medicare cap is estimated to be 17, 1% to 17, 2% and.
And we are currently estimating an $8 one.
<unk>.
Medicare cap billing limitation liability for calendar year 2022.
Roto Rooter is forecast to achieve full year 2022 revenue growth.
Six 2% and six 5%.
And write orders adjusted EBITDA margin for 2022 is expected to be between 29, 5% and 29, 7%.
Based upon the above full year 2022 earnings per diluted share excluding non cash expense for stock options stack tax benefits from stock option exercises cost related to litigation and a retention program for licensed health care employees or other discreet items is estimated to be in the range of $19 60.
<unk> to $19 70.
This compares to our previous 2022 adjusted earnings per share guidance of $19 30 to $19 50.
Our current 2020 guidance does assume an effective corporate tax rate on adjusted earnings of 25, 1% and a diluted share count of $15 1 million shares.
<unk> 2021 reported adjusted earnings per diluted share was $19 33.
I'll now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS healthcare subsidiary.
Thanks, Dave in the third quarter, our average daily census was 17242 patients a decline of four 4% over the prior years.
Our admission strengthened and outpaced our discharges throughout the second half of the third quarter.
This intra quarter admission improvement generated weekly average daily census growth, which we haven't experienced since the start of the pandemic.
Directionally. This is encouraging as we proactively expand our clinical staffing and increase our clinical capacity.
This is the most encouraging set of emerging green shoot growth metrics, we've seen since the start of the pandemic.
In the third quarter of 2022 total VITAS admissions were 14680. This is a 16, 6% decline when compared to the third quarter of 2021.
Most of this admissions decline is attributed to a reduction in labor intensive acute hospital admissions.
This decline was anticipated due to our ongoing community access initiatives.
To illustrate in the third quarter, our hospital directed admissions declined 23, 4% when compared to the prior year period.
This decline in hospital Friedman emissions was partially offset by our nursing home admissions, increasing six 2% homebase.
Home based admissions declined six 6% in the quarter and assisted facility based patients declined 7%.
During the third quarter of 2022 to our second quarter is also encouraging in the third quarter, our admissions were essentially equivalent to our admissions in the second quarter.
Pre admit location of our third quarter emissions also compare positively with the second quarter.
Non hospital community based admissions were flat and the long term care segment of community based admits were up 3% sequentially.
Short stay hospital referred admissions were down one 5% when compared to the second quarter.
This sequential performance illustrates the consistency with which our community based access initiative is performing as we continue to be focused on incrementally and many more appropriate patients each day across all pre admit settings.
Our average length of stay in the quarter was 106 two days. This compares to 96 days in the third quarter of 2021 and 103 seven days in the second quarter of 2022.
Our median length of stay was 17 days in the quarter.
Fares to 13 days in the third quarter of 2021, and 17 days in the second quarter of 2022.
This growth in our median length of stay is attributed to the successful execution of our community access initiative I referenced earlier.
Overall, I'm very pleased with the execution of our entire VITAS team regarding how we continue to serve our communities as well has produced positive results within our renewed focus on recruitment and retention of our workforce.
Before I turn the call back over to Kevin I would like to thank our Florida team members, who supported one another as well as our patients impacted by Hurricane Ian Your dedication and response was truly inspiring and appreciated within the communities we serve.
This is even more impressive when you consider our Florida staff also successfully opened the Fort Myers Hospice program in September as we prepared for the hurricane.
With that I'd like to turn the call back over to Kevin. Thank.
Thank you Nick I will now open this teleconference to questions.
Yes.
As a reminder to ask a question you will need to press star one one.
On your telephone headset.
Please standby, while we compile the Q&A roster.
Our first question comes from.
Joanna.
<unk>.
From Bank of America. Your line is now.
<unk>.
Yes.
You hear me.
Yes, Hey, Joanna perfect Okay.
Okay.
Got it all right. Thanks.
So I think a couple of questions here.
Definitely good to see traction on that.
New hires.
<unk> program is working so that's good.
But I just wonder I assume it's probably too early to see increased productivity from.
New hires so when would you expect to see kind of <unk>.
Benefits.
From this activity.
So Julien I just want to make sure I clearly understood. The question you are saying is we continue to onboard and retain more clinical staff when would we start to see the incremental benefits both from an admissions and the dates of care standpoint.
Okay, Yes.
Yes got you if there is an embedded tail not to state the obvious of that as we onboard bring clinicians up to speed and some of that speed is dependent on whether they are coming to us with hospice experience or from a different health care setting, but usually that may be a four to eight week.
Window as they get comfortable they are out caring for patients on their own are responding to referrals accordingly, the corresponding admissions and days of care distribution would follow our normal trends and that's what I was trying to allude to inside of some of the commentary with median length of stay returning and continuing around.
<unk> 17.
17% to 18 days and the community access initiative, we'd hope that all incremental admissions will begin to continue to positively contribute to days of care growth on a sequential basis going forward and what I would say is clear.
No. We go direct reason Phil.
Directly dovetail the increase in those two.
Adding the staff at this point was a prerequisite no question that's right phenomenon.
Yes.
I'll follow up on that first.
In terms of where.
These individuals just split the clinical status call me firmly youre seeing changes, where you got chatting more of these nurses.
Mato setting so I think it's coming from other hospice providers can you give us a little flavor on that.
It's very much market specific.
But we can definitively say is we are seeing more applicants across the board then we have the other aspect to it as the teams have done a fantastic job of continuing to improve our retention.
Not only new staff, but our existing clinical team members and the combination of those two things are really adding to that build of clinical capacity, but it's.
It would be unfair to generalize where the different candidates are coming from but unit universally we're seeing more people.
<unk>, which is a very encouraging sign as well.
To reiterate your point, Nick obviously, the best of all worlds is to retain them correct about higher that lose four and hire five we want to we will.
Understood.
We obtained five that's why in my commentary on the retention was is so critical so we're really hitting on both cylinders right now.
And I guess I'll do that and with this attention.
Bonus payment program.
To continue this.
Karen I'll, just start and Anthony just a cooling days.
Okay and did not next year.
I guess and how.
Or do you look at the retention program.
Sure.
Base wage increases and could you give us some.
What do you expect these which increases could be next year.
So let me answer the first component with it we would not anticipate continuing the program. After the 12 months dated period that we've released.
To the street.
Part of that rationale is we think we're continuing to do a good job and were an attractive place to work as more clinicians appear to be coming back to the workforce.
As it relates to how we view that program as compared to our normal wage whether its merit or whether it's hiring cycle. Those two things are mutually mutually exclusive and so while we don't necessarily release, our merit targets. What I can say is it has been in line and something we've managed that's pretty.
Relatively consistent with some of the price increasing that we hope continues to accelerate from a statutory requirement October .
October one of next year, but obviously, we just got it.
The rate increase October 133.
<unk> 32 days ago at this point and Jonathan.
Some questions but related answer.
During the pandemic the government gave us $82 million.
What we Didnt report that income.
What we do with that money.
Number one.
The additional protective equipment that.
We purchased and supplied.
And we attributed to that money from the government.
Virtually all of the rest of it we have returned to employees in two forms.
Extra vacation the first year, we gave an extra days of vacation.
The following year seven five extra days of vacation.
All of this is instead of giving more vacation, we decided we just put a different form will stickier as I would call. It a bridge to normalcy.
Which is just basically take the remainder of the.
The money and say look if you stay 12 months you'd get to me, it's six of what happens or the other whether it's additional vacation or it's stayed bogus but.
To your point and mixed answer we view it as a bridge to a return to normalcy. If we thought it was something that continued we treat it like it was increased salary or pay.
So that's why we don't think that treatment of it but Kevin you bring up a great point, we're paying mark prevailing market wages for our nurses home health aides social workers. The retention is above and beyond that it is not a substitute for an anemic phase wage.
So we feel confident John Okay great.
Okay go ahead.
I was going to mentioned, we feel confident in our ability to continue to manage the business inside of the stated and guided marginal ranges.
Through the rest of the year and what we will obviously guide for 2023.
Yes, let's try.
Thank God I understand like how should we think about next year, because some of the health care providers.
Is that talking about next year kind of wage inflation, we would expect that kind of seems to be oscillate around four 5%.
Lisa one for you and your expected deceleration or that you're saying.
More of like a high single digit wage well so any.
Any color on that expectation into next year will be helpful too.
It's a reasonable range, we don't provide that degree of granular guidance because well targeted every individual decision is made with guidance down to the leadership level. So that's that's a realistic range for what we're talking about but it's something we feel comfortable with and we'll obviously discuss once we released 2023 guidance.
<unk>.
It's a requirement.
Or if the reimbursement is going up three 8%.
That's our debt.
We can't we have to start with that position and say, we can that will free the BVA from that in any significant way.
At the end of the day wages are decided certainly for licensed health care workers on a market by market basis, and we have if we're not paying the going rate for qualified nurses and other health care professionals.
It'll be self defeating so at the end of the day, we will engineer et cetera, whatever it takes to attract and retain talent at Margaret rates, that's what we're going to pay and we will adjust other costs accordingly.
Okay that makes sense I guess before I ask.
Everybody just last question on Vita.
Any commentary on the intra quarter trends, which you've heard from one of the.
Okay.
Our smaller, but they talk about like discharge rate.
But then I think starting to improve later in the quarter. So I was just curious.
What you've seen in terms of the sale of discharge rate kind of exiting the quarter.
Yes, John I don't know you might have been able to.
You made a mismatch.
Remarks previously before we open it up for questions, but I did I did comment that admissions outpaced discharged in the second half of the third quarter, which was a very encouraging sign and an emerging green shoot growth metric is what I had alluded to in my opening metrics that we have an experience since the start of the pandemic. So.
Directionally, that's where.
Days of care performed on a week by week sequential basis throughout the quarter.
And Joanna the color I wouldn't provide in addition to what Nick and Kevin have given US I would say this is the first quarter really since the start of the pandemic. We saw some very very encouraging signs in multiple areas like Nick described in terms of admissions and discharges like our success.
Expanding our capacity expanding our licensed health care professionals, specifically nurses.
It was extremely encouraging as we worked our way July August and September of the third quarter, but you guys also know our attitude. My attitude is we want at least two if not three or more points and put together before we talk about sustainable trend lines by <unk>.
Third quarter was very encouraging.
Got it that's good to hear.
Appreciate the color.
It sounds like things such as extra trucking, where I think versus our model in terms of revenue, but also margin better.
Product versus your internal expectations.
Did that I think as it relates to guidance.
So I guess on that.
What's driving the outperformance and what's driving the margin loss revenue.
That's helpful. Thank you.
Yes.
The primary thing, yes, we match, our internal expectations for Roto rooter not quite in the way, we thought between residential and commercial but close enough. The headline on roto Rooter would be yes, we see a little softness on what could be arguably some discretionary jobs, but not much.
Cost controls and still increasing revenue resulted in a record EBITDA margin for the quarter busting through the 30% level.
So I guess the headline would be still good strong sustainable demand not as high as it was say in the depths of the pandemic, but pretty darn good very good cost control good compensation for our employees. So roto rooter, it's about the cost control manpower and being the first one to the customers.
Residents when demand comes in and Thats really what made the third quarter happen as well as.
The third quarter for Roto Rooter is typically the most difficult quarter people are on holiday drier months. So the seasonality that's in our business Q3 is typically the lowest and then when we got into Q4, we typically see sequential seasonality holidays entertaining and things like that any one from about 3% to 8%.
<unk> growth and we saw strong indications in the month of September that sequential seasonality is happening.
So again part of our sharpened our pencil increasing margin for roto rooter as well as anticipating more traditional seasonality an uplift in the fourth quarter, which we feel reasonably confident about and Dave the other comment I'd make on we've gotten to roto rooter, we have observed once again the pricing power of road.
I'd be willing to.
Difficult inflationary environment.
<unk>.
The most difficult things to do is get necessary pricing increases through.
Clearly when you look at the demand issues.
As we come out of the pandemic.
And then our results clearly roto rooter has been successful in getting those.
I appreciate the comment on okay. So.
Okay. Thank you.
Thank you.
Our next question comes from Ben Hendrix.
RBC capital markets. Your line is now open.
Thank you very much just a very quick follow up on the bonus initiative have you seen any material responses in any of your markets from competitors, who are maybe looking to counter your hiring efforts with their own bonus programs I just wanted to see if there's any pockets where the program is not working as well or as creating any kind of prolonged inflationary.
Pressure.
In certain markets. Thanks.
Short answer is no we're not seeing anything where there'd be a material response some.
Many organizations not only in homecare, but other healthcare verticals have continued to structure a whole bunch of higher bonuses not as much on the retention side of it but the sign on component that gets coupled with it.
And the good news is those things have existed out in the market for the last two and a half years are.
Recruitment and retention program, which we deemed the difference maker program has really helped to offer a great talking point to those potential candidates. So they understand the opportunity at VITAS as well as the reward in which they would receive once they've been with us for 12 months and hopefully are with us for 30 years.
Thank you.
Yes.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
I am showing no further comments at this time please.
Kevin Mcnamara.
You May proceed with your Thanksgiving work comp comments.
They come for closing comments will be brief.
Want to thank everyone for their attention and of course thankfully.
I think everyone all the.
Employees for.
A good solid quarter.
We have continued to be difficult operating conditions.
Thank you very much and.
I guess.
Return to this forum and <unk>.
Mid February the results of our fourth quarter and.
Year end results. Thank you.
Ladies and gentlemen, this does conclude today's program you may now disconnect have a great day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Good day, and thank you for standing by.
Welcome to the Chemed Corporation's.
Third quarter 2022 earnings conference call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
So I'll ask a question. During this session you will need to press star one on your telephone.
<unk> been here, an automated message advising your hand is Reyes please.
Please be advised us that today's conference is being recorded.
I would now like to hand conference over to your speaker today.
Polish Smith. Please go ahead.
Good morning, Our conference call. This morning will review the financial results for the third quarter of 2022 ended September 32022 before.
Before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 90 95 apply to this conference call. During the course of this call. The company will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements.
Actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors.
Including those identified in the company's news release of October 31, and in various other filings with the SEC.
You are cautioned that any forward looking statements reflect management's current view.
The company undertakes no obligation to revise or update such statements in the future.
In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated October 31, which is available on the Companys.
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 Williams, Executive Vice President and Chief Financial Officer of Chemed, and Nick Westfall, President and Chief Executive Officer of Chemed, VITAS Healthcare Corporation subsidiary.
I will now turn the call over to Kevin Mcnamara.
Thank you Holly good morning, welcome to Chemed Corporation's third quarter 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 third quarter 2022 operating results released last night reflect good earnings performance for VITAS and Roto Rooter Bose.
Both operating segments financial results continued to exceed our internal estimates despite continued disruption from the pandemic.
For VITAS. This disruption remains concentrated on the hiring and retention of licensed health care professionals.
I believe this industry wide shortage of licensed healthcare workers will persist for the foreseeable future.
Accordingly, VITAS implemented targeted hiring and retention bonus program effective July one 2022.
This program is focused substantially on licensed nurses nurse managers home health care aides and social workers. These.
These one time retention bonuses range from $2000 to $15000 per licensed health care professional.
The total estimated 12 months forward looking cost of this program, including payroll taxes and government mandated overtime calculations will be approximately $38 million.
Retention bonus payments are individually cliff vested after the employee has successfully completed 12 additional months of continuous employment.
During the quarter VITAS expanded our licensed health care professional staff by 172 employees the majority consisting of licensed nurses.
This is the first significant expansion of our clinical workforce and related patient capacity since the pandemic began in early 2020.
We continue to see disruption does senior housing occupancy and related hospice referrals, our recent admission data.
Continues to reflect a recovery in senior housing because patients pre pandemic.
Homebase patients represented 18% of our total average daily census, or ADC.
<unk> ADC ratio hit a low of 14, 3% during the pandemic.
By the fourth quarter of 2021, our nursing home based patients increased to 15, 6% of total ABC.
This is luis.
This increase an additional 110 basis points to 16, 7% in the third quarter of 2022.
Our 2022 updated guidance anticipates continued improvement in the senior housing based census.
For Roto Rooter.
Difficult challenge has been to increase manpower technician manpower on September 32022 expanded one 8% when compared to the average Q3 2021 head count.
Roto Rooter is well positioned post pandemic and we anticipate continued expansion of market share by pressing our core competitive advantages in terms of brand awareness.
Customer response time, 27 call centers and Internet presence because that I would like to turn this teleconference over to David.
Thanks, Kevin.
VITAS net revenue was $297 million in the third quarter of 2022, which is the decline of six 6% when compared to the prior year period.
This revenue decline is comprised primarily of about four 4% reduction in days of care in a geographically weighted average Medicare reimbursement rate decrease of approximately two tenths of 1%.
Reimbursement rates in the quarter were negatively impacted by 200 basis points as a result of CMS re implementing the 2% sequestration cut that was suspended at the start of the pandemic.
Acuity mix shift had a net impact of reducing revenue of approximately $5 $3 million or one 7% in the quarter when compared to the prior year revenue and level of care mix that.
The combination of Medicare cap and other contra revenue changes negatively impacted revenue growth by 30 basis points.
In the third quarter of 2020 to VITAS accrued $600000 in Medicare cap billing limitations vicks.
This compares to $100000 of Medicare cap billing limitations in the third quarter of 2021.
Of our 30 Medicare provider numbers 25 of these provider numbers have a Medicare cap cushion of 10% or greater.
Two of our provider numbers have a cushion between 5% and 10%.
One provider number has a cushion between zero and 5% and two of our provider numbers have an estimated fiscal 2022, Medicare cap billing limitation liability.
The third quarter 2022 gross margin for VITAS, excluding Medicare cap related too.
Expenses related to VITAS is 12 months hiring and retention program and.
And other increased costs directly related to operating during the pandemic was 22, 5%.
This is a 323 basis point margin decline when compared to the third quarter of 2021.
However, approximately 200 basis points of this decline is from Medicare re implementing the sequestration effective July one 2022.
An additional 70 basis points of this margin decline is also attributed to our increased staffing and patient capacity from VITAS is hiring and retention program.
Adjusted EBITDA, excluding Medicare cap totaled $45 $4 million in the quarter, which is a decrease of 24, 9%.
Our adjusted EBITDA margin in the quarter, excluding Medicare cap was 15, 3%, which is 375 basis points below the prior year period.
However, as I mentioned earlier, the adjusted EBITDA margin was also negatively impact by the 200 basis point cut in reimbursement from sequestration and approximately 70 basis points of the decline in EBITDA margin is also due to our success in expanding staffing and patient capacity from our retention program.
Roto Rooter generated revenue of $230 million in the third quarter of 2022, which is an increase of three 9% when compared to the prior year quarter.
Right of way to branch commercial revenue in the quarter totaled $55 9 million, which is an increase of six 9% over the prior year.
This aggregate commercial revenue growth consisted of drain cleaning revenue, increasing two 9% plumbing, increasing 11, 6% extra.
Excavation, expanding nine 8% and water restoration growing six 7%.
Roto Rooter branch residential revenue in the quarter totaled $155 million, which is an increase of two 5% over the prior year.
This aggregate residential revenue growth consisted of drain cleaning increased two 9% plumbing expanding five 9% excavation increase a nine tenths of 1% and our water restoration, increasing seven 6%.
Roto Rooters gross margin in the quarter was 53, 4% at 37 basis point increase when compared to the third quarter of 2021.
Adjusted EBITDA in the third quarter totaled $69 5 million, an increase of five 7% and the adjusted EBITDA margin in the quarter was 32%, which is 50 basis points higher than the prior year period.
Now, let's talk about <unk> on a consolidated basis.
During the quarter. The company purchased 50000 shares of Chemed stock for $23 9 million, which equates to a cost per share of $477 68.
As of September 32022, there was approximately $101 million of remaining share repurchase authorization under this plan.
Now, let's turn to our guidance.
The COVID-19 pandemic the.
The uncertainty regarding forward looking at inflation and potential economic recession has made accurate modeling and providing meaningful earnings guidance exceptionally challenging since the start of the pandemic <unk> has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provides us with the ability to issue.
Your earnings guidance for the remainder of 2022 calendar year.
However, this guidance should be taken with the recognition the above macro issues could materially impact our ability to achieve this guidance.
Based upon the above discussion VITAS is 2022 revenue prior to Medicare cap is estimated to decline between four 5% and 5% compared to the prior year.
<unk> of the estimated revenue decline approximately $15 million or 118 basis points is the result of the phase out of sequestration relief over the first half of 2022 compared to a full year of sequestration in 2021.
Our average daily census is estimated declined three 4%.
But our full year adjusted EBITDA margin prior to Medicare cap is estimated to be 17, 1% to 17, 2% and.
And we are currently estimating an $8 one.
Yeah.
Medicare cap billing limitation liability for calendar year 2022.
Roto Rooter is forecast to achieve full year 2022 revenue growth of between six 2% and six 5% and.
In <unk> adjusted EBITDA margin for 2022 is expected to be between 29, 5% and 29, 7%.
Based upon the above full year 2022 earnings per diluted share excluding non cash expense for stock options stack tax benefits from stock option exercises cost related to litigation and the retention program for licensed health care employees or other discreet items is estimated to be in the range of $19 60.
To $19 70.
This compares to our previous 2022 adjusted earnings per share guidance of $19 30 to $19 50.
Our current 2020 guidance doesn't assume an effective corporate tax rate on adjusted earnings of 25, 1% and a diluted share count of $15 1 million shares.
<unk> 2021 reported adjusted earnings per diluted share was $19 33.
I'll now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS healthcare subsidiary.
Thanks, Dave in the third quarter, our average daily census was 17242 patients a decline of four 4% over the prior years.
Our admission strengthened and outpaced our discharges throughout the second half of the third quarter. This intra quarter admission improvement generated weekly average daily census growth, which we haven't experienced since the start of the pandemic.
Directionally. This is encouraging as we proactively expand our clinical staffing and increase our clinical capacity.
This is the most encouraging set of emerging green shoot growth metrics, we've seen since the start of the pandemic.
In the third quarter of 2022 total VITAS admissions were 14680 <unk>. This is a 16, 6% decline when compared to the third quarter of 2021.
Most of this admissions decline is attributed to a reduction in labor intensive acute hospital admissions.
This decline was anticipated due to our ongoing community access initiatives.
To illustrate in the third quarter, our hospital directed admissions declined 23, 4% when compared to the prior year period.
This decline in hospital admissions was partially offset by our nursing home admissions, increasing six 2% home based admissions declined six 6% in the quarter and assisted facility based patients declined 7%.
During the third quarter of 2022 to our second quarter is also encouraging in the third quarter, our admissions were essentially equivalent to our admissions in the second quarter pre admit location of our third quarter missions also compare positively with the second quarter.
Non hospital community based admissions were flat and the long term care segment of community based admits were up 3% sequentially.
Short stay hospital referred admissions were down one 5% when compared to the second quarter.
This sequential performance illustrates the consistency with which our community base access initiative is performing as we continue to be focused on incrementally and many more appropriate patients each day across all pre admit settings.
Our average length of stay in the quarter was $106. Two days. This compares to 96 days in the third quarter of 2021 and 103 seven days in the second quarter of 2022.
Our median length of stay was 17 days in the quarter.
Fares to 13 days in the third quarter of 2021, and 17 days in the second quarter of 2022.
This growth in our median length of stay is attributed to the successful execution of our community access initiative I referenced earlier.
Overall, I'm very pleased with the execution of our entire VITAS team regarding how we continue to serve our communities as well as produce positive results within our renewed focus on recruitment and retention of our workforce.
Before I turn the call back over to Kevin I would like to thank our Florida team members, who supported one another as well as our patients impacted by Hurricane Ian Your dedication and response was truly inspiring and appreciated within the communities. We serve this is even more impressive when you consider our Florida staff also successfully opened the Fort Myers hospice.
Graham in September as we prepared for the Hurricane.
With that I'd like to turn this call back over to Kevin. Thank.
Thank you Mick.
Now open this teleconference to questions.
Yes.
As a reminder to ask a question you will need to press star one one.
On your telephone handsets.
Please standby, while we compile the Q&A roster.
Our first question comes from.
Joanna.
<unk>.
From Bank of America. Your line is now.
Yeah.
Yes.
You hear me.
Yes, Hey, Joanna perfect Okay.
Got it all right. Thanks.
So I think a couple of questions here.
Good to see traction on that.
New hires.
<unk> program is working so that's good.
But I just wonder I assume it's probably too early to see increased five days from now.
New hires so when would you expect to see kind of <unk>.
Benefits from from this activity.
So Joanne I just want to make sure I clearly understood. The question, you're saying as we continue.
Onboard and retain more clinical staff when would we start to see the incremental benefits both from an emissions in the days of care standpoint.
Okay, Yes, obviously, there is a yes.
Got you if there is an embedded tail not to state the obvious of that as we onboard bring clinicians up to speed and some of that speed is dependent on whether they are coming to us with hospice experience or from a different health care setting, but usually that may be a four to eight week time window as they.
Get comfortable there out caring for patients on their own are responding to referrals accordingly.
Corresponding admissions and days of care distribution would follow our normal trends and that's what I was trying to allude to inside of some of the commentary with median length of stay returning and continuing around 17000.
17% to 18 days and the community access initiative, we'd hope that all incremental admissions will begin to continue to positively contribute to days of care growth on a sequential basis going forward.
I'd say its clear there.
No go direct reasons.
Directly dovetail the increase in those two but adding the staff at this point was a prerequisite no question that's right phenomenon.
Yes definitely.
We'll follow up on that first.
In terms of.
Sure.
Individuals as Clint the clinical status company firmly youre seeing changes, where you are with that.
Chatting more of Jason <unk> from.
So I think it's coming from other hospice providers can you give us a little flavor on that.
It's very much market specific.
But we can definitively say is we are seeing more applicants across the board then we have the other aspect to it as the teams have done a fantastic job of continuing to improve our retention of not only new staff, but our existing clinical team members and the combination of those two things are really adding to that build of clinical capacity.
Got it.
It would be unfair to generalize where the different candidates are coming from but unit universally we're seeing more people.
Apply which is a very encouraging sign as well.
To reiterate your point, obviously, the best of all worlds is to retain them correct by higher that lose four and hire five we want to we want to be.
Page five.
Why is my commentary on the retention was.
So critical so we're really hitting on both cylinders right now.
And I guess to that end.
With this attention.
Payment Pro Glenn would you need to continue this.
Nextera and only just started cooling days.
Okay and did not next year.
I guess and how do you look at the retention program breakfast.
Base wage increases and could you give us some sense of what do you expect these which increases could be next year.
So let me answer the first component with it we would not anticipate continuing the program. After the 12 months dated period that we've released.
To the street.
Part of that rationale is we think we're continuing to do a good job and were an attractive place to work as more clinicians appear to be coming back to the workforce.
As it relates to how we view that program as compared to our normal wage whether its merit or whether it's hiring cycle. Those two things are mutually mutually exclusive and so while we don't necessarily release, our merit targets. What I can say is that it has been in line and something we've managed that.
Relatively consistent with some of the price increasing that we hope continues to accelerate from a statutory requirement.
October one of next year, but obviously, we just got it.
The rate increase October 130.
<unk> 32 days ago at this point right and John I know you have.
Some questions but related answer.
During the pandemic the government gave us $82 million.
What we Didnt report that income.
What we do with that money.
Number one.
Additional protective equipment that.
We purchased and supplied.
And we attributed to that money from the government.
Virtually all of the rest of it we have returned to employees in two forms.
Extra vacation the first year, we gave 10 extra days of vacation.
The following year seven five extra days of vacation.
All of this is instead of giving more vacation, we decided we just put a different form little stickier as I would call. It a bridge to normalcy.
Which is just basically take the remainder of the money and say look if you stay 12 months you'd get.
To me, it's six of what happens or the other whether it's additional vacation or it's stayed bonus but.
To your point and mixed answer we view it as a bridge to a return to normalcy. If we thought it was simply the continued we've treated it was increased salary or pay that we don't.
So that's why we don't take that treatment of it but Kevin you bring up a great point, we're paying mark prevailing market wages for our nurses home health aides social workers that retention is above and beyond that it is not a substitute for an anemic base wage.
So we feel confident Joanna okay great.
Okay.
Okay go ahead.
I was going to mention we feel confident in our ability to continue to manage the business inside of the stated and guided marginal ranges we're through.
Through the rest of the year and what will obviously guide for 2023.
Yes, because I was trying to understand like how should we think about next year, because some of the health care providers.
Is that talking about next year kind of wage inflation, we would expect and it's kind of it seems to be oscillate around four 5%.
<unk> expense discoloration or that you're saying.
That's more of a high single digit wage growth.
Color on that expectation into next year will be helpful too.
It's a reasonable range, we don't provide that degree of granular guidance, because while well targeted every individual decision is made with guidance down to the leadership level. So that's.
That's a realistic range for what we're talking about but something we feel comfortable with and we'll we'll obviously discuss once we released 2023 guidance.
It's a requirement I mean, if our if the reimbursement is going up three 8%.
We can't we have to.
Start with that.
And then you can say, we can that we're free to deviate from that in any significant way.
Hi.
At the end of the day wages are decided certainly for licensed health care workers on a market by market basis, and we have if we're not paying the going rate for qualified nurses and other health care professionals.
It'll be self defeating so at the end of the day, we will engineered whatever it takes to attract and retain talent at Margaret rates, that's what we're going to pay and we will adjust other costs accordingly.
Okay that makes sense I guess before I ask.
Just last question on Vita.
Any commentary on the intra quarter trends.
So from one of the.
Okay.
But they talk about this churn rate.
But then I think kind of the interim later in the quarter. So I was just curious.
What you've seen in terms of their let's say I'll just share right.
Does it in the quarter.
Yes, John I don't know you might have been able to maintain.
You made a mismatch.
Remarks previously before we open it up for questions, but I did I did comment that admissions outpaced discharged in the second half of the third quarter, which was a very encouraging sign and an emerging green shoot growth metric is what I had alluded to in my opening metrics that we haven't experienced since the start of the pandemic. So.
Directionally, that's where.
Days of care performed on a week by week sequential basis throughout the quarter.
And Joanna the color I wouldn't provide in addition to what Nick and Kevin have given US I would say this is the first quarter really since the start of the pandemic. We saw some very very encouraging signs in multiple areas like Nick described in terms of admissions and discharges like our success in expanding our capacity expanding our.
Licensed health care professionals, specifically nurses.
It was extremely encouraging as we worked our way July August and September of the third quarter, but you guys also know our attitude. My attitude is we want at least two if not three or more points and put together before we talk about sustainable trend lines.
Third quarter was very encouraging.
That's good to hear.
Appreciate the color.
It sounds like you're actually tracking well versus our model in terms of revenue also margins better so how big of a product.
Product versus your internal expectation I think I know Dan does that I think as you raise the guidance.
So I guess on that and kind of what's driving the outperformance and what's driving the margin.
That's helpful. Thank you.
Yes.
The primary thing, yes, we match, our internal expectations for Roto rooter not quite in the way, we thought between residential and commercial but close enough. The headline on roto Rooter would be yes, we see a little softness on what could be arguably some discretionary jobs, but not much but cost controls and steel.
Increasing revenue resulted in a record.
EBITDA margin for the quarter busting through the 30% level.
I guess, the headline would be still goods drawn sustainable demand not as high as it was say in the depths of the pandemic, but pretty darn good very good cost control good compensation for our employees. So roto rooter, it's about cost control manpower and being the first one to the customers.
Resident when demand comes in and Thats really what made the third quarter happen as well as the.
In the third quarter for write orders typically the most difficult quarter people around holiday drier months. So the seasonality that's in our business Q3 is typically the lowest and then when we got into Q4, we typically see sequential seasonality holidays entertaining and things like that any one from about three 8%.
<unk> growth and we saw strong indications in the month of September that sequential seasonality is happening. So again part of our sharpening our pencil increasing margin for roto rooter as well as anticipating more traditional seasonality and uplift in the fourth quarter, which we feel reasonably confident about.
And Dave the other comment I'd make on we've gotten to roto Rooter, we have observed once again the pricing power of Roto Rooter.
I'd be willing to.
Difficult inflationary environment.
<unk>.
The most difficult things to do is get necessary pricing increases through.
Clear when you look at the demand issues.
As we come out of the pandemic.
And then our results clearly railroad has been successful in getting those.
I appreciate the comment.
Okay. Thank you.
Q.
Our next question comes from Ben Hendrix.
RBC capital markets. Your line is now open.
Thank you very much just a very quick follow up on the bonus initiative have you seen any material responses in any of your markets from competitors, who are maybe looking to counter your hiring efforts with their own bonus programs I just wanted to see if there's any pockets where the program is not working as well or as creating any kind of prolonged inflationary.
Pressure.
In certain markets. Thanks.
Yeah.
<unk> been named short answer is no we're not seeing anything where there'd be a material response, some many organizations not only in homecare, but other healthcare verticals have continued to structure a whole bunch of higher bonuses not as much on the retention side of it but the sign on component that gets coupled.
With it.
And the good news is those things have existed out in the market for the last two and a half years our.
Recruitment and retention program, which we deem the difference maker program has really helped to offer a great talking point to those potential candidates. So they understand the opportunity at VITAS as well as the reward in which they would receive once they've been with us for 12 months and hopefully are with us for 30 years.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Please stand by while we compile the Q&A roster.
I'm showing no further comments at this time please.
Kevin Mcnamara.
You May proceed with your Thanksgiving work comp comments.
They come for closing comments will be brief.
I want to thank everyone for their attention and of course thankfully.
I think everyone all of the.
<unk> for.
Good solid quarter.
They have continued to be difficult operating conditions.
Thank you very much.
I guess.
Return to this forum and <unk>.
Mid February the results of our fourth quarter.
Year end results. Thank you.
Ladies and gentlemen, this does conclude today's program you may now disconnect have a great day.