Oct 27, 2017
Executives
Sherri Warner - Investor Relations Kevin McNamara - President and Chief Executive Officer David Williams - Chief Financial Officer Nick Westfall - Chief Executive Officer of VITAS Healthcare Corporation
Operator
Good day ladies and gentlemen, and welcome to the Chemed Corporation Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode.
[Operator Instructions] Later, we will conduct a question-and-answer session and our instructions will follow at that time. As a reminder, today’s conference is being recorded.
I’d now like to introduce your host for today’s conference is Sherri Warner, Chemed Investor Relations. Ma'am, please proceed.
Sherri Warner
Good morning. Our conference call this morning will review the financial results for the third quarter of 2017 ended September 30, 2017.
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 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 October 26, which is available on the Company's website at chemed.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, Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.
Kevin McNamara
Thank you, Sherri. Good morning.
Welcome to Chemed Corporation's third quarter 2017 conference call. I will begin with highlights for the quarter, and David and Nick will follow with additional operating detail.
I will then open up the call up for questions. The third quarter of 2017 had solid operational performance, margin improvement and overall financial results.
In the third quarter of 2017, Chemed generated $417 million of revenue and increase of 6.3%. Consolidated net income in the quarter excluding cost and other discrete items generated adjusted earnings per diluted share of $2.15, with the increase of 24.3%.
Both the have performed well, exceeding the high-end of our internal projections. VITAS admissions did decline 1% in the quarter, the three hurricanes in the quarter was disrupted to our third quarter admissions particularly in Florida.
However, given the structure of our Medicare [Inaudible] coupled with our loan medium length of stay where we have a negative margin on short stay admissions. The hurricanes did not materially impact a quarterly operating results.
Nick will provide more information on this later in the call. Roto-Rooter continues to show excellent results in our core plumbing and drain cleaning service segments as well as strong growth in water restoration.
This resulted in Roto-Rooter having a record third quarter 2017 revenue, adjusted EBITDA and adjusted EBITDA margin. During the quarter, the company we purchased 50,000 shares of Chemed’s stock for $9.6 million which equates to a cost per share of $191.52.
With that, I would like to turn the teleconference over to David Williams, our Chief Financial Officer.
David Williams
Thank you, Kevin. Net revenue for VITAS was $280 million in the third quarter of 2017, which is an increase of 2.2% when compared to the prior year period.
This revenue increase is comprised of a geographically weighted average Medicare reimbursement rate increase of approximately 1.3%, a 2.8% increase in average daily census, offset by acuity mix shift, which negatively impacted revenue 2.2%. VITAS did not incur any Medicare Cap billing limitations in the quarter.
At September 30, 2017, VITAS had 30 Medicare provider numbers, none of which has an estimated 2017 Medicare Cap billing limitation. Of VITAS’s 30 unique Medicare provide numbers, 28 of these provider numbers have a Medicare Cap position of 10% or greater and two provider numbers had a cap position between 5% and 10% for the 2017 Medicare Cap period.
Our average revenue per patient per day in the quarter was $188.62, which is 70 basis points below the prior-year period. Routine home care reimbursement and high acuity care averaged $162.24 and $709.80, respectively.
During the quarter, high acuity days of care were 4.8% of total days of care, and this is 74 basis points less than the prior-year quarter. Our third quarter 2017 gross margin for VITAS was 23.1%, which excluding the 2016 Medicare Cap is a 240 basis point improvement when compared to the third quarter of 2016.
Our Routine homecare direct gross margin was 52.4% in the quarter, an increase of 100 basis points when compared to the prior quarter. Direct inpatient margin in the quarter was 3.4% and compares to a negative margin of 2.4% in the prior year quarter.
Occupancy of our 29 dedicated inpatient units averaged 68.9% in the quarter and compared to occupancy of 70% in the third quarter of 2016. Continuous care had a direct gross margin of 17.3%, an increase of 510 basis points when compared to the prior year quarter.
Our average hours billed for a day of continuous care was 17.6 in the quarter, a slight decrease when compared to the 18.3 average hours billed for day of continuous care patients in the third quarter of 2016. Now, let's turn to the Roto-Rooter segment.
Roto-Rooter's plumbing, drain cleaning and water restoration service segments generated sales of $128 million for the third quarter of 2017, an increase of $18.8 million or 17.1% over the prior year quarter. Commercial drain cleaning revenue increased 1.8% and commercial plumbing and excavation increased 8.7%.
Overall, commercial revenue increased 7.4%. Residential plumbing and excavation increased 18.8% and drain cleaning increased 5.9%.
Our aggregate residential sales increased 24.8%. Revenue from water restoration totaled $21.1 million, an increase of 77.2% over the prior year quarter.
We have updated our guidance for 2017 as follows; revenue growth for VITAS in 2017 prior to Medicare Cap is estimated to be in the range of 2% to 3%, our admissions in Average Daily Census in 2017 are estimated to expand in the range of about 2% to 3% and full-year adjusted EBITDA margin prior to Medicare Cap is estimated to be 15%. We are currently estimating $1.5 million from Medicare Cap billing limitations in 2017 calendar year.
Roto-Rooter is forecasted to achieve full year 2017 revenue growth of 13% to 14%. This revenue estimate is based upon increased job pricing of approximately 2% and continued growth in water restoration services.
Adjusted EBITDA margin for Roto-Rooter in 2017 is now estimated at 22.5%. Based upon the above, full-year 2017 adjusted earnings per diluted share excluding non-cash expense for stock options, costs related to litigation and other discreet items is estimated to be in the range of $8.35 to $8.40.
This compares to Chemed's 2016 reported adjusted earnings per diluted share of $7.24. I will now turn this call over to Nick Westfall, our Chief Executive Officer of VITAS Healthcare.
Nick Westfall
Thanks, David. Before I discuss the specifics of VITAS this third quarter performance, I wanted to start by acknowledging and thanking our team members whose dedication and compassion allowed us to persevere to Hurricanes Harvey and Irma.
Our emergency preparedness, communication and coordination plans were tested within this quarter and I couldn’t be more proud of how they performed. Before, during and after both Harvey and Irma our VITAS team continue to provide appropriate high quality care for our patients on service, along with taking care of one another.
These are the two – two of the Company’s key values, and each member of our Company truly live those values throughout these storms. Additionally, the selfless determination and focus across our entire organization towards assessing our patients, fellow employees and company infrastructure during and immediately after the storms allowed us to quickly remobilize across both Houston and Florida in the aftermath.
In fact, during the immediate aftermath of hurricane Irma, our local care teams and centralized infrastructure were fully up and running caring for our patients, available to respond newer for our requests and supporting each other’s personal needs within 36 to 48 hours in the majority of our locations. We would backup so quickly that we actually had to wait on some of the national shipping providers and local ancillary providers to reopen before we could get fully backup to speed with bring on new patients.
I’ve never been more proud of the organization and managing through these events, and I’m happy to state that as a result of everyone rallying around one another, we’ve come out of these events stronger as an organization. With that, let me quickly discuss our operating results for the third quarter.
VITAS had a solid quarter, both financially and operationally. Our average daily census in the third quarter of 2017 was 16,652 patients, an increase of 3% on unit-for-unit basis over the prior year.
Total admissions in the quarter were 16,000, basically flat with the prior year on unit-for-unit basis. During the quarter, admissions generated from hospitals which typically represent over 50% of our admissions decreased 0.6%, home-based admissions increased 0.1%, nursing home admissions increased 0.9% and assisted living facility admissions increased 1.1% in the quarter.
Our per patient per day ancillary costs which include durable medical equipment, supplies and pharmaceutical costs averaged $14.67 and are 10% favorable when compared to the $16.30 the cost of these items were in the prior quarter, prior year quarter. Our inpatient care current consists of 29 dedicated units as well as contract base.
We evaluated inpatient capacity on a market-by-market basis to ensure these facilities are appropriately positioned to meet the needs of our patients in every community we serve. The sustainable evaluation and management processes have improved our inpatient margins 580 basis points in the quarter.
Within continuous care, we’ve enhanced our focus on labor and management specifically related to appropriate nursing to aid staffing assignments and the appropriate utilization of outside nursing agencies based upon the patient's location and the individual needs. These efforts improved our continuous care margins 510 basis points when compared to the third quarter of 2016.
VITAS' average length of stay in the quarter was 89.5 days, and compares to 87.7 days in the prior year quarter. Medium length of stay was 16 days in the quarter and is equal to the prior year quarter.
Median length of stay is a key indicator of our penetration into the high acuity sector of the market. With that, I'd like to turn this call back over to Kevin.
Kevin McNamara
Thank you, Nick. I will now open this teleconference to questions.
Operator
Kevin McNamara
Thank you. The one thing I’ll say is a question we’ve had given the recent development of the passing of tax reform in some form and the house representatives.
People that associate with the tax, with the corporate tax [Inaudible] was down 20% all that mean to Chemed and they jump in the air in terms of $1.80 a share of current share account.
David Williams
Yeah, [Inaudible] every 100 basis point reduction in the federal tax rate from say, 35% to 34% that’s worth to $0.12 to $0.13 per share in additional earnings.
Kevin McNamara
Okay, so that’s…
David Williams
Well, a 15 point reduction where we had a $1.80 to a $1.90.
Kevin McNamara
Very well. But I’d like to thank everyone for their kind attention.
And we’ll get back in mid-February to discuss our results for the fourth quarter. Thank you very much.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect.
Everyone have a great day.