Chemed Reports First-Quarter 2008 Results

Business Wire, April 24, 2008

CINCINNATI -- Chemed Corporation (Chemed) (NYSE:CHE), which operates VITAS Healthcare Corporation (VITAS), the nation's largest provider of end-of-life care, and Roto-Rooter, the nation's largest commercial and residential plumbing and drain cleaning services provider, today reported financial results for its first quarter ended March 31, 2008, versus the comparable prior-year period, as follows:

Consolidated operating results:

* Revenue increased 5.5% to $285 million

* Diluted EPS of $.69

* Diluted EPS, excluding special items, of $.73

VITAS segment operating results:

* Net Patient Revenue of $199 million, up 7.9%

* Average Daily Census (ADC) of 11,691, up 3.4%

* Admissions of 15,212, an increase of 7.8%

* Average Length of Stay in the quarter of 71.5 days

* Adjusted EBITDA of $23.6 million, a decline of 9.3%

Roto-Rooter segment operating results:

* Revenue of $87 million, an increase of 0.3%

* Job count of 196,249, a decline of 7.0%

* Adjusted EBITDA of $15.9 million, a decline of 2.7%

VITAS

Net revenue for VITAS was $199 million in the first quarter of 2008, which is an increase of 7.9% over the prior-year period. This revenue growth was the result of increased ADC of 3.4%, a Medicare price increase of approximately 3%, and a favorable shift in revenue mix from routine home care to high acuity care.

Average revenue per patient per day in the quarter was $186.67, which is 3.5% above the prior-year period. Routine home care reimbursement and high acuity care averaged $145.42 and $633.10, respectively, per patient per day in the first quarter of 2008. During the quarter, high acuity days-of-care was 8.5% of total days-of-care. Quarterly high acuity days-of-care had averaged between 8.0% and 8.4% in 2007. Any shift in revenue mix will have a noticeable impact on overall revenue given the significant disparity in reimbursement. However, given the relatively low profitability margin on high acuity care, this favorable mix shift had minimal impact on gross profit and net income in the quarter.

VITAS did not have any billing restrictions related to Medicare Cap for its first-quarter 2008 operating activity. As of March 31, 2008, VITAS has not accrued any Medicare billing restrictions for the 2008 or 2007 Cap years. Of VITAS' 35 unique Medicare provider numbers, 30 provider numbers, or 86%, have a Cap cushion greater than 20% for the 2008 Cap year, four provider numbers are between 10% and 20%, and one provider number has Cap cushion of approximately 4%.

Gross margin in the first quarter of 2008 was 20.0%. This is 257 basis points below the first quarter of 2007, excluding the 2007 benefit from Medicare cap. This margin decline is a combination of increased expenses related to admissions and increased costs for direct patient care labor.

As part of its growth strategy, VITAS has expanded its investment in the admissions process. At the end of the first quarter of 2008, VITAS increased staffing of sales representatives, admissions coordinators and admissions nurses by 18%. This resulted in an additional $2.1 million of admission expense in the quarter and equates to 106 basis points of the decline in gross margin in the quarter.

The remaining margin decline is due to an increase in direct patient care labor. This additional labor is a combination of salary rate increases for existing employees as well as excess staffing relative to current patient census and individual plans of care. In the first quarter of 2008, total field salary increases averaged 4.2% over the prior-year period which is largely commensurate with local market salary requirements. This is above the 3.0% inflation per diem increase VITAS received from CMS in October 2007. Over the past several years the CMS calculated inflation factor has been below the actual inflation on direct patient care costs, primarily wages. Historically, VITAS has been able to offset this inflation adjustment shortfall through scale in management systems and infrastructure.

VITAS continues to refine the process of scheduling direct labor to allow for more daily flexibility with the goal of ensuring proper levels of staffing notwithstanding length of stay and census fluctuations. This involves more efficient utilization of field-based labor management tools designed to meet and respond to hospice team staffing requirements. VITAS anticipates more efficient labor management during the second quarter of 2008 with margins returning to more historical levels in the second half of 2008.

Selling, general and administrative expense was $16.1 million in the first quarter of 2008, which is an increase of 1.5% over the prior year. Adjusted EBITDA totaled $23.6 million, a decline of 9.3% over the prior year and equates to an adjusted EBITDA margin of 11.9%.

Roto-Rooter

Roto-Rooter's plumbing and drain cleaning business generated sales of $87 million for the first quarter of 2008, 0.3% higher than the $86 million reported in the comparable prior-year quarter. Net income for the quarter was $9.1 million. The first-quarter net income includes a $0.4 million aftertax charge for a settlement of litigation relating to a 2003 fire that, for unique technical reasons, was not covered by Roto-Rooter's secondary insurance carrier. Excluding this settlement, net income in the first quarter of 2008 declined approximately 0.6% over the first quarter of 2007. Adjusted EBITDA in the first quarter of 2008 totaled $15.9 million, a decrease of 2.7% over the first quarter of 2007, and equated to an adjusted EBITDA margin of 18.4%.