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Text: 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.
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.
I will begin with highlights for the quarter, and David and Nick will follow up with additional operating detail.
First, let's start with the obvious.
Operating two separate and distinct service business segments with 17,000 employees during a national pandemic brings unique, unpredictable and abrupt challenges.
Fortunately VITAS and Roto-Rooter have been classified as essential services allowing Chemed to operate during the pandemic.
Maintaining operations in this environment is far from business as usual.
First and foremost, our number one focus has been and will remain on the safety and well-being of our employees, patients and customers.
We will maintain this focus regardless of the cost to safely operate during the pandemic.
April 2020 was probably the most challenging month, we have ever seen significant operating issues emerge daily, triggered primarily from incredibly fast-moving and sometimes contradictory federal, state and local government regulations.
Logistical operating issues were identified, analyzed and solutions for put in practice immediately.
We were able to develop and continuously refine effective work arounds on supply chain issues, labor and scheduling issues, patient access restrictions, employee safety, healthcare protocols, technology solutions as well as information security protocols allowing our employees to continuously serve our local communities in a safe agile manner.
We closely followed the myriad of federal, state and local regulations in the development and implementation of infrastructure necessary to safely allow our field, support and corporate support staff to safely limit as much as practical, physical interaction among our 17,000 employees.
On the VITAS segment, the federal government and specifically HHS and CMS have been exceptionally supportive in terms of relaxing regulations, allowing the use of telehealth capabilities where appropriate and providing pragmatic flexibility in caring for our 19,000 plus patient census.
As most of you are aware on March 27, 2020 the CARES Act was signed in the law.
The CARES Act includes financial support for healthcare providers to maintain operational capacity as well as assist providers with issues caused by the coronavirus panic.
On April 10, 2020, VITAS without application received $80.2 million of CARES Act funds, that was formulaically determined by the federal government based on our 2019 Medicare fee-for-service revenue.
These CARES Act funds are specified to be used to prevent, prepare for and respond to the coronavirus, and shall reimburse the recipient for healthcare-related expenses or loss revenues that are attributable to coronavirus.
The ability of VITAS to retain and utilize the full $80.2 million from the relief fund will depend on the magnitude, timing and nature of the economic impact of COVID-19 within VITAS, as well as the guidelines and rules of the relief fund program.
This financial support is material for VITAS in maintaining its operational capacity at the safely care for our 19,000 patients.
In our first quarter earnings conference call, I stated we anticipated disruption within our patient referral and addition patterns due to significant healthcare system service restrictions in the coming quarter.
This disruption did materialize in our second quarter 2020 admissions declined 3.8% over the prior year.
However, the admissions trend did materially improve throughout the quarter.
Our April 2020 admissions were challenging and had a decline of 6.6%, may improve slightly with admission decline of 5.8%.
June showed significant improvement generated in admissions growth of 1.1%.
Roto-Rooter operations were also severely impacted at the start of the pandemic.
In late March 2020, we observed significant disruption in our Roto-Rooter commercial business.
As a reminder, historically, commercial services represented approximately 28% of Roto-Rooters consolidated revenue.
We made the decision for Roto-Rooter to maintain full staffing and operating capacity with no employee layoffs, as we entered the second quarter.
This decision could maintain our full operating strength was potentially an expenses strategic move and we monitored our demand metrics daily.
The decision to operate at full capacity is a classic risk reward calculation weighing brand awareness, customer satisfaction and the financial needs of our employees.
We also wanted to positioned to capitalize on any potential snapback in commercial and residential demand, both to protect existing marketing share as well as maximize our opportunities to grow market share.
I believe this is proven to be the correct strategic course.
Roto-Rooter services demand began to show weekly improvement beginning in the later part of April, and had strengthened unabated throughout the remainder of the second quarter.
This is reflected in our monthly performance with Roto-Rooter and unit-for-unit commercial revenue declining 38.6% in April, improving slightly to 31.8% decline in May and declining 19.7% in June.
Our residential services have proven to be exceptionally resilient, with our unit-for-unit residential revenue declining a modest 1.6% in April, increasing 11.7% in May and 18.7% in June.
All this translated into Roto-Rooter -- I mean unit-for-unit basis, having the second quarter 2020 commercial revenue declining 29.1%, residential revenue increasing 10.4% and Roto-Rooter consolidated unit-for-unit revenue declining a modest 1.6% when compared to the prior year quarter.
Although, we did have a modest decline in unit-for-unit revenue in the second quarter.
Including acquisitions Roto-Rooter generated consolidate revenue -- consolidated revenue growth of 8.6%.
Overall Roto-Rooter solid revenue growth with excellent adjusted EBITDA margins and adjusted EBITDA growth.
Roto-Rooter's adjusted EBITDA in the second quarter of 2020 totaled $46.8 million, an increase of 20.7%.
The adjusted EBITDA margin was 26.8%, which is a 269 basis point increase when compared to, I'm sorry, excuse me.
The have increase in Roto-Rooter's adjusted EBITDA margin is a contributed to our residential services, having a higher margin than commercial services, as well as increased residential excavation and water restoration services, which have a significantly higher direct contribution margin compared to commercial plumbing and drain cleaning services.
I'm very appreciative of the hard work, creative solutions and willingness of our 7,000 employees to adjust our operational routines and embrace new procedures.
With that, I would like to turn the teleconference over to David.
VITAS' net revenue was $327 million in the second quarter of 2020, which is an increase of 4.7% when compared to our prior year period.
This revenue increase is comprised primarily by 2.8% increase in days of care, a geographically weighted average Medicare reimbursement rate increase, including the suspension of sequestration on May 1 of 2020 of approximately 5.4% and acuity mix shift, which reduced the blended average Medicare rate increase by approximately 310 basis points.
The combination of increased Medicare Cap and a decrease in Medicaid net room and board pass-throughs, as well as reductions in other contra revenue activity, reduced total revenue growth in additional 42 basis points in the quarter.
Our average revenue per patient per day in the second quarter of 2020 was $194.02, which including the impact from acuity mix shift is 2.3% above the prior year period.
Reimbursement for routine home care and high acuity care averaged $165.22 and $985.23, respectively.
During the quarter, high acuity days of care were 3.5% of our total days of care, 69 basis points less than the prior year quarter.
This 69 basis points mix shift and high acuity days of care reduce the increase in average revenue per patient per day from 5.4% to 2.3% in the quarter.
VITAS accrued $5.8 million in Medicare Cap billing limitations and then second quarter of 2020.
This $5.8 million of Medicare Cap, includes approximately $2.3 million of cap liability attributed to the pandemic.
The suspension of sequestration resulted in additional 2% increase in reimbursement effective May 1 of 2020.
In Medicare, provider numbers that we're in a Medicare cap liability situation, there is 2% reimbursement increase was effectively eliminated by a corresponding increase in Medicare cap liability in those markets.
In addition, disruption in Medicare admissions and these Medicare cap liability markets resulted in a further increase in the projected fiscal 2020 Medicare Cap billing limitation.
The second quarter 2020 gross margin excluding Medicare Cap increased cost for personal protection equipment or PPE disinfecting facilities and increased costs for additional paid off or PTO for our front-line employees was 27.2%, which is a 352 basis point margin improvement when compared to the second quarter of 2019.
This increase in gross margin for VITAS is attributed to increased reimbursement from the elimination of sequestration on May 1, 2020.
A level of care mix shift to higher margin routine home care as well as efficiencies from utilizing telehealth were appropriate.
And from cost from reduced admissions volume intake and reduced high acuity hospital referred admissions that have short length of stay and in some cases negative gross margins.
Now let's turn to the Roto-Rooter segment.
Roto-Rooter generated quarterly revenue of $175 million in the second quarter of 2020, an increase of $13.9 million or 8.6% over the prior year quarter.
And a unit-for-unit basis, which excludes the Oakland and Hoffman Southwest acquisitions completed in July 2019 and September 2019 respectively.
Roto-Rooter generated revenue of $158 million for the second quarter of 2020 a modest decline of 1.6% over the prior year quarter.
Total Roto-Rooter commercial revenue, excluding acquisitions, decreased 29.1% in the quarter.
This aggregate commercial revenue decline consisted of drain cleaning revenue decreasing 31.2%, commercial plumbing and excavation declining 28%, and commercial water restoration declining 20.3%.
Total residential revenue, excluding acquisitions increased 10.4%.
This aggregate revenue growth for residential consisted of residential drain cleaning increasing 10.2%, plumbing and excavation expanding 14.4% and commercial water restoration increasing 4.3%.
Roto-Rooter's gross margin in the quarter was 51.2%, a 247 basis point increase when compared to the second quarter of 2019.
Now let's look at consolidated Chemed.
As of June 30, 2020 Chemed had total cash and cash equivalents of $20.4 million and no long-term debt.
On our guidance, historically Chemed earnings guidance has been developed using previous year's key operating metrics, which are then modeled and projected out for the calendar year.
Critical within these projections is the understanding of traditional pattern correlations among key operating metrics.
Once, we complete this phase of our projected operating results, we would then modify the projections for the timing of price increases, changing the commission structure, wages, marketing programs and a variety of continuous improvement initiatives that our business segments plan on executing over the coming year.
This modeling exercise also takes into consideration anticipated industry and macroeconomic issues outside of management's control but are somewhat predictable in terms of their timing and impact on our business segments operating results.
The 2020 pandemic has made accurate modeling and providing meaningful earnings guidance for Chemed exceptionally challenging.
Federal, state and local government authorities are forced to make swift decisions within our healthcare system, labor pools and general economy.
These governmental decisions have the potential for an immediate and material impact on VITAS and Roto-Rooter operating results.
However over the past four months, Chemed has been able to successfully navigate within this rapidly changing environment and produce operating results that we believe provide us with the ability to issue meaningful guidance for the remainder of the calendar year.
However, this guidance should be taken with the recognition the pandemic will continue to materially disrupt all aspects of our healthcare system and general economy to such an extent that future rules, regulations and government mandates could materially impact our ability to achieve this guidance.
With that said, revenue growth for VITAS in 2020, prior to Medicare Cap is estimated to be in the range of 5% to 7%.
Our Average Daily Census in 2020 is estimated to expand approximately 2% to 4%.
And our full-year adjusted EBITDA margin prior to Medicare Cap is estimated to be 19% to 20%.
We are currently estimating $17 million for Medicare Cap billing limitations for the calendar year 2020.
We also anticipate the $80.2 million of CARES Act funds that Chemed just -- Kevin described earlier that our formulaically calculated by the federal government based upon our 2019 Medicare fee-for-service revenue will be adequate to cover our increased costs specifically related to operating our healthcare unit during the pandemic, as well as any incremental Medicare Cap billing limitations that are triggered from declines in Medicare admissions.
I should also note that Chemed's full year adjusted earnings per share guidance eliminate any financial benefit from the CARES Act funds that relate to lost revenue.
We anticipate returning any unused CARES Act to the federal government at the end of the pandemic measurement period.
Roto-Rooter is forecasted to achieve the full year 2020 revenue growth of 9% to 10%.
Adjusted EBITDA for Roto-Rooter for 2020 is estimated to be in the range of 23% to 25%, Based upon this discussion, our full-year 2020 adjusted earnings per diluted share, excluding non-cash expense for stock options, tax benefits from stock options, cost related to litigation, CARES Act funds used for lost revenue and other discrete items is estimated to be in the range of $16.20 to $16.40.
This 2020 full year, calendar year guidance assumes an effective corporate tax rate of 25.2% and as a comparison Chemed's 2019 reported adjusted earnings per diluted share were $13.96.
The interdisciplinary team approach that is the foundation of the hospice benefit has never been more evident for our organization across the country, then through this entire pandemic.
Coordination of our entire team from our sales team providing pandemic relevant education to our disrupted healthcare partner through our admissions teams responding to referrals, enabling our clinical care teams to provide care around the clock with the support of our care coordination centers, home medical equipment division and back office support has been remarkable.
All of this enabled us to care for 19,185 patients each day within the quarter, while bringing on the service 16,822 patients who needed high quality hospice care during this pandemic.
We lived our internal model that we've been sharing during the pandemic, which is, yes, we can, and together we will.
Now let's discuss our second quarter 2020 operating metrics.
As I mentioned in the second quarter, our average daily census was 19,195 patients, an increase of 2.8% over the prior year.
Total admissions in the quarter were 16,822.
This is a 3.8% decline in admissions when compared to the second quarter of 2019.
Admissions performance in the quarter was primarily impacted by the level of disruption, which occurred at each of our referring partners across the healthcare continuum.
For example, admissions from hospitals were pressured due to the reduction in available bed capacity and elective procedures, resulting in fewer patients accessing and subsequently being discharged from hospitals.
Admissions from physician offices, whom were disrupted but were able to remain operational through telehealth interactions saw an increase due to the number of patients choosing to access the disrupted healthcare system through their primary or specialty physician practice along with medical offices.
Lastly, placement of admissions in the nursing homes and assisted-living facilities were significantly impacted due to the barriers and the restriction of access toward new residents.
These types of admission difficulties are reflected in our actual admission results based upon our patient's pre-admit location.
In the second quarter, our admissions increased 7.1% in our home-based preadmit locations.
However, this admission group -- admission growth was more than offset by the combination of hospital admissions declining 4%, nursing home management's decreasing 22.8% and assisted living facility admissions declining 10.2% when compared to the prior year quarter.
Our average length of stay in the quarter was 90.9 days.
This compares to 91.1 days in the second quarter of 2019, in 90.7 days in the first quarter of 2020.
Our median length of stay was 14 days in the quarter, which is two days less than the 16 day median in the second quarter of 2019 and equal to the first quarter of 2020.
Median length of stay is a key indicator of our penetration into the high acuity sector of the market.
First, we will continue to prioritize the safety of our employees, patients and their families as we have successfully done since March.
We have and will continue to source PPE and we are comfortable with the inventory levels to sustain employee need based upon patient and local circumstances.
Additionally, we will continue to utilize the infrastructure we lifted up to manage testing requirements for certain facilities across the country to allow us to safely access our partners' facilities to care for existing patients and placement of new patients when appropriate.
Our entire team will continue to collaborate safely with our local healthcare partners to successfully navigate patients and their families on to the hospice benefit during this unique time.
Lastly, and most importantly, our team will stay committed to persevere and provide care to all the patients and families in need in the communities we serve.
I will now open this teleconference to questions.

user
sees fy 2020 adjusted earnings per share $16.20 to $16.40 excluding items.
roto-rooter is forecasted to achieve full-year 2020 revenue growth of 9% to 10%.

assistant