Chemed Corp. (CHE)

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Chemed Corporation (CHE)

Q4 2008 Earnings Call

February 17, 2009 10 a.m. ET


Sherri Warner – Investor Relations

Kevin McNamara – President and CEO

David Williams – EVP and CFO

Tim O'Toole – CEO, VITAS Subsidiary


Bryan Sekino – Barclays Capital

Frank Morgan – RBC Capital Markets

Jim Barrett – C.L. King & Associates

Peter Chickering – Deutsche Bank

Mario Gabelli – Gabelli & Company



Good morning ladies and gentlemen. Welcome to Chemed Corporation’s Fourth Quarter 2008 Conference Call. My name is Fab and I will be your conference call facilitator today.

Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remark there will be a question-and-answer period. I would now like to turn the call over to Sherri Warner with Chemed Investor Relations.

Sherri Warner

Good morning. Our conference call this morning we will review the financial results for the fourth quarter of 2008 ended December 31, 2008. 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 February 16, 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 February 16 which is available on the Company's website at

I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; David Williams, Executive Vice President and Chief Financial Officer of Chemed; and Tim O’Toole, Chief Executive Officer of Chemed VITAS Healthcare Corporation Subsidiary.

I will now turn the call over to Kevin McNamara.

Kevin McNamara

Thank you, Sherri. Good morning everyone. Welcome to Chemed Corporation's fourth quarter 2008 conference call. I will begin with an overview of the quarter. I will then turn over the call to David Williams, Chemed's Chief Financial Officer. This will be followed by Tim O’Toole, Chief Executive of our VITAS Subsidiary, for a discussion on some of our hospice metrics. I will then open the call up for questions.

Chemed consolidated revenue in the quarter totaled $292 million, and net income from continuing operations was $20.1 million. This equated to diluted earnings per share of $0.89. If you adjust for non-cash items, or items that are not indicative of ongoing operations, earnings per share were $0.99 in the quarter.

As most of you are aware, last week Congress approved The American Recovery and Reinvestment Act of 2009. The President has stated that he intends to sign this stimulus package in to law sometime today. This Act provides for an increase in the Medicare hospice wage index for the period October 1, 2008, through September 30, 2009. Given the timing of the passage of this Act, VITAS has not included any adjustment to the fourth quarter 2008 operating results for this change to our Medicare hospice reimbursement rates.

David Williams will provide you the impact which will have on our hospice operations in 2009 later in this teleconference.

In the fourth quarter of 2008, our VITAS business segment had revenue up $206 million an increase of 4.4%, and generated EBITDA of $34.3 million an increase in our adjusted EBITDA up 21%. This equated to adjusted EBITDA margin of 16.7%. I am very pleased with the progress we have made over the last year in managing our excess labor capacity as well as our general and administrative expenses. This progress is clearly reflected in our improved EBITDA margin.

Our improvement in margins is primarily the result of refines in our approach to matching our labor needs to daily patient sensors. We accomplished this through reinforcement of existing labor management tools. This will include daily scheduling meetings, rebalancing the mix of nurses and home healthcare aides in our hospice teams, and through more cost-effective utilization of agency staff.

I continue to be very disappointed with our admissions growth. In the fourth quarter of 2008, our admissions totaled 13,314, a decline of 2.1% over the prior year quarter. For a full year 2008, we admitted a total of 55,799 patients which is an increase of 1.8% over our 2007 admissions.

Over the past three quarters, we have noticed increasing disruption in our typical admissions pattern in certain geographic markets as well as some specific referral sources. I believe a significant portion of this disruption is result of economic dislocation making access to hospice appropriate patients more difficult in some markets. We continue to adjust our local marketing efforts to respond to these changing referral patterns. Tim O'Toole, will provide an additional color on how we are shifting our resources in these markets the better access referral sources and their patients.

VITAS have now record any Medicare Cap liability for the 2008 measurement period ended September 28, 2008. VITAS has recorded $235,000 of Medicare Cap liability related to our fourth quarter which is the first three months of the 2009 Medicare Cap measurement period. This Medicare Cap liability relates to one provider number that has a gross margin in excess of 20%. Admissions in this provider number have declined in the first three months of the 2009 Medicare Cap year. This program generated a 15% cap cushion over the prior 12 month period.

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