Ladies and gentlemen, thank you for standing by. And welcome to the Chemed Corporation First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherri Warner with Investor Relations. Please go ahead, ma'am.

Good morning. Our conference call this morning will review the financial results for the first quarter of 2020 ended March 31st, 2020. 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 April 28th 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 April 28th, 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, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara.

Thank you, Sherri. Good morning. Welcome to Chemed Corporation's first quarter 2020 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 the call up for questions. First, let's start with the obvious. The coronavirus and related shutdown of significant portions of the US economy in March 2020 has triggered significant operational issues and disruption in both of our business segments and specifically within our labor scheduling and supply chains. Fortunately, both VITAS and Roto-Rooter are classified as essential services, allowing Chemed the opportunity to continue to operate both operating units throughout the pandemic. However, make no mistake, this is not business as usual. Operating during a pandemic with an incredibly infectious and deadly virus creates unique challenges. First and foremost, our number one focus is the safety and well-being of our employees, patients, and customers. We will maintain this focus regardless of the cost to safety to operate during the pandemic. Starting in March, we've seen a significant escalation in the cost of some supplies, primarily in the area of personal protection equipment, or PPE. In addition, we are experiencing increased labor costs as we robustly staff schedules to increase our ability to meet the immediate needs of our patients' families and industrial customers. We have also followed state and federal guidelines and are providing the infrastructure necessary to allow field support and corporate staff to work from home and 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 and creating pragmatic flexibility in caring for our patients. During the term of this pandemic, I anticipate some disruption around our patient referral patterns. Admissions expanded 4.8% in the first quarter of 2020. However, as we began to experience disruption to the healthcare system in the second half of March, admissions increased to a modest 1.1% for the month when compared to the prior year. Hospital referral admissions typically represent roughly 50% of our total admissions and are a key portal for identifying terminal patients. In fact, our admissions from hospital referrals increased 7.9% in the quarter. However, as hospitals shift their focus to COVID-19 patients, it is likely for short-term disruptions to emerge in our hospital referral patterns. We have continued working closely with our hospital partners to identify patients within the hospital care continuum who are hospice-appropriate. As most of you are aware, on March 27th, 2020, the CARES Act was passed and signed into law by President Trump. The CARES Act contains provisions related to healthcare providers' operations and issues caused by the coronavirus pandemic. On April 10th, 2020, VITAS – without application – received $80.2 million from the CARES Act Relief Fund as a formulaic calculation applied to VITAS' 2019 Medicare fee-for-service revenue. While specific granular details of the program have not been announced, funds are specified to be used to prepare for and respond to coronavirus, and shall reimburse the recipient for healthcare-related expenses or lost revenues that are attributable to the 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 federal relief program. This financial support is material for VITAS in maintaining its operational capacity to safely and appropriately care for over 19,000 patients daily. The CARES Act funding provides for VITAS to operate in the near term with increased labor costs, higher PPE and equipment costs, as well as disruption to hospital referrals without a material negative impact on our operating results and their overall financial condition. Roto-Rooter continues to operate at full capacity. However, in March of 2020, we noticed disruption in our commercial business. Commercial plumbing and drain cleaning services represented 28% of total Roto-Rooter revenue for 2019. With the shutdown of most restaurants and retail businesses, we have noticed a demand impact on this subset of our commercial business. Fortunately, our first quarter 2020 revenue service demand, which typically represents over 61% of Roto-Rooter revenue, continues to remain solid. David will provide additional color on Roto-Rooter revenue later in the call. With that, I would like to turn this teleconference over to David.

Thanks, Kevin. VITAS' net revenue was $338 million in the first quarter of 2020, which is an increase of 10.1% when compared to our prior-year period. This revenue increase is comprised primarily of a 5.9% increase in days-of-care, a geographically weighted average Medicare reimbursement rate increase of approximately 5%, and acuity mix shift which then reduced the Medicare rate increase by approximately 90 basis points. The combination of a decline in Medicare Cap, an increase in Medicaid net room and board pass-through, and other contra revenue activity had minimal impact on overall revenue growth in the quarter. Our average revenue per patient per day in the first quarter of 2020 was $198.99, which, including acuity mix shift, is 4.1% above the prior-year period. Reimbursement for routine home care and high acuity care averaged $164.14 and $990.72, respectively. During the quarter, high acuity days-of-care were 4.2% of total days of care, 21 basis points less than the prior-year quarter. This 21-basis-point mix shift in high acuity days-of-care reduced the increase in average revenue per patient per day from 5% to 4.1% in the quarter. In the first quarter of 2020, VITAS accrued $2.5 million in Medicare Cap billing limitations. This compares to prior-year Medicare Cap billing limitations of $3.4 million. VITAS currently has 30 Medicare provider numbers. During the first six months of fiscal 2020 Medicare Cap year, 23 of these provider numbers have a Medicare Cap cushion of 10% or greater, two provider numbers have a cap cushion between 5% and 10%, two provider numbers have a cap cushion between 0% and 5%, and three of our provider numbers have an estimated 2020 Medicare Cap billing limitation. The first quarter 2020 gross margin for VITAS excluding Medicare Cap was 23.8%, which is a 108-basis point margin improvement when compared to the first quarter of 2019. Selling, general and administrative expense was $22.3 million in the first quarter of 2020, which is an increase of 3.4% compared to the prior-year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $60.2 million in the quarter, an increase of 21.2%. And our adjusted EBITDA margin, excluding Medicare Cap, was 17.7% in the quarter, which is a 167 basis point improvement compared to the prior-year period. Now, let's look at Roto-Rooter. Roto-Rooter generated quarterly revenue of $178 million for the first quarter of 2020, which is an increase of $22.6 million or 14.6% over the prior year. On a unit basis, which excludes our Oakland and HSW acquisitions completed in July and September 2019 respectively, Roto-Rooter generated quarterly revenue of $158 million for the first quarter of 2020, which is an increase of 1.6% over the prior year. Excluding acquisitions, commercial drain cleaning revenue was equal to the prior year, commercial plumbing and excavation declined 4.3%, and commercial water restoration declined 15.5%. Commercial water restoration represents approximately 10% of our total water restoration service revenue. Overall, commercial revenue excluding acquisitions decreased 3.5%. On the residential side, if we exclude acquisitions, residential drain cleaning increased 4.1%, plumbing and excavation for residential increased 4.4%, and residential water restoration decreased 1.9%. Overall residential sales, excluding acquisitions, increased 2.4% in the quarter. Roto-Rooter's gross margin in the quarter was 48.1%, a 105-basis point increase compared to the first quarter of 2019. Adjusted EBITDA in the first quarter of 2020 totaled $40 million and was an increase of 19.5%. The adjusted EBITDA margin in the quarter for Roto-Rooter was 22.5%, which is a 92 basis point improvement compared to the prior year. As of March 31st, 2020, Chemed had total cash and cash equivalents of $29 million and long-term debt of $160 million. Regarding our outlook for 2020, certainly operating during the pandemic has the potential to materially impact the operational metrics and overall operating results of the company. However, it is expected that the CARES Act funds received by VITAS will be sufficient to substantially offset anticipated costs and lost revenue related to the COVID-19 pandemic. Roto-Rooter is anticipated to receive minimal financial support from the CARES Act. However, it is important to consider Roto-Rooter's main service is to stop water and raw sewage from flowing and causing destruction to residential and commercial structures. It is primarily a necessity and great service that has historically been resistant to even the deepest of recessions. We are early into the disruption caused by the COVID-19 pandemic and related shutdown in significant portions of our economy. It is premature and, in fact, impossible to reasonably measure or predict the impact that COVID-19 will have on Roto-Rooter's full-year 2020 operating results. Recognizing these issues, we anticipate providing updated 2020 earnings guidance when we issue our second quarter 2020 operating results. I'll now turn this call over to Nick Westfall, President and Chief Executive Officer of our VITAS subsidiary.

Thanks, Dave. Before I discuss our first quarter metrics and provide some additional color on what VITAS has been doing operationally during this unprecedented pandemic, I first wanted to thank every member of our VITAS team for their passion, commitment, and unwavering dedication being displayed each and every day. As hurricanes, wildfires, and other natural disasters have taught us in the past, this pandemic has brought our organization together to remind ourselves we will persevere through even the toughest of challenges and do it together. Now, let's dive into the first quarter of 2020 operating metrics. In the first quarter, our average daily census was 19,215 patients, an increase of 4.7% over the prior year. Total admissions in the quarter were 18,603. This is a 4.8% increase in admissions when compared to the first quarter of 2019 and is a continuation of admissions improvement over the previous five quarters. This admissions performance is a result of our collective organization, striving to improve all aspects of our ability to differentiate VITAS and efficiently serve the patients, families, and referral sources in each of the communities we operate. As Kevin mentioned in his opening remarks, the need to be the best partner in the communities we serve is only amplified during this pandemic. During the quarter, admissions increased in the three largest contributing pre-admit locations when compared to the first quarter of 2019. Hospitals, which typically represent roughly 50% of our admissions, increased 7.9%. Home-based admissions increased 2.8% and nursing home admissions expanded 20 basis points. Assisted-living facilities had a decline in admits of 4%. Our average length of stay in the quarter was 90.7 days. This compares to 91.3 days in the first quarter of 2019 and sequentially to 95.2 days in the fourth quarter of 2019. Our median length of stay was 14 days in the current quarter, which is one day less than the 15-day median in the prior-year quarter and compares sequentially to a 16-day median length of stay in the fourth quarter of 2019. Median length of stay is a key indicator of our penetration in the high acuity sector of the market. Before I turn this call back over to Kevin, I want to provide some additional color as to what VITAS is doing operationally during this unprecedented time. As Kevin mentioned in his opening comments, our top priority has been ensuring the safety of our employees, the patients we serve, and their families. I'm proud to say we've been able to achieve this priority to date through swift, prudent decision-making to anticipate and adhere to all CDC guidance and leverage the support of relief we partnered to vocalize with CMS and HHS. This includes leveraging our own VITAS-owned devices to provide telehealth when needed for our team members, healthcare partners, patients, and their loved ones. Additionally, we've been successful in our tireless efforts to source appropriate PPE by any means possible, allowing us not to negatively impact our ability to admit new patients as well as service our existing patients since the start of the pandemic. Additionally, we've taken a proactive approach to communicate and collaborate with our local partners in all the communities we serve to minimize the patient access disruption occurring as a result of the prescribed changes to the healthcare system. This approach is specific to the market and the partner, whether a hospital, nursing home, assisted living facility, or physician practice, as each are uniquely navigating how this pandemic has impacted their ability to service their communities. For example, for the most part, we've been successful working with our nursing home and facility partners to continue to access these locations, given the importance of our role for placement of new admissions along with caring for existing residents that are on VITAS service. As certain markets across the country prepare to reopen in a phased approach, we are similarly working with our partners to remind them we will adjust in lockstep to help support them to receive care for eligible patients as we plan for this new normal. I couldn't be more proud of the team and what we're going to continue to accomplish in serving our communities during these times. With that, I'd like to turn the call back over to Kevin.

Thank you, Nick. I will now open this teleconference to questions.

Thank you. Our first question comes from Kevin Fischbeck with Bank of America. You may proceed with your question.

Hi, everybody. You actually have Brad Bowers on for Kevin today. Thanks for taking the question. So, I appreciate the color that you gave on Roto-Rooter being historically resistant to recession and I appreciate that. So, are you talking about that on a relative basis or is there any sort of decline or deterioration in the business that we should be thinking about in case of a recession?

Yeah, this is Dave Williams. So, let's just compare the difference between what we're seeing early on between a recession and a pandemic. The recession typically results in a slowdown of volumes through some of our commercial accounts. For example, restaurant volume may be down. We do a fair amount of retail business where we'll fix and repair, say, bathrooms and break rooms for our retail customers, think of stores. So, unlike a recession, this pandemic in many states has resulted in a complete shutdown of retail as people are hunkering down in home. So, that volume is, obviously, down massively. Not completely, but massively. But we're seeing a lot of strength as a lot of people are in their residence and utilizing their plumbing and drain cleaning capacity. So, without a doubt, we're seeing strength in residential, weakness in some aspects of our commercial. And the real wild card is, frankly, how long will retail be shut down versus just reduced capacity because of lower shopping rates. And the same theory applies to restaurants. Restaurants that are doing phenomenal takeout, that business is holding up nicely. Sit-down restaurants that don't have the ability to do take-out and are shut down by state mandate, we're getting zero business. So, we'll see. Keep in mind one critical aspect of the Roto-Rooter business model is it's substantially a variable cost model. Our technicians are paid on commission. If the revenue doesn't happen, the labor doesn't happen. We don't have labor expense in that regard. I'll turn it over to Kevin.

The only thing I'd say with regard to the Roto-Rooter business – this may be wishful thinking, but we really think that, to the extent that we're seeing some sector weakness, but basically, as David implied, we're holding on to our servicemen and technicians. We're continuing to add people. We really think that it's going to be a flipping of the switch with regard to Roto-Rooter, one of the rare businesses that – to the extent that these businesses have gone from closed to open, our expectation is that business would return in short order. So, Roto-Rooter is one end of the spectrum of that. With regard to VITAS, you said – if we say that, 'oh, my gosh, the business of hospitals has been totally disrupted,' they have a totally different mix of patients. We have a high dependence on hospital admissions. It may take a while for that to return to a normalcy. Roto-Rooter, I would anticipate being at the other end of the spectrum with more of a flipping of a switch.

And Kevin actually brings up an extremely positive point again on the Roto-Rooter model. And that is, when the economy returns to normal, Roto-Rooter is up and running. Our customer relations are intact, our technician employee base is intact, and, quite frankly, we're looking at the possibility of even stronger commercial business down the road because we compete predominantly against mom-and-pop plumbing and drain cleaning companies and those smaller businesses actually tend to focus on certain sectors of emergency plumbing and repair. And there are a number of competitors in all of our markets that focus exclusively on commercial. They're going to have a tougher time coming back than Roto-Rooter. So, we're actually anticipating an opportunity to pick up share in commercial post-pandemic.

What they are saying is that those companies have furloughed or terminated their working staff because they can't afford to pay them and there is no business for them to do.

Got it. That's very, very helpful. I appreciate all the color on that. Just getting to the VITAS business a little bit – or I guess, actually, in both sides of the business. Would you be able to break out the difference in volumes between the first two months of the quarter and then maybe the last two weeks in March or whenever you start to see the disruptions happening? Thank you.

So, in a generality, as you look at our overall admissions number for the quarter being at 4.8%, we're running at that high 4%, low 5% throughout the entire duration. And as Kevin alluded to in his opening comments, the net result for March ended up being up just 1.1% from an admissions perspective, but the phasing of sort of the referral disruption to the healthcare system was very much – it picked up at different points of March. So, on March 4th, I know specifically across the country, there were mandates around access restrictions both from a hospital perspective as well as our facility partners. And as you got through the middle part of March, as bed capacity got reduced and the hospital systems really prepared to focus on managing the pandemic across different markets as well as physician practices moved toward shutdown and really operating in an exclusive telehealth capacity, we saw degradation in the referral and admission patterns. But with that being said, it's not large; it's not catastrophic. The need for appropriate patients and the value of our partnership to continue to work with those healthcare systems so that they understood we are ready and available and educated and safe to respond to those patients' needs, respond to the family needs and bring them onto service appropriately. We've really been really proud of the team as we navigated what is, by definition, slightly lower referral volumes, but nothing dramatic at this stage.

The only thing I'd say on Roto-Rooter – and again, this is started in a generalized sense – what we've seen in Roto-Rooter is the residential business as far as sales being up, okay, not up or flat on an ongoing basis, we're shooting for flat. But the problem has more been on the commercial. Again, we view that as relatively a short-term issue.

Yeah. I would really characterize both businesses, given the strength of our balance sheet and the variable cost of what I would say is our – the major expense is labor. Again, Roto-Rooter on the technician side is all commission based or predominantly commission based. And VITAS, quite frankly, is just scrambling to deal with our 19,300 patients we have. But both of the businesses are going to hold up well. I can't make any prediction on 2020 earnings except we'll have earnings; we'll have good strong cash flow, but the reality of what we're looking at for the businesses, it's intact. Our capabilities are intact. Our ability to manage patient inflow and Roto-Rooter demand when the pandemic ends and we normalize won't be impeded in the least. But what we can't say is, certainly not within last $0.25, what will Q2 look like. But frankly, to a great degree, we don't care. We're managing our business; we're managing to take care of all of our customers and patients, and the business won't be hobbled in the least from the pandemic.

That's all very helpful. That's it from me. Thanks. Stay safe, guys.

Thank you. Our next question comes from Anton Hie with RBC Capital Markets. You may proceed with your question.

Hey, Frank Morgan here. Question on – obviously, you gave some color about the sequential within the quarter. I'm just curious if you can give us any color about where either your ADC census is as of today or kind of what you're seeing is the current run rate in the second quarter. I know we've had some providers sort of give some insights into where they are in the second quarter. So, I guess, that would be my first question. Second one on the same topic, have you had any discussions with your referral sources? A lot of hospitals are now in discussions about sort of the rebooting and the preparation for the return. So, I'm just curious if you're having those conversations. And then my last one is, you talked about share gain opportunities on the commercial side and some of these specialized plumbing competitors. But I'm just curious about – are you thinking too about acquisitions? Or is it just cheaper to take market share than it is to actually buy market share? Thanks.

Let me start by doing one element of this. I'll turn it over to Nick. But let me start by saying that our view on VITAS is, yes, we're seeing some – first of all, our census is strong and firm. With regard to the business, what we've talked about is some disruption in the admitting patterns, which you've got to remember that more than half of our admissions come from hospitals which are totally disrupted right now but getting back to normal. But, I guess, the way we look at as a general rule, generally with VITAS is, look, we have disruptions, we have situations where we are paying more for PPE, but the government gave us $80 million to cover elements like that. And it's hard for us to imagine we're not going to get through this period of the pandemic and back to normal, with all those disruptions. You've got to remember, we also have – sequestration is relaxed through May 1 through the end of the year. We're going to be covered on that, I think, very solidly. There are all sorts of operational issues, and I'll turn it over to Nick, and Nick will be dealing with, but that is not something we're looking to see as a problem financially through the expected course of the pandemic. And the last thing I'll say with regard to Roto-Rooter, the acquisitions, we just take market share. The acquisitions – we only purchased the Roto-Rooter brand in plumbing. And to the extent we hire their plumbers, that would be great. The business will come. But we look for just – grind it out market by market, maneuvers on the Roto-Rooter side. But, Nick, anything more you'd want to say to Frank with regard to that.

Just to reiterate Kevin's point, for what we've experienced to date, ADC has stabilized. And as I alluded to in my comments, we're able to safely service all of our existing patients and new patients. Regarding the second question for referral sources as they begin to reopen, we absolutely are sitting hand in hand – and by definition, it's dependent on the strength of the relationship where we're working with them to navigate not only how we're servicing them today but when their expected phasing of, say, modifying the current discharge planning process looks like, so that we are in lockstep with them as patients continue to now traverse hospital systems, as well as some of the other facilities. So, the strength of partnerships has really just been amplified, like I mentioned in my comments, and we feel good about that and where we are right now. But recognizing the need to be in lockstep as opposed to waiting for them to pick up the phone and call us three weeks later. So, we're doing all that we can to make them become aware we're educated, committed, and ready to help service them in every capacity. Some of the CMS and HHS provisions have really helped with that. I'll go back to the telehealth component so that we can really service patients' families and referral source needs in this new normal right now.

Okay. Thank you very much.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Kevin McNamara for any further remarks.

Okay. Well, overall, we were very pleased with our quarter. And again, I think we have a good handle on the business going through the second quarter. And in this type of environment, in the land of the blind, the one-eyed man is king. So, we're very happy with how things are going. And I'll leave it at that. And people are shaking their heads. And hope to see you in three months.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.