Select Medical Holdings Corporation Announces Results for Third Quarter Ended September 30, 2011

MECHANICSBURG, Pa., Nov. 3, 2011 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM), today announced results for its third quarter ended September 30, 2011.

For the third quarter ended September 30, 2011, net operating revenues increased 18.0% to $694.1 million compared to $588.3 million for the same quarter, prior year.  Income from operations increased 62.3% to $68.1 million compared to $42.0 million for the same quarter, prior year.  Net income attributable to Select Medical increased to $25.6 million compared to $8.0 million for the same quarter, prior year.  Net income before interest, income taxes, depreciation and amortization, stock compensation expense, other income, loss on early retirement of debt and equity in earnings (losses) of unconsolidated subsidiaries ("Adjusted EBITDA") for the third quarter increased 45.6% to $86.5 million compared to $59.4 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is contained in table VII of this release.  Income per common share for the third quarter ended September 30, 2011 was $0.17 on a fully diluted basis compared to income per common share of $0.05 for the quarter ended September 30, 2010.

For the nine months ended September 30, 2011, net operating revenues increased 19.0% to $2,086.1 million compared to $1,752.9 million for the same period, prior year.  Income from operations increased 26.5% to $236.7 million compared to $187.2 million for the same period, prior year.  Net income attributable to Select Medical increased 25.2% to $71.0 million compared to $56.7 million for the same period, prior year.  Net income attributable to Select Medical for the nine months ended September 30, 2011 includes a loss on early retirement of debt, net of tax, of $19.2 million associated with the June 1, 2011 refinancing of a portion of its indebtedness.  Additionally, Adjusted EBITDA for the nine months ended September 30, 2011 increased 21.8% to $292.2 million compared to $239.9 million for the same period, prior year.  A reconciliation of net income to Adjusted EBITDA is contained in table VII of this release.  Income per common share for the nine months ended September 30, 2011 was $0.46 on a fully diluted basis compared to income per common share of $0.35 for the nine months ended September 30, 2010.  Excluding the loss related to the early retirement of debt and its tax effect, net income available to common stockholders on an adjusted basis ("Adjusted Net Income Per Share") was $0.59 per diluted share for the nine months ended September 30, 2011.  A reconciliation of net income per share to Adjusted Net Income Per Share is contained in table VIII of this release.

Specialty Hospitals

Certain specialty hospital key statistics are contained on tables V and VI of this release.  For the third quarter of 2011, net operating revenues for all of Select Medical's hospitals increased 24.1% to $521.1 million compared to $419.8 million for the same quarter, prior year.  The hospitals acquired in the Regency acquisition on September 1, 2010 contributed $84.1 million of net operating revenue, or $61.3 million of this increase.  Adjusted EBITDA for the specialty hospital segment increased 40.0% to $81.6 million compared to $58.3 million for the same quarter, prior year.  The hospitals acquired in the Regency acquisition contributed $12.7 million of this increase.  The Adjusted EBITDA margin for the segment was 15.7% for the third quarter of 2011, compared to 13.9% for the same quarter, prior year.  Excluding the effect of the Regency hospitals, the Adjusted EBITDA margin would have been 16.0% for the third quarter of 2011, compared to 14.9% for the same quarter, prior year.

For the nine months ended September 30, 2011, net operating revenues for all of Select Medical's hospitals increased 26.5% to $1,561.3 million compared to $1,234.6 million for the same period, prior year.  The hospitals acquired in the Regency acquisition contributed $255.0 million of net operating revenue, or $232.2 million of this increase.  Adjusted EBITDA for the segment for the nine months ended September 30, 2011 increased 27.3% to $273.0 million compared to $214.5 million for the same period, prior year.  The hospitals acquired in the Regency acquisition contributed $35.9 million of this increase.  The Adjusted EBITDA margin for the segment for the nine months ended September 30, 2011 was 17.5%, compared to 17.4% for the same period, prior year.  Excluding the effect of the Regency hospitals, the Adjusted EBITDA margin would have been 18.2% for the nine months ended September 30, 2011, compared to 17.8% for the same period, prior year.

Outpatient Rehabilitation

Certain outpatient rehabilitation key statistics are contained in tables V and VI of this release.  For the third quarter of 2011, net operating revenues for the outpatient rehabilitation segment increased 2.7% to $173.0 million compared to $168.4 million for the same quarter, prior year.  Adjusted EBITDA for the segment for the third quarter decreased 4.4% to $19.4 million compared to $20.3 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.2% for the third quarter of 2011, compared to 12.1% for the same quarter, prior year.

For the nine months ended September 30, 2011, net operating revenues for the outpatient rehabilitation segment increased 1.2% to $524.7 million compared to $518.3 million for the same period, prior year.  Adjusted EBITDA for the nine months ended September 30, 2011 decreased 2.3% to $65.3 million compared to $66.8 million for the same period, prior year.  The Adjusted EBITDA margin for the nine months ended September 30, 2011 was 12.4% compared to 12.9% in the same period, prior year.

Stock Repurchase Program

On August 3, 2011, the board of directors of Select Medical authorized an increase of $50.0 million in the capacity of its common stock repurchase program from $100.0 million to $150.0 million.  The program will now remain in effect until March 31, 2013, unless extended by the board of directors.  Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Select Medical deems appropriate.  The timing of purchases of stock will be based upon market conditions and other factors.  Select Medical is funding this program with cash on hand or borrowings under its revolving credit facility.  Select Medical repurchased 4,239,972 shares at a cost of $28.4 million and 4,649,747 shares at a cost of $31.6 million, which includes transaction costs, during the quarter and nine months ended September 30, 2011, respectively.  Since the inception of the program through September 30, 2011, Select Medical has repurchased 11,555,447 shares at a cost of $75.8 million, which includes transaction costs.

Business Outlook

Select Medical is increasing its prior business outlook for calendar year 2011.  Select Medical now expects net revenue for the full year 2011 to be in the range of $2.76 billion to $2.80 billion and Adjusted EBITDA for the full year to be in the range of $375 million to $390 million.  Select Medical expects fully diluted income per common share to be in the range of $0.62 to $0.68.  Adjusted Net Income Per Share is now expected to be in the range of $0.75 to $0.81.

Conference Call

Select Medical will host a conference call regarding its third quarter results and its business outlook on Friday, November 4, 2011, at 9:00 am EDT.  The domestic dial in number for the call is 1-800-706-7745.  The international dial in number is 1-617-614-3472.  The pass code for the call is 57051359.  The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website http://www.selectmedicalholdings.com/.

For those unable to participate in the conference call, a replay will be available until 11:59pm EST, November 11, 2011.  The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international).  The passcode for the replay will be 42934406.  The replay can also be accessed at Select Medical Holdings Corporation's website, http://www.selectmedicalholdings.com.

Select Medical is a leading operator of specialty hospitals and outpatient rehabilitation clinics in the United States.  As of September 30, 2011, Select Medical operated 110 long term acute care hospitals and nine acute medical rehabilitation hospitals in 28 states, and 952 outpatient rehabilitation clinics in 34 states and the District of Columbia.  Select Medical also provides medical rehabilitation services on a contract basis at nursing homes, hospitals, assisted living and senior care centers, schools and worksites.  Information about Select Medical is available at http://www.selectmedical.com/

Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995).  Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements due to factors including the following:

  • additional changes in government reimbursement for our services, including changes that will result from the expiration of the moratorium for long term acute care hospitals established by the Medicare, Medicaid and SCHIP Extension Act of 2007, the American Recovery and Reinvestment Act, and the Patient Protection and Affordable Care Act may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
  • the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;
  • the failure of our facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
  • a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
  • acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
  • private third-party payors for our services may undertake future cost containment initiatives that limit our future net operating revenues and profitability;
  • the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;
  • shortages in qualified nurses or therapists could increase our operating costs significantly;
  • competition may limit our ability to grow and result in a decrease in our net operating revenues and profitability;
  • the loss of key members of our management team could significantly disrupt our operations;
  • the effect of claims asserted against us could subject us to substantial uninsured liabilities and in the future we may not be able to obtain insurance at a reasonable price;
  • other factors discussed from time to time in our filings with the Securities and Exchange Commission, including factors under the heading "Risk Factors" in our annual report on Form 10-K.

Investor inquiries:

Joel Veit, 717/972-1100


I.   Condensed Consolidated Statements of Operations

For the Three Months Ended September 30, 2010 and 2011

(In thousands, except per share amounts, unaudited)











2010


2011


% Change








Net operating revenues


$   588,250


$   694,131


18.0%








Costs and expenses:







Cost of services


498,739


581,829


16.7%

General and administrative


19,228


14,975


(22.1)%

Bad debt expense


11,317


11,709


3.5%

Depreciation and amortization


17,012


17,545


3.1%








Income from operations


41,954


68,073


62.3%








Equity in earnings (losses) of unconsolidated subsidiaries


(186)


1,653


N/M

Other income


148


-


N/M

Interest income


-


119


N/M

Interest expense


(27,677)


(24,134)


(12.8)%








Income before income taxes


14,239


45,711


221.0%








Income tax expense


5,574


19,330


246.8%








Net income


8,665


26,381


204.5%








Less:  Net income attributable to non-

    controlling interests


656


785


19.7%








Net income attributable to Select Medical

     Holdings Corporation


$    8,009


$    25,596


219.6%








Income per common share:







    Basic


$0.05


$0.17



    Diluted


$0.05


$0.17










Weighted average shares outstanding:







    Basic


159,717


151,470



    Diluted


159,955


151,676










N/M = Not Meaningful












II.   Condensed Consolidated Statements of Operations

For the Nine Months Ended September 30, 2010 and 2011

(In thousands, except per share amounts, unaudited)











2010


2011


% Change








Net operating revenues


$   1,752,940


$   2,086,066


19.0%








Costs and expenses:







Cost of services


1,441,160


1,708,911


18.6%

General and administrative


41,819


47,656


14.0%

Bad debt expense


31,449


40,002


27.2%

Depreciation and amortization


51,333


52,766


2.8%








Income from operations


187,179


236,731


26.5%








Loss on early retirement of debt


-


(31,018)


N/M

Equity in earnings (losses) of unconsolidated subsidiaries


(186)


1,329


N/M

Other income


464


-


N/M

Interest income


-


286


N/M

Interest expense


(86,998)


(75,094)


(13.7)%








Income before income taxes


100,459


132,234


31.6%








Income tax expense


39,989


56,809


42.1%








Net income


60,470


75,425


24.7%








Less:  Net income attributable to non-

    controlling interests


3,773


4,438


17.6%








Net income attributable to Select Medical

     Holdings Corporation


$     56,697


$       70,987


25.2%








Income per common share:







    Basic


$0.35


$0.46



    Diluted


$0.35


$0.46










Weighted average shares outstanding:







    Basic


159,698


152,299



    Diluted


159,964


152,522










N/M = Not Meaningful



















III.  Condensed Consolidated Balance Sheets

(In thousands, unaudited)



December 31,
2010


September 30,
2011

Assets










Cash


$         4,365


$       10,213






Accounts receivable, net


353,432


394,989






Current deferred tax asset


30,654


19,834






Prepaid income taxes


12,699


10,340






Other current assets


28,176


28,106






Total Current Assets


429,326


463,482






Property and equipment, net


532,100


505,894






Goodwill


1,631,252


1,627,509






Other identifiable intangibles


80,119


72,448






Assets held for sale


11,342


11,342






Other assets


37,947


70,435






Total Assets


$  2,722,086


$  2,751,110






Liabilities and equity










Payables and accruals


$     350,179


$     343,220






Current portion of long-term debt


149,379


10,268






Total Current Liabilities


499,558


353,488






Long-term debt, net of current portion


1,281,390


1,397,418






Non-current deferred tax liability


59,074


68,399






Other non-current liabilities


66,650


73,219






Total equity


815,414


858,586






Total Liabilities and Equity


$  2,722,086


$  2,751,110




















IV.  Condensed Consolidated Statement of Cash Flows

For the Nine Months Ended September 30, 2010 and 2011

(In thousands, unaudited)








2010


2011






Operating Activities





Net Income


$       60,470


$    75,425

Adjustments to reconcile net income to net cash provided by operating activities:





    Depreciation and amortization


51,333


52,766

    Provision for bad debts


31,449


40,002

    Loss on early retirement of debt


-


31,018

    Loss (gain) from disposal of assets


612


(5,182)

    Non-cash gain from interest rate swaps


(464)


-

    Non-cash stock compensation expense


1,405


2,698

    Amortization of debt discount


1,396


1,271

    Changes in operating assets and liabilities, net of effects from acquisition of businesses:





         Accounts receivable


(26,668)


(81,466)

         Other current assets


3,571


240

         Other assets


494


1,072

         Accounts payable


(3,469)


14,008

         Due to third-party payors


(756)


(1,050)

         Accrued expenses, income and deferred taxes


(9,108)


13,112

Net cash provided by operating activities


110,265


143,914






Investing activities





Purchases of property and equipment


(38,626)


(32,094)

Investment in business


-


(13,514)

Acquisition of businesses, net of cash acquired


(165,802)


1,921

Proceeds from sale of assets


-


7,879

Net cash used in investing activities


(204,428)


(35,808)






Financing activities





Borrowings on revolving credit facilities


90,000


595,000

Payments on revolving credit facilities


(70,000)


(570,000)

Borrowings on 2011 credit facility term loan, net of discount


-


841,500

Payments on 2011 credit facility term loans


-


(2,125)

Payments on 2005 credit facility term loans, net of call premium


-


(484,633)

Repurchase of 10% senior subordinated notes


-


(150,000)

Repurchase of 7 5/8% senior subordinated notes, net of tender premium


-


(273,941)

Borrowings of other debt


5,015


5,496

Principal payments on seller and other debt


(6,667)


(5,846)

Debt issuance costs


-


(18,556)

Proceeds from (repayment of) bank overdrafts


10,971


(4,174)

Repurchase of common stock


-


(31,641)

Proceeds from issuance of common stock


125


169

Distributions to non-controlling interests


(3,618)


(3,507)

Net cash provided by (used in) financing activities


25,826


(102,258)






Net increase (decrease) in cash and cash equivalents


(68,337)


5,848






Cash and cash equivalents at beginning of period


83,680


4,365

Cash and cash equivalents at end of period


$      15,343


$    10,213






Supplemental Cash Flow Information





    Cash paid for interest


$       99,897


$    94,632

    Cash paid for taxes


$       36,424


$    31,105



V.  Key Statistics







For the Three Months Ended September 30, 2010 and 2011

(unaudited)










2010


2011


% Change

Specialty Hospitals














Number of hospitals – end of period:







    Long term acute care hospitals


111


110



    Rehabilitation hospitals


6


9



    Total specialty hospitals


117


119










Net operating revenues (,000)


$    419,798


$     521,085


24.1%








Number of patient days


275,387


333,322


21.0%








Number of admissions


11,305


13,599


20.3%








Net revenue per patient day (a)


$        1,478


$         1,474


(0.3)%








Adjusted EBITDA (,000)


$      58,282


$       81,570


40.0%








Adjusted EBITDA margin


13.9%


15.7%










Outpatient Rehabilitation














Number of clinics – end of period


950


952










Net operating revenues (,000)


$     168,438


$    173,030


2.7%








Number of visits


1,144,096


1,099,342


(3.9)%








Revenue per visit (b)


$            101


$           103


2.0%








Adjusted EBITDA (,000)


$       20,339


$      19,435


(4.4)%








Adjusted EBITDA margin


12.1%


11.2%










(a)  Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the total number of patient days.

(b)  Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits.  For purposes of this computation, outpatient rehabilitation clinic revenue does not include managed clinics or contract services revenue.





VI.  Key Statistics







For the Nine Months Ended September 30, 2010 and 2011

(unaudited)










2010


2011


% Change

Specialty Hospitals














Number of hospitals – end of period:







    Long term acute care hospitals


111


110



    Rehabilitation hospitals


6


9



    Total specialty hospitals


117


119










Net operating revenues (,000)


$  1,234,562


$  1,561,270


26.5%








Number of patient days


808,133


994,179


23.0%








Number of admissions


33,022


40,965


24.1%








Net revenue per patient day (a)


$         1,481


$         1,498


1.1%








Adjusted EBITDA (,000)


$     214,523


$     273,004


27.3%








Adjusted EBITDA margin


17.4%


17.5%










Outpatient Rehabilitation














Number of clinics – end of period


950


952










Net operating revenues (,000)


$     518,288


$    524,694


1.2%








Number of visits


3,442,266


3,381,896


(1.8)%








Revenue per visit (b)


$            101


$           103


2.0%








Adjusted EBITDA (,000)


$       66,813


$      65,308


(2.3)%








Adjusted EBITDA margin


12.9%


12.4%










(a)  Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the total number of patient days.

(b)  Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits.  For purposes of this computation, outpatient rehabilitation clinic revenue does not include managed clinics or contract services revenue.




VII. Net Income to Adjusted EBITDA Reconciliation

For the Three and Nine Months Ended September 30, 2010 and 2011

(In thousands, unaudited)



The following table reconciles net income to Adjusted EBITDA for Select Medical.  Adjusted EBITDA is used by Select Medical to report its segment performance.  Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, stock compensation expense, other income, loss on early retirement of debt and equity in earnings (losses) of unconsolidated subsidiaries.  The Company believes that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of its operating units.

Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles.  Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance.  Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity.  Because Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculation, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.




Three Months Ended September 30,


Nine Months Ended September 30,



2010


2011


2010


2011

Net income


$     8,665


$    26,381


$    60,470


$    75,425

Income tax expense


5,574


19,330


39,989


56,809

Other income


(148)


-


(464)


-

Loss on early retirement of debt


-


-


-


31,018

Interest expense, net of interest income


27,677


24,015


86,998


74,808

Equity in (earnings) losses of unconsolidated subsidiaries


186


(1,653)


186


(1,329)

Stock compensation expense:









  Included in general and administrative


20


488


311


1,436

  Included in cost of services


440


430


1,094


1,262

Depreciation and amortization


17,012


17,545


51,333


52,766

Adjusted EBITDA


$   59,426


$    86,536


$  239,917


$  292,195










Specialty hospitals


$   58,282


$   81,570


$  214,523


$  273,004

Outpatient rehabilitation


20,339


19,435


66,813


65,308

Other (1)


(19,195)


(14,469)


(41,419)


(46,117)

Adjusted EBITDA


$   59,426


$    86,536


$  239,917


$  292,195










(1)  Other primarily includes general and administrative costs.











VIII.   Reconciliation of Net Income Per Share to Adjusted Net Income Per Share

For the Nine Months Ended September 30, 2010 and 2011

(In thousands, except  per share amounts, unaudited)








2010

Per Share (a)


2011

Per Share (a)

Net income attributable to Select Medical Holdings Corporation

56,697

0.35


70,987

0.47

Earnings allocated to unvested restricted stockholders

(135)

(0.00)


(763)

(0.01)

Net income available to common stockholders

56,562

0.35


70,224

0.46







Adjustment for early retirement of debt:






Loss on early retirement of debt

-

-


31,018

0.20

Estimated income tax benefit (b)

-

-


(11,796)

(0.07)

Earnings allocated to unvested restricted stockholders

-

-


(207)

(0.00)







Adjusted net income available to common stockholders

$     56,562

$     0.35


$  89,239

$     0.59

Adjustment for dilution


0.00



0.00

Adjusted net income available to common stockholders - diluted shares


$     0.35



$     0.59







Weighted average common shares outstanding:






Basic


159,698



152,299

Diluted


159,964



152,522







(a)  Per share amounts for each period presented are basic weighted average common shares outstanding for all amounts except adjusted net income available to common stockholders - diluted shares, which is based on diluted shares outstanding.

(b)  Represents the estimated tax benefit on the adjustments to net income.




SOURCE Select Medical Holdings Corporation



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