Select Medical Holdings Corporation Announces Results for First Quarter Ended March 31, 2013 and Quarterly Cash Dividend

MECHANICSBURG, Pa., May 2, 2013 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its first quarter ended March 31, 2013 and quarterly cash dividend.

For the first quarter ended March 31, 2013, net operating revenues increased to $750.0 million compared to $744.0 million for the same quarter, prior year.  Income from operations decreased to $82.5 million compared to $91.6 million for the same quarter, prior year.  Net income attributable to Select Medical decreased to $34.4 million compared to $41.5 million for the same quarter, prior year.  Net income attributable to Select Medical for the first quarter ended March 31, 2013 includes a loss on early retirement of debt, net of tax, of $0.9 million associated with the redemption of all of Select Medical Corporation's ("Select") outstanding 7 5/8% senior subordinated notes due 2015 and all of Select Medical's outstanding senior floating rate notes due 2015.  Net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense) ("Adjusted EBITDA") for the first quarter decreased to $100.1 million compared to $109.1 million for the same quarter, prior year.  The principal reasons for the decline in Adjusted EBITDA were inflationary labor cost increases in our specialty hospitals without a corresponding increase in net operating revenues and an increase in our general and administrative costs.  Our general and administrative costs in the first quarter of 2012 were favorably impacted by a gain on the sale of a building.  A reconciliation of net income to Adjusted EBITDA is presented in table V of this release.  Income per common share for the first quarter ended March 31, 2013 was $0.24 on a fully diluted basis compared to income per common share of $0.29 for the same quarter, prior year.  Excluding the loss related to the early retirement of debt for the first quarter ended March 31, 2013 and its related tax effects, adjusted income per common share was $0.25 per diluted share for the first quarter ended March 31, 2013.  A reconciliation of income per common share to adjusted income per common share is presented in table VI of this release. 

Specialty Hospitals

For the first quarter of 2013, net operating revenues for the specialty hospital segment increased to $557.8 million compared to $553.0 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospital segment decreased to $93.3 million compared to $100.0 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 16.7% for the first quarter of 2013, compared to 18.1% for the same quarter, prior year.  Certain specialty hospital key statistics for the three months ended March 31, 2013 and 2012 are presented in table IV of this release.

Outpatient Rehabilitation

For the first quarter of 2013, net operating revenues for the outpatient rehabilitation segment increased to $192.1 million compared to $190.9 million for the same quarter, prior year.  Adjusted EBITDA for the segment for the first quarter increased to $22.8 million compared to $22.5 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.9% for the first quarter of 2013, compared to 11.8% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for the three months ended March 31, 2013 and 2012 are presented in table IV of this release. 

Stock Repurchase Program

On February 20, 2013, the board of directors of Select Medical authorized an increase of $100.0 million in the capacity of its common stock repurchase program from $250.0 million to $350.0 million and extended the program for an additional year.  The program will now remain in effect until March 31, 2014, unless further 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.  During the quarter ended March 31, 2013, Select Medical repurchased 1,115,691 shares at a cost of approximately $10.0 million, an average cost per share of $8.95, which includes transaction costs.  Since the inception of the program through March 31, 2013, Select Medical has repurchased 23,606,080 shares at a cost of approximately $173.6 million, an average cost per share of $7.36, which includes transaction costs.

Refinancing

On February 20, 2013, Select entered into an additional credit extension amendment to its senior secured credit facilities that provided for an additional $300.0 million term loan tranche, (the "series B term loan") to Select.  Select used the borrowings under the series B term loan to redeem all of its outstanding 7 5/8% senior subordinated notes due 2015 on March 22, 2013, to finance Select Medical's redemption of all of Select Medical's senior floating rate notes due 2015 on March 22, 2013, and to repay a portion of the balance outstanding under Select's revolving credit facility.  The balance of the series B term loan will be payable on February 20, 2016.

In connection with a potential refinancing of indebtedness outstanding under Select's senior secured credit facility, Select intends to offer, subject to market and other conditions, $500.0 million principal amount of senior unsecured notes due 2021 (the "Notes") in a private offering pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), the net proceeds of which will be applied to repay borrowings under Select's existing term loan facility.  Any such future refinancing transaction will depend on prevailing market conditions and other factors. 

The Notes will be offered to qualified institutional buyers in reliance on Rule 144A under the Securities Act and will not be registered under the Securities Act.  Unless so registered, the Notes may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.  This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state.

Quarterly Dividend

On May 1, 2013, Select Medical's board of directors declared a quarterly cash dividend of $0.10 per share. The dividend will be payable on or about May 30, 2013 to stockholders of record as of the close of business on May 20, 2013.

Business Outlook

Select Medical is adjusting its prior business outlook provided in its February 21, 2013 press release. Select Medical now expects consolidated net operating revenues for the full year 2013 to be in the range of $2.925 billion to $3.025 billion. Select Medical now expects Adjusted EBITDA for the full year 2013 to be in the range of $375.0 million to $390.0 million. Select Medical now expects fully diluted income per common share for the full year 2013 to be in the range of $0.86 to $0.93 and adjusted income per common share, which excludes the loss on early retirement of debt and its related tax effects in the first quarter, for the full year 2013 to be in the range of $0.87 to $0.94.

The above business outlook includes the estimated financial impact from sequestration cuts that went into effect for discharges occurring on or after April 1, 2013. Select Medical estimates this negative impact to net operating revenues and Adjusted EBITDA to be between $20 million and $25 million. The above business outlook also includes the expected financial impact to outpatient therapy payments related to the multiple procedure payment reduction change included in the American Taxpayer Relief Act of 2012, which became effective for outpatient therapy services April 1, 2013. Select Medical estimates this negative impact to net operating revenues and Adjusted EBITDA to be between $5 million and $10 million annually for its outpatient rehabilitation segment. Select Medical assumed a 40.0% effective tax rate for the remainder of 2013 when preparing the above business outlook for the full year 2013.

Conference Call

Select Medical will host a conference call regarding its first quarter results and its business outlook on Friday, May 3, 2013, at 9:00am EDT. The domestic dial-in number for the call is 1-877-415-3184. The international dial-in number is 1-857-244-7327. The passcode for the call is 83390046. The conference call will be webcast simultaneously and can be accessed at Select Medical's website, www.selectmedicalholdings.com.

For those unable to participate in the conference call, a replay will be available until 11:59pm EDT, May 10, 2013. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 88736293. The replay can also be accessed at Select Medical's website, www.selectmedicalholdings.com.

Select Medical is a leading operator of specialty hospitals and outpatient rehabilitation clinics in the United States. As of March 31, 2013, Select Medical operated 110 long term acute care hospitals and 12 acute medical rehabilitation hospitals in 28 states and 985 outpatient rehabilitation clinics in 32 states and the District of Columbia. Select Medical also provides medical rehabilitation services on a contracted basis to nursing homes, hospitals, assisted living and senior care centers, schools and work sites. Information about Select Medical is available at 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:

• changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies (including, for example, the expiration of the moratorium on the 25-percent payment adjustment threshold that would reduce our Medicare payments for those patients admitted to a long-term acute care hospital from a referring hospital in excess of the percentage threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
• the impact of the Budget Control Act of 2011 which, as amended by the American Taxpayer Relief Act of 2012, will generally result in a 2% reduction to Medicare payments for services furnished on or after April 1, 2013 unless further legislation is enacted;
• 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
• other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" of the annual report on Form 10-K.

Investor inquiries:

Joel T. Veit
Senior Vice President and Treasurer
717-972-1100
[email protected]

V. Net Income to Adjusted EBITDA Reconciliation
For the Three Months Ended March 31, 2012 and 2013
(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, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense).  The Company believes that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry.  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 calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. 

SOURCE Select Medical Holdings Corporation