Select Medical Holdings Corporation Announces Results for First Quarter Ended March 31, 2015

MECHANICSBURG, Pa., April 30, 2015 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its first quarter ended March 31, 2015.

For the quarter ended March 31, 2015, net operating revenues increased 4.3% to $795.3 million, compared to $762.6 million for the same quarter, prior year.  Income from operations was $79.3 million for the quarter ended March 31, 2015, compared to $78.4 million for the same quarter, prior year.  Net income attributable to Select Medical was $35.1 million for the quarter ended March 31, 2015, compared to $33.0 million for the same quarter, prior year.  Net income attributable to Select Medical for the quarter ended March 31, 2014 includes a loss on early retirement of debt, net of tax, of $1.4 million.  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 quarter ended March 31, 2015 increased 2.2% to $98.9 million, compared to $96.8 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table V of this release. Income per common share for the quarter ended March 31, 2015 was $0.27 on a fully diluted basis compared to income per common share of $0.24 for the same quarter, prior year.  Excluding the loss related to the early retirement of debt and the related tax effect, adjusted income per common share was $0.25 per diluted share for the quarter ended March 31, 2014.  There was no loss related to the early retirement of debt during the quarter ended March 31, 2015.  A reconciliation of net income per common share to adjusted income per common share for the quarter ended March 31, 2014 is presented in table VI of this release. 

Specialty Hospitals

For the quarter ended March 31, 2015, net operating revenues for the specialty hospital segment increased 6.0% to $598.8 million, compared to $564.6 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospital segment increased 4.7% to $96.5 million for the quarter ended March 31, 2015, compared to $92.2 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 16.1% for the quarter ended March 31, 2015, compared to 16.3% for the same quarter, prior year.  The Adjusted EBITDA results include start-up losses of approximately $5.5 million for the quarter ended March 31, 2015 and $0.8 million for the quarter ended March 31, 2014. Certain specialty hospital key statistics for the quarters ended March 31, 2015 and 2014 are presented in table IV of this release.

Outpatient Rehabilitation

For the quarter ended March 31, 2015, net operating revenues for the outpatient rehabilitation segment decreased 0.7% to $196.4 million, compared to $197.9 million for the same quarter, prior year.  Adjusted EBITDA for the segment increased 5.5% to $22.1 million for the quarter ended March 31, 2015, compared to $21.0 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.3% for the quarter ended March 31, 2015, compared to 10.6% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for the quarters ended March 31, 2015 and 2014 are presented in table IV of this release.

Stock Repurchase Program

The board of directors of Select Medical has authorized a $500.0 million stock repurchase program that will remain in effect until December 31, 2016, unless extended or earlier terminated 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.  Select Medical is funding this program with cash on hand and borrowings under Select's revolving credit facility.  Select Medical did not repurchase shares during the three months ended March 31, 2015.  Since the inception of the program through March 31, 2015, Select Medical has repurchased 34,891,794 shares at a cost of approximately $301.1 million, or an average price of $8.63 per share, which includes transaction costs.

Dividends

At its meeting on April 28, 2015, Select Medical's board of directors did not declare a cash dividend due to the capital requirements of the pending Concentra acquisition and other acquisition and development opportunities. It is not known whether future dividends will be declared or the timing or amount of any future dividend. The declaration and payment of dividends in the future are at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs and applicable restrictions in our debt documents.

Pending Concentra Acquisition

Select Medical announced on March 23, 2015 that MJ Acquisition Corporation, a joint venture that Select Medical has created with Welsh, Carson, Anderson & Stowe XII, L.P. ("WCAS"), has entered into a stock purchase agreement, dated as of March 22, 2015 (the "Purchase Agreement"), as buyer with Concentra Inc. ("Concentra") and Humana Inc. ("Humana") to acquire all of the issued and outstanding equity securities of Concentra from Humana. Concentra, a subsidiary of Humana, is a national health care company that delivers a wide range of medical services to employers and patients, including urgent care, occupational medicine, physical therapy, primary care, and wellness programs. According to a Concentra press release, Concentra operates more than 300 medical centers and 170 onsite clinics in 40 states.

For all of the outstanding stock of Concentra, MJ Acquisition Corporation has agreed to pay a purchase price of $1.055 billion, subject to adjustments for net working capital and net debt on the closing date.  Should the Purchase Agreement be terminated by Humana under specified conditions, including circumstances where MJ Acquisition Corporation is required to close the transactions under the Purchase Agreement and there is a failure of the debt financing to be funded in accordance with its terms, a reverse termination fee of $60.0 million would be payable to Humana.  Select Medical would be responsible for its pro rata share of the termination fee, based on Select Medical's ownership interest in MJ Acquisition Corporation.  Select Medical and WCAS own 50.1% and 49.9% common equity interest, respectively, in MJ Acquisition Corporation. The transaction, which is expected to close in the second quarter of 2015, is subject to a number of closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Business Outlook

Select Medical is reaffirming its prior business outlook, provided most recently in its February 19, 2015 earnings release, for net operating revenues, Adjusted EBITDA and fully diluted income per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2015 to be in the range of $3.1 billion to $3.2 billion.  Select Medical continues to expect Adjusted EBITDA for the full year 2015 to be in the range of $370.0 million to $385.0 million.  Select Medical continues to expect fully diluted income per common share for the full year 2015 to be in the range of $0.84 to $0.90.

Conference Call

Select Medical will host a conference call regarding its first quarter results and its business outlook on Friday, May 1, 2015, at 9:00am EDT. The domestic dial in number for the call is 1-877-546-5020. The international dial in number is 1-857-244-7552. The passcode for the call is 25613587. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website www.selectmedicalholdings.com.

For those unable to participate in the conference call, a replay will be available until 11:59pm EDT, May 8, 2015. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 42474058. The replay can also be accessed at Select Medical Holdings Corporation'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, 2015, Select Medical operated 112 long term acute care hospitals and 17 acute medical rehabilitation hospitals in 28 states and 1,028 outpatient rehabilitation clinics in 31 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 limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
• the impact of the Bipartisan Budget Act of 2013, which establishes new payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals;
• 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;
• our plans and expectations related to the proposed acquisition of Concentra, including our expectations regarding the timing of the closing, expected capital expenditures related to the acquisition, and our ability to realize anticipated synergies;
• 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, 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, 2014 and 2015
(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