Select Medical Holdings Corporation Announces Results for First Quarter Ended March 31, 2016

MECHANICSBURG, Pa., May 5, 2016 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its first quarter ended March 31, 2016.

On March 4, 2016, Select Medical consummated the acquisition of Physiotherapy Associates Holdings, Inc. ("Physiotherapy"), a national provider of outpatient physical rehabilitation care which offers a wide range of services, including general orthopedics, spinal care and neurological rehabilitation, as well as orthotics and prosthetics services. Select Medical acquired 100% of the issued and outstanding equity securities of Physiotherapy. Physiotherapy's financial results are consolidated with Select Medical's effective March 4, 2016. Additionally, on March 31, 2016 Select Medical sold its contract therapy business, resulting in a pre-tax gain of $30.4 million. The contract therapy business results are included with Select Medical's for the quarter ended March 31, 2016.

For the quarter ended March 31, 2016, net operating revenues increased 36.8% to $1,088.3 million, compared to $795.3 million for the same quarter, prior year.  Income from operations was $86.9 million for the quarter ended March 31, 2016, compared to $79.3 million for the same quarter, prior year.  Net income attributable to Select Medical was $54.8 million for the quarter ended March 31, 2016, compared to $35.1 million for the same quarter, prior year. Net income attributable to Select Medical for the quarter ended March 31, 2016 includes a gain on sale of the contract therapy business of $30.4 million, a loss on impairment of an equity investment of $5.3 million, Physiotherapy acquisition costs of $3.2 million, and a loss of early retirement of debt of $0.8 million. In total, there was an estimated tax benefit of $3.3 million related to the aforementioned loss items. Net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Physiotherapy  acquisition costs, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries ("Adjusted EBITDA") for the quarter ended March 31, 2016 was $128.6 million, compared to $98.9 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, 2016 was $0.42 on a fully diluted basis compared to income per common share of $0.27 for the same quarter, prior year. Excluding the gain on sale of the contract therapy business, loss on impairment of an equity investment, Physiotherapy acquisition costs, and the loss on early retirement of debt, and the related tax effects, adjusted income per common share was $0.23 per diluted share for the quarter ended March 31, 2016. A reconciliation of net income per common share to adjusted income per common share for the quarter ended March 31, 2016 is presented in table VI of this release.  

Specialty Hospitals

For the quarter ended March 31, 2016, net operating revenues for the specialty hospitals segment was $599.0 million, compared to $598.8 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospitals segment decreased to $86.8 million for the quarter ended March 31, 2016, compared to $96.5 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 14.5% for the quarter ended March 31, 2016, compared to 16.1% for the same quarter, prior year.  The Adjusted EBITDA results for the specialty hospitals segment include start-up losses of approximately $3.8 million for the quarter ended March 31, 2016 compared to $5.5 million for the same quarter, prior year.  Certain specialty hospitals key statistics for the quarters ended March 31, 2016 and 2015 are presented in table IV of this release.

Outpatient Rehabilitation

For the quarter ended March 31, 2016, net operating revenues for the outpatient rehabilitation segment increased 21.2% to $238.1 million, compared to $196.4 million for the same quarter, prior year.  The results for the quarter include the operations of Physiotherapy effective March 4, 2016. Physiotherapy contributed $26.2 million of net operating revenue in the quarter. Adjusted EBITDA for the segment increased 30.5% to $28.9 million for the quarter ended March 31, 2016, compared to $22.1 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 12.1% for the quarter ended March 31, 2016, compared to 11.3% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for the quarters ended March 31, 2016 and 2015 are presented in table IV of this release.

Concentra Segment

For the quarter ended March 31, 2016, net operating revenues for the Concentra segment were $250.9 million.  Adjusted EBITDA for the Concentra segment was $34.2 million for the quarter ended March 31, 2016.  The Adjusted EBITDA margin for the Concentra segment was 13.6% for the quarter ended March 31, 2016. Certain Concentra key statistics for the quarter ended March 31, 2016 are presented in table IV of this release.

Stock Repurchase Program

Select Medical did not repurchase shares during the quarter ended March 31, 2016 under its authorized $500.0 million stock repurchase program. The program 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 facility. Since the inception of the program through March 31, 2016, Select Medical has repurchased 35,924,128 shares at an aggregate cost of approximately $314.7 million, or $8.76 per share, which includes transaction costs.

Business Outlook

Select Medical is updating its business outlook following reporting its first quarter 2016 financial results. Select Medical now expects for the full year of 2016 consolidated net operating revenues to be in the range of $4.15 billion to $4.35 billion, Adjusted EBITDA for the full year of 2016 to be in the range of $500.0 million to $540.0 million and fully diluted income per common share for the full year 2016 to be in the range of $0.87 to $1.06.

Select Medical's business outlook has been updated to include the effects of the Physiotherapy acquisition, the sale of its contract therapy business and the refinancing completed during the first quarter 2016. 

Conference Call

Select Medical will host a conference call regarding its first quarter results, as well as its business outlook, on Friday, May 6, 2016, at 9:00am EDT. The domestic dial in number for the call is 1-877-430-7741. The international dial in number is 1-615-247-0054. The conference ID for the call is 95034848. 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 13, 2016. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The passcode for the replay will be 95034848. The replay can also be accessed at Select Medical Holdings Corporation's website, www.selectmedicalholdings.com.

Select Medical began operations in 1997 and has grown to be one of the largest operators of specialty hospitals, outpatient rehabilitation clinics and occupational health centers in the United States based on the number of facilities. As of March 31, 2016, Select Medical operated 109 long term acute care hospitals and 18 acute medical rehabilitation hospitals in 27 states and 1,615 outpatient rehabilitation clinics in 37 states and the District of Columbia.  Select Medical's joint venture subsidiary Concentra operated 301 centers in 38 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At March 31, 2016, Select Medical had operations in 46 states and the District of Columbia. 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 Concentra and Physiotherapy acquisitions and our ability to realize anticipated synergies;
• private third-party payors for our services may undertake future cost containment initiatives that could 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, therapists, physicians, or other licensed providers could increase our operating costs significantly or limit our ability to staff our facilities;
• 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 ("SEC"), including factors discussed under the section entitled, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015 as such risk factors may be updated from time to time in our periodic filings with the SEC.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance.

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, 2015 and 2016
(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, Physiotherapy acquisition costs, non-operating gain (loss), 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 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