Select Medical Holdings Corporation Announces Results for Fourth Quarter and Year Ended December 31, 2015

MECHANICSBURG, Pa., Feb. 25, 2016 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its fourth quarter and year ended December 31, 2015.

For the fourth quarter ended December 31, 2015, net operating revenues increased 34.7% to $1,039.2 million, compared to $771.6 million for the same quarter, prior year.  Income from operations was $62.3 million for the fourth quarter ended December 31, 2015, compared to $57.8 million for the same quarter, prior year.  Net income attributable to Select Medical was $29.3 million for the fourth quarter ended December 31, 2015, compared to $25.7 million for the same quarter, prior year.  Net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Concentra acquisition costs, equity in earnings (losses) of unconsolidated subsidiaries, and gain on sale of equity investment ("Adjusted EBITDA") for the fourth quarter ended December 31, 2015 was $100.8 million, compared to $78.9 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. Income per common share for the fourth quarter ended December 31, 2015 was $0.22 on a fully diluted basis compared to income per common share of $0.20 for the same quarter, prior year.

For the year ended December 31, 2015, net operating revenues increased 22.1% to $3,742.7 million, compared to $3,065.0 million for the prior year.  Income from operations was $274.8 million for the year ended December 31, 2015, compared to $284.5 million for the prior year. Net income attributable to Select Medical was $130.7 million for the year ended December 31, 2015, compared to $120.6 million for the prior year. Adjusted EBITDA for the year ended December 31, 2015 was $399.2 million, compared to $363.9 million for the prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release.  Income per common share for the year ended December 31, 2015 was $0.99 on a fully diluted basis, compared to income per common share of $0.91 for the year ended December 31, 2014.

Specialty Hospitals

For the fourth quarter ended December 31, 2015, net operating revenues for the specialty hospitals segment increased 4.8% to $593.3 million, compared to $566.1 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospitals segment increased 7.6% to $86.0 million for the fourth quarter ended December 31, 2015, compared to $80.0 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 14.5% for the fourth quarter ended December 31, 2015, compared to 14.1% for the same quarter, prior year.  The Adjusted EBITDA results for the specialty hospitals segment include start-up losses of approximately $4.9 million for the fourth quarter ended December 31, 2015 compared to $5.9 million for the same quarter, prior year.  Certain specialty hospitals key statistics for both the fourth quarter ended December 31, 2015 and 2014 are presented in table VI of this release.

For the year ended December 31, 2015, net operating revenues for the specialty hospitals segment increased 4.5% to $2,346.8 million compared to $2,244.9 million for the prior year.  Adjusted EBITDA for the specialty hospitals segment for the year ended December 31, 2015 decreased to $327.6 million, compared to $341.8 million for the prior year.  The Adjusted EBITDA margin for the segment was 14.0% for the year ended December 31, 2015, compared to 15.2% for the prior year.  The Adjusted EBITDA results for the specialty hospitals segment include start-up losses of approximately $16.8 million for the year ended December 31, 2015, compared to $14.5 million for the prior year.  Certain specialty hospitals key statistics for both the year ended December 31, 2015 and 2014 are presented in table VII of this release.

Outpatient Rehabilitation

For the fourth quarter ended December 31, 2015, net operating revenues for the outpatient rehabilitation segment increased 0.6% to $206.2 million, compared to $205.0 million for the same quarter, prior year.  Adjusted EBITDA for the segment for the fourth quarter ended December 31, 2015 increased 1.8% to $23.6 million, compared to $23.2 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.4% for the fourth quarter ended December 31, 2015, compared to 11.3% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for both the fourth quarter ended December 31, 2015 and 2014 are presented in table VI of this release.

For the year ended December 31, 2015, net operating revenues for the outpatient rehabilitation segment decreased to $810.0 million, compared to $819.4 million for the prior year.  Adjusted EBITDA for the segment for the year ended December 31, 2015 increased 0.7% to $98.2 million, compared to $97.6 million for the prior year.  The Adjusted EBITDA margin for the segment was 12.1% for the year ended December 31, 2015, compared to 11.9% for the prior year.  Certain outpatient rehabilitation key statistics for both the year ended December 31, 2015 and 2014 are presented in table VII of this release.

Concentra Segment

On June 1, 2015, MJ Acquisition Corporation, a joint venture that Select Medical created with Welsh, Carson, Anderson & Stowe XII, L.P. ("WCAS"), consummated the acquisition of Concentra Inc. ("Concentra"), which provides occupational health, consumer health, physical therapy, and veteran's healthcare services throughout the United States. Select Medical owns 50.1% of the voting interests of Concentra Group Holdings, LLC, the indirect parent of Concentra. Concentra's financial results are consolidated with Select Medical's effective June 1, 2015.

For the fourth quarter ended December 31, 2015, net operating revenues for the Concentra segment were $239.4 million.  Adjusted EBITDA for the Concentra segment was $11.5 million for the fourth quarter ended December 31, 2015.  The Adjusted EBITDA margin for the Concentra segment was 4.8% for the fourth quarter ended December 31, 2015. Concentra's net operating revenues, Adjusted EBITDA and Adjusted EBITDA margin for the third quarter ended September 30, 2015 were $259.0 million, $25.6 million and 9.9% respectively.  The reduction in Adjusted EBITDA and Adjusted EBITDA margin is attributable to a seasonal reduction in the business that occurs in the fourth quarter and additional costs incurred related to integration activities.  Certain Concentra key statistics for the fourth quarter ended December 31, 2015 are presented in table VI of this release.

All Concentra financial information and statistics for the year ended December 31, 2015 are for the period beginning June 1, 2015 through December 31, 2015. For the year ended December 31, 2015, net operating revenues for the Concentra segment were $585.2 million.  Adjusted EBITDA for the Concentra segment was $48.3 million for the year ended December 31, 2015.  The Adjusted EBITDA margin for the Concentra segment was 8.3% for the year ended December 31, 2015.  Certain Concentra key statistics for the year ended December 31, 2015 are presented in table VII of this release.

Stock Repurchase Program

Select Medical did not repurchase shares during the fourth quarter ended December 31, 2015 under the 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.

During the year ended December 31, 2015, Select Medical repurchased 1,032,334 shares at an aggregate cost of approximately $13.6 million, an average cost per share of $13.20, which includes transaction costs. Since the inception of the program through December 31, 2015, 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.

Pending Physiotherapy Acquisition

On January 25, 2016, Select Medical announced that its wholly owned subsidiary, Select Medical Corporation, has entered into a Merger Agreement to acquire Physiotherapy Associates Holdings, Inc. for $400.0 million in cash, subject to certain adjustments in accordance with the terms set forth in the Merger Agreement. The transaction, which is expected to close in the first half of 2016, is subject to a number of closing conditions.

Business Outlook

Select Medical reaffirms its prior business outlook, provided most recently in its January 11, 2016 press 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 2016 to be in the range of $4.0 billion to $4.2 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2016 to be in the range of $470 million to $510 million. Select Medical continues to expect fully diluted income per common share for the full year 2016 to be in the range of $0.72 to $0.91.

This business outlook does not take into consideration the pending acquisition of Physiotherapy described above.

Conference Call

Select Medical will host a conference call regarding its fourth quarter and full year ended December 31, 2015 results, as well as its business outlook, on Friday, February 26, 2016, at 9:00am EST. The domestic dial in number for the call is 1-877-703-6105. The international dial in number is 1-857-244-7304. The passcode for the call is 67220955. 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 EST, March 4, 2016. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 63449153. 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 and outpatient rehabilitation clinics in the United States based on number of facilities.  As of December 31, 2015, Select Medical operated 109 long term acute care hospitals and 18 acute medical rehabilitation hospitals in 28 states, and 1,038 outpatient rehabilitation clinics in 31 states and the District of Columbia.  Select Medical's subsidiary, Concentra, provides occupational health, consumer health, physical therapy, and veteran's healthcare services throughout the United States.  As of December 31, 2015, Concentra operated 300 centers in 38 states.  Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics.  Select Medical's contract therapy business provides medical rehabilitation services on a contracted basis to nursing homes, hospitals, assisted living and senior care centers, schools, and work sites.  As of December 31, 2015, 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 acquisition, including expectations regarding the 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 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 heading "Risk Factors" of our quarterly report on Form 10-Q and of the annual report on Form 10-K.

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]

VIII.  Net Income to Adjusted EBITDA Reconciliation
For the Three Months and Years Ended December 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, Concentra acquisition costs, equity in earnings (losses) of unconsolidated subsidiaries, and gain on sale of equity investment. 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