Select Medical Holdings Corporation Announces Results For Its Fourth Quarter and Year Ended December 31, 2018
MECHANICSBURG, Pa., Feb. 21, 2019 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its fourth quarter and year ended December 31, 2018.
For the fourth quarter ended December 31, 2018, net operating revenues increased 15.6% to $1,264.7 million, compared to $1,094.2 million for the same quarter, prior year. Income from operations increased 15.6% to $88.3 million for the fourth quarter ended December 31, 2018, compared to $76.4 million for the same quarter, prior year. Net income was $29.7 million for the fourth quarter ended December 31, 2018, compared to $121.1 million for the same quarter, prior year. For the fourth quarter ended December 31, 2018, net income included pre-tax losses on early retirement of debt of $3.9 million. For the fourth quarter ended December 31, 2017, net income included pre-tax U.S. HealthWorks acquisition costs of $2.8 million and an income tax benefit of $71.5 million resulting from the federal tax reform legislation enacted on December 22, 2017. Adjusted EBITDA increased 18.0% to $147.1 million for the fourth quarter ended December 31, 2018, compared to $124.6 million for the same quarter, prior year. Earnings per common share was $0.18 on a fully diluted basis for the fourth quarter ended December 31, 2018, compared to $0.75 for the same quarter, prior year. Adjusted earnings per common share was $0.20 on a fully diluted basis for the fourth quarter ended December 31, 2018, compared to $0.32 for the same quarter, prior year. For the fourth quarter ended December 31, 2018, adjusted earnings per common share excluded the pre-tax losses on early retirement of debt and their related tax effects. For the fourth quarter ended December 31, 2017, adjusted earnings per common share excluded the U.S. HealthWorks acquisition costs and its related tax effects as well as the income tax benefit resulting from the federal tax reform legislation. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release.
For the year ended December 31, 2018, net operating revenues increased 16.4% to $5,081.3 million, compared to $4,365.2 million for the prior year. Income from operations increased 17.3% to $417.3 million for the year ended December 31, 2018, compared to $355.9 million for the prior year. Net income was $176.9 million for the year ended December 31, 2018, compared to $220.6 million for the prior year. For the year ended December 31, 2018, net income included pre-tax losses on early retirement of debt of $14.2 million, pre-tax non-operating gains of $9.0 million, and pre-tax U.S. HealthWorks acquisition costs of $2.9 million. For the year ended December 31, 2017, net income included a pre-tax loss on early retirement of debt of $19.7 million, pre-tax U.S. HealthWorks acquisition costs of $2.8 million, and an income tax benefit of $71.5 million resulting from the federal tax reform legislation enacted on December 22, 2017. Adjusted EBITDA increased 19.9% to $645.2 million for the year ended December 31, 2018, compared to $538.0 million for the prior year. Earnings per common share was $1.02 on a fully diluted basis for the year ended December 31, 2018, compared to $1.33 for the prior year. Adjusted earnings per common share was $1.03 on a fully diluted basis for the year ended December 31, 2018, compared to $0.98 for the prior year. For the year ended December 31, 2018, adjusted earnings per common share excluded the losses on early retirement of debt, non-operating gains, U.S. HealthWorks acquisition costs, and their related tax effects. For the year ended December 31, 2017, adjusted earnings per common share excluded the loss on early retirement of debt, U.S. HealthWorks acquisition costs, and their related tax effects, as well as the income tax benefit resulting from the federal tax reform legislation. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release.
Company Overview
Select Medical is one of the largest operators of critical illness recovery hospitals (previously referred to as long term acute care hospitals), rehabilitation hospitals (previously referred to as inpatient rehabilitation facilities), outpatient rehabilitation clinics, and occupational health centers in the United States based on the number of facilities. Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and the Concentra segment. As of December 31, 2018, Select Medical operated 96 critical illness recovery hospitals in 27 states, 26 rehabilitation hospitals in 11 states, and 1,662 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical's joint venture subsidiary Concentra operated 524 occupational health centers in 41 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At December 31, 2018, Select Medical had operations in 47 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.
Critical Illness Recovery Hospital Segment
For the fourth quarter ended December 31, 2018, net operating revenues for the critical illness recovery hospital segment (previously referred to as the long term acute care segment) increased 0.6% to $426.3 million, compared to $423.8 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $56.0 million for the fourth quarter ended December 31, 2018, compared to $58.4 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.1% for the fourth quarter ended December 31, 2018, compared to 13.8% for the same quarter, prior year. Certain critical illness recovery hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2018 and 2017.
For the year ended December 31, 2018, net operating revenues for the critical illness recovery hospital segment increased 1.7% to $1,753.6 million, compared to $1,725.0 million for the prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $243.0 million for the year ended December 31, 2018, compared to $252.7 million for the prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.9% for the year ended December 31, 2018, compared to 14.6% for the prior year. Certain critical illness recovery hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2018 and 2017.
Rehabilitation Hospital Segment
For the fourth quarter ended December 31, 2018, net operating revenues for the rehabilitation hospital segment (previously referred to as the inpatient rehabilitation segment) increased 7.9% to $182.1 million, compared to $168.8 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 2.2% to $28.6 million for the fourth quarter ended December 31, 2018, compared to $28.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 15.7% for the fourth quarter ended December 31, 2018, compared to 16.6% for the same quarter, prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $0.9 million for the fourth quarter ended December 31, 2018, compared to approximately $3.0 million for the same quarter, prior year. Certain rehabilitation hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2018 and 2017.
For the year ended December 31, 2018, net operating revenues for the rehabilitation hospital segment increased 13.7% to $707.5 million, compared to $622.5 million for the prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 21.0% to $108.9 million for the year ended December 31, 2018, compared to $90.0 million for the prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 15.4% for the year ended December 31, 2018, compared to 14.5% for the prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $4.7 million for the year ended December 31, 2018, compared to approximately $7.5 million for the prior year. Certain rehabilitation hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2018 and 2017.
Outpatient Rehabilitation Segment
For the fourth quarter ended December 31, 2018, net operating revenues for the outpatient rehabilitation segment increased 8.0% to $272.0 million, compared to $251.8 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 16.8% to $35.0 million for the fourth quarter ended December 31, 2018, compared to $30.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 12.9% for the fourth quarter ended December 31, 2018, compared to 11.9% for the same quarter, prior year. Certain outpatient rehabilitation key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2018 and 2017.
For the year ended December 31, 2018, net operating revenues for the outpatient rehabilitation segment increased 5.8% to $1,062.5 million, compared to $1,003.8 million for the prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 7.1% to $142.0 million for the year ended December 31, 2018, compared to $132.5 million for the prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.4% for the year ended December 31, 2018, compared to 13.2% for the prior year. Certain outpatient rehabilitation key statistics are presented in table VIII of this release for both the years ended December 31, 2018 and 2017.
Concentra Segment
The financial results of the Concentra segment include U.S. HealthWorks beginning February 1, 2018.
For the fourth quarter ended December 31, 2018, net operating revenues for the Concentra segment increased 53.8% to $384.3 million, compared to $249.9 million for the same quarter, prior year. For the fourth quarter ended December 31, 2018, U.S. HealthWorks contributed net operating revenues of $126.1 million. Adjusted EBITDA for the Concentra segment increased 65.7% to $52.9 million for the fourth quarter ended December 31, 2018, compared to $31.9 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 13.8% for the fourth quarter ended December 31, 2018, compared to 12.8% for the same quarter, prior year. Certain Concentra key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2018 and 2017.
For the year ended December 31, 2018, net operating revenues for the Concentra segment increased 53.7% to $1,557.7 million, compared to $1,013.2 million for the prior year. For the year ended December 31, 2018, U.S. HealthWorks contributed net operating revenues of $488.8 million. Adjusted EBITDA for the Concentra segment increased 59.9% to $252.0 million for the year ended December 31, 2018, compared to $157.6 million for the prior year. The Adjusted EBITDA margin for the Concentra segment was 16.2% for the year ended December 31, 2018, compared to 15.6% for the prior year. Certain Concentra key statistics are presented in table VIII of this release for both the years ended December 31, 2018 and 2017.
Stock Repurchase Program
Select Medical did not repurchase shares under its authorized $500.0 million stock repurchase program during the fourth quarter ended December 31, 2018. The program has been extended until December 31, 2019, and will remain in effect until then, unless further extended or earlier terminated by the board of directors. Since the inception of the program through December 31, 2018, Select Medical has repurchased 35,924,128 shares at a cost of approximately $314.7 million, or $8.76 per share, which includes transaction costs.
Business Outlook
Select Medical reaffirms its 2019 business outlook, provided most recently in its January 4, 2019 press release, for net operating revenues, Adjusted EBITDA and fully diluted earnings per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2019 to be in the range of $5.2 billion to $5.4 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2019 to be in the range of $660.0 million to $700.0 million. Select Medical continues to expect fully diluted earnings per common share for the full year 2019 to be in the range of $0.97 to $1.13.
Conference Call
Select Medical will host a conference call regarding its results for the fourth quarter and full year ended December 31, 2018, as well as its business outlook, on Friday, February 22, 2019, at 9:00am ET. The domestic dial in number for the call is 1-866-440-2669. The international dial in number is 1-409-220-9844. The conference ID for the call is 5375975. 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 ET, March 1, 2019. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 5375975. The replay can also be accessed at Select Medical Holdings Corporation's website, www.selectmedicalholdings.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 and/or new payment policies may result in a reduction in net operating revenues, an increase in costs, and a reduction in profitability;
- the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;
- the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation 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 our acquisitions, including the acquisition of U.S. HealthWorks by Concentra, and our ability to realize anticipated synergies;
- private third-party payors for our services may adopt payment policies 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;
- a security breach of our or our third-party vendors' information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; 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 for the year ended December 31, 2018.
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]
I. Condensed Consolidated Statements of Operations | |||||||||||
For the Three Months Ended December 31, 2017 and 2018 | |||||||||||
(In thousands, except per share amounts, unaudited) | |||||||||||
2017(1) | 2018 | % Change | |||||||||
Net operating revenues | $ | 1,094,249 | $ | 1,264,683 | 15.6 | % | |||||
Costs and expenses: | |||||||||||
Cost of services | 946,898 | 1,093,450 | 15.5 | ||||||||
General and administrative | 30,632 | 30,317 | (1.0) | ||||||||
Depreciation and amortization | 40,367 | 52,633 | 30.4 | ||||||||
Income from operations | 76,352 | 88,283 | 15.6 | ||||||||
Loss on early retirement of debt | — | (3,900) | N/M | ||||||||
Equity in earnings of unconsolidated subsidiaries | 5,436 | 6,991 | 28.6 | ||||||||
Interest expense | (38,507) | (50,502) | 31.2 | ||||||||
Income before income taxes | 43,281 | 40,872 | (5.6) | ||||||||
Income tax expense (benefit) | (77,777) | 11,150 | N/M | ||||||||
Net income | 121,058 | 29,722 | N/M | ||||||||
Less: Net income attributable to non-controlling interests | 20,261 | 5,049 | N/M | ||||||||
Net income attributable to Select Medical | $ | 100,797 | $ | 24,673 | N/M | ||||||
Diluted earnings per common share:(2) | $ | 0.75 | $ | 0.18 | |||||||
_____________________________________________
(1) | For the three months ended December 31, 2017, the financial results were retrospectively conformed to reflect the adoption of Topic 606, Revenue from Contracts with Customers. |
(2) | Refer to table III for calculation of earnings per common share. |
N/M — Not Meaningful | |
II. Condensed Consolidated Statements of Operations | |||||||||||
For the Years Ended December 31, 2017 and 2018 | |||||||||||
(In thousands, except per share amounts, unaudited) | |||||||||||
2017(1) | 2018 | % Change | |||||||||
Net operating revenues | $ | 4,365,245 | $ | 5,081,258 | 16.4 | % | |||||
Costs and expenses: | |||||||||||
Cost of services | 3,735,309 | 4,341,056 | 16.2 | ||||||||
General and administrative | 114,047 | 121,268 | 6.3 | ||||||||
Depreciation and amortization | 160,011 | 201,655 | 26.0 | ||||||||
Income from operations | 355,878 | 417,279 | 17.3 | ||||||||
Loss on early retirement of debt | (19,719) | (14,155) | N/M | ||||||||
Equity in earnings of unconsolidated subsidiaries | 21,054 | 21,905 | 4.0 | ||||||||
Non-operating gain (loss) | (49) | 9,016 | N/M | ||||||||
Interest expense | (154,703) | (198,493) | 28.3 | ||||||||
Income before income taxes | 202,461 | 235,552 | 16.3 | ||||||||
Income tax expense (benefit) | (18,184) | 58,610 | N/M | ||||||||
Net income | 220,645 | 176,942 | N/M | ||||||||
Less: Net income attributable to non-controlling interests | 43,461 | 39,102 | N/M | ||||||||
Net income attributable to Select Medical | $ | 177,184 | $ | 137,840 | N/M | ||||||
Diluted earnings per common share:(2) | $ | 1.33 | $ | 1.02 | |||||||
_________________________________________________
(1) | For the year ended December 31, 2017, the financial results were retrospectively conformed to reflect the adoption of Topic 606, Revenue from Contracts with Customers. |
(2) | Refer to table III for calculation of earnings per common share. |
N/M — Not Meaningful | |
III. Earnings per Share |
For the Three Months and Years Ended December 31, 2017 and 2018 |
(In thousands, except per share amounts, unaudited) |
The Company's capital structure includes common stock and unvested restricted stock awards. To compute earnings per share ("EPS"), the Company applies the two-class method because the Company's unvested restricted stock awards are participating securities which are entitled to participate equally with the Company's common stock in undistributed earnings. |
The following table sets forth the net income attributable to the Company, its common shares outstanding, and its participating securities outstanding for the three months and years ended December 31, 2017 and 2018: |
Diluted EPS | ||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||
2017 | 2018 | 2017 | 2018 | |||||||||||||
Net income | $ | 121,058 | $ | 29,722 | $ | 220,645 | $ | 176,942 | ||||||||
Less: net income attributable to non-controlling interests | 20,261 | 5,049 | 43,461 | 39,102 | ||||||||||||
Net income attributable to the Company | 100,797 | 24,673 | 177,184 | 137,840 | ||||||||||||
Less: net income attributable to participating securities | 3,344 | 817 | 5,751 | 4,548 | ||||||||||||
Net income attributable to common shares | $ | 97,453 | $ | 23,856 | $ | 171,433 | $ | 133,292 | ||||||||
The following tables set forth the computation of EPS under the two-class method for the three months and years ended December 31, 2017 and 2018: | |||||||||||||||||||||||
Three Months Ended December 31, | |||||||||||||||||||||||
2017 | 2018 | ||||||||||||||||||||||
Net Income Allocation | Shares(1) | Diluted EPS | Net Income Allocation | Shares(1) | Diluted EPS | ||||||||||||||||||
Common shares | $ | 97,453 | 129,731 | $ | 0.75 | $ | 23,856 | 130,820 | $ | 0.18 | |||||||||||||
Participating securities | 3,344 | 4,452 | $ | 0.75 | 817 | 4,480 | $ | 0.18 | |||||||||||||||
Total Company | $ | 100,797 | $ | 24,673 | |||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||||||
2017 | 2018 | ||||||||||||||||||||||
Net Income Allocation | Shares(1) | Diluted EPS | Net Income Allocation | Shares(1) | Diluted EPS | ||||||||||||||||||
Common shares | $ | 171,433 | 129,126 | $ | 1.33 | $ | 133,292 | 130,256 | $ | 1.02 | |||||||||||||
Participating securities | 5,751 | 4,332 | $ | 1.33 | 4,548 | 4,444 | $ | 1.02 | |||||||||||||||
Total Company | $ | 177,184 | $ | 137,840 | |||||||||||||||||||
________________________________________________________________
(1) | Represents the weighted average share count outstanding during the period. |
IV. Condensed Consolidated Balance Sheets | ||||||||
(In thousands, unaudited) | ||||||||
December 31, | December 31, | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 122,549 | $ | 175,178 | ||||
Accounts receivable | 691,732 | 706,676 | ||||||
Other current assets | 106,545 | 110,670 | ||||||
Total Current Assets | 920,826 | 992,524 | ||||||
Property and equipment, net | 912,591 | 979,810 | ||||||
Goodwill | 2,782,812 | 3,320,726 | ||||||
Identifiable intangible assets, net | 326,519 | 437,693 | ||||||
Other assets | 184,418 | 233,512 | ||||||
Total Assets | $ | 5,127,166 | $ | 5,964,265 | ||||
Liabilities and Equity | ||||||||
Current Liabilities: | ||||||||
Payables and accruals | $ | 583,216 | $ | 661,321 | ||||
Current portion of long-term debt and notes payable | 22,187 | 43,865 | ||||||
Total Current Liabilities | 605,403 | 705,186 | ||||||
Long-term debt, net of current portion | 2,677,715 | 3,249,516 | ||||||
Non-current deferred tax liability | 124,917 | 153,895 | ||||||
Other non-current liabilities | 145,709 | 158,940 | ||||||
Total Liabilities | 3,553,744 | 4,267,537 | ||||||
Redeemable non-controlling interests | 640,818 | 780,488 | ||||||
Total equity | 932,604 | 916,240 | ||||||
Total Liabilities and Equity | $ | 5,127,166 | $ | 5,964,265 | ||||
V. Condensed Consolidated Statements of Cash Flows | ||||||||
For the Three Months Ended December 31, 2017 and 2018 | ||||||||
(In thousands, unaudited) | ||||||||
2017 | 2018 | |||||||
Operating activities | ||||||||
Net income | $ | 121,058 | $ | 29,722 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Distributions from unconsolidated subsidiaries | 5,464 | 4,987 | ||||||
Depreciation and amortization | 40,367 | 52,633 | ||||||
Provision for bad debts | 219 | 270 | ||||||
Equity in earnings of unconsolidated subsidiaries | (5,436) | (6,991) | ||||||
Loss on extinguishment of debt | — | 2,515 | ||||||
Gain on sale of assets and businesses | (850) | (39) | ||||||
Stock compensation expense | 5,057 | 6,151 | ||||||
Amortization of debt discount, premium and issuance costs | 2,584 | 3,267 | ||||||
Deferred income taxes | (66,198) | 9,309 | ||||||
Changes in operating assets and liabilities, net of effects of business combinations: | ||||||||
Accounts receivable | 24,475 | 31,080 | ||||||
Other current assets | 4,274 | 6,122 | ||||||
Other assets | (2,293) | 3,029 | ||||||
Accounts payable and accrued expenses | (20,562) | (28,838) | ||||||
Net cash provided by operating activities | 108,159 | 113,217 | ||||||
Investing activities | ||||||||
Business combinations, net of cash acquired | (8,019) | (3,876) | ||||||
Purchases of property and equipment | (59,443) | (46,242) | ||||||
Investment in businesses | (1,308) | (546) | ||||||
Proceeds from sale of assets and businesses | 45,795 | 69 | ||||||
Net cash used in investing activities | (22,975) | (50,595) | ||||||
Financing activities | ||||||||
Borrowings on revolving facilities | 165,000 | 175,000 | ||||||
Payments on revolving facilities | (255,000) | (220,000) | ||||||
Payments on term loans | (2,875) | (2,875) | ||||||
Debt issuance costs | — | (387) | ||||||
Borrowings of other debt | 19,050 | 12,084 | ||||||
Principal payments on other debt | (5,535) | (7,271) | ||||||
Repurchase of common stock | (1,150) | (1,197) | ||||||
Proceeds from exercise of stock options | 383 | 89 | ||||||
Increase in overdrafts | 10,540 | 1,792 | ||||||
Proceeds from issuance of non-controlling interests | 996 | — | ||||||
Distributions to non-controlling interests | (1,344) | (5,092) | ||||||
Net cash used in financing activities | (69,935) | (47,857) | ||||||
Net increase in cash and cash equivalents | 15,249 | 14,765 | ||||||
Cash and cash equivalents at beginning of period | 107,300 | 160,413 | ||||||
Cash and cash equivalents at end of period | $ | 122,549 | $ | 175,178 | ||||
Supplemental information | ||||||||
Cash paid for interest | $ | 47,815 | $ | 59,028 | ||||
Cash paid for taxes | $ | 18,438 | $ | 7,693 | ||||
VI. Condensed Consolidated Statements of Cash Flows | ||||||||
For the Years Ended December 31, 2017 and 2018 | ||||||||
(In thousands, unaudited) | ||||||||
2017 | 2018 | |||||||
Operating activities | ||||||||
Net income | $ | 220,645 | $ | 176,942 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Distributions from unconsolidated subsidiaries | 20,006 | 15,721 | ||||||
Depreciation and amortization | 160,011 | 201,655 | ||||||
Provision for bad debts | 1,133 | (103) | ||||||
Equity in earnings of unconsolidated subsidiaries | (21,054) | (21,905) | ||||||
Loss on extinguishment of debt | 6,527 | 2,999 | ||||||
Gain on sale of assets and businesses | (10,349) | (9,168) | ||||||
Stock compensation expense | 19,284 | 23,326 | ||||||
Amortization of debt discount, premium and issuance costs | 11,130 | 13,112 | ||||||
Deferred income taxes | (72,324) | 7,217 | ||||||
Changes in operating assets and liabilities, net of effects of business combinations: | ||||||||
Accounts receivable | (118,833) | 54,575 | ||||||
Other current assets | 1,597 | (4,152) | ||||||
Other assets | (886) | 7,857 | ||||||
Accounts payable and accrued expenses | 21,244 | 26,118 | ||||||
Net cash provided by operating activities | 238,131 | 494,194 | ||||||
Investing activities | ||||||||
Business combinations, net of cash acquired | (27,390) | (523,134) | ||||||
Purchases of property and equipment | (233,243) | (167,281) | ||||||
Investment in businesses | (12,682) | (13,482) | ||||||
Proceeds from sale of assets and businesses | 80,350 | 6,760 | ||||||
Net cash used in investing activities | (192,965) | (697,137) | ||||||
Financing activities | ||||||||
Borrowings on revolving facilities | 970,000 | 595,000 | ||||||
Payments on revolving facilities | (960,000) | (805,000) | ||||||
Proceeds from term loans | 1,139,487 | 779,823 | ||||||
Payments on term loans | (1,179,442) | (11,500) | ||||||
Debt issuance costs | (4,392) | (1,639) | ||||||
Borrowings of other debt | 46,621 | 42,218 | ||||||
Principal payments on other debt | (20,647) | (25,242) | ||||||
Repurchase of common stock | (4,753) | (6,837) | ||||||
Proceeds from exercise of stock options | 2,017 | 1,722 | ||||||
Decrease in overdrafts | (9,899) | (4,380) | ||||||
Proceeds from issuance of non-controlling interests | 9,982 | 2,926 | ||||||
Distributions to and purchases of non-controlling interests | (10,620) | (311,519) | ||||||
Net cash provided by (used in) financing activities | (21,646) | 255,572 | ||||||
Net increase in cash and cash equivalents | 23,520 | 52,629 | ||||||
Cash and cash equivalents at beginning of period | 99,029 | 122,549 | ||||||
Cash and cash equivalents at end of period | $ | 122,549 | $ | 175,178 | ||||
Supplemental information | ||||||||
Cash paid for interest | $ | 149,156 | $ | 193,406 | ||||
Cash paid for taxes | $ | 64,991 | $ | 48,153 | ||||
Non-cash equity exchange for acquisition of U.S. HealthWorks | $ | — | $ | 238,000 | ||||
VII. Key Statistics | |||||||||||
For the Three Months Ended December 31, 2017 and 2018 | |||||||||||
(unaudited) | |||||||||||
2017(f) | 2018 | % Change | |||||||||
Critical Illness Recovery Hospital(a) | |||||||||||
Number of hospitals – end of period(b) | 100 | 96 | |||||||||
Net operating revenues (,000) | $ | 423,771 | $ | 426,348 | 0.6 | % | |||||
Number of patient days(c) | 248,760 | 246,505 | (0.9) | % | |||||||
Number of admissions(c) | 8,913 | 8,869 | (0.5) | % | |||||||
Net revenue per patient day(c)(d) | $ | 1,691 | $ | 1,717 | 1.5 | % | |||||
Adjusted EBITDA (,000) | $ | 58,426 | $ | 56,026 | (4.1) | % | |||||
Adjusted EBITDA margin | 13.8 | % | 13.1 | % | |||||||
Rehabilitation Hospital(a) | |||||||||||
Number of hospitals – end of period(b) | 24 | 26 | |||||||||
Net operating revenues (,000) | $ | 168,767 | $ | 182,086 | 7.9 | % | |||||
Number of patient days(c) | 73,887 | 81,931 | 10.9 | % | |||||||
Number of admissions(c) | 5,079 | 5,594 | 10.1 | % | |||||||
Net revenue per patient day(c)(d) | $ | 1,639 | $ | 1,610 | (1.8) | % | |||||
Adjusted EBITDA (,000) | $ | 28,003 | $ | 28,613 | 2.2 | % | |||||
Adjusted EBITDA margin | 16.6 | % | 15.7 | % | |||||||
Outpatient Rehabilitation | |||||||||||
Number of clinics – end of period(b) | 1,616 | 1,662 | |||||||||
Net operating revenues (,000) | $ | 251,831 | $ | 271,996 | 8.0 | % | |||||
Number of visits(c) | 2,063,773 | 2,104,436 | 2.0 | % | |||||||
Revenue per visit(c)(e) | $ | 102 | $ | 103 | 1.0 | % | |||||
Adjusted EBITDA (,000) | $ | 29,958 | $ | 35,002 | 16.8 | % | |||||
Adjusted EBITDA margin | 11.9 | % | 12.9 | % | |||||||
Concentra | |||||||||||
Number of centers – end of period(b) | 312 | 524 | |||||||||
Net operating revenues (,000) | $ | 249,867 | $ | 384,253 | 53.8 | % | |||||
Number of visits(c) | 1,860,957 | 2,821,928 | 51.6 | % | |||||||
Revenue per visit(c)(e) | $ | 117 | $ | 124 | 6.0 | % | |||||
Adjusted EBITDA (,000) | $ | 31,905 | $ | 52,858 | 65.7 | % | |||||
Adjusted EBITDA margin | 12.8 | % | 13.8 | % | |||||||
______________________________________________
(a) | The critical illness recovery hospital segment was previously referred to as the long term acute care segment. The rehabilitation hospital segment was previously referred to as the inpatient rehabilitation segment. |
(b) | Includes managed locations. |
(c) | Excludes managed locations. For purposes of our Concentra segment, onsite clinics and community-based outpatient clinics are excluded. |
(d) | Net revenue per patient day is calculated by dividing direct patient service revenues by the total number of patient days. |
(e) | Net revenue per visit is calculated by dividing direct patient service revenue by the total number of visits. For purposes of this computation for our outpatient rehabilitation segment, direct patient service revenue does not include managed clinics. For purposes of this computation for our Concentra segment, direct patient service revenue does not include onsite clinics and community-based outpatient clinics. |
(f) | For the three months ended December 31, 2017, the financial results have been recast to conform to the current segment reporting structure and to reflect the adoption of Topic 606, Revenue from Contracts with Customers. |
VIII. Key Statistics | |||||||||||
For the Years Ended December 31, 2017 and 2018 | |||||||||||
(unaudited) | |||||||||||
2017(f) | 2018 | % Change | |||||||||
Critical Illness Recovery Hospital(a) | |||||||||||
Number of hospitals – end of period(b) | 100 | 96 | |||||||||
Net operating revenues (,000) | $ | 1,725,022 | $ | 1,753,584 | 1.7 | % | |||||
Number of patient days(c) | 1,003,161 | 1,012,368 | 0.9 | % | |||||||
Number of admissions(c) | 35,793 | 36,474 | 1.9 | % | |||||||
Net revenue per patient day(c)(d) | $ | 1,704 | $ | 1,716 | 0.7 | % | |||||
Adjusted EBITDA (,000) | $ | 252,679 | $ | 243,015 | (3.8) | % | |||||
Adjusted EBITDA margin | 14.6 | % | 13.9 | % | |||||||
Rehabilitation Hospital(a) | |||||||||||
Number of hospitals – end of period(b) | 24 | 26 | |||||||||
Net operating revenues (,000) | $ | 622,469 | $ | 707,514 | 13.7 | % | |||||
Number of patient days(c) | 269,905 | 315,468 | 16.9 | % | |||||||
Number of admissions(c) | 18,841 | 21,813 | 15.8 | % | |||||||
Net revenue per patient day(c)(d) | $ | 1,577 | $ | 1,606 | 1.8 | % | |||||
Adjusted EBITDA (,000) | $ | 90,041 | $ | 108,927 | 21.0 | % | |||||
Adjusted EBITDA margin | 14.5 | % | 15.4 | % | |||||||
Outpatient Rehabilitation | |||||||||||
Number of clinics – end of period(b) | 1,616 | 1,662 | |||||||||
Net operating revenues (,000) | $ | 1,003,830 | $ | 1,062,487 | 5.8 | % | |||||
Number of visits(c) | 8,232,536 | 8,356,018 | 1.5 | % | |||||||
Revenue per visit(c)(e) | $ | 101 | $ | 103 | 2.0 | % | |||||
Adjusted EBITDA (,000) | $ | 132,533 | $ | 142,005 | 7.1 | % | |||||
Adjusted EBITDA margin | 13.2 | % | 13.4 | % | |||||||
Concentra | |||||||||||
Number of centers – end of period(b) | 312 | 524 | |||||||||
Net operating revenues (,000) | $ | 1,013,224 | $ | 1,557,673 | 53.7 | % | |||||
Number of visits(c) | 7,709,508 | 11,426,940 | 48.2 | % | |||||||
Revenue per visit(c)(e) | $ | 115 | $ | 124 | 7.8 | % | |||||
Adjusted EBITDA (,000) | $ | 157,561 | $ | 251,977 | 59.9 | % | |||||
Adjusted EBITDA margin | 15.6 | % | 16.2 | % | |||||||
_______________________________________________________________________________
(a) | The critical illness recovery hospital segment was previously referred to as the long term acute care segment. The rehabilitation hospital segment was previously referred to as the inpatient rehabilitation segment. |
(b) | Includes managed locations. |
(c) | Excludes managed locations. For purposes of our Concentra segment, onsite clinics and community-based outpatient clinics are excluded. |
(d) | Net revenue per patient day is calculated by dividing direct patient service revenues by the total number of patient days. |
(e) | Net revenue per visit is calculated by dividing direct patient service revenue by the total number of visits. For purposes of this computation for our outpatient rehabilitation segment, direct patient service revenue does not include managed clinics. For purposes of this computation for our Concentra segment, direct patient service revenue does not include onsite clinics and community-based outpatient clinics. |
(f) | For the year ended December 31, 2017, the financial results have been recast to conform to the current segment reporting structure and to reflect the adoption of Topic 606, Revenue from Contracts with Customers. |
IX. Net Income to Adjusted EBITDA Reconciliation |
For the Three Months and Years Ended December 31, 2017 and 2018 |
(In thousands, unaudited) |
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 to evaluate financial performance and determine resource allocation for each of Select Medical's operating segments. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles ("GAAP"). 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, income from operations, 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 GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. |
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 earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, acquisition costs associated with U.S. HealthWorks, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries. |
Three Months Ended | Year Ended | ||||||||||||||
2017 | 2018 | 2017 | 2018 | ||||||||||||
Net income | $ | 121,058 | $ | 29,722 | $ | 220,645 | $ | 176,942 | |||||||
Income tax expense (benefit) | (77,777) | 11,150 | (18,184) | 58,610 | |||||||||||
Interest expense | 38,507 | 50,502 | 154,703 | 198,493 | |||||||||||
Non-operating loss (gain) | — | — | 49 | (9,016) | |||||||||||
Equity in earnings of unconsolidated subsidiaries | (5,436) | (6,991) | (21,054) | (21,905) | |||||||||||
Loss on early retirement of debt | — | 3,900 | 19,719 | 14,155 | |||||||||||
Income from operations | 76,352 | 88,283 | 355,878 | 417,279 | |||||||||||
Stock compensation expense: | |||||||||||||||
Included in general and administrative | 4,103 | 4,884 | 15,706 | 17,604 | |||||||||||
Included in cost of services | 954 | 1,267 | 3,578 | 5,722 | |||||||||||
Depreciation and amortization | 40,367 | 52,633 | 160,011 | 201,655 | |||||||||||
U.S. HealthWorks acquisition costs | 2,819 | — | 2,819 | 2,895 | |||||||||||
Adjusted EBITDA | $ | 124,595 | $ | 147,067 | $ | 537,992 | $ | 645,155 | |||||||
Critical illness recovery hospital(a) | $ | 58,426 | $ | 56,026 | $ | 252,679 | $ | 243,015 | |||||||
Rehabilitation hospital(a) | 28,003 | 28,613 | 90,041 | 108,927 | |||||||||||
Outpatient rehabilitation | 29,958 | 35,002 | 132,533 | 142,005 | |||||||||||
Concentra | 31,905 | 52,858 | 157,561 | 251,977 | |||||||||||
Other(b) | (23,697) | (25,432) | (94,822) | (100,769) | |||||||||||
Adjusted EBITDA | $ | 124,595 | $ | 147,067 | $ | 537,992 | $ | 645,155 | |||||||
_______________________________________________________________________________
(a) | The critical illness recovery hospital segment was previously referred to as the long term acute care segment. The rehabilitation hospital segment was previously referred to as the inpatient rehabilitation segment. |
(b) | Other primarily includes general and administrative costs. |
X. Reconciliation of Earnings per Common Share to Adjusted Earnings per Common Share |
For the Three Months and Years Ended December 31, 2017 and 2018 |
(In thousands, except per share amounts, unaudited) |
Adjusted net income attributable to common shares and adjusted earnings per common share are not measures of financial performance under GAAP. Items excluded from adjusted net income attributable to common shares and adjusted earnings per common share are significant components in understanding and assessing financial performance. Select Medical believes that the presentation of adjusted net income attributable to common shares and adjusted earnings per common share are important to investors because they are reflective of the financial performance of our ongoing operations and provide better comparability of our results of operations between periods. Adjusted net income attributable to common shares and adjusted earnings per common share should not be considered in isolation or as alternatives to, or substitutes 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 net income attributable to common shares and adjusted earnings per common share are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, adjusted net income attributable to common shares and adjusted earnings per common share as presented may not be comparable to other similarly titled measures of other companies. |
The following tables reconcile net income attributable to common shares and earnings per common share on a fully diluted basis to adjusted net income attributable to common shares and adjusted earnings per common share on a fully diluted basis. |
Three Months Ended December 31, | |||||||||||||
2017 | Per Share(a) | 2018 | Per Share(a) | ||||||||||
Net income attributable to common shares(a) | $ | 97,453 | $ | 0.75 | $ | 23,856 | $ | 0.18 | |||||
Adjustments:(b) | |||||||||||||
Income tax benefit resulting from tax reform legislation | (57,666) | (0.44) | — | — | |||||||||
Loss on early retirement of debt | — | — | 2,284 | 0.02 | |||||||||
U.S. HealthWorks acquisition costs | 1,353 | 0.01 | — | — | |||||||||
Adjusted net income attributable to common shares | $ | 41,140 | $ | 0.32 | $ | 26,140 | $ | 0.20 | |||||
Year Ended December 31, | |||||||||||||
2017 | Per Share(a) | 2018 | Per Share(a) | ||||||||||
Net income attributable to common shares(a) | $ | 171,433 | $ | 1.33 | $ | 133,292 | $ | 1.02 | |||||
Adjustments:(b) | |||||||||||||
Income tax benefit resulting from tax reform legislation | (57,709) | (0.45) | — | — | |||||||||
Loss on early retirement of debt | 11,536 | 0.09 | 6,674 | 0.05 | |||||||||
Non-operating losses (gains) | 47 | 0.00 | (6,432) | (0.05) | |||||||||
U.S. HealthWorks acquisition costs | 1,354 | 0.01 | 1,002 | 0.01 | |||||||||
Adjusted net income attributable to common shares | $ | 126,661 | $ | 0.98 | $ | 134,536 | $ | 1.03 | |||||
__________________________________________________
(a) | Net income attributable to common shares and earnings per common share are calculated based on the diluted weighted average common shares outstanding, as presented in table III. |
(b) | Adjustments to net income attributable to common shares include estimated income tax and non-controlling interest impacts and are calculated based on the diluted weighted average common shares outstanding. |
XI. Net Income to Adjusted EBITDA Reconciliation |
Business Outlook for the Year Ending December 31, 2019 |
(In millions, unaudited) |
The following is a reconciliation of full year 2019 Adjusted EBITDA expectations as computed at the low and high points of the range to the closest comparable GAAP financial measure. Refer to table IX for the definition of Adjusted EBITDA and a discussion of Select Medical's use of Adjusted EBITDA in evaluating financial performance. Each item presented in the below table is an estimation of full year 2019 expectations. |
Range | ||||||||
Non-GAAP Measure Reconciliation | Low | High | ||||||
Net income attributable to Select Medical | $ | 132 | $ | 153 | ||||
Net income attributable to non-controlling interests | 56 | 65 | ||||||
Net income | 188 | 218 | ||||||
Income tax expense | 64 | 74 | ||||||
Interest expense | 200 | 200 | ||||||
Equity in earnings of unconsolidated subsidiaries | (25) | (25) | ||||||
Income from operations | 427 | 467 | ||||||
Stock compensation expense | 27 | 27 | ||||||
Depreciation and amortization | 206 | 206 | ||||||
Adjusted EBITDA | $ | 660 | $ | 700 | ||||
SOURCE Select Medical Holdings Corporation
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