Select Medical Holdings Corporation Announces Results for Third Quarter Ended September 30, 2013 and Quarterly Cash Dividend

MECHANICSBURG, Pa., Oct. 31, 2013 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its third quarter ended September 30, 2013 and the declaration of its quarterly cash dividend.

For the third quarter ended September 30, 2013, net operating revenues increased 1.3% to $722.8 million compared to $713.7 million for the same quarter, prior year.  The results for the third quarter ended September 30, 2013 reflect Medicare changes that became effective on April 1, 2013, including (i) a 2% reduction in Medicare payments that was implemented as part of the automatic reduction in federal spending mandated under the Budget Control Act of 2011 (the "Sequestration Reduction"), and (ii) an increase from 25% to 50% in the multiple procedure payment reduction for therapy services as mandated by the American Taxpayer Relief Act of 2012 (the "MPPR Reduction").  For the third quarter ended September 30, 2013, these changes collectively reduced both net operating revenues and income from operations by approximately $7.2 million and $1.9 million, respectively.  Income from operations decreased to $62.4 million compared to $70.8 million for the same quarter, prior year.  Net income attributable to Select Medical decreased to $23.3 million compared to $24.1 million for the same quarter, prior year.  Net income attributable to Select Medical for the third quarter ended September 30, 2012 includes a loss on early retirement of debt, net of tax, of $3.7 million associated with the September 12, 2012 redemption of $275.0 million of Select Medical Corporation's 7 5/8% senior subordinated notes.  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 third quarter decreased 8.3% to $80.4 million compared to $87.7 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 both the third quarter ended September 30, 2013 and 2012 was $0.17 on a fully diluted basis.  Excluding the loss related to the early retirement of debt for the third quarter ended September 30, 2012 and its related tax effects, adjusted income per common share was $0.20 per diluted share for the third quarter ended September 30, 2012.  A reconciliation of income per common share to adjusted income per common share for the third quarter ended September 30, 2013 and 2012 is presented in table IX of this release. 

For the nine months ended September 30, 2013, net operating revenues increased 1.0% to $2,229.5 million compared to $2,207.9 million for the same period, prior year.  The results for the nine months ended September 30, 2013 include the Sequestration Reduction and MPPR Reduction which collectively reduced both net operating revenues and income from operations by approximately $16.6 million and $3.6 million, respectively.  Income from operations decreased to $233.2 million compared to $255.9 million for the same period, prior year.  Net income attributable to Select Medical decreased to $85.5 million compared to $108.8 million for the same period, prior year.  Net income attributable to Select Medical for the nine months ended September 30, 2013 and 2012 include losses on early retirement of debt, net of tax, of $11.5 million and $3.7 million, respectively.  Net income attributable to Select Medical for the nine months ended September 30, 2012 includes a loss on early retirement of debt, net of tax, of $3.7 million associated with the September 12, 2012 redemption of $275.0 million of Select Medical Corporation's 7 5/8% senior subordinated notes.  Adjusted EBITDA for the nine months ended September 30, 2013 decreased 6.7% to $286.5 million compared to $307.1 million for the same period, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release.  Income per common share for the nine months ended September 30, 2013 was $0.61 on a fully diluted basis compared to income per common share of $0.77 for the nine months ended September 30, 2012.  Excluding the loss related to the early retirement of debt in each period and their related tax effects, adjusted income per common share was $0.69 and $0.79 per diluted share for the nine months ended September 30, 2013 and 2012, respectively.  A reconciliation of net income per share to adjusted net income per share for the nine months ended September 30, 2013 and 2012 is presented in table X of this release.

Specialty Hospitals

For the third quarter of 2013, net operating revenues for the specialty hospital segment increased 0.2% to $532.6 million compared to $531.4 million for the same quarter, prior year.  The Sequestration Reduction reduced net operating revenues and income from operations for the segment by approximately $6.8 million for the third quarter of 2013.  Adjusted EBITDA for the specialty hospital segment decreased 10.0% to $75.3 million compared to $83.7 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 14.1% for the third quarter of 2013, compared to 15.7% for the same quarter, prior year.  Certain specialty hospital key statistics for the third quarter ended September 30, 2013 and 2012 are presented in table VI of this release.

For the nine months ended September 30, 2013, net operating revenues for the specialty hospital segment increased 0.5% to $1,649.7 million compared to $1,641.6 million for the same period, prior year.  The Sequestration Reduction reduced both net operating revenues and income from operations for the segment by approximately $15.9 million for the nine months ended September 30, 2013.  Adjusted EBITDA for the specialty hospital segment for the nine months ended September 30, 2013 decreased 7.3% to $265.0 million compared to $285.8 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 16.1% for the nine months ended September 30, 2013, compared to 17.4% for the same period, prior year.  Certain specialty hospital key statistics for the nine months ended September 30, 2013 and 2012 are presented in table VII of this release.

Outpatient Rehabilitation

For the third quarter of 2013, net operating revenues for the outpatient rehabilitation segment increased 4.4% to $190.2 million compared to $182.2 million for the same quarter, prior year.  The Sequestration Reduction and MPPR Reduction collectively reduced both net operating revenues and income from operations for the segment by approximately $0.4 million and $1.9 million, respectively, for the third quarter of 2013.  Adjusted EBITDA for the segment for the third quarter increased 6.2% to $21.6 million compared to $20.4 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.4% for the third quarter of 2013, compared to 11.2% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for the third quarter ended September 30, 2013 and 2012 are presented in table VI of this release.

For the nine months ended September 30, 2013, net operating revenues for the outpatient rehabilitation segment increased 2.3% to $579.4 million compared to $566.2 million for the same period, prior year.  The Sequestration Reduction and MPPR Reduction collectively reduced both net operating revenues and income from operations for the segment by approximately $0.7 million and $3.6 million, respectively, for the nine months ended September 30, 2013.  Adjusted EBITDA for the segment for the nine months ended September 30, 2013 increased 2.7% to $70.5 million compared to $68.7 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 12.2% for the nine months ended September 30, 2013, compared to 12.1% for the same period, prior year.  Certain outpatient rehabilitation key statistics for the nine months ended September 30, 2013 and 2012 are presented in table VII of this release. 

Stock Repurchase Program

Select Medical's board of directors has authorized a $350.0 million stock repurchase program that will 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.  Select Medical did not repurchase shares during the three months ended September 30, 2013.  During the nine months ended September 30, 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 September 30, 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.

Quarterly Dividend

On August 7, 2013, Select Medical's board of directors declared a quarterly cash dividend of $0.10 per share, totaling $14.0 million.  The dividend was paid on August 30, 2013 to stockholders of record as of the close of business on August 20, 2013.

On October 30, 2013, Select Medical's board of directors declared a quarterly dividend of $0.10 per share.  The dividend will be payable on or about November 22, 2013 to stockholders of record as of the close of business on November 12, 2013.

Business Outlook

Select Medical is reaffirming its prior business outlook provided in its August 8, 2013 earnings press release for net operating revenues, Adjusted EBITDA and adjusted income per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2013 to be in the range of $2.925 billion to $3.025 billion, Adjusted EBITDA for the full year 2013 to be in the range of $375.0 million to $390.0 million and adjusted income per common share, which excludes the losses on early retirement of debt and their related tax effects in the first and second quarters, for the full year 2013 to be in the range of $0.87 to $0.94. Select Medical continues to expect fully diluted income per common share for the full year 2013 to be in the range of $0.78 to $0.85.

The above business outlook includes the estimated financial impact from the automatic Medicare reductions mandated under the Budget Control Act of 2011. Select Medical estimates this negative impact to both net operating revenues and Adjusted EBITDA for the fourth quarter of 2013 to be between $8.0 million and $9.0 million. The above business outlook also includes the expected financial impact to outpatient therapy payments related to the MPPR Reduction. Select Medical estimates this negative impact to both net operating revenues and Adjusted EBITDA for the fourth quarter of 2013 to be between $1.5 million and $2.0 million 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 third quarter results and its business outlook on Friday, November 1, 2013, at 9:00am EDT. The domestic dial-in number for the call is 1-866-700-6067. The international dial-in number is 1-617-213-8834. The passcode for the call is 69642856. 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 EST, November 8, 2013. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 77254976. The replay can also be accessed at Select Medical's website, www.selectmedicalholdings.com.

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Select Medical is a leading operator of specialty hospitals and outpatient rehabilitation clinics in the United States. As of September 30, 2013, Select Medical operated 108 long term acute care hospitals and 15 acute medical rehabilitation hospitals in 28 states and 997 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 may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
• 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" for the year ended December 31, 2012 contained in our annual report on Form 10-K filed with the SEC on February 26, 2013 and our quarterly report on Form 10-Q for the three months ended March 31, 2013, filed with the SEC on May 2, 2013.

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 and Nine Months Ended September 30, 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