Market Overview

Select Medical Holdings Corporation Announces Results For Its Second Quarter Ended June 30, 2018

Share:

Select Medical Holdings Corporation Announces Results For Its Second Quarter Ended June 30, 2018

PR Newswire

MECHANICSBURG, Pa., Aug. 2, 2018 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE:SEM) today announced results for its second quarter ended June 30, 2018.

For the second quarter ended June 30, 2018, net operating revenues increased 17.6% to $1,296.2 million, compared to $1,102.5 million for the same quarter, prior year. Income from operations increased 4.2% to $120.6 million for the second quarter ended June 30, 2018, compared to $115.7 million for the same quarter, prior year. Net income increased 18.0% to $60.6 million for the second quarter ended June 30, 2018, compared to $51.3 million for the same quarter, prior year. Net income for the second quarter ended June 30, 2018 included pre-tax non-operating gains of $6.5 million. Adjusted EBITDA increased 12.3% to $178.2 million for the second quarter ended June 30, 2018, compared to $158.7 million for the same quarter, prior year. Income per common share increased to $0.35 on a fully diluted basis for the second quarter ended June 30, 2018, compared to $0.32 for the same quarter, prior year. Adjusted income per common share was $0.31 per diluted share for the second quarter ended June 30, 2018, compared to $0.32 for the same quarter, prior year. Adjusted income per common share excludes the non-operating gains and their related tax effects for the second quarter ended June 30, 2018. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table VIII of this release. A reconciliation of income per common share to adjusted income per common share is presented in table IX of this release.

For the six months ended June 30, 2018, net operating revenues increased 16.2% to $2,549.2 million, compared to $2,194.0 million for the same period, prior year. Income from operations increased 10.5% to $229.2 million for the six months ended June 30, 2018, compared to $207.4 million for the same period, prior year. Net income increased 39.8% to $104.5 million for the six months ended June 30, 2018, compared to $74.8 million for the same period, prior year. Net income for the six months ended June 30, 2018 included a pre-tax loss on early retirement of debt of $10.3 million and pre-tax non-operating gains of $6.9 million. Net income for the six months ended June 30, 2017 included a pre-tax loss on early retirement of debt of $19.7 million. Adjusted EBITDA increased 14.7% to $341.5 million for the six months ended June 30, 2018, compared to $297.6 million for the same period, prior year. Income per common share increased to $0.60 on a fully diluted basis for the six months ended June 30, 2018, compared to $0.44 for the same period, prior year. Adjusted income per common share was $0.60 per diluted share for the six months ended June 30, 2018, compared to $0.53 for the same period, prior year. Adjusted income per common share excludes the loss on early retirement of debt, non-operating gains, and U.S. HealthWorks acquisition costs and their related tax effects for the six months ended June 30, 2018. Adjusted income per common share excludes the loss on early retirement of debt and its related tax effects for the six months ended June 30, 2017. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table VIII of this release. A reconciliation of income per common share to adjusted income per common share is presented in table IX 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, rehabilitation hospital segment, outpatient rehabilitation segment, and Concentra segment. As of June 30, 2018, Select Medical operated 98 critical illness recovery hospitals in 27 states, 26 rehabilitation hospitals in 11 states, and 1,638 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical's joint venture subsidiary Concentra operated 527 occupational health centers in 41 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At June 30, 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 second quarter ended June 30, 2018, net operating revenues for the critical illness recovery hospital segment (previously referred to as the long term acute care segment) increased 0.7% to $442.5 million, compared to $439.2 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $60.7 million for the second quarter ended June 30, 2018, compared to $75.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.7% for the second quarter ended June 30, 2018, compared to 17.1% for the same quarter, prior year.  Certain critical illness recovery hospital key statistics for both the second quarters ended June 30, 2018 and 2017 are presented in table VI of this release.

For the six months ended June 30, 2018, net operating revenues for the critical illness recovery hospital segment increased 2.6% to $907.1 million, compared to $884.3 million for the same period, prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $133.7 million for the six months ended June 30, 2018, compared to $147.4 million for the same period, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 14.7% for the six months ended June 30, 2018, compared to 16.7% for the same period, prior year. Certain critical illness recovery hospital key statistics for both the six months ended June 30, 2018 and 2017 are presented in table VII of this release.

Rehabilitation Hospital Segment

For the second quarter ended June 30, 2018, net operating revenues for the rehabilitation hospital segment (previously referred to as the inpatient rehabilitation segment) increased 14.8% to $173.8 million, compared to $151.4 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 21.9% to $28.2 million for the second quarter ended June 30, 2018, compared to $23.1 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 16.2% for the second quarter ended June 30, 2018, compared to 15.3% for the same quarter, prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $2.1 million for the second quarter ended June 30, 2018, compared to approximately $1.2 million for the same quarter, prior year. Certain rehabilitation hospital key statistics for both the second quarters ended June 30, 2018 and 2017 are presented in table VI of this release.

For the six months ended June 30, 2018, net operating revenues for the rehabilitation hospital segment increased 17.7% to $348.5 million, compared to $296.2 million for the same period, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 39.3% to $55.0 million for the six months ended June 30, 2018, compared to $39.5 million for the same period, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 15.8% for the six months ended June 30, 2018, compared to 13.3% for the same period, prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $3.0 million for the six months ended June 30, 2018, compared to approximately $3.2 million for the same period, prior year. Certain rehabilitation hospital key statistics for both the six months ended June 30, 2018 and 2017 are presented in table VII of this release.

Outpatient Rehabilitation Segment

For the second quarter ended June 30, 2018, net operating revenues for the outpatient rehabilitation segment increased 4.8% to $267.2 million, compared to $255.0 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $41.9 million for both the second quarters ended June 30, 2018 and 2017. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 15.7% for the second quarter ended June 30, 2018, compared to 16.4% for the same quarter, prior year. Certain outpatient rehabilitation key statistics for both the second quarters ended June 30, 2018 and 2017 are presented in table VI of this release.

For the six months ended June 30, 2018, net operating revenues for the outpatient rehabilitation segment increased 3.8% to $524.6 million, compared to $505.4 million for the same period, prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $72.5 million for the six months ended June 30, 2018, compared to $73.3 million for the same period, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.8% for the six months ended June 30, 2018, compared to 14.5% for the same period, prior year. Certain outpatient rehabilitation key statistics for both the six months ended June 30, 2018 and 2017 are presented in table VII of this release.

Concentra Segment

The financial results of the Concentra segment include U.S. HealthWorks beginning February 1, 2018.

For the second quarter ended June 30, 2018, net operating revenues for the Concentra segment increased 60.7% to $412.8 million, compared to $256.9 million for the same quarter, prior year.  For the second quarter ended June 30, 2018, U.S. HealthWorks contributed net operating revenues of $139.4 million. Adjusted EBITDA for the Concentra segment increased 68.5% to $72.6 million for the second quarter ended June 30, 2018, compared to $43.1 million for the same quarter, prior year.  The Adjusted EBITDA margin for the Concentra segment was 17.6% for the second quarter ended June 30, 2018, compared to 16.8% for the same quarter, prior year. Certain Concentra key statistics for both the second quarters ended June 30, 2018 and 2017 are presented in table VI of this release.

For the six months ended June 30, 2018, net operating revenues for the Concentra segment increased 51.5% to $768.9 million, compared to $507.5 million for the same period, prior year.  For the period February 1, 2018 through June 30, 2018, U.S. HealthWorks contributed net operating revenues of $229.4 million. Adjusted EBITDA for the Concentra segment increased 52.2% to $130.4 million for the six months ended June 30, 2018, compared to $85.7 million for the same period, prior year.  The Adjusted EBITDA margin for the Concentra segment was 17.0% for the six months ended June 30, 2018, compared to 16.9% for the same period, prior year. Certain Concentra key statistics for both the six months ended June 30, 2018 and 2017 are presented in table VII of this release.

Stock Repurchase Program

Select Medical did not repurchase shares during the second quarter ended June 30, 2018 under its authorized $500.0 million stock repurchase program. The program has been extended until December 31, 2018, 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 June 30, 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 2018 business outlook, most recently provided in its May 3, 2018 first quarter 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 2018 to be in the range of $5.0 billion to $5.2 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2018 to be in the range of $630.0 million to $660.0 million. Select Medical is adjusting its 2018 business outlook for fully diluted income per common share to include the second quarter 2018 non-operating gains and its related tax effects. Select Medical now expects fully diluted income per common share for the full year 2018 to be in the range of $0.97 to $1.12. Select Medical also continues to expect adjusted income per common share to be in the range of $0.97 to $1.12. Adjusted income per common share excludes the loss on early retirement of debt, U.S. HealthWorks acquisition costs, and non-operating gain (loss) and their related tax effects.

Conference Call

Select Medical will host a conference call regarding its second quarter results, as well as its business outlook, on Friday, August 3, 2018, 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 9372416. 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, August 10, 2018. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The passcode for the replay will be 9372416. 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 (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 Medicare-certified long term 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 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 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 quarterly reports on Form 10-Q and of the annual report on Form 10-K for the year ended December 31, 2017.

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
ir@selectmedical.com

I.  Condensed Consolidated Statements of Operations

For the Three Months Ended June 30, 2017 and 2018
(In thousands, except per share amounts, unaudited)












2017(1)


2018


% Change

Net operating revenues


$

1,102,465


$

1,296,210


17.6

%








Costs and expenses:







Cost of services


920,194


1,094,731


19.0


General and administrative


28,275


29,194


3.3


Depreciation and amortization


38,333


51,724


34.9









Income from operations


115,663


120,561


4.2









Equity in earnings of unconsolidated subsidiaries


5,666


4,785


(15.5)


Non-operating gain



6,478


N/M


Interest expense


(37,655)


(50,159)


33.2









Income before income taxes


83,674


81,665


(2.4)









Income tax expense


32,374


21,106


(34.8)









Net income


51,300


60,559


18.0









Less: Net income attributable to non-controlling interests

9,245


14,048


52.0









Net income attributable to Select Medical


$

42,055


$

46,511


10.6

%








Weighted average shares outstanding(2):







Basic


128,624


129,830



Diluted


128,777


129,924










Income per common share(2):







Basic


$

0.32


$

0.35



Diluted


$

0.32


$

0.35












(1)

The financial results for the second quarter ended June 30, 2017 were retrospectively conformed to reflect the adoption of Topic 606, Revenue from Contracts with Customers.

(2)

Under the two-class method for calculating income per common share, unvested restricted stock is a separate, participating class. Income per common share and weighted average common shares outstanding exclude amounts attributed to the unvested restricted class of stockholders. Net income allocated to the unvested restricted stockholders was $1.5 million and $1.3 million for the three months ended June 30, 2018 and 2017, respectively.  Unvested restricted weighted average shares were 4,379 thousand and 4,235 thousand for the three months ended June 30, 2018 and 2017, respectively.

N/M —  Not Meaningful

 

II.  Condensed Consolidated Statements of Operations

For the Six Months Ended June 30, 2017 and 2018
(In thousands, except per share amounts, unaudited)












2017(1)


2018


% Change

Net operating revenues


$

2,193,982


$

2,549,174


16.2

%








Costs and expenses:







Cost of services


1,849,332


2,160,544


16.8


General and administrative


56,350


60,976


8.2


Depreciation and amortization


80,872


98,495


21.8









Income from operations


207,428


229,159


10.5









Loss on early retirement of debt


(19,719)


(10,255)


N/M


Equity in earnings of unconsolidated subsidiaries


11,187


9,482


(15.2)


Non-operating gain (loss)


(49)


6,877


N/M


Interest expense


(78,508)


(97,322)


24.0









Income before income taxes


120,339


137,941


14.6









Income tax expense


45,576


33,400


(26.7)









Net income


74,763


104,541


39.8









Less: Net income attributable to non-controlling interests

16,838


24,291


44.3









Net income attributable to Select Medical


$

57,925


$

80,250


38.5

%








Weighted average shares outstanding(2):







Basic


128,544


129,761



Diluted


128,703


129,871










Income per common share(2):







Basic


$

0.44


$

0.60



Diluted


$

0.44


$

0.60












(1)

The financial results for the six months ended June 30, 2017 were retrospectively conformed to reflect the adoption of Topic 606, Revenue from Contracts with Customers.

(2)

Under the two-class method for calculating income per common share, unvested restricted stock is a separate, participating class. Income per common share and weighted average common shares outstanding exclude amounts attributed to the unvested restricted class of stockholders. Net income allocated to the unvested restricted stockholders was $2.6 million and $1.8 million for the six months ended June 30, 2018 and 2017, respectively.  Unvested restricted weighted average shares were 4,397 thousand and 4,238 thousand for the six months ended June 30, 2018 and 2017, respectively.

N/M —  Not Meaningful

 

III.  Condensed Consolidated Balance Sheets
(In thousands, unaudited)











December 31, 2017


June 30, 2018

Assets










Cash


$

122,549



$

141,029







Accounts receivable


691,732



775,610







Other current assets


106,545



102,703







Total Current Assets


920,826



1,019,342







Property and equipment, net


912,591



965,844







Goodwill


2,782,812



3,314,606







Identifiable intangible assets, net


326,519



451,932







Other assets


184,418



213,076







Total Assets


$

5,127,166



$

5,964,800







Liabilities and Equity










Payables and accruals


$

583,216



$

602,832







Current portion of long-term debt and notes payable

22,187



24,479







Total Current Liabilities


605,403



627,311







Long-term debt, net of current portion


2,677,715



3,386,209







Non-current deferred tax liability


124,917



150,694







Other non-current liabilities


145,709



172,427







Total Liabilities


3,553,744



4,336,641







Redeemable non-controlling interests


640,818



616,232







Total equity


932,604



1,011,927







Total Liabilities and Equity


$

5,127,166



$

5,964,800


 

 

IV.  Condensed Consolidated Statements of Cash Flows



For the Three Months Ended June 30, 2017 and 2018
(In thousands, unaudited)










2017


2018

Operating activities



Net income

$

51,300


$

60,559

Adjustments to reconcile net income to net cash provided by operating activities:



Distributions from unconsolidated subsidiaries

6,022


6,466

Depreciation and amortization

38,333


51,724

Provision for bad debts

(36)


17

Equity in earnings of unconsolidated subsidiaries

(5,666)


(4,785)

Loss on extinguishment of debt


72

Gain on sale of assets and businesses

(4,914)


(6,467)

Stock compensation expense

4,684


5,984

Amortization of debt discount, premium and issuance costs

2,552


3,350

Deferred income taxes

1,951


(1,769)

Changes in operating assets and liabilities, net of effects of business combinations:



Accounts receivable

(22,680)


40,037

Other current assets

2,064


5,934

Other assets

4,669


(9,949)

Accounts payable and accrued expenses

13,943


14,278

Income taxes

3,979


772

Net cash provided by operating activities

96,201


166,223

Investing activities



Business combinations, net of cash acquired

(8,942)


(2,345)

Purchases of property and equipment

(54,649)


(42,031)

Investment in businesses

(9,374)


(1,537)

Proceeds from sale of assets and businesses

15,040


5,981

Net cash used in investing activities

(57,925)


(39,932)

Financing activities



Borrowings on revolving facilities

100,000


100,000

Payments on revolving facilities

(135,000)


(195,000)

Payments on term loans

(2,875)


(2,875)

Debt issuance costs

(840)


Borrowings of other debt

2,873


8,328

Principal payments on other debt

(5,162)


(5,612)

Repurchase of common stock

(444)


(767)

Proceeds from exercise of stock options

346


882

Increase in overdrafts

11,834


1,745

Proceeds from issuance of non-controlling interests

1,459


2,926

Distributions to non-controlling interests

(1,879)


(14,572)

Net cash used in financing activities

(29,688)


(104,945)

Net increase in cash and cash equivalents

8,588


21,346

Cash and cash equivalents at beginning of period

65,211


119,683

Cash and cash equivalents at end of period

$

73,799


$

141,029

Supplemental Information



Cash paid for interest

$

38,085


$

62,105

Cash paid for taxes

$

26,419


$

22,104

 

 

V.  Condensed Consolidated Statements of Cash Flows



For the Six Months Ended June 30, 2017 and 2018
(In thousands, unaudited)







2017


2018

Operating activities



Net income

$

74,763


$

104,541

Adjustments to reconcile net income to net cash provided by operating activities:



Distributions from unconsolidated subsidiaries

10,933


7,830

Depreciation and amortization

80,872


98,495

Provision for bad debts

745


102

Equity in earnings of unconsolidated subsidiaries

(11,187)


(9,482)

Loss on extinguishment of debt

6,527


484

Gain on sale of assets and businesses

(9,523)


(6,980)

Stock compensation expense

9,270


10,911

Amortization of debt discount, premium and issuance costs

5,974


6,486

Deferred income taxes

(1,474)


(1,691)

Changes in operating assets and liabilities, net of effects of business combinations:



Accounts receivable

(140,949)


(5,774)

Other current assets

(5,557)


(3,011)

Other assets

4,621


6,684

Accounts payable and accrued expenses

(4,074)


(4,255)

Income taxes

19,399


12,610

Net cash provided by operating activities

40,340


216,950

Investing activities



Business combinations, net of cash acquired

(18,508)


(517,704)

Purchases of property and equipment

(105,302)


(81,648)

Investment in businesses

(9,874)


(3,291)

Proceeds from sale of assets and businesses

34,552


6,672

Net cash used in investing activities

(99,132)


(595,971)

Financing activities



Borrowings on revolving facilities

630,000


265,000

Payments on revolving facilities

(550,000)


(345,000)

Proceeds from term loans

1,139,487


779,904

Payments on term loans

(1,173,692)


(5,750)

Debt issuance costs

(4,392)


(1,333)

Borrowings of other debt

9,444


19,928

Principal payments on other debt

(10,437)


(11,521)

Repurchase of common stock

(600)


(889)

Proceeds from exercise of stock options

963


1,620

Decrease in overdrafts

(5,228)


(6,171)

Proceeds from issuance of non-controlling interests

3,553


2,926

Distributions to non-controlling interests

(5,536)


(301,213)

Net cash provided by financing activities

33,562


397,501

Net increase (decrease) in cash and cash equivalents

(25,230)


18,480

Cash and cash equivalents at beginning of period

99,029


122,549

Cash and cash equivalents at end of period

$

73,799


$

141,029

Supplemental Information



Cash paid for interest

$

76,650


$

97,338

Cash paid for taxes

$

27,626


$

22,480

Non-cash equity exchange for acquisition of U.S. HealthWorks

$


$

238,000

 

 

VI.  Key Statistics







For the Three Months Ended June 30, 2017 and 2018
(unaudited)














2017(f)


2018


% Change

Critical Illness Recovery Hospital(a)






Number of hospitals – end of period(b)

102



98




Net operating revenues (,000)


$

439,194



$

442,452



0.7

%

Number of patient days(c)


251,302



256,132



1.9

%

Number of admissions(c)


8,901



9,121



2.5

%

Net revenue per patient day(c)(d)


$

1,733



$

1,710



(1.3)

%

Adjusted EBITDA (,000)


$

75,043



$

60,725



(19.1)

%

Adjusted EBITDA margin


17.1

%


13.7

%



Rehabilitation Hospital(a)







Number of hospitals – end of period(b)

21



26




Net operating revenues (,000)


$

151,378



$

173,769



14.8

%

Number of patient days(c)


65,582



77,415



18.0

%

Number of admissions(c)


4,570



5,455



19.4

%

Net revenue per patient day(c)(d)


$

1,569



$

1,608



2.5

%

Adjusted EBITDA (,000)


$

23,129



$

28,195



21.9

%

Adjusted EBITDA margin


15.3

%


16.2

%



Outpatient Rehabilitation







Number of clinics – end of period(b)


1,608



1,638




Net operating revenues (,000)


$

254,984



$

267,183



4.8

%

Number of visits(c)


2,106,760



2,144,655



1.8

%

Revenue per visit(c)(e)


$

101



$

103



2.0

%

Adjusted EBITDA (,000)


$

41,926



$

41,947



0.1

%

Adjusted EBITDA margin


16.4

%


15.7

%



Concentra







Number of centers – end of period(b)


315



527




Net operating revenues (,000)


$

256,887



$

412,823



60.7

%

Number of visits(c)


1,982,255



3,024,121



52.6

%

Revenue per visit(c)(e)


$

114



$

125



9.6

%

Adjusted EBITDA (,000)


$

43,061



$

72,568



68.5

%

Adjusted EBITDA margin


16.8

%


17.6

%












(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)

The financial results for the second quarter ended June 30, 2017 have been recast to conform to the current segment reporting structure and to reflect the adoption of Topic 606, Revenue from Contracts with Customers.

 

VII.  Key Statistics







For the Six Months Ended June 30, 2017 and 2018
(unaudited)














2017(f)


2018


% Change

Critical Illness Recovery Hospital(a)






Number of hospitals – end of period(b)

102



98




Net operating revenues (,000)


$

884,317



$

907,128



2.6

%

Number of patient days(c)


506,399



521,972



3.1

%

Number of admissions(c)


18,210



18,954



4.1

%

Net revenue per patient day(c)(d)


$

1,732



$

1,721



(0.6)

%

Adjusted EBITDA (,000)


$

147,380



$

133,697



(9.3)

%

Adjusted EBITDA margin


16.7

%


14.7

%



Rehabilitation Hospital(a)







Number of hospitals – end of period(b)

21



26




Net operating revenues (,000)


$

296,203



$

348,543



17.7

%

Number of patient days(c)


127,850



154,305



20.7

%

Number of admissions(c)


8,946



10,849



21.3

%

Net revenue per patient day(c)(d)


$

1,544



$

1,615



4.6

%

Adjusted EBITDA (,000)


$

39,457



$

54,971



39.3

%

Adjusted EBITDA margin


13.3

%


15.8

%



Outpatient Rehabilitation







Number of clinics – end of period(b)


1,608



1,638




Net operating revenues (,000)


$

505,355



$

524,564



3.8

%

Number of visits(c)


4,182,550



4,212,120



0.7

%

Revenue per visit(c)(e)


$

100



$

103



3.0

%

Adjusted EBITDA (,000)


$

73,277



$

72,472



(1.1)

%

Adjusted EBITDA margin


14.5

%


13.8

%



Concentra







Number of centers – end of period(b)


315



527




Net operating revenues (,000)


$

507,476



$

768,939



51.5

%

Number of visits(c)


3,869,070



5,620,180



45.3

%

Revenue per visit(c)(e)


$

115



$

125



8.7

%

Adjusted EBITDA (,000)


$

85,653



$

130,365



52.2

%

Adjusted EBITDA margin


16.9

%


17.0

%












(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)

The financial results for the six months ended June 30, 2017 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. Net Income to Adjusted EBITDA Reconciliation
For the Three and Six Months Ended June 30, 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 June 30,


Six Months Ended June 30,


2017


2018


2017


2018

Net income

$

51,300



$

60,559



$

74,763



$

104,541


Income tax expense

32,374



21,106



45,576



33,400


Interest expense

37,655



50,159



78,508



97,322


Non-operating loss (gain)



(6,478)



49



(6,877)


Equity in earnings of unconsolidated subsidiaries

(5,666)



(4,785)



(11,187)



(9,482)


Loss on early retirement of debt





19,719



10,255


Income from operations

115,663



120,561



207,428



229,159


Stock compensation expense:








Included in general and administrative

3,775



4,047



7,524



8,037


Included in cost of services

909



1,937



1,746



2,874


Depreciation and amortization

38,333



51,724



80,872



98,495


U.S. HealthWorks acquisition costs



(41)





2,895


Adjusted EBITDA

$

158,680



$

178,228



$

297,570



$

341,460










Critical illness recovery hospital(a)

$

75,043



$

60,725



$

147,380



$

133,697


Rehabilitation hospital(a)

23,129



28,195



39,457



54,971


Outpatient rehabilitation

41,926



41,947



73,277



72,472


Concentra

43,061



72,568



85,653



130,365


Other(b)

(24,479)



(25,207)



(48,197)



(50,045)


Adjusted EBITDA

$

158,680



$

178,228



$

297,570



$

341,460


















(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.

 

IX. Reconciliation of Income per Common Share to Adjusted Income per Common Share
For the Three and Six Months Ended June 30, 2017 and 2018
(In thousands, except per share amounts, unaudited)

Adjusted net income available to common stockholders and adjusted income per common share – diluted shares are not measures of financial performance under GAAP.  Items excluded from adjusted net income available to common stockholders and adjusted income per common share – diluted shares are significant components in understanding and assessing financial performance. Select Medical believes that the presentation of adjusted net income available to common stockholders and adjusted income per common share – diluted shares 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 available to common stockholders and adjusted income per common share – diluted shares 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 available to common stockholders and adjusted income per common share – diluted shares are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, adjusted net income available to common stockholders and adjusted income per common share – diluted shares as presented may not be comparable to other similarly titled measures of other companies.

The following tables reconcile net income available to common stockholders and income per common share to adjusted net income available to common stockholders and adjusted income per common share – diluted shares for Select Medical.


Three Months Ended June 30,


2017


Per Share(a)


2018


Per Share(a)

Net income attributable to Select Medical

$

42,055




$

46,511



Earnings allocated to unvested restricted stockholders

1,341




1,517



Net income available to common stockholders

$

40,714


$

0.32


$

44,994


$

0.35









Adjustments:









Non-operating gain




(6,478)



U.S. HealthWorks acquisition costs(b)




(25)




Estimated income tax expense(c)




1,749



Earnings allocated to unvested restricted stockholders




155



Adjusted net income available to common stockholders

$

40,714


$

0.32


$

40,395


$

0.31

Adjustment for dilution



0.00





0.00

Adjusted income per common share – diluted shares



$

0.32




$

0.31









Weighted average common shares outstanding:








Basic



128,624




129,830

Diluted




128,777




129,924










(a) 

Per share amounts for each period presented are basic weighted average common shares outstanding for all amounts except adjusted income per common share - diluted shares, which is based on diluted shares outstanding.

(b)  

For the three months ended June 30, 2018, the U.S. HealthWorks acquisition costs recognized by Concentra are net of non-controlling interest.

(c)  

Represents the estimated income tax impacts on the adjustments to net income.

 


Six Months Ended June 30,


2017


Per Share(a)


2018(b)


Per Share(a)

Net income attributable to Select Medical

$

57,925




$

80,250



Earnings allocated to unvested restricted stockholders

1,849




2,630



Net income available to common stockholders

$

56,076


$

0.44


$

77,620


$

0.60









Adjustments:








Loss on early retirement of debt

19,719




7,324



Non-operating loss (gain)

49




(6,877)



U.S. HealthWorks acquisition costs(c)




1,720



Estimated income tax benefit(d)

(7,796)




(1,623)



Earnings allocated to unvested restricted stockholders

(381)




(18)



Adjusted net income available to common stockholders

$

67,667


$

0.53


$

78,146


$

0.60

Adjustment for dilution



0.00




0.00

Adjusted income per common share – diluted shares



$

0.53




$

0.60













Weighted average common shares outstanding:








Basic



128,544




129,761

Diluted



128,703




129,871









(a)

Per share amounts for each period presented are basic weighted average common shares outstanding for all amounts except adjusted income per common share - diluted shares, which is based on diluted shares outstanding.

(b)

For the six months ended June 30, 2018, the loss on early retirement is comprised of losses related to both the Select credit facilities and Concentra credit facilities. The loss on early retirement of debt related to the Concentra credit facilities is net of non-controlling interest.

(c) 

For the six months ended June 30, 2018, the U.S. HealthWorks acquisition costs recognized by Concentra are net of non-controlling interest.

(d) 

Represents the estimated income tax impacts on the adjustments to net income.

 

X. Net Income to Adjusted EBITDA and Income per Common Share to Adjusted Income per Common Share Reconciliations
Business Outlook for the Year Ending December 31, 2018
(In millions, unaudited)

The following are reconciliations of full year 2018 Adjusted EBITDA and adjusted income per common share - diluted shares expectations as computed at the low and high points of the range to the closest comparable GAAP financial measure.  Refer to table VIII and table IX for a discussion of Select Medical's use of Adjusted EBITDA and adjusted income per common share - diluted shares in evaluating financial performance. Refer to table VIII for the definition of Adjusted EBITDA. Each item presented in the below tables are estimations of full year 2018 expectations.


Range

Non-GAAP Measure Reconciliation

Low


High

Net income attributable to Select Medical

$

130



$

151


Net income attributable to non-controlling interests

41



43


Net income

171



194


Income tax expense

57



64


Interest expense

198



198


Equity in earnings of unconsolidated subsidiaries

(21)



(21)


Loss on early retirement of debt

10



10


Non-operating loss (gain)

(7)



(7)


Income from operations

408



438


Stock compensation expense

21



21


Depreciation and amortization

198



198


U.S. HealthWorks acquisition costs

3



3


Adjusted EBITDA

$

630



$

660











Range

Non-GAAP Measure Reconciliation

Low


High

Income per common share - diluted shares

$

0.97



$

1.12


Adjustments:




Loss on early retirement of debt

0.03



0.03


U.S. HealthWorks acquisition costs

0.01



0.01


Non-operating loss (gain)

(0.04)



(0.04)


Adjusted income per common share - diluted shares

$

0.97



$

1.12


 

Cision View original content:http://www.prnewswire.com/news-releases/select-medical-holdings-corporation-announces-results-for-its-second-quarter-ended-june-30-2018-300691418.html

SOURCE Select Medical Holdings Corporation

View Comments and Join the Discussion!