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Select Medical Announces Results For Third Quarter Ended September 30, 2016

Published: Nov 04, 2016

MECHANICSBURG, Pa., Nov. 3, 2016 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its third quarter ended September 30, 2016.

For the third quarter ended September 30, 2016, net operating revenues increased 3.2% to $1,053.8 million, compared to $1,021.1 million for the same quarter, prior year.  Income from operations increased 16.5% to $56.2 million for the third quarter ended September 30, 2016, compared to $48.2 million for the same quarter, prior year.  Net income was $4.0 million for the third quarter ended September 30, 2016, which includes a pre-tax non-operating loss of $1.0 million and a pre-tax loss on early retirement of debt of $10.9 million. Net income was $32.8 million for the third quarter ended September 30, 2015, which includes a pre-tax non-operating gain of $29.6 million. Earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Concentra acquisition costs, Physiotherapy acquisition costs, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries ("Adjusted EBITDA") for the third quarter ended September 30, 2016 increased 16.1% to $98.1 million, compared to $84.5 million for the same quarter, prior year.  During the third quarter ended September 30, 2016, we incurred Adjusted EBITDA losses for start-up hospitals of approximately $9.0 million. A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. Income per common share for the third quarter ended September 30, 2016 was $0.05 on a fully diluted basis, compared to income per common share of $0.22 for the same period, prior year. Excluding the non-operating loss, loss of early retirement of debt, and related tax effects, adjusted income per common share was $0.06 per diluted share for the third quarter ended September 30, 2016. Excluding the non-operating gain and related tax effect, adjusted income per common share was $0.08 per diluted share for the third quarter ended September 30, 2015. A reconciliation of income per common share to adjusted income per common share for both the third quarters ended September 30, 2016 and 2015 is presented in table IX of this release.

For the nine months ended September 30, 2016, net operating revenues increased 19.8% to $3,239.8 million, compared to $2,703.5 million for the same period, prior year.  Income from operations increased 14.9% to $244.1 million for the nine months ended September 30, 2016, compared to $212.5 million for the same period, prior year.  Net income was $104.8 million for the nine months ended September 30, 2016, which includes a pre-tax non-operating gain of $37.1 million and a pre-tax loss on early retirement of debt of $11.6 million. Net income was $110.1 million for the nine months ended September 30, 2015, which includes a pre-tax non-operating gain of $29.6 million. Adjusted EBITDA for the nine months ended September 30, 2016 increased 23.4% to $368.1 million, compared to $298.3 million for the same period, prior year.  During the nine months ended September 30, 2016, we incurred Adjusted EBITDA losses for start-up hospitals of approximately $19.4 million.  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, 2016 was $0.72 on a fully diluted basis, compared to income per common share of $0.77 for the same period, prior year. Excluding the non-operating gain, loss of early retirement of debt, and related tax effects, adjusted income per common share was $0.49 per diluted share for the nine months ended September 30, 2016. Excluding the non-operating gain and related tax effect, adjusted income per common share was $0.63 per diluted share for the nine months ended September 30, 2015. A reconciliation of income per common share to adjusted income per common share for both the nine months ended September 30, 2016 and 2015 is presented in table IX of this release.  

Specialty Hospitals Segment

For the third quarter ended September 30, 2016, net operating revenues for the specialty hospitals segment decreased to $544.5 million, compared to $562.3 million for the same quarter, prior year. Income from operations for the specialty hospitals segment decreased to $33.9 million for the third quarter ended September 30, 2016, compared to $39.9 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospitals segment decreased to $48.3 million for the third quarter ended September 30, 2016, compared to $53.7 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 8.9% for the third quarter ended September 30, 2016, compared to 9.5% for the same quarter, prior year.  The Adjusted EBITDA results for the specialty hospitals segment include Adjusted EBITDA losses for start-up hospitals of approximately $9.0 million for the third quarter ended September 30, 2016, compared to $3.1 million for the same quarter, prior year. Certain specialty hospitals key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.

For the nine months ended September 30, 2016, net operating revenues for the specialty hospitals segment decreased to $1,729.3 million, compared to $1,753.4 million for the same period, prior year. Income from operations for the specialty hospitals segment decreased to $175.7 million for the for nine months ended September 30, 2016, compared to $201.2 million for the same period, prior year. Adjusted EBITDA for the specialty hospitals segment for the nine months ended September 30, 2016 decreased to $217.8 million, compared to $241.6 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 12.6% for the nine months ended September 30, 2016, compared to 13.8% for the same period, prior year. The Adjusted EBITDA results for the specialty hospitals segment include Adjusted EBITDA losses for start-up hospitals of approximately $19.4 million for the nine months ended September 30, 2016, compared to $11.9 million for the same period, prior year. Certain specialty hospitals key statistics for both the nine months ended September 30, 2016 and 2015 are presented in table VII of this release.

Outpatient Rehabilitation Segment

The financial results of the outpatient rehabilitation segment include the contract therapy business through March 31, 2016 and Physiotherapy Associates Holdings, Inc. ("Physiotherapy") beginning March 4, 2016.

For the third quarter ended September 30, 2016, net operating revenues for the outpatient rehabilitation segment increased 25.6% to $250.7 million, compared to $199.6 million for the same quarter, prior year.  Income from operations for the outpatient rehabilitation segment increased 25.7% to $25.8 million for the third quarter ended September 30, 2016, compared to $20.6 million for the same quarter, prior year.  Adjusted EBITDA for the segment increased 34.4% to $32.0 million for the third quarter ended September 30, 2016, compared to $23.8 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 12.8% for the third quarter ended September 30, 2016, compared to 11.9% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.

For the nine months ended September 30, 2016, net operating revenues for the outpatient rehabilitation segment increased 23.5% to $745.7 million, compared to $603.8 million for the same period, prior year.  Income from operations for the outpatient rehabilitation segment increased 26.9% to $82.6 million for the nine months ended September 30, 2016, compared to $65.1 million for the same period, prior year.  Adjusted EBITDA for the outpatient rehabilitation segment for the nine months ended September 30, 2016 increased 32.6% to $99.0 million, compared to $74.7 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 13.3% for the nine months ended September 30, 2016, compared to 12.4% for the same period, prior year.  Certain outpatient rehabilitation key statistics for both the nine months ended September 30, 2016 and 2015 are presented in table VII of this release. 

Concentra Segment

The financial results of Concentra, which is operated through a joint venture subsidiary, are consolidated with Select Medical's commencing on the acquisition date of June 1, 2015.

For the third quarter ended September 30, 2016, net operating revenues for the Concentra segment were $258.5 million, compared to $259.0 million for the same quarter, prior year. Income from operations for the Concentra segment was $25.4 million for the third quarter ended September 30, 2016, compared to $11.5 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment was $40.9 million for the third quarter ended September 30, 2016, compared to $25.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 15.8% for the third quarter ended September 30, 2016, compared to 9.9% for the same quarter, prior year. Certain Concentra key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.

For the nine months ended September 30, 2016, net operating revenues for the Concentra segment were $764.3 million, compared to $345.8 million for the same period, prior year. Income from operations for the Concentra segment was $71.9 million for the nine months ended September 30, 2016, compared to $13.7 million for the same period, prior year. Adjusted EBITDA for the Concentra segment was $118.1 million for the nine months ended September 30, 2016, compared to $36.8 million for the same period, prior year. The Adjusted EBITDA margin for the Concentra segment was 15.5% for the nine months ended September 30, 2016, compared to 10.6% for the same period, prior year. Certain Concentra key statistics for the nine months ended September 30, 2016 and 2015 are presented in table VII of this release.

Stock Repurchase Program

Select Medical did not repurchase shares during the nine months ended September 30, 2016 under its authorized $500.0 million stock repurchase program. The program has been extended until December 31, 2017 and will remain in effect until then, unless further extended or earlier terminated by the board of directors.

Business Outlook

Select Medical is updating its business outlook following reporting its third quarter 2016 financial performance. Select Medical now expects for the full year of 2016 consolidated net operating revenues to be in the range of $4.25 billion to $4.30 billion, Adjusted EBITDA for the full year of 2016 to be in the range of $460.0 million to $480.0 million and fully diluted income per common share for the full year 2016 to be in the range of $0.80 to $0.90.

Select Medical's business outlook has been updated to include the effects of the revised inpatient rehabilitation joint venture hospital openings, the effects of the long term acute care hospital exchange transaction, and long term acute care hospital closures, as well as the expected effective tax rate for the full year.

Conference Call

Select Medical will host a conference call regarding its third quarter results, as well as its business outlook, on Friday, November 4, 2016, at 9:00am EDT. The domestic dial in number for the call is 1-877-430-7741. The international dial in number is 1-615-247-0054. The conference ID for the call is 95431213. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website www.selectmedicalholdings.com.

For those unable to participate in the conference call, a replay will be available until 11:59pm EST, November 11, 2016. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 95431213. The replay can also be accessed at Select Medical Holdings Corporation's website, www.selectmedicalholdings.com.

Select Medical began operations in 1997 and has grown to be one of the largest operators of specialty hospitals, outpatient rehabilitation clinics and occupational health centers in the United States based on the number of facilities. As of September 30, 2016, Select Medical operated 104 long term acute care hospitals and 19 acute medical rehabilitation hospitals in 27 states and 1,603 outpatient rehabilitation clinics in 37 states and the District of Columbia.  Select Medical's joint venture subsidiary Concentra operated 301 centers in 38 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At September 30, 2016, Select Medical had operations in 46 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.

Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995).  Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements due to factors including the following:

  • changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies (including, for example, the expiration of the moratorium limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
  • the impact of the Bipartisan Budget Act of 2013, which establishes new payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals;
  • the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;
  • the failure of our facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
  • a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
  • acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
  • our plans and expectations related to the Concentra and Physiotherapy acquisitions and our inability to realize anticipated synergies;
  • private third-party payors for our services may undertake future cost containment initiatives that could limit our future net operating revenues and profitability;
  • the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;
  • shortages in qualified nurses, therapists, physicians, or other licensed providers could increase our operating costs significantly or limit our ability to staff our facilities;


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