MECHANICSBURG, Pa., May 15 /PRNewswire/ -- Select Medical Corporation today announced results for its first quarter ended March 31, 2006.
On February 24, 2005, Select Medical Corporation ("Select") consummated a merger with a wholly-owned subsidiary of Select Medical Holdings Corporation ("Holdings") pursuant to which Select became a wholly-owned subsidiary of Holdings. Holdings is owned by an investor group that includes Welsh, Carson, Anderson & Stowe IX, LP ("Welsh Carson"), Thoma Cressey Equity Partners, Inc. ("Thoma Cressey") and members of Select's senior management. As a result of the merger, Select's assets and liabilities have been adjusted to their fair value as of the closing. Select also experienced an increase in aggregate outstanding indebtedness as a result of financing transactions associated with the merger. Accordingly, amortization expense and interest expense are higher in periods following the merger. Additionally, certain costs associated with the merger are reflected in the 2005 income statement periods. As a result, the financial statements for the periods before and after the merger are not comparable in certain respects.
For the first quarter ended March 31, 2006, net operating revenues increased 2.9% to $479.7 million compared to $466.1 million for the same quarter, prior year. Income from operations was $66.5 million compared to a loss of $71.1 million for the same quarter, prior year. Net income was $35.4 million compared to a loss of $87.2 million for the same quarter, prior year. As a result of the merger, Select incurred substantial costs related to stock compensation expense, loss on early retirement of debt and merger related charges that contributed to the loss from operations and net loss experienced in the first quarter of 2005. Net income before interest, income taxes, depreciation and amortization, income from discontinued operations, loss on early retirement of debt, merger related charges, stock compensation expense, other income and minority interest ("Adjusted EBITDA") for the first quarter ended March 31, 2006 declined 8.4% to $78.3 million compared to $85.5 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.
On March 1, 2006, a subsidiary of Select sold all the issued and outstanding shares of Canadian Back Institute Limited ("CBIL") for approximately C$89.8 million in cash (US$79.0 million). CBIL comprised Select's entire Canadian operations. As a result of the sale, the operating results of CBIL have been reclassified and reported as discontinued operations for all reported periods, and its assets and liabilities have been reclassified as held for sale on Select's December 31, 2005 balance sheet.
Specialty Hospitals
At March 31, 2006, Select operated 97 long-term acute care hospitals and four acute medical rehabilitation hospitals. This compares to 99 long-term acute care hospitals and four acute medical rehabilitation hospitals operated at March 31, 2005. For the first quarter of 2006, net operating revenues for all of Select's hospitals increased 5.2% to $359.7 million compared to $342.0 million for the same quarter, prior year. Total patient days for the first quarter of 2006 were 251,701, admissions were 10,483 and net revenue per patient day was $1,405. This compares to 250,839 days, 10,336 admissions and net revenue per patient day of $1,330 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods, patient days in the first quarter of 2006 were 251,701 and admissions were 10,483, compared to 247,014 days and 10,178 admissions in the same quarter, prior year. Adjusted EBITDA for the segment decreased 5.6% to $74.7 million compared to $79.1 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 20.8% for the first quarter of 2006, compared to 23.1% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods was 20.9% for the first quarter of 2006, compared to 23.2% for the same quarter, prior year. This decrease in same store hospital Adjusted EBITDA resulted from higher labor costs and costs of purchased services. To date, we have been unable to recover these increased costs through higher revenues.
Outpatient Rehabilitation
At March 31, 2006, Select operated 613 outpatient clinics. This compares to 645 outpatient clinics at March 31, 2005. Patient visits for the quarter were 784,839 compared to 863,173 for the same quarter, prior year. For the first quarter of 2006, net operating revenues declined 1.8% to $119.3 million compared to $121.5 million for the same quarter, prior year. The decline in net operating revenues and patient visits was principally related to a decline in the number of clinics we own and operate and a decline in the volume of visits per clinic. We are continuing to experience declines in our patient visits in a number of markets that result from physicians opening competing physical therapy practices. Adjusted EBITDA for the first quarter of 2006 declined 20.5% to $14.8 million compared to $18.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the quarter was 12.4% compared to 15.3% in the same quarter, prior year. The decline in Adjusted EBITDA was the result of the decline in clinic visit volumes described above and an increase in labor costs for physical and occupational therapists. Net revenue per visit was $91 for the first quarter of 2006 compared to $90 for the same quarter, prior year. Number of clinics, net operating revenues and Adjusted EBITDA excludes CBIL. CBIL is being reported as a discontinued operation.
LTACH Regulations
On May 2, 2006, CMS released its final annual payment rate updates for the 2007 LTCH-PPS rate year (affecting cost reporting periods beginning on or after July 1, 2006 and before July 1, 2007). The May 2006 final rule makes several changes to LTCH-PPS payment methodologies and amounts.
For discharges occurring on or after July 1, 2006, the rule changes the payment methodology for Medicare patients with a length of stay less than or equal to five-sixths of the geometric average length of stay for each LTC-DRG (referred to as "short-stay outlier" or "SSO" cases). Currently, payment for these patients is based on the lesser of (1) 120 percent of the cost of the case; (2) 120 percent of the LTC-DRG specific per diem amount multiplied by the patient's length of stay; or (3) the full LTC-DRG payment. The final rule modifies the limitation in clause (1) above to reduce payment for SSO cases to 100 percent (rather than 120 percent) of the cost of the case. The final rule also adds a fourth limitation, capping payment for SSO cases at a per diem rate derived from blending 120 percent of the LTC-DRG specific per diem amount with a per diem rate based on the general acute care hospital inpatient prospective payment system ("IPPS"). Under this methodology, as a patient's length of stay increases, the percentage of the per diem amount based upon the IPPS component will decrease and the percentage based on the LTC-DRG component will increase. The final rule reflects a moderation of the fourth limitation of the SSO payment policy that CMS had proposed in January 2006, which would have limited SSO payments solely to an amount based on the IPPS.
In addition, the final rule provides for (i) a zero-percent update for the 2007 LTCH-PPS rate year to the LTCH-PPS standard federal rate used as a basis for LTCH-PPS payments; (ii) for discharges occurring on or after July 1, 2006, the elimination of the surgical case exception to the three-day or less interruption of stay policy, under which surgical exception Medicare reimburses a general acute care hospital directly for surgical services furnished to a long-term acute care hospital patient during a brief interruption of stay from the long-term acute care hospital, rather than requiring the long-term acute care hospital to bear responsibility for such surgical services; and (iii) increasing the costs that a long-term acute care hospital must bear before Medicare will make additional payments for a case under its high-cost outlier policy for the 2007 LTCH-PPS rate year.
CMS estimates that the changes in the May 2006 final rule will result in an approximately 3.7 percent decrease in LTCH Medicare payments-per-discharge as compared to the 2006 rate year, largely attributable to the revised SSO payment methodology. Based upon Select's historical Medicare patient volumes and revenues, Select expects that the May 2006 final rule will reduce Medicare revenues associated with SSO cases and high-cost outlier cases to its long- term acute care hospitals by approximately $30.0 million on an annual basis. Additionally, had CMS updated the LTCH-PPS standard federal rate by the 2007 estimated market basket index of 3.4 percent rather than applying the zero- percent update, Select estimates that it would have received approximately $31.0 million in additional annual Medicare revenues, based on Select's historical Medicare patient volumes and revenues (such revenues would have been paid to Select's hospitals for cost reporting periods beginning on or after July 1, 2006).
Conference Call
Select will host a conference call regarding its first quarter results on Wednesday, May 17, 2006, at 11:00 am EDT. The domestic dial-in number for the call is 866-253-5757. The international dial-in number is 703-639-1206.
Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select currently operates 96 long-term acute care hospitals in 26 states. Select operates four acute medical rehabilitation hospitals in New Jersey. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 613 locations. Select also provides medical rehabilitation services on a contract basis at nursing homes, hospitals, assisted living and senior care centers, schools and worksites. Information about Select is available at http://www.selectmedicalcorp.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. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to those discussed in filings made by Select with the Securities and Exchange Commission. Many of the factors that will determine Select's future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. Select undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
I. Condensed Consolidated Statements of Operations (In thousands) (unaudited) For the Three Months Ended March 31, 2005 and 2006 Predecessor Successor Combined Successor (1) (1) (2) (1) Period Period For the For the from from Three Three January 1 February Months Months through 25 through Ended Ended February March 31, March 31, March 31, 24, 2005 2005 2005 2006 % Change Net operating revenues $277,736 $188,386 $466,122 $479,743 2.9% Costs and expenses: Cost of services 217,133 140,509 357,642 385,139 7.7% Stock compensation expense 142,213 4,326 146,539 946 (99.4)% General and administrative 7,484 4,356 11,840 11,312 (4.5)% Bad debt expense 6,588 4,558 11,146 5,000 (55.1)% Depreciation and amortization 5,933 4,126 10,059 10,895 8.3% Income (loss) from operations (101,615) 30,511 (71,104) 66,451 193.5% Loss on early retirement of debt 42,736 - 42,736 - (100.0)% Merger related charges 12,025 - 12,025 - (100.0)% Other income (267) (103) (370) (2,434) 557.8% Interest income (523) (77) (600) (222) (63.0)% Interest expense 4,651 9,600 14,251 24,272 70.3% Income (loss) from continuing operations before minority interests, and income taxes (160,237) 21,091 (139,146) 44,835 132.2% Minority interests 330 302 632 391 (38.1)% Income (loss) from continuing operations before income taxes (160,567) 20,789 (139,778) 44,444 131.8% Income tax expense (benefit) (59,794) 8,388 (51,406) 19,095 137.1% Income (loss) from continuing operations (100,773) 12,401 (88,372) 25,349 128.7% Income from discontinued operations, net of tax (includes pre-tax gain of $13,950 in 2006) 522 672 1,194 10,018 739.0% Net income (loss) $(100,251) $13,073 $(87,178) $35,367 140.6% (1) On February 24, 2005, Select Medical Corporation ("Select") merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly-owned subsidiary of Holdings. Select's financial position and results of operations prior to the merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the merger, the pre-merger financial statements are not comparable with those after the merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through March 31, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined three months ended March 31, 2005. As a result of the merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense and depreciation and amortization have been impacted. II. Condensed Consolidated Balance Sheets (In thousands) (unaudited) December 31, March 31, 2005 2006 Assets Cash $35,861 $13,851 Restricted cash 6,345 5,908 Accounts receivable, net 256,798 285,138 Current deferred tax asset 59,135 56,550 Prepaid taxes 4,110 - Current assets held for sale 13,876 - Other current assets 19,725 19,447 Total current assets 395,850 380,894 Property and equipment, net 248,541 277,888 Goodwill 1,305,210 1,318,111 Other identifiable intangibles 86,789 85,259 Other assets held for sale 61,388 - Other assets 65,591 68,250 Total assets $2,163,369 $2,130,402 Liabilities and Stockholders' Equity Payables and accruals $296,765 $286,827 Income taxes payable - 18,570 Current liabilities held for sale 4,215 - Current portion of long-term debt 6,516 6,425 Total current liabilities 307,496 311,822 Long-term debt, net of current portion 1,315,764 1,257,013 Non-current deferred tax liability 25,771 32,256 Non-current liabilities held for sale 3,817 - Minority interests 4,356 2,781 Stockholders' equity 506,165 526,530 Total liabilities and stockholders' equity $2,163,369 $2,130,402 III. Key Statistics (unaudited) For the Three Months Ended March 31, 2005 and 2006 % 2005 2006 Change Specialty Hospitals (a) Number of hospitals - end of period 103 101 (1.9)% Net operating revenues (,000) $342,044 $359,672 5.2% Number of patient days 250,839 251,701 0.3% Number of admissions 10,336 10,483 1.4% Net revenue per patient day (b) $1,330 $1,405 5.6% Adjusted EBITDA (,000) $79,127 $74,718 (5.6)% Adjusted EBITDA margin - all hospitals 23.1% 20.8% (10.0)% Adjusted EBITDA margin - same store hospitals (c) 23.2% 20.9% (9.9)% Outpatient Rehabilitation (e) Number of clinics - end of period 645 613 (5.0)% Net operating revenues (,000) $121,455 $119,290 (1.8)% Number of visits (US) 863,173 784,839 (9.1)% Revenue per visit (US) (d) $90 $91 1.1% Adjusted EBITDA (,000) $18,564 $14,760 (20.5)% Adjusted EBITDA margin 15.3% 12.4% (19.0)% (a) Specialty hospitals consist of long-term acute care hospitals and acute medical rehabilitation hospitals. (b) Net revenue per patient day is calculated by dividing specialty hospital patient service revenue by the total number of patient days. (c) Adjusted EBITDA margin - same store hospitals represents the Adjusted EBITDA margin for those hospitals opened before January 1, 2005 and operated throughout both periods. (d) Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic revenue does not include managed clinics or contract services revenue. (e) Outpatient rehabilitation information for 2005 has been restated to remove the clinics operated by CBIL, which is being reported as discontinued operations. Occupational health clinics have been reclassified as managed clinics. IV. Net Income (Loss) to Adjusted EBITDA Reconciliation (In thousands) (unaudited) For the Three Months Ended March 31, 2005 and 2006 The following table reconciles net income (loss) to Adjusted EBITDA for Select. Adjusted EBITDA is used by Select to report its segment performance in accordance with SFAS No. 131. Adjusted EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization, income (loss) from discontinued operations, loss on early retirement of debt, merger related charges, stock compensation expense, other income and minority interest. We believe that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our 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. Predecessor Successor Combined Successor (1) (1) (2) (1) Period Period For the For the from from Three Three January 1 February Months Months through 25 through Ended Ended February March 31, March 31, March 31, 24, 2005 2005 2005 2006 Net income (loss) $(100,251) $13,073 $(87,178) $35,367 Income from discontinued operations, net of tax (522) (672) (1,194) (10,018) Income tax expense (benefit) (59,794) 8,388 (51,406) 19,095 Minority interest 330 302 632 391 Interest expense, net 4,128 9,523 13,651 24,050 Other income (267) (103) (370) (2,434) Loss on early retirement of debt 42,736 - 42,736 - Merger related charges 12,025 - 12,025 - Stock compensation expense 142,213 4,326 146,539 946 Depreciation and amortization 5,933 4,126 10,059 10,895 Adjusted EBITDA $46,531 $38,963 $85,494 $78,292 Specialty hospitals $44,384 $34,743 $79,127 $74,718 Outpatient rehabilitation 9,848 8,716 18,564 14,760 Other (3) (7,701) (4,496) (12,197) (11,186) Adjusted EBITDA $46,531 $38,963 $85,494 $78,292 (1) On February 24, 2005, Select Medical Corporation ("Select") merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly-owned subsidiary of Holdings. Select's financial position and results of operations prior to the merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the merger, the pre-merger financial statements are not comparable with those after the merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through March 31, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined three months ended March 31, 2005. As a result of the merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense and depreciation and amortization have been impacted. (3) Other primarily includes Select's general and administrative costs. The following tables reconcile specialty hospital same store information. Three Months Ended March 31, 2005 March 31, 2006 Specialty hospitals net operating revenue $342,044 $359,672 Less: Specialty hospitals in development or closed after 1/1/05 6,028 204 Specialty hospitals same store net operating revenue $336,016 $359,468 Specialty hospitals Adjusted EBITDA $79,127 $74,718 Less: Specialty hospitals in development or closed after 1/1/05 1,334 (377) Specialty hospitals same store Adjusted EBITDA $77,793 $75,095 All specialty hospitals Adjusted EBITDA margin 23.1% 20.8% Specialty hospitals same store Adjusted EBITDA margin 23.2% 20.9% V. Discontinued Operations Income Statement (In thousands) (unaudited) For the Three Months Ended March 31, 2005 and the Two Months Ended February 28, 2006 The following table summarizes the income statement information relating to our discontinued operations of CBIL sold on March 1, 2006. Predecessor Successor Combined Successor (1) (1) (2) (1) Period Period For the For the from from Three Two January 1 February Months Months through 25 through Ended Ended February March 31, March 31, February 24, 2005 2005 2005 28, 2006 Net operating revenues $10,051 $6,726 $16,777 $12,902 Costs and expenses: Cost of services 8,295 5,099 13,394 10,733 Bad debt expense 73 51 124 87 Depreciation and amortization 244 122 366 176 Income from discontinued operations 1,439 1,454 2,893 1,906 Other expense 267 103 370 - Gain on sale - - - (13,950) Interest expense (income) 83 36 119 (31) Income from discontinued operations before minority interests and income taxes 1,089 1,315 2,404 15,887 Minority interests 139 160 299 340 Income from discontinued operations before income taxes 950 1,155 2,105 15,547 Income tax expense 428 483 911 5,529 Income from discontinued operations, net of tax $522 $672 $1,194 $10,018 (1) On February 24, 2005, Select Medical Corporation ("Select") merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly-owned subsidiary of Holdings. Select's financial position and results of operations prior to the merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the merger, the pre-merger financial statements are not comparable with those after the merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through March 31, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined three months ended March 31, 2005.
Select Medical CorporationCONTACT: Investor inquiries, Joel Veit, Select Medical Corporation,+1-717-972-1100
Web site: http://www.selectmedicalcorp.com/
