Select Medical Holdings Corporation announced results for its second quarter ended June 30, 2018.
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
===== =====
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SOURCE Select Medical Holdings Corporation
Company Codes: NYSE:SEM
