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Select Medical Corp (1035688) SEC Filing 8-K Material Event for the period ending Thursday, August 1, 2019

Select Medical Corp

CIK: 1035688

Exhibit 99.1

 

 

FOR IMMEDIATE RELEASE

4714 Gettysburg Road

 

Mechanicsburg, PA 17055

 

 

 

NYSE Symbol:  SEM

 

Select Medical Holdings Corporation Announces Results

For Its Second Quarter Ended June 30, 2019

 

MECHANICSBURG, PENNSYLVANIA — August 1, 2019 — Select Medical Holdings Corporation (“Select Medical”) (NYSE: SEM) today announced results for its second quarter ended June 30, 2019.

 

For the second quarter ended June 30, 2019, net operating revenues increased 5.0% to $1,361.4 million, compared to $1,296.2 million for the same quarter, prior year. Income from operations increased 3.6% to $124.9 million for the second quarter ended June 30, 2019, compared to $120.6 million for the same quarter, prior year. Net income was $60.0 million for the second quarter ended June 30, 2019, compared to $60.6 million for the same quarter, prior year. For the second quarter ended June 30, 2018, net income included a pre-tax non-operating gain of $6.5 million. Adjusted EBITDA increased 4.5% to $186.2 million for the second quarter ended June 30, 2019, compared to $178.2 million for the same quarter, prior year. Earnings per common share was $0.33 on a fully diluted basis for the second quarter ended June 30, 2019, compared to $0.35 for the same quarter, prior year. Excluding the non-operating gain and its related tax effects, adjusted earnings per common share was $0.31 on a fully diluted basis 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 IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release.

 

For the six months ended June 30, 2019, net operating revenues increased 5.4% to $2,686.0 million, compared to $2,549.2 million for the same period, prior year. Income from operations increased 3.2% to $236.6 million for the six months ended June 30, 2019, compared to $229.2 million for the same period, prior year. Net income increased 8.4% to $113.3 million for the six months ended June 30, 2019, compared to $104.5 million for the same period, prior year. For the six months ended June 30, 2019, net income included a pre-tax non-operating gain of $6.5 million. For the six months ended June 30, 2018, net income included pre-tax losses on early retirement of debt of $10.3 million, pre-tax non-operating gains of $6.9 million, and pre-tax U.S. HealthWorks acquisition costs of $2.9 million. Adjusted EBITDA increased 4.4% to $356.4 million for the six months ended June 30, 2019, compared to $341.5 million for the same period, prior year. Earnings per common share increased to $0.63 on a fully diluted basis for the six months ended June 30, 2019, compared to $0.60 for the same period, prior year. Adjusted earnings per common share was $0.60 per diluted share for both the six months ended June 30, 2019 and 2018. For the six months ended June 30, 2019, adjusted earnings per common share excludes the non-operating gain and its related tax effects. For the six months ended June 30, 2018, adjusted income per common share excludes the losses on early retirement of debt, non-operating gains, U.S. HealthWorks acquisition costs, and their related tax effects. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of income per common share to adjusted income per common share is presented in table X of this release.

 


 

Company Overview

 

Select Medical is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, 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, the rehabilitation hospital segment, the outpatient rehabilitation segment, and the Concentra segment. As of June 30, 2019, Select Medical operated 100 critical illness recovery hospitals in 28 states, 28 rehabilitation hospitals in 12 states, and 1,695 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical’s joint venture subsidiary Concentra operated 526 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, 2019, Select Medical had operations in 47 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.

 

During the three months ended June 30, 2019, Select Medical began reporting the net operating revenues and expenses associated with employee leasing services provided to our non-consolidating subsidiaries as part of our other activities. Previously, these services were reflected in the financial results of our reportable segments. Under these employee leasing arrangements, actual labor costs are passed through to our non-consolidating subsidiaries, resulting in Select Medical’s recognition of net operating revenues equal to the actual labor costs incurred. Prior year results presented herein have been changed to conform to the current presentation.

 

Critical Illness Recovery Hospital Segment

 

For the second quarter ended June 30, 2019, net operating revenues for the critical illness recovery hospital segment increased 4.2% to $461.1 million, compared to $442.5 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 5.6% to $64.1 million for the second quarter ended June 30, 2019, compared to $60.7 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.9% for the second quarter ended June 30, 2019, compared to 13.7% for the same quarter, prior year. Certain critical illness recovery hospital key statistics are presented in table VII of this release for both the second quarters ended June 30, 2019 and 2018.

 

For the six months ended June 30, 2019, net operating revenues for the critical illness recovery hospital segment increased 1.3% to $918.7 million, compared to $907.1 million for the same period, prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 2.6% to $137.1 million for the six months ended June 30, 2019, compared to $133.7 million for the same period, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 14.9% for the six months ended June 30, 2019, compared to 14.7% for the same period, prior year. Certain critical illness recovery hospital key statistics for both the six months ended June 30, 2019 and 2018 are presented in table VIII of this release.

 

Rehabilitation Hospital Segment

 

For the second quarter ended June 30, 2019, net operating revenues for the rehabilitation hospital segment increased 10.8% to $160.4 million, compared to $144.8 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 6.3% to $30.0 million for the second quarter ended June 30, 2019, compared to $28.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 18.7% for the second quarter ended June 30, 2019, compared to 19.5% for the same quarter, prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $6.0 million for the second quarter ended June 30, 2019, compared to approximately $2.1 million of start-up losses for the same quarter, prior year. Certain rehabilitation hospital key statistics are presented in table VII of this release for both the second quarters ended June 30, 2019 and 2018.

 

2


 

For the six months ended June 30, 2019, net operating revenues for the rehabilitation hospital segment increased 9.3% to $314.9 million, compared to $288.1 million for the same period, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 1.4% to $55.8 million for the six months ended June 30, 2019, compared to $55.0 million for the same period, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 17.7% for the six months ended June 30, 2019, compared to 19.1% for the same period, prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $8.8 million for the six months ended June 30, 2019, compared to approximately $3.0 million for the same period, prior year. Certain rehabilitation hospital key statistics for both the six months ended June 30, 2019 and 2018 are presented in table VIII of this release.

 

Outpatient Rehabilitation Segment

 

For the second quarter ended June 30, 2019, net operating revenues for the outpatient rehabilitation segment increased 3.1% to $261.9 million, compared to $253.9 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 1.5% to $42.6 million for the second quarter ended June 30, 2019, compared to $41.9 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 16.3% for the second quarter ended June 30, 2019, compared to 16.5% for the same quarter, prior year. Certain outpatient rehabilitation key statistics are presented in table VII of this release for both the second quarters ended June 30, 2019 and 2018.

 

For the six months ended June 30, 2019, net operating revenues for the outpatient rehabilitation segment increased 2.1% to $508.8 million, compared to $498.1 million for the same period, prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $71.6 million for the six months ended June 30, 2019, compared to $72.5 million for the same period, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 14.1% for the six months ended June 30, 2019, compared to 14.5% for the same period, prior year. Certain outpatient rehabilitation key statistics for both the six months ended June 30, 2019 and 2018 are presented in table VIII of this release.

 

Concentra Segment

 

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

 

For the second quarter ended June 30, 2019, net operating revenues for the Concentra segment increased to $413.5 million, compared to $412.8 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment increased 4.8% to $76.1 million for the second quarter ended June 30, 2019, compared to $72.6 million for the same quarter, prior year.  The Adjusted EBITDA margin for the Concentra segment was 18.4% for the second quarter ended June 30, 2019, compared to 17.6% for the same quarter, prior year. Certain Concentra key statistics are presented in table VII of this release for both the second quarters ended June 30, 2019 and 2018.

 

For the six months ended June 30, 2019, net operating revenues for the Concentra segment increased 5.3% to $809.8 million, compared to $768.9 million for the same period, prior year. Adjusted EBITDA for the Concentra segment increased 9.2% to $142.3 million for the six months ended June 30, 2019, compared to $130.4 million for the same period, prior year. The Adjusted EBITDA margin for the Concentra segment was 17.6% for the six months ended June 30, 2019, compared to 17.0% for the same period, prior year. Certain Concentra key statistics for both the six months ended June 30, 2019 and 2018 are presented in table VIII of this release.

 

Stock Repurchase Program

 

The board of directors of Select Medical has authorized a common stock repurchase program to repurchase up to $500.0 million worth of shares of its common stock. The program has been extended until December 31, 2019, and will remain in effect until then, unless further extended or earlier terminated by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under the Select revolving facility.

 

3


 

During the three and six months ended June 30, 2019, Holdings repurchased 902,313 shares at a cost of approximately $13.1 million, an average cost per share of $14.55, which includes transaction costs. Since the inception of the program through June 30, 2019, Holdings has repurchased 36,826,441 shares at a cost of approximately $327.9 million, or $8.90 per share, which includes transaction costs.

 

Issuance and Sale of Senior Notes

 

On August 1, 2019, Select Medical issued and sold $550.0 million aggregate principal amount of senior notes due August 15, 2026. Select Medical intends to use a portion of the net proceeds of the senior notes, together with a portion of the proceeds from the incremental term loan borrowings under its senior secured credit agreement (as described below), to redeem in full the $710 million 6.375% senior notes due 2021, to repay in full the outstanding borrowings under the revolving credit facility, and pay related fees and expenses associated with the financing.

 

Interest on the senior notes accrues at the rate of 6.250% per annum and is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. The senior notes are senior unsecured obligations which are subordinated to all of our existing and future secured indebtedness, including the senior secured credit agreement. The senior notes rank equally in right of payment with all other existing and future senior unsecured indebtedness and senior in right of payment to all existing and future subordinated indebtedness. The senior notes are unconditionally guaranteed on a joint and several basis by each of Select Medical’s direct or indirect existing and future domestic restricted subsidiaries, other than certain non-guarantor subsidiaries.

 

Select Medical may redeem some or all of the senior notes prior to August 15, 2022 by paying a “make-whole” premium. Select Medical may redeem some or all of the senior notes on or after August 15, 2022 at specified redemption prices. In addition, prior to August 15, 2022, Select Medical may redeem up to 40% of the principal amount of the senior notes with the net proceeds of certain equity offerings at a price of 106.250% plus accrued and unpaid interest, if any. Select Medical is obligated to offer to repurchase the senior notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of control events. These restrictions and prohibitions are subject to certain qualifications and exceptions.

 

The terms of the senior notes contains covenants that, among other things, limit Select Medical’s ability and the ability of certain of its subsidiaries to  (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of its restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. These covenants are subject to a number of exceptions, limitations and qualifications.

 

Amendment to Senior Secured Credit Agreement

 

On August 1, 2019, Select Medical entered into Amendment No. 3 to its senior secured credit agreement dated March 6, 2017. Among other things, the amendment (i) provided for an additional $500.0 million in term loans that, along with the existing term loan, have a maturity date of March 6, 2025, (ii) extended the maturity date of the revolving credit facility from March 6, 2022 to March 6, 2024, and (iii) increased the total net leverage ratio permitted under the senior secured credit agreement.

 

4


 

Business Outlook

 

Select Medical reaffirms its 2019 business outlook, provided most recently in its May 2, 2019 press release, for net operating revenues, Adjusted EBITDA, and fully diluted earnings per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2019 to be in the range of $5.2 billion to $5.4 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2019 to be in the range of $660.0 million to $700.0 million. Select Medical continues to expect fully diluted earnings per common share for the full year 2019 to be in the range of $1.00 to $1.16. Select Medical expects adjusted earnings per common share to be in the range of $0.97 to $1.13. Adjusted earnings per common share excludes the non-operating gain and its related tax effects. The above estimates do not include the effects of the financing transactions which closed on August 1, 2019.

 

Conference Call

 

Select Medical will host a conference call regarding its second quarter results, as well as its business outlook, on Friday, August 2, 2019, 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 5489707. 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 12:00pm ET, August 9, 2019. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 5489707. The replay can also be accessed at Select Medical Holdings Corporation’s website, www.selectmedicalholdings.com.

 

*   *   *   *   *

 

5


 

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 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 our acquisitions, including 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, 2018.

 

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.

 

6


 

Investor inquiries:

 

Joel T. Veit

Senior Vice President and Treasurer

717-972-1100

ir@selectmedical.com

 

SOURCE: Select Medical Holdings Corporation

 

7


 

I.  Condensed Consolidated Statements of Operations

For the Three Months Ended June 30, 2018 and 2019

(In thousands, except per share amounts, unaudited)

 

 

 

2018

 

2019

 

% Change

 

Net operating revenues

 

$

1,296,210

 

$

1,361,364

 

5.0

%

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of services

 

1,094,731

 

1,150,150

 

5.1

 

General and administrative

 

29,194

 

31,339

 

7.3

 

Depreciation and amortization

 

51,724

 

54,993

 

6.3

 

 

 

 

 

 

 

 

 

Income from operations

 

120,561

 

124,882

 

3.6

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated subsidiaries

 

4,785

 

7,394

 

54.5

 

Non-operating gain

 

6,478

 

 

N/M

 

Interest expense

 

(50,159

)

(51,464

)

2.6

 

 

 

 

 

 

 

 

 

Income before income taxes

 

81,665

 

80,812

 

(1.0

)

 

 

 

 

 

 

 

 

Income tax expense

 

21,106

 

20,826

 

(1.3

)

 

 

 

 

 

 

 

 

Net income

 

60,559

 

59,986

 

(0.9

)

 

 

 

 

 

 

 

 

Less: Net income attributable to non-controlling interests

 

14,048

 

15,170

 

8.0

 

 

 

 

 

 

 

 

 

Net income attributable to Select Medical

 

$

46,511

 

$

44,816

 

(3.6

)%

 

 

 

 

 

 

 

 

Diluted earnings per common share:(1)

 

$

0.35

 

$

0.33

 

 

 

 


(1)                                 Refer to table III for calculation of earnings per common share.

 

N/M —  Not Meaningful

 

8


 

II.  Condensed Consolidated Statements of Operations

For the Six Months Ended June 30, 2018 and 2019

(In thousands, except per share amounts, unaudited)

 

 

 

2018

 

2019

 

% Change

 

Net operating revenues

 

$

2,549,174

 

$

2,685,995

 

5.4

%

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of services

 

2,160,544

 

2,282,242

 

5.6

 

General and administrative

 

60,976

 

60,016

 

(1.6

)

Depreciation and amortization

 

98,495

 

107,131

 

8.8

 

 

 

 

 

 

 

 

 

Income from operations

 

229,159

 

236,606

 

3.2

 

 

 

 

 

 

 

 

 

Loss on early retirement of debt

 

(10,255

)

 

N/M

 

Equity in earnings of unconsolidated subsidiaries

 

9,482

 

11,760

 

24.0

 

Non-operating gain

 

6,877

 

6,532

 

N/M

 

Interest expense

 

(97,322

)

(102,275

)

5.1

 

 

 

 

 

 

 

 

 

Income before income taxes

 

137,941

 

152,623

 

10.6

 

 

 

 

 

 

 

 

 

Income tax expense

 

33,400

 

39,293

 

17.6

 

 

 

 

 

 

 

 

 

Net income

 

104,541

 

113,330

 

8.4

 

 

 

 

 

 

 

 

 

Less: Net income attributable to non-controlling interests

 

24,291

 

27,680

 

14.0

 

 

 

 

 

 

 

 

 

Net income attributable to Select Medical

 

$

80,250

 

$

85,650

 

6.7

%

 

 

 

 

 

 

 

 

Diluted earnings per common share:(1)

 

$

0.60

 

$

0.63

 

 

 

 


(1)                                 Refer to table III for calculation of earnings per common share.

 

N/M —  Not Meaningful

 

9


 

III.  Earnings per Share

For the Three and Six Months Ended June 30, 2018 and 2019

(In thousands, except per share amounts, unaudited)

 

Select Medical’s capital structure includes common stock and unvested restricted stock awards. To compute earnings per share (“EPS”), Select Medical applies the two-class method because its unvested restricted stock awards are participating securities which are entitled to participate equally with its common stock in undistributed earnings.

 

The following table sets forth the net income attributable to Select Medical, its common shares outstanding, and its participating securities outstanding for the three and six months ended June 30, 2018 and 2019:

 

 

 

Diluted EPS

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2018

 

2019

 

2018

 

2019

 

Net income

 

$

60,559

 

$

59,986

 

$

104,541

 

$

113,330

 

Less: net income attributable to non-controlling interests

 

14,048

 

15,170

 

24,291

 

27,680

 

Net income attributable to Select Medical

 

46,511

 

44,816

 

80,250

 

85,650

 

Less: net income attributable to participating securities

 

1,517

 

1,484

 

2,628

 

2,826

 

Net income attributable to common shares

 

$

44,994

 

$

43,332

 

$

77,622

 

$

82,824

 

 

The following tables set forth the computation of EPS under the two-class method for the three and six months ended June 30, 2018 and 2019:

 

 

 

Three Months Ended June 30,

 

 

 

2018

 

 

2019

 

 

 

Net Income
Allocation

 

Shares(1)

 

Diluted EPS

 

 

Net Income
Allocation

 

Shares(1)

 

Diluted EPS

 

Common shares

 

$

44,994

 

129,924

 

$

0.35

 

 

$

43,332

 

130,562

 

$

0.33

 

Participating securities

 

1,517

 

4,379

 

$

0.35

 

 

1,484

 

4,471

 

$

0.33

 

Total

 

$

46,511

 

 

 

 

 

 

$

44,816

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2019

 

 

 

Net Income
Allocation

 

Shares(1)

 

Diluted EPS

 

 

Net Income
Allocation

 

Shares(1)

 

Diluted EPS

 

Common shares

 

$

77,622

 

129,871

 

$

0.60

 

 

$

82,824

 

130,711

 

$

0.63

 

Participating securities

 

2,628

 

4,397

 

$

0.60

 

 

2,826

 

4,460

 

$

0.63

 

Total

 

$

80,250

 

 

 

 

 

 

$

85,650

 

 

 

 

 

 


(1)                                 Represents the weighted average share count outstanding during the period.

 

10


 

IV.  Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

 

 

December 31, 2018

 

June 30, 2019

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

 

$

175,178

 

$

124,036

 

Accounts receivable

 

706,676

 

791,769

 

Other current assets

 

110,670

 

112,260

 

Total Current Assets

 

992,524

 

1,028,065

 

Operating lease right-of-use assets

 

 

971,385

 

Property and equipment, net

 

979,810

 

1,008,555

 

Goodwill

 

3,320,726

 

3,385,394

 

Identifiable intangible assets, net

 

437,693

 

419,335

 

Other assets

 

233,512

 

294,206

 

Total Assets

 

$

5,964,265

 

$

7,106,940

 

Liabilities and Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Payables and accruals

 

$

661,321

 

$

641,196

 

Current operating lease liabilities

 

 

202,484

 

Current portion of long-term debt and notes payable

 

43,865

 

9,012

 

Total Current Liabilities

 

705,186

 

852,692

 

Non-current operating lease liabilities

 

 

813,903

 

Long-term debt, net of current portion

 

3,249,516

 

3,349,702

 

Non-current deferred tax liability

 

153,895

 

147,716

 

Other non-current liabilities

 

158,940

 

102,555

 

Total Liabilities

 

4,267,537

 

5,266,568

 

Redeemable non-controlling interests

 

780,488

 

844,422

 

Total equity

 

916,240

 

995,950

 

Total Liabilities and Equity

 

$

5,964,265

 

$

7,106,940

 

 

11


 

V.  Condensed Consolidated Statements of Cash Flows

For the Three Months Ended June 30, 2018 and 2019

(In thousands, unaudited)

 

 

 

2018

 

2019

 

Operating activities

 

 

 

 

 

Net income

 

$

60,559

 

$

59,986

 

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

 

 

 

 

 

Distributions from unconsolidated subsidiaries

 

6,466

 

3,276

 

Depreciation and amortization

 

51,724

 

54,993

 

Provision for bad debts

 

17

 

391

 

Equity in earnings of unconsolidated subsidiaries

 

(4,785

)

(7,394

)

Loss on extinguishment of debt

 

72

 

 

Gain on sale of assets and businesses

 

(6,467

)

(121

)

Stock compensation expense

 

5,984

 

6,358

 

Amortization of debt discount, premium and issuance costs

 

3,350

 

3,095

 

Deferred income taxes

 

(1,769

)

(6,209

)

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

 

 

 

 

 

Accounts receivable

 

40,037

 

(11,121

)

Other current assets

 

5,934

 

(1,713

)

Other assets

 

(9,949

)

(756

)

Accounts payable and accrued expenses

 

14,278

 

(8,149

)

Income taxes

 

772

 

(1,484

)

Net cash provided by operating activities

 

166,223

 

91,152

 

Investing activities

 

 

 

 

 

Business combinations, net of cash acquired

 

(2,345

)

(79,942

)

Purchases of property and equipment

 

(42,031

)

(40,212

)

Investment in businesses

 

(1,537

)

(24,649

)

Proceeds from sale of assets and businesses

 

5,981

 

123

 

Net cash used in investing activities

 

(39,932

)

(144,680

)

Financing activities

 

 

 

 

 

Borrowings on revolving facilities

 

100,000

 

275,000

 

Payments on revolving facilities

 

(195,000

)

(240,000

)

Payments on term loans

 

(2,875

)

 

Borrowings of other debt

 

8,328

 

5,940

 

Principal payments on other debt

 

(5,612

)

(6,525

)

Repurchase of common stock

 

(767

)

(13,620

)

Proceeds from exercise of stock options

 

882

 

459

 

Increase (decrease) in overdrafts

 

1,745

 

(3,874

)

Proceeds from issuance of non-controlling interests

 

2,926

 

14,863

 

Distributions to and purchases of non-controlling interests

 

(14,572

)

(2,494

)

Net cash provided by (used in) financing activities

 

(104,945

)

29,749

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

21,346

 

(23,779

)

Cash and cash equivalents at beginning of period

 

119,683

 

147,815

 

Cash and cash equivalents at end of period

 

$

141,029

 

$

124,036

 

Supplemental information

 

 

 

 

 

Cash paid for interest

 

$

62,105

 

$

60,710

 

Cash paid for taxes

 

22,104

 

28,523

 

 

12


 

VI.  Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2018 and 2019

(In thousands, unaudited)

 

 

 

2018

 

2019

 

Operating activities

 

 

 

 

 

Net income

 

$

104,541

 

$

113,330

 

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

 

 

 

 

 

Distributions from unconsolidated subsidiaries

 

7,830

 

11,148

 

Depreciation and amortization

 

98,495

 

107,131

 

Provision for bad debts

 

102

 

1,958

 

Equity in earnings of unconsolidated subsidiaries

 

(9,482

)

(11,760

)

Loss on extinguishment of debt

 

484

 

 

Gain on sale of assets and businesses

 

(6,980

)

(6,354

)

Stock compensation expense

 

10,911

 

12,613

 

Amortization of debt discount, premium and issuance costs

 

6,486

 

6,326

 

Deferred income taxes

 

(1,691

)

(6,290

)

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

 

 

 

 

 

Accounts receivable

 

(5,774

)

(85,873

)

Other current assets

 

(3,011

)

(9,236

)

Other assets

 

6,684

 

(939

)

Accounts payable and accrued expenses

 

(4,255

)

(15,486

)

Income taxes

 

12,610

 

16,346

 

Net cash provided by operating activities

 

216,950

 

132,914

 

Investing activities

 

 

 

 

 

Business combinations, net of cash acquired

 

(517,704

)

(86,062

)

Purchases of property and equipment

 

(81,648

)

(89,285

)

Investment in businesses

 

(3,291

)

(52,257

)

Proceeds from sale of assets and businesses

 

6,672

 

125

 

Net cash used in investing activities

 

(595,971

)

(227,479

)

Financing activities

 

 

 

 

 

Borrowings on revolving facilities

 

265,000

 

635,000

 

Payments on revolving facilities

 

(345,000

)

(460,000

)

Proceeds from term loans

 

779,904

 

 

Payments on term loans

 

(5,750

)

(132,685

)

Revolving facility debt issuance costs

 

(1,333

)

 

Borrowings of other debt

 

19,928

 

14,230

 

Principal payments on other debt

 

(11,521

)

(12,680

)

Repurchase of common stock

 

(889

)

(13,620

)

Proceeds from exercise of stock options

 

1,620

 

459

 

Increase (decrease) in overdrafts

 

(6,171

)

2,176

 

Proceeds from issuance of non-controlling interests

 

2,926

 

18,288

 

Distributions to and purchases of non-controlling interests

 

(301,213

)

(7,745

)

Net cash provided by financing activities

 

397,501

 

43,423

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

18,480

 

(51,142

)

Cash and cash equivalents at beginning of period

 

122,549

 

175,178

 

Cash and cash equivalents at end of period

 

$

141,029

 

$

124,036

 

Supplemental Information

 

 

 

 

 

Cash paid for interest

 

$

97,338

 

$

97,909

 

Cash paid for taxes

 

22,480

 

29,241

 

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

 

238,000

 

 

 

13


 

VII.  Key Statistics

For the Three Months Ended June 30, 2018 and 2019

(unaudited)

 

 

 

2018(e)

 

2019

 

% Change

 

Critical Illness Recovery Hospital

 

 

 

 

 

 

 

Number of hospitals — end of period(a)

 

98

 

100

 

 

 

Net operating revenues (,000)

 

$

442,452

 

$

461,143

 

4.2

%

Number of patient days(b)

 

256,132

 

262,860

 

2.6

%

Number of admissions(b)

 

9,121

 

9,172

 

0.6

%

Net revenue per patient day(b)(c)

 

$

1,710

 

$

1,739

 

1.7

%

Adjusted EBITDA (,000)

 

$

60,725

 

$

64,138

 

5.6

%

Adjusted EBITDA margin

 

13.7

%

13.9

%

 

 

Rehabilitation Hospital

 

 

 

 

 

 

 

Number of hospitals — end of period(a)

 

26

 

28

 

 

 

Net operating revenues (,000)

 

$

144,779

 

$

160,374

 

10.8

%

Number of patient days(b)

 

77,415

 

86,525

 

11.8

%

Number of admissions(b)

 

5,455

 

6,017

 

10.3

%

Net revenue per patient day(b)(c)

 

$

1,608

 

$

1,635

 

1.7

%

Adjusted EBITDA (,000)

 

$

28,195

 

$

29,968

 

6.3

%

Adjusted EBITDA margin

 

19.5

%

18.7

%

 

 

Outpatient Rehabilitation

 

 

 

 

 

 

 

Number of clinics — end of period(a)

 

1,638

 

1,695

 

 

 

Net operating revenues (,000)

 

$

253,914

 

$

261,891

 

3.1

%

Number of visits(b)

 

2,144,655

 

2,203,505

 

2.7

%

Revenue per visit(b)(d)

 

$

103

 

$

102

 

(1.0

)%

Adjusted EBITDA (,000)

 

$

41,947

 

$

42,584

 

1.5

%

Adjusted EBITDA margin

 

16.5

%

16.3

%

 

 

Concentra

 

 

 

 

 

 

 

Number of centers — end of period(b)

 

527

 

526

 

 

 

Net operating revenues (,000)

 

$

412,823

 

$

413,451

 

0.2

%

Number of visits(b)

 

3,024,121

 

3,103,089

 

2.6

%

Revenue per visit(b)(d)

 

$

125

 

$

121

 

(3.2

)%

Adjusted EBITDA (,000)

 

$

72,568

 

$

76,087

 

4.8

%

Adjusted EBITDA margin

 

17.6

%

18.4

%

 

 

 


(a)                                 Includes managed locations.

 

(b)                                 Excludes managed locations. For purposes of our Concentra segment, onsite clinics and community-based outpatient clinics are excluded.

 

(c)                                  Net revenue per patient day is calculated by dividing direct patient service revenues by the total number of patient days.

 

(d)                                 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.

 

(e)                                  For the three months ended June 30, 2018, the financial results of our reportable segments have been changed to remove the net operating revenues and expenses associated with employee leasing services provided to our non-consolidating subsidiaries. These results are now reported as part of our other activities. Select Medical leases employees at cost to these non-consolidating subsidiaries.

 

14


 

VIII.  Key Statistics

For the Six Months Ended June 30, 2018 and 2019

(unaudited)

 

 

 

2018(e)

 

2019

 

% Change

 

Critical Illness Recovery Hospital

 

 

 

 

 

 

 

Number of hospitals — end of period(a)

 

98

 

100

 

 

 

Net operating revenues (,000)

 

$

907,128

 

$

918,677

 

1.3

%

Number of patient days(b)

 

521,972

 

520,989

 

(0.2

)%

Number of admissions(b)

 

18,954

 

18,628

 

(1.7

)%

Net revenue per patient day(b)(c)

 

$

1,721

 

$

1,749

 

1.6

%

Adjusted EBITDA (,000)

 

$

133,697

 

$

137,136

 

2.6

%

Adjusted EBITDA margin

 

14.7

%

14.9

%

 

 

Rehabilitation Hospital

 

 

 

 

 

 

 

Number of hospitals — end of period(a)

 

26

 

28

 

 

 

Net operating revenues (,000)

 

$

288,087

 

$

314,932

 

9.3

%

Number of patient days(b)

 

154,305

 

169,341

 

9.7

%

Number of admissions(b)

 

10,849

 

11,853

 

9.3

%

Net revenue per patient day(b)(c)

 

$

1,615

 

$

1,634

 

1.2

%

Adjusted EBITDA (,000)

 

$

54,971

 

$

55,765

 

1.4

%

Adjusted EBITDA margin

 

19.1

%

17.7

%

 

 

Outpatient Rehabilitation

 

 

 

 

 

 

 

Number of clinics — end of period(a)

 

1,638

 

1,695

 

 

 

Net operating revenues (,000)

 

$

498,145

 

$

508,796

 

2.1

%

Number of visits(b)

 

4,212,120

 

4,257,988

 

1.1

%

Revenue per visit(b)(d)

 

$

103

 

$

103

 

0.0

%

Adjusted EBITDA (,000)

 

$

72,472

 

$

71,575

 

(1.2

)%

Adjusted EBITDA margin

 

14.5

%

14.1

%

 

 

Concentra

 

 

 

 

 

 

 

Number of centers — end of period(b)

 

527

 

526

 

 

 

Net operating revenues (,000)

 

$

768,939

 

$

809,772

 

5.3

%

Number of visits(b)

 

5,620,180

 

6,014,696

 

7.0

%

Revenue per visit(b)(d)

 

$

125

 

$

122

 

(2.4

)%

Adjusted EBITDA (,000)

 

$

130,365

 

$

142,345

 

9.2

%

Adjusted EBITDA margin

 

17.0

%

17.6

%

 

 

 


(a)                                 Includes managed locations.

 

(b)                                 Excludes managed locations. For purposes of our Concentra segment, onsite clinics and community-based outpatient clinics are excluded.

 

(c)                                  Net revenue per patient day is calculated by dividing direct patient service revenues by the total number of patient days.

 

(d)                                 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.

 

(e)                                  For the six months ended June 30, 2018, the financial results of our reportable segments have been changed to remove the net operating revenues and expenses associated with employee leasing services provided to our non-consolidating subsidiaries. These results are now reported as part of our other activities. Select Medical leases employees at cost to these non-consolidating subsidiaries.

 

15


 

 

IX. Net Income to Adjusted EBITDA Reconciliation

For the Three and Six Months Ended June 30, 2018 and 2019

(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,

 

 

 

2018

 

2019

 

2018

 

2019

 

Net income

 

$

60,559

 

$

59,986

 

$

104,541

 

$

113,330

 

Income tax expense

 

21,106

 

20,826

 

33,400

 

39,293

 

Interest expense

 

50,159

 

51,464

 

97,322

 

102,275

 

Non-operating gain

 

(6,478

)

 

(6,877

)

(6,532

)

Equity in earnings of unconsolidated subsidiaries

 

(4,785

)

(7,394

)

(9,482

)

(11,760

)

Loss on early retirement of debt

 

 

 

10,255

 

 

Income from operations

 

120,561

 

124,882

 

229,159

 

236,606

 

Stock compensation expense:

 

 

 

 

 

 

 

 

 

Included in general and administrative

 

4,047

 

4,796

 

8,037

 

9,544

 

Included in cost of services

 

1,937

 

1,562

 

2,874

 

3,069

 

Depreciation and amortization

 

51,724

 

54,993

 

98,495

 

107,131

 

U.S. HealthWorks acquisition costs

 

(41

)

 

2,895

 

 

Adjusted EBITDA

 

$

178,228

 

$

186,233

 

$

341,460

 

$

356,350

 

 

 

 

 

 

 

 

 

 

 

Critical illness recovery hospital

 

$

60,725

 

$

64,138

 

$

133,697

 

$

137,136

 

Rehabilitation hospital

 

28,195

 

29,968

 

54,971

 

55,765

 

Outpatient rehabilitation

 

41,947

 

42,584

 

72,472

 

71,575

 

Concentra

 

72,568

 

76,087

 

130,365

 

142,345

 

Other(a)

 

(25,207

)

(26,544

)

(50,045

)

(50,471

)

Adjusted EBITDA

 

$

178,228

 

$

186,233

 

$

341,460

 

$

356,350

 

 


(a)                                 Other primarily includes general and administrative costs.

 

16


 

X. Reconciliation of Earnings per Common Share to Adjusted Earnings per Common Share

For the Three and Six Months Ended June 30, 2018 and 2019

(In thousands, except per share amounts, unaudited)

 

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

 

The following tables reconcile net income attributable to common shares and earnings per common share on a fully diluted basis to adjusted net income attributable to common shares and adjusted earnings per common share on a fully diluted basis.

 

 

 

Three Months Ended June 30,

 

 

 

2018

 

Per Share(a)

 

2019

 

Per Share(a)

 

Net income attributable to common shares(a)

 

$

44,994

 

$

0.35

 

$

43,332

 

$

0.33

 

Adjustments:(b)

 

 

 

 

 

 

 

 

 

Non-operating gain

 

(4,585

)

(0.04

)

 

 

U.S. HealthWorks acquisition costs

 

(15

)

0.00

 

 

 

Adjusted net income attributable to common shares

 

$

40,394

 

$

0.31

 

$

43,332

 

$

0.33

 

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

Per Share(a)

 

2019

 

Per Share(a)

 

Net income attributable to common shares(a)

 

$

77,622

 

$

0.60

 

$

82,824

 

$

0.63

 

Adjustments:(b)

 

 

 

 

 

 

 

 

 

Loss on early retirement of debt

 

4,390

 

0.03

 

 

 

Non-operating gain

 

(4,868

)

(0.04

)

(4,545

)

(0.03

)

U.S. HealthWorks acquisition costs

 

1,002

 

0.01

 

 

 

Adjusted net income attributable to common shares

 

$

78,146

 

$

0.60

 

$

78,279

 

$

0.60

 

 


(a)                                 Net income attributable to common shares and earnings per common share are calculated based on the diluted weighted average common shares outstanding, as presented in table III.

(b)                                 Adjustments to net income attributable to common shares include estimated income tax and non-controlling interest impacts and are calculated based on the diluted weighted average common shares outstanding.

 

17


 

XI. Net Income to Adjusted EBITDA and Earnings per Common Share to Adjusted Earnings per Common Share Reconciliations

Business Outlook for the Year Ending December 31, 2019

(In millions, unaudited)

 

The following are reconciliations of full year 2019 Adjusted EBITDA and adjusted earnings per common share expectations as computed at the low and high points of the range to the closest comparable GAAP financial measure.  Refer to table IX and table X for a discussion of Select Medical’s use of Adjusted EBITDA and adjusted earnings per common share in evaluating financial performance. Refer to table IX for the definition of Adjusted EBITDA. Each item presented in the below tables are estimations of full year 2019 expectations.

 

 

 

Range

 

 

 

Low

 

High

 

Non-GAAP Measure Reconciliation

 

 

 

 

 

Net income attributable to Select Medical

 

$

137

 

$

158

 

Net income attributable to non-controlling interests

 

56

 

65

 

Net income

 

193

 

223

 

Income tax expense

 

66

 

76

 

Interest expense

 

200

 

200

 

Equity in earnings of unconsolidated subsidiaries

 

(25

)

(25

)

Non-operating gain

 

(7

)

(7

)

Income from operations

 

427

 

467

 

Stock compensation expense

 

27

 

27

 

Depreciation and amortization

 

206

 

206

 

Adjusted EBITDA

 

$

660

 

$

700

 

 

 

 

Range

 

 

 

Low

 

High

 

Non-GAAP Measure Reconciliation

 

 

 

 

 

Diluted earnings per common share

 

$

1.00

 

$

1.16

 

Adjustments:

 

 

 

 

 

Non-operating gain

 

(0.03

)

(0.03

)

Adjusted earnings per common share

 

$

0.97

 

$

1.13

 

 

18


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Select Medical Corp provided additional information to their SEC Filing as exhibits

CIK: 1035688
Form Type: 8-K Corporate News
Accession Number: 0001104659-19-043357
Submitted to the SEC: Thu Aug 01 2019 4:35:08 PM EST
Accepted by the SEC: Thu Aug 01 2019
Period: Thursday, August 1, 2019
Industry: Specialty Outpatient Facilities
Events:
  1. Earnings Release
  2. Financial Exhibit

External Resources:

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