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Cautionary Note Regarding Forward-Looking Statements
This offering memorandum contains
forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements
about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed
by or that include the words "may," "could," "would," "should," "believe,"
"expect," "anticipate," "plan," "target," "estimate," "project,"
"intend" and similar expressions. These statements include, among others, statements regarding our expected business outlook,
anticipated financial and operating results, our business strategy and means to implement our strategy, our objectives, the amount and
timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs
and sources of liquidity.
Forward-looking statements
are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions,
which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include,
among others, assumptions regarding our services, the expansion of our services, competitive conditions and general economic conditions.
These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could
cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our
ability to control or predict. Such factors include, but are not limited to, the following:
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.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
summary unaudited pro forma consolidated financial data below has been derived from our unaudited pro forma consolidated financial information
included in the section of this offering memorandum entitled "Unaudited Pro Forma Consolidated Financial Information." The
unaudited pro forma consolidated financial information has been derived from our historical unaudited
condensed consolidated statement of operations for the nine months ended September 30, 2024, our historical audited consolidated
statement of operations for the year ended December 31, 2023, and our historical unaudited condensed consolidated balance sheet at
The unaudited pro forma consolidated
financial data below is only a summary and should be read in conjunction with the section of this offering memorandum entitled "Unaudited
Pro Forma Consolidated Financial Information." The unaudited pro forma consolidated financial data is based upon available information
and assumptions that we believe are reasonable and supportable. The summary unaudited pro forma consolidated financial data is for illustrative
and informational purposes only. The summary unaudited pro forma consolidated financial data may not necessarily reflect what our financial
condition, results of operations or cash flows would have been had we completed the divestiture of our Concentra segment during the periods
presented. In addition, the summary unaudited pro forma consolidated financial data may not necessarily reflect what our financial condition,
results of operations and cash flows may be in the future.
Pro Forma Consolidated Statement of Operations
| For the Nine Months Ended September 30, | Year ended December 31, | |||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Revenue | $ | 3,874,541 | $ | 4,825,977 | ||||
| Costs and expenses: | ||||||||
| Cost of services, exclusive of depreciation and amortization | 3,379,931 | 4,254,369 | ||||||
| General and administrative | 144,103 | 170,193 | ||||||
| Depreciation and amortization | 106,583 | 135,691 | ||||||
| Total costs and expenses | 3,630,617 | 4,560,253 | ||||||
| Other operating income | 3,300 | 1,518 | ||||||
| Income from operations | 247,224 | 267,242 | ||||||
| Other income and expense: | ||||||||
| Loss on early retirement of debt | - | (35,353 | ) | |||||
| Equity in earnings of unconsolidated subsidiaries | 53,481 | 41,339 | ||||||
| Interest (expense) income | (63,274 | ) | 18,454 | |||||
| Income before income taxes | 237,431 | 291,682 | ||||||
| Income tax expense | 61,928 | 69,568 | ||||||
| Net income | 175,503 | 222,114 | ||||||
| Less: Net income attributable to non-controlling interests | 51,306 | 51,444 | ||||||
| Net income attributable to Holdings | $ | 124,197 | $ | 170,670 |
Pro Forma Consolidated Balance Sheet Data
| (Dollars in thousands) | As of September 30, 2024 | |||
| Total assets | $ | 5,510,682 | ||
| Total liabilities | $ | 3,511,470 | ||
| Total equity | $ | 1,986,879 |
Pro Forma Credit Statistics
| (Dollars in thousands) | As of or for the Twelve Months Ended September 30, 2024 (1) | |||
| Cash interest expense (2) | $ | 104,844 | ||
| Total debt (3) | $ | 1,658,721 | ||
| Net debt (4) | $ | 1,631,399 | ||
| Net senior secured debt (5) | $ | 732,678 | ||
| Ratio of Pro Forma Adjusted EBITDA to Pro Forma cash interest expense (6) | 4.83 | x | ||
| Ratio of net senior secured debt to Pro Forma Adjusted EBITDA (6) | 1.45 | x | ||
| Ratio of net debt to Pro Forma Adjusted EBITDA (6) | 3.22 | x |
(1) As of September 30, 2024, after
giving pro forma effect to the incurrence of indebtedness in an aggregate principal amount equal to $1,600.00 million pursuant to the
Refinancing Transactions.
(2) Calculated to give pro forma effect to
the interest expense on the approximately $1,600.0 million of indebtedness expected to be incurred in connection with the Refinancing
Transactions, as well as existing Other Debt of $48.7 million, as if such indebtedness had been incurred as of October 1, 2023 at
an estimated weighted average interest rate of approximately 6.4%, excluding debt issuance costs and original issue discount. A variance
of 1/8% of the weighted average interest rate estimate would result in a $2.0 million change in annual cash interest expense associated
with the $1,600.0 million of indebtedness expected to be incurred.
(3) Consists of $1,600.0 million of indebtedness
(including the Notes offered hereby) expected to be incurred pursuant to the Refinancing Transactions, $10.0 million of indebtedness outstanding
under our revolving credit facility, and $48.7 million of indebtedness comprised primarily of notes payable, insurance financing arrangements
(4) Consists of total debt principal less
pro forma cash of approximately $27.3 million as of September 30, 2024.
(5) Consists of total senior secured debt
principal less pro forma cash of approximately $27.3 million as of September 30, 2024.
(6) Pro Forma Adjusted EBITDA for the trailing
twelve months ended September 30, 2024, is $506.2 million which is calculated as Historical Select Medical Holdings Corporation trailing
twelve month Adjusted EBITDA of $873.8 million less Concentra Adjusted EBITDA of $367.6 million.
Other Pro Forma Data (Non-GAAP)
| Nine Months Ended September 30 | Year Ended December 31, | |||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Pro Forma Adjusted EBITDA (1) | $ | 394,402 | $ | 446,091 | ||||
| Pro Forma Adjusted EBITDA margin (1) | 10.2 | % | 9.2 | % |
The following table reconciles
Pro Forma Adjusted EBITDA and Pro Forma Adjusted EBITDA margin to Pro Forma Net income and should be referenced when we discuss Pro Forma
Adjusted EBITDA and Pro Forma Adjusted EBITDA margin. For a reconciliation of Pro Forma Net income to Net income, see "Unaudited
Pro Forma Consolidated Financial Information."
| Nine Months Ended September 30, | Year Ended December 31, | |||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net income | ||||||||
| Pro Forma Net Income | $ | 175,503 | $ | 222,114 | ||||
| Pro Forma Income tax expense | 61,928 | 69,568 | ||||||
| Pro Forma Interest expense | 63,274 | (18,454 | ) | |||||
| Pro Forma Equity in losses of unconsolidated subsidiaries | (53,481 | ) | (41,339 | ) | ||||
| Pro Forma Loss on early retirement of debt | - | 35,353 | ||||||
| Pro Forma Income from Operations | 247,224 | 267,242 | ||||||
| Pro Forma Stock compensation expense | 38,899 | 43,158 | ||||||
| Pro Forma Depreciation and amortization | 106,583 | 135,691 | ||||||
| Pro Forma Separation transaction costs | 1,696 | - | ||||||
| Pro Forma Adjusted EBITDA | $ | 394,402 | $ | 446,091 | ||||
| Pro Forma Adjusted EBITDA margin | 10.2 | % | 9.2 | % | ||||
| Pro Forma Net Income Margin | 4.5 | % | 4.6 | % |
The following table sets forth
our consolidated cash and cash equivalents and capitalization as of September 30, 2024:
cash and capitalization information in the following table may not necessarily reflect what our cash and capitalization would have been
had we completed the Separation as of September 30, 2024. In addition, the cash and capitalization information in the following
table may not necessarily reflect what our cash and capitalization may be in the future. The pro forma information set forth in the table
below is illustrative only and will adjust based on the actual terms of this offering determined at the time of the pricing of this offering.
The following table should
be read in conjunction with the sections of this offering memorandum entitled "Summary Unaudited Pro Forma Consolidated Financial
Data," "Use of Proceeds" and "Unaudited Pro Forma Consolidated Financial Information" as well as our historical
audited consolidated financial statements included elsewhere in this offering memorandum.
| As of September 30, 2024 | ||||||||
| (Dollars and share amounts in thousands) (unaudited) | Pro Forma | Pro Forma As Adjusted | ||||||
| Cash and cash equivalents | $ | 54,646 | $ | 27,322 | ||||
| Debt: | ||||||||
| Existing Select Term Loan | 372,982 | - | ||||||
| New Select Term Loan | - | 750,000 | ||||||
| Senior secured revolving facility (1) | 10,000 | 10,000 | ||||||
| Total senior secured principal | $ | 382,982 | $ | 760,000 | ||||
| 2026 Notes | 1,225,000 | - | ||||||
| Notes offered hereby (2) | - | 850,000 | ||||||
| Other debt (3) | 48,721 | 48,721 | ||||||
| Total debt principal outstanding | $ | 1,656,703 | $ | 1,658,721 | ||||
| Unamortized discount | 9,346 | (1,875 | ) | |||||
| Unamortized debt issuance costs | (6,654 | ) | (24,775 | ) | ||||
| Total debt | $ | 1,659,395 | $ | 1,632,071 | ||||
| Total stockholders' equity | 1,688,127 | 1,688,127 | ||||||
| Total capitalization | 3,347,522 | 3,320,198 | ||||||
| Total net debt principal outstanding | 1,602,057 | 1,631,399 | ||||||
| Total net senior secured principal | 328,336 | 732,678 |
revolving loan under our senior secured credit facilities provides for borrowings of up to $600.0 million of which $546.6 million was
available as of September 30, 2024, for working capital and general corporate purposes (after given effect to the Refinancing Transactions
and to $43.4 million of outstanding letters of credit at September 30, 2024).
the aggregate principal amount of the notes being offered and does not reflect initial purchaser discounts and debt issuance costs.
debt consists primarily of borrowings to finance insurance programs, indebtedness to sellers of acquired businesses and other miscellaneous
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2024, and for the year ended December 31,
2023, are presented as if the Separation and the Refinancing Transactions occurred as of January 1, 2023. The adjustments in the
"Transaction Accounting Adjustments" column in the unaudited pro forma condensed consolidated statements of operations for
the nine months ended September 30, 2024, and for the year ended December 31, 2023, give effect to the Separation as if it occurred
as of January 1, 2023. The adjustments in the "Refinancing Transaction Adjustments" column in the unaudited pro forma
condensed consolidated statements of operations for the nine months ended September 30, 2024, and for the year ended December 31,
2023, give effect to the Refinancing Transactions as if the Refinancing Transactions occurred as of January 1, 2023. The following
unaudited pro forma consolidated balance sheet as of September 30, 2024 is presented as if Separation and the Refinancing Transactions
occurred on September 30, 2024.
unaudited pro forma consolidated financial information has been derived from our historical consolidated financial statements as of and
for the year ended December 31, 2023 and the interim unaudited period ended September 30, 2024. The unaudited pro forma consolidated
financial information and the accompanying notes should be read in conjunction with (i) the audited consolidated financial statements,
the accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included
in our Annual Report on Form 10-K for the year ended December 31, 2023, and (ii) the unaudited consolidated financial statements,
the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations"