Full Press Release Details
Select Medical Holdings Corporation Announces Results for
Third Quarter Ended September 30, 2016
MECHANICSBURG, PENNSYLVANIA November 3, 2016 Select Medical Holdings Corporation ( Select Medical ) (NYSE: SEM) today announced results for its third quarter ended September 30, 2016.
For the third quarter ended September 30, 2016, net operating revenues increased 3.2% to $1,053.8 million, compared to $1,021.1 million for the same quarter, prior year. Income from operations increased 16.5% to $56.2 million for the third quarter ended September 30, 2016, compared to $48.2 million for the same quarter, prior year. Net income was $4.0 million for the third quarter ended September 30, 2016, which includes a pre-tax non-operating loss of $1.0 million and a pre-tax loss on early retirement of debt of $10.9 million. Net income was $32.8 million for the third quarter ended September 30, 2015, which includes a pre-tax non-operating gain of $29.6 million. Earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Concentra acquisition costs, Physiotherapy acquisition costs, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries ( Adjusted EBITDA ) for the third quarter ended September 30, 2016 increased 16.1% to $98.1 million, compared to $84.5 million for the same quarter, prior year. During the third quarter ended September 30, 2016, we incurred Adjusted EBITDA losses for start-up hospitals of approximately $9.0 million. A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. Income per common share for the third quarter ended September 30, 2016 was $0.05 on a fully diluted basis, compared to income per common share of $0.22 for the same period, prior year. Excluding the non-operating loss, loss of early retirement of debt, and related tax effects, adjusted income per common share was $0.06 per diluted share for the third quarter ended September 30, 2016. Excluding the non-operating gain and related tax effect, adjusted income per common share was $0.08 per diluted share for the third quarter ended September 30, 2015. A reconciliation of income per common share to adjusted income per common share for both the third quarters ended September 30, 2016 and 2015 is presented in table IX of this release.
For the nine months ended September 30, 2016, net operating revenues increased 19.8% to $3,239.8 million, compared to $2,703.5 million for the same period, prior year. Income from operations increased 14.9% to $244.1 million for the nine months ended September 30, 2016, compared to $212.5 million for the same period, prior year. Net income was $104.8 million for the nine months ended September 30, 2016, which includes a pre-tax non-operating gain of $37.1 million and a pre-tax loss on early retirement of debt of $11.6 million. Net income was $110.1 million for the nine months ended September 30, 2015, which includes a pre-tax non-operating gain of $29.6 million. Adjusted EBITDA for the nine months ended September 30, 2016 increased 23.4% to $368.1 million, compared to $298.3 million for the same period, prior year. During the nine months ended September 30, 2016, we incurred Adjusted EBITDA losses for start-up hospitals of approximately $19.4 million. A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. Income per common share for the nine months ended September 30, 2016 was $0.72 on a fully diluted basis, compared to income per common share of $0.77 for the same period, prior year. Excluding the non-operating gain, loss of early retirement of debt, and related tax effects, adjusted
income per common share was $0.49 per diluted share for the nine months ended September 30, 2016. Excluding the non-operating gain and related tax effect, adjusted income per common share was $0.63 per diluted share for the nine months ended September 30, 2015. A reconciliation of income per common share to adjusted income per common share for both the nine months ended September 30, 2016 and 2015 is presented in table IX of this release.
Specialty Hospitals Segment
For the third quarter ended September 30, 2016, net operating revenues for the specialty hospitals segment decreased to $544.5 million, compared to $562.3 million for the same quarter, prior year. Income from operations for the specialty hospitals segment decreased to $33.9 million for the third quarter ended September 30, 2016, compared to $39.9 million for the same quarter, prior year. Adjusted EBITDA for the specialty hospitals segment decreased to $48.3 million for the third quarter ended September 30, 2016, compared to $53.7 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 8.9% for the third quarter ended September 30, 2016, compared to 9.5% for the same quarter, prior year. The Adjusted EBITDA results for the specialty hospitals segment include Adjusted EBITDA losses for start-up hospitals of approximately $9.0 million for the third quarter ended September 30, 2016, compared to $3.1 million for the same quarter, prior year. Certain specialty hospitals key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.
For the nine months ended September 30, 2016, net operating revenues for the specialty hospitals segment decreased to $1,729.3 million, compared to $1,753.4 million for the same period, prior year. Income from operations for the specialty hospitals segment decreased to $175.7 million for the for nine months ended September 30, 2016, compared to $201.2 million for the same period, prior year. Adjusted EBITDA for the specialty hospitals segment for the nine months ended September 30, 2016 decreased to $217.8 million, compared to $241.6 million for the same period, prior year. The Adjusted EBITDA margin for the segment was 12.6% for the nine months ended September 30, 2016, compared to 13.8% for the same period, prior year. The Adjusted EBITDA results for the specialty hospitals segment include Adjusted EBITDA losses for start-up hospitals of approximately $19.4 million for the nine months ended September 30, 2016, compared to $11.9 million for the same period, prior year. Certain specialty hospitals key statistics for both the nine months ended September 30, 2016 and 2015 are presented in table VII of this release.
Outpatient Rehabilitation Segment
The financial results of the outpatient rehabilitation segment include the contract therapy business through March 31, 2016 and Physiotherapy Associates Holdings, Inc. ( Physiotherapy ) beginning March 4, 2016.
For the third quarter ended September 30, 2016, net operating revenues for the outpatient rehabilitation segment increased 25.6% to $250.7 million, compared to $199.6 million for the same quarter, prior year. Income from operations for the outpatient rehabilitation segment increased 25.7% to $25.8 million for the third quarter ended September 30, 2016, compared to $20.6 million for the same quarter, prior year. Adjusted EBITDA for the segment increased 34.4% to $32.0 million for the third quarter ended September 30, 2016, compared to $23.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 12.8% for the third quarter ended September 30, 2016, compared to 11.9% for the same quarter, prior year. Certain outpatient rehabilitation key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.
For the nine months ended September 30, 2016, net operating revenues for the outpatient rehabilitation segment increased 23.5% to $745.7 million, compared to $603.8 million for the same period, prior year. Income from operations for the outpatient rehabilitation segment increased 26.9% to $82.6 million for the nine months ended September 30, 2016, compared to $65.1 million for the same period, prior year. Adjusted EBITDA for the outpatient rehabilitation segment for the nine months ended September 30, 2016 increased 32.6% to $99.0 million, compared to $74.7 million for the same period, prior year. The Adjusted EBITDA margin for the segment was 13.3% for the nine months ended September 30, 2016,
compared to 12.4% for the same period, prior year. Certain outpatient rehabilitation key statistics for both the nine months ended September 30, 2016 and 2015 are presented in table VII of this release.
The financial results of Concentra, which is operated through a joint venture subsidiary, are consolidated with Select Medical s commencing on the acquisition date of June 1, 2015.
For the third quarter ended September 30, 2016, net operating revenues for the Concentra segment were $258.5 million, compared to $259.0 million for the same quarter, prior year. Income from operations for the Concentra segment was $25.4 million for the third quarter ended September 30, 2016, compared to $11.5 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment was $40.9 million for the third quarter ended September 30, 2016, compared to $25.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 15.8% for the third quarter ended September 30, 2016, compared to 9.9% for the same quarter, prior year. Certain Concentra key statistics for both the third quarters ended September 30, 2016 and 2015 are presented in table VI of this release.
For the nine months ended September 30, 2016, net operating revenues for the Concentra segment were $764.3 million, compared to $345.8 million for the same period, prior year. Income from operations for the Concentra segment was $71.9 million for the nine months ended September 30, 2016, compared to $13.7 million for the same period, prior year. Adjusted EBITDA for the Concentra segment was $118.1 million for the nine months ended September 30, 2016, compared to $36.8 million for the same period, prior year. The Adjusted EBITDA margin for the Concentra segment was 15.5% for the nine months ended September 30, 2016, compared to 10.6% for the same period, prior year. Certain Concentra key statistics for the nine months ended September 30, 2016 and 2015 are presented in table VII of this release.
Stock Repurchase Program
Select Medical did not repurchase shares during the nine months ended September 30, 2016 under its authorized $500.0 million stock repurchase program. The program has been extended until December 31, 2017 and will remain in effect until then, unless further extended or earlier terminated by the board of directors.
Select Medical is updating its business outlook following reporting its third quarter 2016 financial performance. Select Medical now expects for the full year of 2016 consolidated net operating revenues to be in the range of $4.25 billion to $4.30 billion, Adjusted EBITDA for the full year of 2016 to be in the range of $460.0 million to $480.0 million and fully diluted income per common share for the full year 2016 to be in the range of $0.80 to $0.90.
Select Medical s business outlook has been updated to include the effects of the revised inpatient rehabilitation joint venture hospital openings, the effects of the long term acute care hospital exchange transaction, and long term acute care hospital closures, as well as the expected effective tax rate for the full year.
Select Medical will host a conference call regarding its third quarter results, as well as its business outlook, on Friday, November 4, 2016, at 9:00am EDT. The domestic dial in number for the call is 1-877-430-7741. The international dial in number is 1-615-247-0054. The conference ID for the call is 95431213. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation s website www.selectmedicalholdings.com.
For those unable to participate in the conference call, a replay will be available until 11:59pm EST, November 11, 2016. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 95431213. The replay can also be accessed at Select Medical Holdings Corporation s website, www.selectmedicalholdings.com.
Select Medical began operations in 1997 and has grown to be one of the largest operators of specialty hospitals, outpatient rehabilitation clinics and occupational health centers in the United States based on the number of facilities. As of September 30, 2016, Select Medical operated 104 long term acute care hospitals and 19 acute medical rehabilitation hospitals in 27 states and 1,603 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical s joint venture subsidiary Concentra operated 301 centers in 38 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At September 30, 2016, Select Medical had operations in 46 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.
Certain statements contained herein that are not descriptions of historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements due to factors including the following:
changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies (including, for example, the expiration of the moratorium limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
the impact of the Bipartisan Budget Act of 2013, which establishes new payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals;
the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;
the failure of our facilities operated as hospitals within hospitals to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
our plans and expectations related to the Concentra and Physiotherapy acquisitions and our inability to realize anticipated synergies;
private third-party payors for our services may undertake future cost containment initiatives that could limit our future net operating revenues and profitability;
the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;
shortages in qualified nurses, therapists, physicians, or other licensed providers could increase our operating costs significantly or limit our ability to staff our facilities;
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; and
other factors discussed from time to time in our filings with the Securities and Exchange Commission ( SEC ), including factors discussed under the section entitled, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015 as such risk factors may be updated from time to time in our periodic filings with the SEC.
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.
Senior Vice President and Treasurer
SOURCE: Select Medical Holdings Corporation
I. Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2015 and 2016
(In thousands, except per share amounts, unaudited)
| 2015 | 2016 | % Change | |||||||
| Net operating revenues | $ | 1,021,123 | $ | 1,053,795 | 3.2 | % | |||
| Costs and expenses: | |||||||||
| Cost of services | 900,949 | 915,703 | 1.6 | ||||||
| General and administrative | 22,201 | 27,088 | 22.0 | ||||||
| Bad debt expense | 18,287 | 17,677 | (3.3 | ) | |||||
| Depreciation and amortization | 31,472 | 37,165 | 18.1 | ||||||
| Income from operations | 48,214 | 56,162 | 16.5 | ||||||
| Loss on early retirement of debt | (10,853 | ) | N/M | ||||||
| Equity in earnings of unconsolidated subsidiaries | 6,348 | 5,268 | (17.0 | ) | |||||
| Non-operating gain (loss) | 29,647 | (1,028 | ) | N/M | |||||
| Interest expense | (33,052 | ) | (44,482 | ) | 34.6 | ||||
| Income before income taxes | 51,157 | 5,067 | (90.1 | ) | |||||
| Income tax expense | 18,347 | 1,075 | (94.1 | ) | |||||
| Net income | 32,810 | 3,992 | (87.8 | ) | |||||
| Less: Net income (loss) attributable to non- controlling interests | 3,404 | (2,479 | ) | N/M | |||||
| Net income attributable to Select Medical Holdings Corporation | $ | 29,406 | $ | 6,471 | (78.0 | )% | |||
| Weighted average shares outstanding(1): | |||||||||
| Basic | 127,386 | 127,848 | |||||||
| Diluted | 127,649 | 127,989 | |||||||
| Income per common share(1): | |||||||||
| Basic | $ | 0.22 | $ | 0.05 | |||||
| Diluted | $ | 0.22 | $ | 0.05 |
(1) 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 $0.2 million and $0.9 million for the three months ended September 30, 2016 and 2015, respectively. Unvested restricted weighted average shares were 4,270 thousand and 4,127 thousand for the three months ended September 30, 2016 and 2015, respectively.
N/M = Not Meaningful
II. Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2015 and 2016
(In thousands, except per share amounts, unaudited)
| 2015 | 2016 | % Change | |||||||
| Net operating revenues | $ | 2,703,531 | $ | 3,239,756 | 19.8 | % | |||
| Costs and expenses: | |||||||||
| Cost of services | 2,309,213 | 2,754,950 | 19.3 | ||||||
| General and administrative | 67,917 | 81,226 | 19.6 | ||||||
| Bad debt expense | 43,243 | 51,591 | 19.3 | ||||||
| Depreciation and amortization | 70,668 | 107,887 | 52.7 | ||||||
| Income from operations | 212,490 | 244,102 | 14.9 | ||||||
| Loss on early retirement of debt | (11,626 | ) | N/M | ||||||
| Equity in earnings of unconsolidated subsidiaries | 12,788 | 14,466 | 13.1 | ||||||
| Non-operating gain | 29,647 | 37,094 | N/M | ||||||
| Interest expense | (79,728 | ) | (127,662 | ) | 60.1 | ||||
| Income before income taxes | 175,197 | 156,374 | (10.7 | ) | |||||
| Income tax expense | 65,048 | 51,585 | (20.7 | ) | |||||
| Net income | 110,149 | 104,789 | (4.9 | ) | |||||
| Less: Net income attributable to non- controlling interests | 8,740 | 9,550 | 9.3 | ||||||
| Net income attributable to Select Medical Holdings Corporation | $ | 101,409 | $ | 95,239 | (6.1 | )% | |||
| Weighted average shares outstanding(1): | |||||||||
| Basic | 127,541 | 127,659 | |||||||
| Diluted | 127,844 | 127,804 | |||||||
| Income per common share(1): | |||||||||
| Basic | $ | 0.77 | $ | 0.72 | |||||
| Diluted | $ | 0.77 | $ | 0.72 | |||||
| Dividends paid per share | $ | 0.10 |
(1) 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 $2.9 million for both the nine months ended September 30, 2016 and 2015. Unvested restricted weighted average shares were 3,941 thousand and 3,788 thousand for the nine months ended September 30, 2016 and 2015, respectively.
N/M = Not Meaningful
III. Condensed Consolidated Balance Sheets
(In thousands, unaudited)
| December 31, 2015 | September 30, 2016 | ||||||
| Assets | |||||||
| Cash | $ | 14,435 | $ | 68,223 | |||
| Accounts receivable, net | 603,558 | 592,711 | |||||
| Current deferred tax asset | 28,688 | 50,647 | |||||
| Prepaid income taxes | 16,694 | 11,474 | |||||
| Other current assets | 85,779 | 82,680 | |||||
| Total Current Assets | 749,154 | 805,735 | |||||
| Property and equipment, net | 864,124 | 863,485 | |||||
| Goodwill | 2,314,624 | 2,674,623 | |||||
| Other identifiable intangibles | 318,675 | 338,220 | |||||
| Other assets | 142,101 | 163,342 | |||||
| Total Assets | $ | 4,388,678 | $ | 4,845,405 | |||
| Liabilities and Equity | |||||||
| Payables and accruals | $ | 504,119 | $ | 537,658 | |||
| Current portion of long-term debt | 225,166 | 12,690 | |||||
| Total Current Liabilities | 729,285 | 550,348 | |||||
| Long-term debt, net of current portion | 2,160,730 | 2,642,115 | |||||
| Non-current deferred tax liability | 218,705 | 210,000 | |||||
| Other non-current liabilities | 133,220 | 136,527 | |||||
| Total Liabilities | 3,241,940 | 3,538,990 | |||||
| Redeemable non-controlling interests | 238,221 | 246,429 | |||||
| Total equity | 908,517 | 1,059,986 | |||||
| Total Liabilities and Equity | $ | 4,388,678 | $ | 4,845,405 |
IV. Condensed Consolidated Statement of Cash Flows
For the Three Months Ended September 30, 2015 and 2016
| (In thousands, unaudited) | 2015 | 2016 | |||||
| Operating activities | |||||||
| Net income | $ | 32,810 | $ | 3,992 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Distributions from unconsolidated subsidiaries | 11,762 | 4,106 | |||||
| Depreciation and amortization | 31,472 | 37,165 | |||||
| Amortization of leasehold interests | 162 | ||||||
| Provision for bad debts | 18,287 | 17,677 | |||||
| Equity in earnings of unconsolidated subsidiaries | (6,348 | ) | (5,268 | ) | |||
| Loss on early retirement of debt | 10,853 | ||||||
| Loss on disposal of assets | 227 | ||||||
| Loss (gain) on sale of assets and businesses | (1,515 | ) | 1,269 | ||||
| Gain on sale of equity investment | (29,647 | ) | (241 | ) | |||
| Stock compensation expense | 3,450 | 4,750 | |||||
| Amortization of debt discount, premium and issuance costs | 2,719 | 4,768 | |||||
| Deferred income taxes | (2,497 | ) | 198 | ||||
| Changes in operating assets and liabilities, net of effects of business combinations: | |||||||
| Accounts receivable | 40,487 | 3,320 | |||||
| Other current assets | 3,458 | 1,083 | |||||
| Other assets | 972 | 476 | |||||
| Accounts payable and accrued expenses | 26,131 | 30,464 | |||||
| Due to third party payors | 11,065 | ||||||
| Income taxes | (3,170 | ) | (23,788 | ) | |||
| Net cash provided by operating activities | 128,371 | 102,278 | |||||
| Investing activities | |||||||
| Purchases of property and equipment | (45,080 | ) | (38,002 | ) | |||
| Proceeds from sale of assets and businesses | 1,542 | 22 | |||||
| Investment in businesses | (848 | ) | (1,550 | ) | |||
| Proceeds from sale of equity investment | 33,096 | 1,241 | |||||
| Acquisition of businesses, net of cash acquired | (1,875 | ) | 7,288 | ||||
| Net cash used in investing activities | (13,165 | ) | (31,001 | ) | |||
| Financing activities | |||||||
| Borrowings on revolving facilities | 180,000 | 100,000 | |||||
| Payments on revolving facilities | (275,000 | ) | (165,000 | ) | |||
| Net proceeds from term loans | 195,217 | ||||||
| Payments on term loans | (205,193 | ) | |||||
| Borrowings of other debt | 1,451 | 1,719 | |||||
| Principal payments on other debt | (4,847 | ) | (5,551 | ) | |||
| Repayments of bank overdrafts | (3,237 | ) | (6,326 | ) | |||
| Proceeds from issuance of common stock | 279 | 831 | |||||
| Proceeds from issuance of non-controlling interest | 8,743 | ||||||
| Repurchase of common stock | (13,622 | ) | (1,433 | ) | |||
| Tax benefit from stock based awards | 372 | 245 | |||||
| Purchase of non-controlling interests | (236 | ) | |||||
| Distributions to non-controlling interests | (3,158 | ) | (4,490 | ) | |||
| Net cash used in financing activities | (117,762 | ) | (81,474 | ) | |||
| Net decrease in cash and cash equivalents | (2,556 | ) | (10,197 | ) | |||
| Cash and cash equivalents at beginning of period | 25,191 | 78,420 | |||||
| Cash and cash equivalents at end of period | $ | 22,635 | $ | 68,223 |
| V. Condensed Consolidated Statement of Cash Flows |
| For the Nine Months Ended September 30, 2015 and 2016 |
| (In thousands, unaudited) |
| 2015 | 2016 | ||||||
| Operating activities | |||||||
| Net income | $ | 110,149 | $ | 104,789 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Distributions from unconsolidated subsidiaries | 11,814 | 16,145 | |||||
| Depreciation and amortization | 70,668 | 107,887 | |||||
| Amortization of leasehold interests | 457 | ||||||
| Provision for bad debts | 43,243 | 51,591 | |||||
| Equity in earnings of unconsolidated subsidiaries | (12,788 | ) | (14,466 | ) | |||
| Loss on early retirement of debt | 11,626 | ||||||
| Loss on disposal of assets | 282 | ||||||
| Gain on sale of assets and businesses | (1,264 | ) | (42,192 | ) | |||
| Gain on sale of equity investment | (29,647 | ) | (241 | ) | |||
| Impairment of equity investment | 5,339 | ||||||
| Stock compensation expense | 9,244 | 12,924 | |||||
| Amortization of debt discount, premium and issuance costs | 6,746 | 11,845 | |||||
| Deferred income taxes | (6,925 | ) | (13,088 | ) | |||
| Changes in operating assets and liabilities, net of effects of business combinations: | |||||||
| Accounts receivable | (48,778 | ) | (40,776 | ) | |||
| Other current assets | (4,580 | ) | 12,094 | ||||
| Other assets | 4,540 | 4,689 | |||||
| Accounts payable and accrued expenses | 35,763 | 35,244 | |||||
| Due to third party payors | 11,065 | ||||||
| Income taxes | 15,246 | 5,033 | |||||
| Net cash provided by operating activities | 203,431 | 280,247 | |||||
| Investing activities | |||||||
| Purchases of property and equipment | (113,992 | ) | (118,260 | ) | |||
| Proceeds from sale of assets and businesses | 1,542 | 71,388 | |||||
| Investment in businesses | (1,703 | ) | (3,140 | ) | |||
| Proceeds from sale of equity investment | 33,096 | 1,241 | |||||
| Acquisition of businesses, net of cash acquired | (1,049,872 | ) | (414,231 | ) | |||
| Net cash used in investing activities | (1,130,929 | ) | (463,002 | ) | |||
| Financing activities | |||||||
| Borrowings on revolving facilities | 840,000 | 420,000 | |||||
| Payments on revolving facilities | (675,000 | ) | (545,000 | ) | |||
| Net proceeds from term loans | 623,575 | 795,344 | |||||
| Payments on term loans | (26,884 | ) | (434,842 | ) | |||
| Borrowings of other debt | 11,041 | 23,801 | |||||
| Principal payments on other debt | (13,167 | ) | (15,477 | ) | |||
| Dividends paid to common stockholders | (13,129 | ) | |||||
| Repurchase of common stock | (13,622 | ) | (1,939 | ) | |||
| Proceeds from issuance of common stock | 1,604 | 1,488 | |||||
| Proceeds from issuance of non-controlling interest | 217,065 | 11,846 | |||||
| Proceeds from (repayments of) bank overdrafts | 2,353 | (8,464 | ) | ||||
| Tax benefit from stock based awards | 383 | 514 | |||||
| Purchase of non-controlling interests | (1,530 | ) | |||||
| Distributions to non-controlling interests | (7,440 | ) | (9,198 | ) | |||
| Net cash provided by financing activities | 946,779 | 236,543 | |||||
| Net increase in cash and cash equivalents | 19,281 | 53,788 | |||||
| Cash and cash equivalents at beginning of period | 3,354 | 14,435 | |||||
| Cash and cash equivalents at end of period | $ | 22,635 | $ | 68,223 |
| VI. Key Statistics |
| For the Three Months Ended September 30, 2015 and 2016 |
| (unaudited) |
| 2015 | 2016 | % Change | |||||||
| Specialty Hospitals | |||||||||
| Number of hospitals end of period: | |||||||||
| Long term acute care hospitals (a) | 110 | 104 | |||||||
| Rehabilitation hospitals (a) | 17 | 19 | |||||||
| Total specialty hospitals | 127 | 123 | |||||||
| Net operating revenues (,000) | $ | 562,328 | $ | 544,491 | (3.2 | )% | |||
| Number of patient days (b) | 338,412 | 296,202 | (12.5 | )% | |||||
| Number of admissions (b) | 13,927 | 12,586 | (9.6 | )% | |||||
| Net revenue per patient day (b)(c) | $ | 1,522 | $ | 1,642 | 7.9 | % | |||
| Adjusted EBITDA (,000) | $ | 53,656 | $ | 48,264 | (10.0 | )% | |||
| Adjusted EBITDA margin | 9.5 | % | 8.9 | % | |||||
| Outpatient Rehabilitation | |||||||||
| Number of clinics end of period (d) | 1,033 | 1,603 | |||||||
| Net operating revenues (,000) | $ | 199,593 | $ | 250,710 | 25.6 | % | |||
| Number of visits (e) | 1,306,637 | 2,052,678 | 57.1 | % | |||||
| Revenue per visit (e)(f) | $ | 103 | $ | 102 | (1.0 | )% | |||
| Adjusted EBITDA (,000) | $ | 23,807 | $ | 31,995 | 34.4 | % | |||
| Adjusted EBITDA margin | 11.9 | % | 12.8 | % | |||||
| Concentra | |||||||||
| Number of centers end of period (g) | 300 | 301 | |||||||
| Net operating revenues (,000) | $ | 258,969 | $ | 258,507 | (0.2 | )% | |||
| Number of visits (g) | 1,980,496 | 1,906,242 | (3.7 | )% | |||||
| Revenue per visit (g)(h) | $ | 114 | $ | 119 | 4.4 | % | |||
| Adjusted EBITDA (,000) | $ | 25,584 | $ | 40,888 | 59.8 | % | |||
| Adjusted EBITDA margin | 9.9 | % | 15.8 | % |
(a) Includes managed hospitals.
(b) Excludes managed hospitals.
(c) Net revenue per patient day is calculated by dividing specialty hospitals direct patient service revenue by the total number of patient days.
(d) Includes managed clinics.
(e) Excludes managed clinics.
(f) Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic direct patient service revenue does not include managed clinic revenue or contract therapy revenue.
(g) Excludes onsite clinics and community-based outpatient clinics.
(h) Net revenue per visit is calculated by dividing center direct patient service revenue by the total number of center visits.
N/M = Not Meaningful
For the Nine Months Ended September 30, 2015 and 2016
| 2015 | 2016 | % Change | |||||||
| Specialty Hospitals | |||||||||
| Number of hospitals end of period: | |||||||||
| Long term acute care hospitals (a) | 110 | 104 | |||||||
| Rehabilitation hospitals (a) | 17 | 19 | |||||||
| Total specialty hospitals | 127 | 123 | |||||||
| Net operating revenues (,000) | $ | 1,753,445 | $ | 1,729,261 | (1.4 | )% | |||
| Number of patient days (b) | 1,034,166 | 951,262 | (8.0 | )% | |||||
| Number of admissions (b) | 42,352 | 39,541 | (6.6 | )% | |||||
| Net revenue per patient day (b)(c) | $ | 1,563 | $ | 1,651 | 5.6 | % | |||
| Adjusted EBITDA (,000) | $ | 241,575 | $ | 217,759 | (9.9 | )% | |||
| Adjusted EBITDA margin | 13.8 | % | 12.6 | % | |||||
| Outpatient Rehabilitation | |||||||||
| Number of clinics end of period: (d) | 1,033 | 1,603 | |||||||
| Net operating revenues (,000) | $ | 603,831 | $ | 745,720 | 23.5 | % | |||
| Number of visits (e) | 3,879,409 | 5,751,562 | 48.3 | % | |||||
| Revenue per visit (e)(f) | $ | 103 | $ | 102 | (1.0 | )% | |||
| Adjusted EBITDA (,000) | $ | 74,662 | $ | 99,006 | 32.6 | % | |||
| Adjusted EBITDA margin | 12.4 | % | 13.3 | % | |||||
| Concentra | |||||||||
| Number of centers end of period (g) | 300 | 301 | |||||||
| Net operating revenues (,000) | $ | 345,798 | $ | 764,252 | N/M | ||||
| Number of visits (g) | 2,654,330 | 5,642,305 | N/M | ||||||
| Revenue per visit (g)(h) | $ | 114 | $ | 118 | 3.5 | % | |||
| Adjusted EBITDA (,000) | $ | 36,783 | $ | 118,080 | N/M | ||||
| Adjusted EBITDA margin | 10.6 | % | 15.5 | % |
(a) Includes managed hospitals.
(b) Excludes managed hospitals.
(c) Net revenue per patient day is calculated by dividing specialty hospitals direct patient service revenue by the total number of patient days.
(d) Includes managed clinics.
(e) Excludes managed clinics.
(f) Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic direct patient service revenue does not include managed clinics or contract therapy revenue.
(g) Excludes onsite clinics and community-based outpatient clinics.
(h) Net revenue per visit is calculated by dividing center direct patient service revenue by the total number of center visits.
N/M = Not Meaningful
VIII. Net Income to Adjusted EBITDA Reconciliation
For the Three and Nine Months Ended September 30, 2015 and 2016
(In thousands, unaudited)
The presentation of Adjusted EBITDA income (loss) 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 units. 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 calculations, 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, Concentra acquisition costs, Physiotherapy acquisition costs, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries.
Non-GAAP Measure Reconciliation
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| 2015 | 2016 | 2015 | 2016 | ||||||||||
| Net income | $ | 32,810 | $ | 3,992 | $ | 110,149 | $ | 104,789 | |||||
| Income tax expense | 18,347 | 1,075 | 65,048 | 51,585 | |||||||||
| Interest expense | 33,052 | 44,482 | 79,728 | 127,662 | |||||||||
| Non-operating loss (gain) | (29,647 | ) | 1,028 | (29,647 | ) | (37,094 | ) | ||||||
| Equity in earnings of unconsolidated subsidiaries | (6,348 | ) | (5,268 | ) | (12,788 | ) | (14,466 | ) | |||||
| Loss on early retirement of debt | 10,853 | 11,626 | |||||||||||
| Income from operations | 48,214 | 56,162 | 212,490 | 244,102 | |||||||||
| Stock compensation expense: | |||||||||||||
| Included in general and administrative | 3,433 | 3,932 | 8,073 | 10,771 | |||||||||
| Included in cost of services | 1,392 | 818 | 2,402 | 2,153 | |||||||||
| Depreciation and amortization | 31,472 | 37,165 | 70,668 | 107,887 | |||||||||
| Physiotherapy acquisition costs | 3,236 | ||||||||||||
| Concentra acquisition costs | 4,715 | ||||||||||||
| Adjusted EBITDA | $ | 84,511 | $ | 98,077 | $ | 298,348 | $ | 368,149 | |||||
| Specialty hospitals | $ | 53,656 | $ | 48,264 | $ | 241,575 | $ | 217,759 | |||||
| Outpatient rehabilitation | 23,807 | 31,995 | 74,662 | 99,006 | |||||||||
| Concentra | 25,584 | 40,888 | 36,783 | 118,080 | |||||||||
| Other (a) | (18,536 | ) | (23,070 | ) | (54,672 | ) | (66,696 | ) | |||||
| Adjusted EBITDA | $ | 84,511 | $ | 98,077 | $ | 298,348 | $ | 368,149 |
(a) Other primarily includes general and administrative costs.
IX. Reconciliation of Income per Common Share to Adjusted Income per Common Share
For the Three and Nine Months Ended September 30, 2015 and 2016
(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 generally accepted accounting principles. 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. The Company believes that the presentation of adjusted net income available to common stockholders and adjusted income per common share diluted shares is important to investors because it is reflective of the financial performance of our ongoing operations and provides 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 an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because adjusted net income available to common stockholders and adjusted income per common share diluted shares is not a measurement determined in accordance with generally accepted accounting principles and is 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 table reconciles net income available to common stockholders and income per common share diluted shares to adjusted net income available to common stockholders and adjusted income per common share diluted shares for Select Medical. Adjusted net income available to common stockholders is defined as net income available to common shareholders before non-operating gain (loss) and gain (loss) on early retirement of debt.
| Three Months Ended September 30, | |||||||||||||
| 2015 | Per share (a) | 2016 | Per share (a) | ||||||||||
| Net income attributable to Select Medical Holdings Corporation | $ | 29,406 | $ | 6,471 | |||||||||
| Earnings allocated to unvested restricted stockholders | (923 | ) | (209 | ) | |||||||||
| Net income available to common stockholders | 28,483 | $ | 0.22 | 6,262 | $ | 0.05 | |||||||
| Adjustments: | |||||||||||||
| Non-operating loss (gain) | (29,647 | ) | 1,049 | ||||||||||
| Loss on early retirement of debt (b) | 5,437 | ||||||||||||
| Estimated income tax expense (benefit) (c) | 11,419 | (5,405 | ) | ||||||||||
| Earnings allocated to unvested restricted stockholders | 572 | (35 | ) | ||||||||||
| Adjusted net income available to common stockholders | $ | 10,827 | $ | 0.08 | $ | 7,308 | $ | 0.06 | |||||
| Adjustment for dilution | (0.00 | ) | (0.00 | ) | |||||||||
| Adjusted income per common share diluted shares | $ | 0.08 | $ | 0.06 | |||||||||
| Weighted average common shares outstanding: | |||||||||||||
| Basic | 127,386 | 127,848 | |||||||||||
| Diluted | 127,649 | 127,989 |
(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.