MECHANICSBURG, Pa., Aug. 3, 2023
/PRNewswire/ -- Select Medical Holdings Corporation ("Select
Medical," "we," "us," or "our") (NYSE: SEM) today announced results
for its second quarter ended June 30, 2023, and the
declaration of a cash dividend.
For the second quarter ended June 30, 2023, revenue
increased 5.7% to $1,674.5 million,
compared to $1,584.7 million for the
same quarter, prior year. Income from operations increased 31.6% to
$159.2 million for the second quarter
ended June 30, 2023, compared to $121.0 million for the same quarter, prior
year. For the second quarter ended June 30, 2022, income from
operations included $15.1 million of other operating income
related to the recognition of payments received under the
Coronavirus Aid, Relief, and Economic Security Act Public Health
and Social Services Emergency Fund, also referred to as the
Provider Relief Fund. Net income increased 38.6% to $91.9 million for the second quarter ended
June 30, 2023, compared to $66.3
million for the same quarter, prior year. Adjusted EBITDA
increased 21.3% to $219.5 million for
the second quarter ended June 30, 2023, compared to
$181.0 million for the same quarter,
prior year. Earnings per common share increased 44.0% to
$0.61 for the second quarter ended
June 30, 2023, compared to $0.43
for the same quarter, prior year. The definition of Adjusted EBITDA
and a reconciliation of net income to Adjusted EBITDA are presented
in table IX of this release.
For the six months ended June 30, 2023, revenue increased
4.9% to $3,339.5 million, compared to
$3,184.3 million for the same period,
prior year. Income from operations increased 38.1% to $310.7 million for the six months ended
June 30, 2023, compared to $225.0
million for the same period, prior year. For the six months
ended June 30, 2022, income from operations included
$15.1 million of other operating
income related to the recognition of payments received under the
Provider Relief Fund. Net income increased 45.0% to $177.1 million for the six months ended
June 30, 2023, compared to $122.2
million for the same period, prior year. Adjusted EBITDA
increased 25.7% to $433.5 million for
the six months ended June 30, 2023, compared to $344.8 million for the same period, prior year.
Earnings per common share increased 47.6% to $1.17 for the six months ended June 30,
2023, compared to $0.79 for the same
period, prior year. The definition of Adjusted EBITDA and a
reconciliation of net income to Adjusted EBITDA are presented in
table IX 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 number
of facilities. Select Medical's 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, 2023,
Select Medical operated 108 critical illness recovery hospitals in
28 states, 32 rehabilitation hospitals in 12 states, 1,944
outpatient rehabilitation clinics in 39 states and the District of Columbia, and 540 occupational
health centers in 41 states. At June 30, 2023, Select Medical
had operations in 46 states and the District of Columbia. Information about Select
Medical is available at www.selectmedical.com.
Critical Illness Recovery Hospital Segment
For the second quarter ended June 30, 2023, revenue for the
critical illness recovery hospital segment increased 5.3% to
$575.1 million, compared to
$545.9 million for the same quarter,
prior year. Adjusted EBITDA for the critical illness recovery
hospital segment increased 227.2% to $65.5
million for the second quarter ended June 30, 2023,
compared to $20.0 million for the
same quarter, prior year. The Adjusted EBITDA margin for the
critical illness recovery hospital segment was 11.4% for the second
quarter ended June 30, 2023, compared to 3.7% for the same
quarter, prior year. Certain critical illness recovery hospital key
statistics are presented in table VII of this release for the
second quarters ended June 30, 2023 and 2022.
For the six months ended June 30, 2023, revenue for the
critical illness recovery hospital segment increased 1.9% to
$1,169.0 million, compared to
$1,147.7 million for the same period,
prior year. Adjusted EBITDA for the critical illness recovery
hospital segment increased 154.1% to $142.3
million for the six months ended June 30, 2023,
compared to $56.0 million for the
same period, prior year. The Adjusted EBITDA margin for the
critical illness recovery hospital segment was 12.2% for the six
months ended June 30, 2023, compared to 4.9% for the same
period, prior year. Certain critical illness recovery hospital key
statistics are presented in table VIII of this release for the six
months ended June 30, 2023 and 2022.
Rehabilitation Hospital Segment
For the second quarter ended June 30, 2023, revenue for the
rehabilitation hospital segment increased 5.2% to $240.9 million, compared to $228.9 million for the same quarter, prior year.
Adjusted EBITDA for the rehabilitation hospital segment increased
9.7% to $54.7 million for the second
quarter ended June 30, 2023, compared to $49.8 million for the same quarter, prior year.
The Adjusted EBITDA margin for the rehabilitation hospital segment
was 22.7% for the second quarter ended June 30, 2023, compared
to 21.8% for the same quarter, prior year. Certain rehabilitation
hospital key statistics are presented in table VII of this release
for the second quarters ended June 30, 2023 and 2022.
For the six months ended June 30, 2023, revenue for the
rehabilitation hospital segment increased 5.1% to $472.3 million, compared to $449.5 million for the same period, prior year.
Adjusted EBITDA for the rehabilitation hospital segment increased
10.5% to $101.9 million for the six
months ended June 30, 2023, compared to $92.2 million for the same period, prior year.
The Adjusted EBITDA margin for the rehabilitation hospital segment
was 21.6% for the six months ended June 30, 2023, compared to
20.5% for the same period, prior year. Certain rehabilitation
hospital key statistics are presented in table VIII of this release
for the six months ended June 30, 2023 and 2022.
Outpatient Rehabilitation Segment
For the second quarter ended June 30, 2023, revenue for the
outpatient rehabilitation segment increased 5.5% to $303.0 million, compared to $287.3 million for the same quarter, prior year.
Adjusted EBITDA for the outpatient rehabilitation segment
was $32.9 million for the second quarter ended June 30,
2023, compared to $33.6 million for
the same quarter, prior year. The Adjusted EBITDA margin for the
outpatient rehabilitation segment was 10.8% for the second quarter
ended June 30, 2023, compared to 11.7% for the same quarter,
prior year. Certain outpatient rehabilitation key statistics are
presented in table VII of this release for the second quarters
ended June 30, 2023 and 2022.
For the six months ended June 30,
2023, revenue for the outpatient rehabilitation segment
increased 7.1% to $598.9 million,
compared to $559.2 million for the
same period, prior year. Adjusted EBITDA for the outpatient
rehabilitation segment increased 4.7% to $63.0 million for the six months ended
June 30, 2023, compared to
$60.2 million for the same period,
prior year. The Adjusted EBITDA margin for the outpatient
rehabilitation segment was 10.5% for the six months ended
June 30, 2023, compared to 10.8% for
the same period, prior year. Certain outpatient rehabilitation key
statistics are presented in table VIII of this release for the six
months ended June 30, 2023 and
2022.
Concentra Segment
For the second quarter ended June 30, 2023, revenue for the
Concentra segment increased 5.8% to $467.1
million, compared to $441.4
million for the same quarter, prior year. Adjusted EBITDA
for the Concentra segment increased 8.4% to $100.4 million for the second quarter ended
June 30, 2023, compared to $92.6
million for the same quarter, prior year. The Adjusted
EBITDA margin for the Concentra segment was 21.5% for the second
quarter ended June 30, 2023, compared to 21.0% for the same
quarter, prior year. Certain Concentra key statistics are presented
in table VII of this release for the second quarters ended
June 30, 2023 and 2022.
For the six months ended June 30, 2023, revenue for the
Concentra segment increased 6.8% to $923.4
million, compared to $864.8
million for the same period, prior year. Adjusted EBITDA for
the Concentra segment increased 6.6% to $194.1 million for the six months ended
June 30, 2023, compared to $182.1
million for the same period, prior year. The Adjusted EBITDA
margin for the Concentra segment was 21.0% for the six months ended
June 30, 2023, compared to 21.1% for the same period, prior
year. Certain Concentra key statistics are presented in table VIII
of this release for the six months ended June 30, 2023 and
2022.
Dividend
On August 2, 2023, Select Medical's Board of Directors
declared a cash dividend of $0.125
per share. The dividend will be payable on or about
September 1, 2023, to stockholders of record as of the close
of business on August 15, 2023.
There is no assurance that future dividends will be declared.
The declaration and payment of dividends in the future are at the
discretion of Select Medical's Board of Directors after taking into
account various factors, including, but not limited to, Select
Medical's financial condition, operating results, available cash
and current and anticipated cash needs, the terms of Select
Medical's indebtedness, and other factors Select Medical's Board of
Directors may deem to be relevant.
Stock Repurchase Program
The Board of Directors of Select Medical has authorized a common
stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock.
The common stock repurchase program will remain in effect until
December 31, 2023, 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 Select
Medical deems appropriate. Select Medical funds this program with
cash on hand and borrowings under its revolving credit
facility.
Select Medical did not repurchase shares under its authorized
stock repurchase program during the six months ended June 30,
2023. Since the inception of the common stock repurchase program
through June 30, 2023, Select Medical has repurchased
48,234,823 shares at a cost of approximately $600.3 million, or $12.45 per share, which includes transaction
costs.
Financing Transactions
On May 31, 2023, Select entered
into Amendment No. 7 to the Select credit agreement. Amendment No.
7 replaced the interest rate based on LIBOR and LIBOR-based
mechanics applicable to borrowings under the Select credit
agreement with an interest rate based on Adjusted Term SOFR (as
defined in the credit agreement). The Adjusted Term SOFR Rate
includes a credit spread adjustment of 0.10%.
On July 31, 2023, the Company
entered into Amendment No. 8 to the Select credit agreement.
Amendment No. 8 provides for a new tranche of refinancing term loan
in an aggregate principal amount of $2,103.0
million to replace the existing term loans and a
$710.0 million new revolving credit
facility to replace the existing revolving credit facility. The
refinancing term loan and the extended revolving credit facility
will mature on March 6, 2027, with an
early springing maturity 90 days prior to the senior notes
maturity, triggered if more than $300.0
million of senior notes remain outstanding on May 15, 2026. The refinancing term loan has an
interest rate of Term SOFR (without the 0.10% credit spread
adjustment) plus 3.00% and the refinancing revolving credit
facility has an interest rate of Adjusted Term SOFR plus 2.50%, in
each case, subject to a leverage-based pricing grid.
Business Outlook
Select Medical is adjusting its 2023 business outlook for
revenue, Adjusted EBITDA, and fully diluted earnings per share,
which was provided most recently in its May
4, 2023 press release. Select Medical is also issuing its
business outlook for adjusted earnings per share. Select Medical
expects consolidated revenue to be in the range of $6.55 billion to $6.7
billion for the full year of 2023, Adjusted EBITDA to be in
the range of $795.0 million to
$825.0 million, and fully diluted
earnings per share to be in the range of $1.77 to $1.94.
Select Medical expects adjusted earnings per share to be in the
range of $1.86 to $2.03. Adjusted earnings per share excludes the
loss on early retirement of debt and related costs, and its related
tax effects. Reconciliations of full year 2023 Adjusted EBITDA
expectations to net income and adjusted earnings per share to fully
diluted earnings per share are presented in table X of this
release.
Conference Call
Select Medical will host a conference call regarding its second
quarter result and its business outlook on Friday, August 4, 2023, at 9:00am ET. The conference call will be a live
webcast and can be accessed at Select Medical Holdings
Corporation's website at www.selectmedicalholdings.com. A replay of
the webcast will be available shortly after the call through the
same link.
For listeners wishing to dial-in via telephone, or participate
in the question and answer session, you may pre-register for the
call at Select Medical Earnings Call Registration to obtain your
dial-in number and unique passcode.
* * *
* *
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),
including statements related to Select Medical's 2023 and long-term
business outlook. 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:
- adverse economic conditions including an inflationary
environment could cause us to continue to experience increases in
the prices of labor and other costs of doing business resulting in
a negative impact on our business, operating results, cash flows,
and financial condition;
- shortages in qualified nurses, therapists, physicians, or other
licensed providers, and/or the inability to attract or retain
qualified healthcare professionals could limit our ability to staff
our facilities;
- shortages in qualified health professionals could cause us to
increase our dependence on contract labor, increase our efforts to
recruit and train new employees, and expand upon our initiatives to
retain existing staff, which could increase our operating costs
significantly;
- the continuing effects of the COVID-19 pandemic including, but
not limited to, the prolonged disruption to the global financial
markets, increased operational costs due to recessionary pressures
and labor costs, additional measures taken by government
authorities and the private sector to limit the spread of COVID-19,
and further legislative and regulatory actions which impact
healthcare providers, including actions that may impact the
Medicare program;
- changes in government reimbursement for our services and/or new
payment policies may result in a reduction in revenue, 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 revenue 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 revenue 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 and our
ability to realize anticipated synergies;
- private third-party payors for our services may adopt payment
policies that could limit our future revenue and
profitability;
- the failure to maintain established relationships with the
physicians in the areas we serve could reduce our revenue and
profitability;
- competition may limit our ability to grow and result in a
decrease in our revenue 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 our quarterly
reports on Form 10-Q and in our annual report on Form 10-K for the
year ended December 31, 2022.
Except as required by applicable law, including the securities
laws of the United States and the
rules and regulations of the SEC, we are under no obligation to
publicly update or revise any forward-looking statements, whether
as a result of any new information, future events, or otherwise.
You should not place undue reliance on our forward-looking
statements. Although we believe that the expectations reflected in
forward-looking statements are reasonable, we cannot guarantee
future results or performance.
Investor inquiries:
Joel T. Veit
Senior Vice President and Treasurer
717-972-1100
ir@selectmedical.com
I. Condensed
Consolidated Statements of Operations
For the Three Months
Ended June 30, 2022 and 2023
(In thousands,
except per share amounts, unaudited)
|
|
|
|
2022
|
|
2023
|
|
%
Change
|
Revenue
|
|
$
1,584,741
|
|
$
1,674,528
|
|
5.7 %
|
Costs and
expenses:
|
|
|
|
|
|
|
Cost of services,
exclusive of depreciation and amortization
|
|
1,390,550
|
|
1,423,603
|
|
2.4
|
General and
administrative
|
|
37,268
|
|
42,508
|
|
14.1
|
Depreciation and
amortization
|
|
51,081
|
|
49,939
|
|
(2.2)
|
Total costs and
expenses
|
|
1,478,899
|
|
1,516,050
|
|
2.5
|
Other operating
income
|
|
15,125
|
|
726
|
|
N/M
|
Income from
operations
|
|
120,967
|
|
159,204
|
|
31.6
|
Other income and
expense:
|
|
|
|
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
|
6,167
|
|
10,501
|
|
70.3
|
Interest
expense
|
|
(41,052)
|
|
(48,997)
|
|
19.4
|
Income before income
taxes
|
|
86,082
|
|
120,708
|
|
40.2
|
Income tax
expense
|
|
19,820
|
|
28,848
|
|
45.5
|
Net income
|
|
66,262
|
|
91,860
|
|
38.6
|
Less: Net income
attributable to non-controlling interests
|
|
11,055
|
|
13,623
|
|
23.2
|
Net income attributable
to Select Medical
|
|
$
55,207
|
|
$
78,237
|
|
41.7 %
|
Basic and diluted
earnings per common share:(1)
|
|
$
0.43
|
|
$
0.61
|
|
|
_______________________________________________________________________________
|
(1)
Refer to table III for calculation of earnings per common
share.
|
N/M Not
meaningful
|
II. Condensed
Consolidated Statements of Operations
For the Six Months
Ended June 30, 2022 and 2023
(In thousands,
except per share amounts, unaudited)
|
|
|
|
2022
|
|
2023
|
|
%
Change
|
Revenue
|
|
$
3,184,288
|
|
$
3,339,508
|
|
4.9 %
|
Costs and
expenses:
|
|
|
|
|
|
|
Cost of services,
exclusive of depreciation and amortization
|
|
2,797,560
|
|
2,842,422
|
|
1.6
|
General and
administrative
|
|
74,781
|
|
84,787
|
|
13.4
|
Depreciation and
amortization
|
|
102,120
|
|
102,364
|
|
0.2
|
Total costs and
expenses
|
|
2,974,461
|
|
3,029,573
|
|
1.9
|
Other operating
income
|
|
15,125
|
|
726
|
|
N/M
|
Income from
operations
|
|
224,952
|
|
310,661
|
|
38.1
|
Other income and
expense:
|
|
|
|
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
|
11,564
|
|
19,057
|
|
64.8
|
Interest
expense
|
|
(76,566)
|
|
(97,568)
|
|
27.4
|
Income before income
taxes
|
|
159,950
|
|
232,150
|
|
45.1
|
Income tax
expense
|
|
37,762
|
|
55,033
|
|
45.7
|
Net income
|
|
122,188
|
|
177,117
|
|
45.0
|
Less: Net income
attributable to non-controlling interests
|
|
17,864
|
|
28,075
|
|
57.2
|
Net income attributable
to Select Medical
|
|
$
104,324
|
|
$
149,042
|
|
42.9 %
|
Basic and diluted
earnings per common share:(1)
|
|
$
0.79
|
|
$
1.17
|
|
|
_______________________________________________________________________________
|
(1)
Refer to table III for calculation of earnings per common
share.
|
N/M Not
meaningful
|
III. Earnings
per Share
For the Three and Six Months Ended June 30, 2022 and 2023
(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, 2022 and 2023:
|
|
|
|
|
Basic and Diluted
EPS
|
|
|
Three Months
Ended
June
30,
|
|
Six Months
Ended
June
30,
|
|
|
2022
|
|
2023
|
|
2022
|
|
2023
|
Net income
|
|
$
66,262
|
|
$
91,860
|
|
$
122,188
|
|
$
177,117
|
Less: net income
attributable to non-controlling interests
|
|
11,055
|
|
13,623
|
|
17,864
|
|
28,075
|
Net income attributable
to Select Medical
|
|
55,207
|
|
78,237
|
|
104,324
|
|
149,042
|
Less: net income
attributable to participating securities
|
|
1,920
|
|
2,877
|
|
3,558
|
|
5,449
|
Net income attributable
to common shares
|
|
$
53,287
|
|
$
75,360
|
|
$
100,766
|
|
$
143,593
|
The following tables set forth the computation of EPS under the
two-class method for the three and six months ended June 30, 2022 and 2023:
|
|
Three Months Ended
June 30,
|
|
|
2022
|
|
|
2023
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic and
Diluted EPS
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic and
Diluted EPS
|
|
|
(in thousands,
except for per share amounts)
|
Common
shares
|
|
$
53,287
|
|
124,897
|
|
$
0.43
|
|
|
$
75,360
|
|
122,634
|
|
$
0.61
|
Participating
securities
|
|
1,920
|
|
4,500
|
|
$
0.43
|
|
|
2,877
|
|
4,681
|
|
$
0.61
|
Total
|
|
$
55,207
|
|
|
|
|
|
|
$
78,237
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2022
|
|
|
2023
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic and
Diluted EPS
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic and
Diluted EPS
|
|
|
(in thousands,
except for per share amounts)
|
Common
shares
|
|
$
100,766
|
|
126,942
|
|
$
0.79
|
|
|
$
143,593
|
|
122,594
|
|
$
1.17
|
Participating
securities
|
|
3,558
|
|
4,482
|
|
$
0.79
|
|
|
5,449
|
|
4,652
|
|
$
1.17
|
Total
|
|
$
104,324
|
|
|
|
|
|
|
$
149,042
|
|
|
|
|
_______________________________________________________________________________
|
(1)
Represents the weighted average share count outstanding during the
period.
|
IV. Condensed
Consolidated Balance Sheets
(In thousands,
unaudited)
|
|
|
|
December 31,
2022
|
|
June 30,
2023
|
Assets
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
97,906
|
|
$
101,167
|
Accounts
receivable
|
|
941,312
|
|
964,680
|
Other current
assets
|
|
232,095
|
|
238,637
|
Total Current
Assets
|
|
1,271,313
|
|
1,304,484
|
Operating lease
right-of-use assets
|
|
1,169,740
|
|
1,182,839
|
Property and equipment,
net
|
|
1,001,440
|
|
1,004,430
|
Goodwill
|
|
3,484,200
|
|
3,486,050
|
Identifiable intangible
assets, net
|
|
351,662
|
|
346,733
|
Other assets
|
|
386,938
|
|
377,333
|
Total
Assets
|
|
$
7,665,293
|
|
$
7,701,869
|
Liabilities and
Equity
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Payables and
accruals
|
|
$
874,016
|
|
$
889,490
|
Current operating
lease liabilities
|
|
236,784
|
|
241,517
|
Current portion of
long-term debt and notes payable
|
|
44,351
|
|
57,205
|
Total Current
Liabilities
|
|
1,155,151
|
|
1,188,212
|
Non-current operating
lease liabilities
|
|
1,008,394
|
|
1,021,314
|
Long-term debt, net of
current portion
|
|
3,835,211
|
|
3,695,341
|
Non-current deferred
tax liability
|
|
169,793
|
|
155,925
|
Other non-current
liabilities
|
|
106,137
|
|
105,123
|
Total
Liabilities
|
|
6,274,686
|
|
6,165,915
|
Redeemable
non-controlling interests
|
|
34,043
|
|
34,375
|
Total equity
|
|
1,356,564
|
|
1,501,579
|
Total Liabilities
and Equity
|
|
$
7,665,293
|
|
$
7,701,869
|
V. Condensed
Consolidated Statements of Cash Flows
For the Three Months
Ended June 30, 2022 and 2023
(In thousands,
unaudited)
|
|
|
|
2022
|
|
2023
|
Operating
activities
|
|
|
|
|
Net income
|
|
$
66,262
|
|
$
91,860
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Distributions from
unconsolidated subsidiaries
|
|
3,654
|
|
6,275
|
Depreciation and
amortization
|
|
51,081
|
|
49,939
|
Provision for expected
credit losses
|
|
17
|
|
332
|
Equity in earnings of
unconsolidated subsidiaries
|
|
(6,167)
|
|
(10,501)
|
Gain on sale or
disposal of assets
|
|
(1,453)
|
|
(16)
|
Stock compensation
expense
|
|
8,946
|
|
10,326
|
Amortization of debt
discount, premium and issuance costs
|
|
565
|
|
609
|
Deferred income
taxes
|
|
(2,385)
|
|
(8,275)
|
Changes in operating
assets and liabilities, net of effects of business
combinations:
|
|
|
|
|
Accounts
receivable
|
|
19,794
|
|
32,262
|
Other current
assets
|
|
(309)
|
|
5,745
|
Other
assets
|
|
(1,411)
|
|
1,814
|
Accounts payable and
accrued expenses
|
|
47,478
|
|
54,468
|
Government
advances
|
|
(14,391)
|
|
—
|
Net cash provided by
operating activities
|
|
171,681
|
|
234,838
|
Investing
activities
|
|
|
|
|
Business combinations,
net of cash acquired
|
|
(14,055)
|
|
(7,335)
|
Purchases of property,
equipment, and other assets
|
|
(46,332)
|
|
(59,514)
|
Investment in
businesses
|
|
(3,653)
|
|
—
|
Proceeds from sale of
assets
|
|
5,277
|
|
36
|
Net cash used in
investing activities
|
|
(58,763)
|
|
(66,813)
|
Financing
activities
|
|
|
|
|
Borrowings on revolving
facilities
|
|
285,000
|
|
210,000
|
Payments on revolving
facilities
|
|
(275,000)
|
|
(325,000)
|
Borrowings of other
debt
|
|
1,700
|
|
850
|
Principal payments on
other debt
|
|
(7,686)
|
|
(15,203)
|
Dividends paid to
common stockholders
|
|
(16,108)
|
|
(15,924)
|
Repurchase of common
stock
|
|
(126,947)
|
|
(1,506)
|
Increase (decrease) in
overdrafts
|
|
(3,447)
|
|
257
|
Proceeds from issuance
of non-controlling interests
|
|
1,726
|
|
12,081
|
Distributions to and
purchases of non-controlling interests
|
|
(8,368)
|
|
(16,116)
|
Net cash used in
financing activities
|
|
(149,130)
|
|
(150,561)
|
Net increase (decrease)
in cash and cash equivalents
|
|
(36,212)
|
|
17,464
|
Cash and cash
equivalents at beginning of period
|
|
130,881
|
|
83,703
|
Cash and cash
equivalents at end of period
|
|
$
94,669
|
|
$
101,167
|
Supplemental
information
|
|
|
|
|
Cash paid for interest,
excluding amounts received of $103 and $20,465 under interest rate
cap contract
|
|
$
20,700
|
|
$
49,050
|
Cash paid for
taxes
|
|
15,500
|
|
42,419
|
VI. Condensed
Consolidated Statements of Cash Flows
For the Six Months
Ended June 30, 2022 and 2023
(In thousands,
unaudited)
|
|
|
|
2022
|
|
2023
|
Operating
activities
|
|
|
|
|
Net income
|
|
$
122,188
|
|
$
177,117
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Distributions from
unconsolidated subsidiaries
|
|
11,140
|
|
8,841
|
Depreciation and
amortization
|
|
102,120
|
|
102,364
|
Provision for expected
credit losses
|
|
111
|
|
761
|
Equity in earnings of
unconsolidated subsidiaries
|
|
(11,564)
|
|
(19,057)
|
Gain on sale or
disposal of assets
|
|
(1,476)
|
|
(23)
|
Stock compensation
expense
|
|
17,769
|
|
20,508
|
Amortization of debt
discount, premium and issuance costs
|
|
1,123
|
|
1,174
|
Deferred income
taxes
|
|
(1,965)
|
|
(10,876)
|
Changes in operating
assets and liabilities, net of effects of business
combinations:
|
|
|
|
|
Accounts
receivable
|
|
(32,431)
|
|
(23,135)
|
Other current
assets
|
|
(2,128)
|
|
(5,997)
|
Other
assets
|
|
1,275
|
|
5,472
|
Accounts payable and
accrued expenses
|
|
49,175
|
|
29,129
|
Government
advances
|
|
(77,319)
|
|
—
|
Net cash provided by
operating activities
|
|
178,018
|
|
286,278
|
Investing
activities
|
|
|
|
|
Business combinations,
net of cash acquired
|
|
(19,241)
|
|
(7,732)
|
Purchases of property,
equipment, and other assets
|
|
(93,177)
|
|
(118,399)
|
Investment in
businesses
|
|
(6,990)
|
|
(9,800)
|
Proceeds from sale of
assets
|
|
5,314
|
|
56
|
Net cash used in
investing activities
|
|
(114,094)
|
|
(135,875)
|
Financing
activities
|
|
|
|
|
Borrowings on revolving
facilities
|
|
565,000
|
|
435,000
|
Payments on revolving
facilities
|
|
(375,000)
|
|
(535,000)
|
Borrowings of other
debt
|
|
17,494
|
|
22,298
|
Principal payments on
other debt
|
|
(16,874)
|
|
(26,373)
|
Dividends paid to
common stockholders
|
|
(32,799)
|
|
(31,821)
|
Repurchase of common
stock
|
|
(178,623)
|
|
(1,506)
|
Decrease in
overdrafts
|
|
(11,055)
|
|
(467)
|
Proceeds from issuance
of non-controlling interests
|
|
6,955
|
|
14,812
|
Distributions to and
purchases of non-controlling interests
|
|
(18,663)
|
|
(24,085)
|
Net cash used in
financing activities
|
|
(43,565)
|
|
(147,142)
|
Net increase in cash
and cash equivalents
|
|
20,359
|
|
3,261
|
Cash and cash
equivalents at beginning of period
|
|
74,310
|
|
97,906
|
Cash and cash
equivalents at end of period
|
|
$
94,669
|
|
$
101,167
|
Supplemental
information
|
|
|
|
|
Cash paid for interest,
excluding amounts received of $103 and $38,284 under the interest
rate cap contract
|
|
$
74,217
|
|
$
133,581
|
Cash paid for
taxes
|
|
16,423
|
|
42,755
|
VII. Key
Statistics
For the Three Months
Ended June 30, 2022, and 2023
(unaudited)
|
|
|
|
2022
|
|
2023
|
|
%
Change
|
Critical Illness
Recovery Hospital
|
|
|
|
|
|
|
Number of hospitals
operated – end of period(a)
|
|
105
|
|
108
|
|
|
Revenue
(,000)
|
|
$ 545,908
|
|
$ 575,091
|
|
5.3 %
|
Number of patient
days(b)(c)
|
|
273,133
|
|
276,366
|
|
1.2 %
|
Number of
admissions(b)(d)
|
|
8,806
|
|
8,925
|
|
1.4 %
|
Revenue per patient
day(b)(e)
|
|
$
1,987
|
|
$
2,076
|
|
4.5 %
|
Occupancy
rate(b)(f)
|
|
67 %
|
|
68 %
|
|
1.5 %
|
Adjusted EBITDA
(,000)
|
|
$
20,019
|
|
$
65,496
|
|
227.2 %
|
Adjusted EBITDA
margin
|
|
3.7 %
|
|
11.4 %
|
|
|
Rehabilitation
Hospital
|
|
|
|
|
|
|
Number of hospitals
operated – end of period(a)
|
|
31
|
|
32
|
|
|
Revenue
(,000)
|
|
$ 228,887
|
|
$ 240,856
|
|
5.2 %
|
Number of patient
days(b)(c)
|
|
108,812
|
|
109,680
|
|
0.8 %
|
Number of
admissions(b)(d)
|
|
7,450
|
|
7,865
|
|
5.6 %
|
Revenue per patient
day(b)(e)
|
|
$
1,928
|
|
$
2,008
|
|
4.1 %
|
Occupancy
rate(b)(f)
|
|
86 %
|
|
84 %
|
|
(2.3) %
|
Adjusted EBITDA
(,000)
|
|
$
49,845
|
|
$
54,689
|
|
9.7 %
|
Adjusted EBITDA
margin
|
|
21.8 %
|
|
22.7 %
|
|
|
Outpatient
Rehabilitation
|
|
|
|
|
|
|
Number of clinics
operated – end of period(a)
|
|
1,920
|
|
1,944
|
|
|
Working
days(g)
|
|
64
|
|
64
|
|
|
Revenue
(,000)
|
|
$ 287,258
|
|
$ 302,972
|
|
5.5 %
|
Number of
visits(b)(h)
|
|
2,450,912
|
|
2,720,490
|
|
11.0 %
|
Revenue per
visit(b)(i)
|
|
$
103
|
|
$
100
|
|
(2.9) %
|
Adjusted EBITDA
(,000)
|
|
$
33,601
|
|
$
32,850
|
|
(2.2) %
|
Adjusted EBITDA
margin
|
|
11.7 %
|
|
10.8 %
|
|
|
Concentra
|
|
|
|
|
|
|
Number of centers
operated – end of period(b)
|
|
518
|
|
540
|
|
|
Working
days(g)
|
|
64
|
|
64
|
|
|
Revenue
(,000)
|
|
$ 441,357
|
|
$ 467,079
|
|
5.8 %
|
Number of
visits(b)(h)
|
|
3,214,512
|
|
3,267,894
|
|
1.7 %
|
Revenue per
visit(b)(i)
|
|
$
127
|
|
$
134
|
|
5.5 %
|
Adjusted EBITDA
(,000)
|
|
$
92,607
|
|
$ 100,391
|
|
8.4 %
|
Adjusted EBITDA
margin
|
|
21.0 %
|
|
21.5 %
|
|
|
_______________________________________________________________________________
|
(a)
|
Includes managed
locations.
|
(b)
|
Excludes managed
locations. For purposes of the Concentra segment, onsite clinics
are excluded.
|
(c)
|
Each patient day
represents one patient occupying one bed for one day during the
periods presented.
|
(d)
|
Represents the number
of patients admitted to Select Medical's hospitals during the
periods presented.
|
(e)
|
Represents the average
amount of revenue recognized for each patient day. Revenue per
patient day is calculated by dividing patient service revenues,
excluding revenues from certain other ancillary and outpatient
services provided at Select Medical's hospitals, by the total
number of patient days.
|
(f)
|
Represents the portion
of our hospitals being utilized for patient care during the periods
presented. Occupancy rate is calculated using the number of patient
days, as presented above, divided by the total number of bed days
available during the period. Bed days available is derived by
adding the daily number of available licensed beds for each of the
periods presented.
|
(g)
|
Represents the number
of days in which normal business operations were conducted during
the periods presented.
|
(h)
|
Represents the number
of visits in which patients were treated at Select Medical's
outpatient rehabilitation clinics and Concentra centers during the
periods presented. COVID-19 screening and testing services provided
by our Concentra segment are not included in these
figures.
|
(i)
|
Represents the average
amount of revenue recognized for each patient visit. Revenue per
visit is calculated by dividing patient service revenue, excluding
revenues from certain other ancillary services, by the total number
of visits. For purposes of this computation for the Concentra
segment, patient service revenue does not include onsite clinics or
revenues generated from COVID-19 screening and testing
services.
|
VIII. Key
Statistics
For the Six Months
Ended June 30, 2022, and 2023
(unaudited)
|
|
|
|
2022
|
|
2023
|
|
%
Change
|
Critical Illness
Recovery Hospital
|
|
|
|
|
|
|
Number of hospitals
operated – end of period(a)
|
|
105
|
|
108
|
|
|
Revenue
(,000)
|
|
$
1,147,663
|
|
$
1,169,017
|
|
1.9 %
|
Number of patient
days(b)(c)
|
|
562,350
|
|
563,112
|
|
0.1 %
|
Number of
admissions(b)(d)
|
|
18,263
|
|
18,363
|
|
0.5 %
|
Revenue per patient
day(b)(e)
|
|
$
2,032
|
|
$
2,067
|
|
1.7 %
|
Occupancy
rate(b)(f)
|
|
69 %
|
|
70 %
|
|
1.4 %
|
Adjusted EBITDA
(,000)
|
|
$
55,986
|
|
$
142,269
|
|
154.1 %
|
Adjusted EBITDA
margin
|
|
4.9 %
|
|
12.2 %
|
|
|
Rehabilitation
Hospital
|
|
|
|
|
|
|
Number of hospitals
operated – end of period(a)
|
|
31
|
|
32
|
|
|
Revenue
(,000)
|
|
$
449,521
|
|
$
472,318
|
|
5.1 %
|
Number of patient
days(b)(c)
|
|
212,614
|
|
218,047
|
|
2.6 %
|
Number of
admissions(b)(d)
|
|
14,632
|
|
15,523
|
|
6.1 %
|
Revenue per patient
day(b)(e)
|
|
$
1,935
|
|
$
1,989
|
|
2.8 %
|
Occupancy
rate(b)(f)
|
|
85 %
|
|
85 %
|
|
0.0 %
|
Adjusted EBITDA
(,000)
|
|
$
92,224
|
|
$
101,905
|
|
10.5 %
|
Adjusted EBITDA
margin
|
|
20.5 %
|
|
21.6 %
|
|
|
Outpatient
Rehabilitation
|
|
|
|
|
|
|
Number of clinics
operated – end of period(a)
|
|
1,920
|
|
1,944
|
|
|
Working
days(g)
|
|
128
|
|
128
|
|
|
Revenue
(,000)
|
|
$
559,198
|
|
$
598,875
|
|
7.1 %
|
Number of
visits(b)(h)
|
|
4,760,998
|
|
5,357,260
|
|
12.5 %
|
Revenue per
visit(b)(i)
|
|
$
103
|
|
$
100
|
|
(2.9) %
|
Adjusted EBITDA
(,000)
|
|
$
60,197
|
|
$
63,049
|
|
4.7 %
|
Adjusted EBITDA
margin
|
|
10.8 %
|
|
10.5 %
|
|
|
Concentra
|
|
|
|
|
|
|
Number of centers
operated – end of period(b)
|
|
518
|
|
540
|
|
|
Working
days(g)
|
|
128
|
|
128
|
|
|
Revenue
(,000)
|
|
$
864,780
|
|
$
923,377
|
|
6.8 %
|
Number of
visits(b)(h)
|
|
6,331,410
|
|
6,485,839
|
|
2.4 %
|
Revenue per
visit(b)(i)
|
|
$
126
|
|
$
134
|
|
6.3 %
|
Adjusted EBITDA
(,000)
|
|
$
182,076
|
|
$
194,139
|
|
6.6 %
|
Adjusted EBITDA
margin
|
|
21.1 %
|
|
21.0 %
|
|
|
_______________________________________________________________________________
|
(a)
|
Includes managed
locations.
|
(b)
|
Excludes managed
locations. For purposes of the Concentra segment, onsite clinics
are excluded.
|
(c)
|
Each patient day
represents one patient occupying one bed for one day during the
periods presented.
|
(d)
|
Represents the number
of patients admitted to Select Medical's hospitals during the
periods presented.
|
(e)
|
Represents the average
amount of revenue recognized for each patient day. Revenue per
patient day is calculated by dividing patient service revenues,
excluding revenues from certain other ancillary and outpatient
services provided at Select Medical's hospitals, by the total
number of patient days.
|
(f)
|
Represents the portion
of our hospitals being utilized for patient care during the periods
presented. Occupancy rate is calculated using the number of patient
days, as presented above, divided by the total number of bed days
available during the period. Bed days available is derived by
adding the daily number of available licensed beds for each of the
periods presented.
|
(g)
|
Represents the number
of days in which normal business operations were conducted during
the periods presented.
|
(h)
|
Represents the number
of visits in which patients were treated at Select Medical's
outpatient rehabilitation clinics and Concentra centers during the
periods presented. COVID-19 screening and testing services provided
by our Concentra segment are not included in these
figures.
|
(i)
|
Represents the average
amount of revenue recognized for each patient visit. Revenue per
visit is calculated by dividing patient service revenue, excluding
revenues from certain other ancillary services, by the total number
of visits. For purposes of this computation for the Concentra
segment, patient service revenue does not include onsite clinics or
revenues generated from COVID-19 screening and testing
services.
|
IX. Net Income to
Adjusted EBITDA Reconciliation For the Three and Six
Months Ended June 30, 2022 and 2023 (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 by management to evaluate financial
performance and determine resource allocation for each of Select
Medical's segments. Adjusted EBITDA is not a measure of financial
performance under accounting principles generally accepted in
the United States of America
("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, gain (loss) on sale of businesses, and equity in earnings
(losses) of unconsolidated subsidiaries.
|
Three Months
Ended
June
30,
|
|
|
Six Months
Ended
June
30,
|
|
|
2022
|
|
2023
|
|
|
|
2022
|
|
2023
|
Net income
|
|
$
66,262
|
|
$
91,860
|
|
|
|
$
122,188
|
|
$
177,117
|
Income tax
expense
|
|
19,820
|
|
28,848
|
|
|
|
37,762
|
|
55,033
|
Interest
expense
|
|
41,052
|
|
48,997
|
|
|
|
76,566
|
|
97,568
|
Equity in earnings of
unconsolidated subsidiaries
|
|
(6,167)
|
|
(10,501)
|
|
|
|
(11,564)
|
|
(19,057)
|
Income from
operations
|
|
120,967
|
|
159,204
|
|
|
|
224,952
|
|
310,661
|
Stock compensation
expense:
|
|
|
|
|
|
|
|
|
|
|
Included in general
and administrative
|
|
7,046
|
|
8,553
|
|
|
|
13,995
|
|
16,958
|
Included in cost of
services
|
|
1,900
|
|
1,773
|
|
|
|
3,774
|
|
3,549
|
Depreciation and
amortization
|
|
51,081
|
|
49,939
|
|
|
|
102,120
|
|
102,364
|
Adjusted
EBITDA
|
|
$
180,994
|
|
$
219,469
|
|
|
|
$
344,841
|
|
$
433,532
|
|
|
|
|
|
|
|
|
|
|
|
Critical illness
recovery hospital
|
|
$
20,019
|
|
$
65,496
|
|
|
|
$
55,986
|
|
$
142,269
|
Rehabilitation
hospital
|
|
49,845
|
|
54,689
|
|
|
|
92,224
|
|
101,905
|
Outpatient
rehabilitation
|
|
33,601
|
|
32,850
|
|
|
|
60,197
|
|
63,049
|
Concentra
|
|
92,607
|
|
100,391
|
|
|
|
182,076
|
|
194,139
|
Other(a)
|
|
(15,078)
|
|
(33,957)
|
|
|
|
(45,642)
|
|
(67,830)
|
Adjusted
EBITDA
|
|
$
180,994
|
|
$
219,469
|
|
|
|
$
344,841
|
|
$
433,532
|
_______________________________________________________________________________
|
(a)
Other primarily includes general and administrative costs and other
operating income, as discussed further above.
|
X. Net Income to
Adjusted EBITDA and Earnings per Share to Adjusted Earnings per
Share Reconciliations Business Outlook for the Year
Ending December 31, 2023 (In millions,
unaudited)
|
The following is a reconciliation of full year 2023 Adjusted
EBITDA expectations as computed at the low and high points of the
range to the closest comparable GAAP financial measure. Refer to
table VI for the definition of Adjusted EBITDA and a discussion of
Select Medical's use of Adjusted EBITDA in evaluating financial
performance. Each item presented in the below table is an
estimation of full year 2023 expectations.
|
Range
|
Non-GAAP Measure
Reconciliation
|
Low
|
|
High
|
Net income attributable
to Select Medical
|
$
227
|
|
$
249
|
Net income attributable
to non-controlling interests
|
53
|
|
56
|
Net income
|
280
|
|
305
|
Income tax
expense
|
89
|
|
97
|
Interest
expense
|
196
|
|
196
|
Equity in earnings of
unconsolidated subsidiaries
|
(39)
|
|
(42)
|
Loss on early
retirement of debt
|
15
|
|
15
|
Income from
operations
|
541
|
|
571
|
Stock compensation
expense
|
43
|
|
43
|
Depreciation and
amortization
|
211
|
|
211
|
Adjusted
EBITDA
|
$
795
|
|
$
825
|
Adjusted earnings per share is not a measure of financial
performance under GAAP. Adjusted earnings per share excludes the
loss on early retirement of debt and related costs, and its related
tax effects. Items excluded from adjusted earnings per share are
significant components in understanding and assessing financial
performance. Select Medical believes that the presentation of
adjusted earnings per share 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 earnings per share 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 earnings per share is
not a measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, adjusted earnings per share as
presented may not be comparable to other similarly titled measures
of other companies.
The following table reconciles earnings per share on a fully
diluted basis to adjusted earnings per share on a fully diluted
basis.
|
Range
|
Non-GAAP Measure
Reconciliation
|
Low
|
|
High
|
Diluted earnings per
share
|
$
1.77
|
|
$
1.94
|
Adjustments:
|
|
|
|
Loss on early
retirement of debt, net of tax
|
0.09
|
|
0.09
|
Adjusted earnings per
share
|
$
1.86
|
|
$
2.03
|
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SOURCE Select Medical Holdings Corporation