On February 20, 2020 Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) reported results for its fourth quarter and year ended December 31, 2019 (Press release, Select Medical, FEB 20, 2020, View Source [SID1234554577]).
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For the fourth quarter ended December 31, 2019, net operating revenues increased 8.7% to $1,374.6 million, compared to $1,264.7 million for the same quarter, prior year. Income from operations increased 27.3% to $112.4 million for the fourth quarter ended December 31, 2019, compared to $88.3 million for the same quarter, prior year. Net income increased 46.9% to $43.7 million for the fourth quarter ended December 31, 2019, compared to $29.7 million for the same quarter, prior year. For the fourth quarter ended December 31, 2019, net income included pre-tax losses on early retirement of debt of $19.4 million. For the fourth quarter ended December 31, 2018, net income included pre-tax losses on early retirement of debt of $3.9 million. Adjusted EBITDA increased 16.9% to $171.9 million for the fourth quarter ended December 31, 2019, compared to $147.1 million for the same quarter, prior year. Earnings per common share increased to $0.24 on a fully diluted basis for the fourth quarter ended December 31, 2019, compared to $0.18 for the same quarter, prior year. Adjusted earnings per common share was $0.31 on a fully diluted basis for the fourth quarter ended December 31, 2019, compared to $0.20 for the same quarter, prior year. Adjusted earnings per common share excludes the losses on early retirement of debt and their related tax effects for both the fourth quarters ended December 31, 2019 and 2018. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release.
For the year ended December 31, 2019, net operating revenues increased 7.3% to $5,453.9 million, compared to $5,081.3 million for the prior year. Income from operations increased 13.1% to $471.9 million for the year ended December 31, 2019, compared to $417.3 million for the prior year. Net income increased 13.6% to $201.0 million for the year ended December 31, 2019, compared to $176.9 million for the prior year. For the year ended December 31, 2019, net income included pre-tax losses on early retirement of debt of $38.1 million and a pre-tax gain on sale of businesses of $6.5 million. For the year ended December 31, 2018, net income included pre-tax losses on early retirement of debt of $14.2 million, pre-tax gains on sales of businesses of $9.0 million, and pre-tax U.S. HealthWorks acquisition costs of $2.9 million. Adjusted EBITDA increased 10.2% to $710.9 million for the year ended December 31, 2019, compared to $645.2 million for the prior year. Earnings per common share increased to $1.10 on a fully diluted basis for the year ended December 31, 2019, compared to $1.02 for the prior year. Adjusted earnings per common share was $1.24 on a fully diluted basis for the year ended December 31, 2019, compared to $1.03 for the prior year. Adjusted earnings per common share excludes the losses on early retirement of debt and related costs and gain on sale of businesses and their related tax effects for the year ended December 31, 2019. Adjusted earnings per common share excludes the losses on early retirement of debt, gains on sales of businesses, U.S. HealthWorks acquisition costs, and their related tax effects for the year ended December 31, 2018. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release.
Company Overview
Select Medical is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States based on the number of facilities. 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 December 31, 2019, Select Medical operated 101 critical illness recovery hospitals in 28 states, 29 rehabilitation hospitals in 12 states, and 1,740 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical’s joint venture subsidiary Concentra operated 521 occupational health centers in 41 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At December 31, 2019, Select Medical had operations in 47 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.
Critical Illness Recovery Hospital Segment
For the fourth quarter ended December 31, 2019, net operating revenues for the critical illness recovery hospital segment increased 6.7% to $454.9 million, compared to $426.3 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 8.0% to $60.5 million for the fourth quarter ended December 31, 2019, compared to $56.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.3% for the fourth quarter ended December 31, 2019, compared to 13.1% for the same quarter, prior year. Certain critical illness recovery hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2019 and 2018.
For the year ended December 31, 2019, net operating revenues for the critical illness recovery hospital segment increased 4.7% to $1,836.5 million, compared to $1,753.6 million for the prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 4.9% to $254.9 million for the year ended December 31, 2019, compared to $243.0 million for the prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.9% for both the years ended December 31, 2019 and 2018. Certain critical illness recovery hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2019 and 2018.
Rehabilitation Hospital Segment
For the fourth quarter ended December 31, 2019, net operating revenues for the rehabilitation hospital segment increased 20.9% to $182.7 million, compared to $151.1 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 51.4% to $43.3 million for the fourth quarter ended December 31, 2019, compared to $28.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 23.7% for the fourth quarter ended December 31, 2019, compared to 18.9% for the same quarter, prior year. For the fourth quarter ended December 31, 2018, the Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $0.9 million. Certain rehabilitation hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2019 and 2018.
For the year ended December 31, 2019, net operating revenues for the rehabilitation hospital segment increased 14.9% to $671.0 million, compared to $583.7 million for the prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 24.7% to $135.9 million for the year ended December 31, 2019, compared to $108.9 million for the prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 20.2% for the year ended December 31, 2019, compared to 18.7% for the prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $8.8 million for the year ended December 31, 2019, compared to approximately $4.7 million for the prior year. Certain rehabilitation hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2019 and 2018.
Outpatient Rehabilitation Segment
For the fourth quarter ended December 31, 2019, net operating revenues for the outpatient rehabilitation segment increased 7.7% to $271.9 million, compared to $252.4 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 14.9% to $40.2 million for the fourth quarter ended December 31, 2019, compared to $35.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 14.8% for the fourth quarter ended December 31, 2019, compared to 13.9% for the same quarter, prior year. Certain outpatient rehabilitation key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2019 and 2018.
For the year ended December 31, 2019, net operating revenues for the outpatient rehabilitation segment increased 5.0% to $1,046.0 million, compared to $995.8 million for the prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 6.9% to $151.8 million for the year ended December 31, 2019, compared to $142.0 million for the prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 14.5% for the year ended December 31, 2019, compared to 14.3% for the prior year. Certain outpatient rehabilitation key statistics are presented in table VIII of this release for both the years ended December 31, 2019 and 2018.
Concentra Segment
The financial results for the Concentra segment include U.S. HealthWorks beginning February 1, 2018.
For the fourth quarter ended December 31, 2019, net operating revenues for the Concentra segment increased 3.4% to $397.1 million, compared to $384.3 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment increased 6.8% to $56.5 million for the fourth quarter ended December 31, 2019, compared to $52.9 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 14.2% for the fourth quarter ended December 31, 2019, compared to 13.8% for the same quarter, prior year. Certain Concentra key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2019 and 2018.
For the year ended December 31, 2019, net operating revenues for the Concentra segment increased 4.6% to $1,628.8 million, compared to $1,557.7 million for the prior year. Adjusted EBITDA for the Concentra segment increased 9.7% to $276.5 million for the year ended December 31, 2019, compared to $252.0 million for the prior year. The Adjusted EBITDA margin for the Concentra segment was 17.0% for the year ended December 31, 2019, compared to 16.2% for the prior year. Certain Concentra key statistics are presented in table VIII of this release for both the years ended December 31, 2019 and 2018.
Stock Repurchase Program
The board of directors of Select Medical has authorized a common stock repurchase program to repurchase up to $500.0 million worth of shares of its common stock. The program has been extended until December 31, 2020, and will remain in effect until then, unless further extended or earlier terminated by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Select Medical deems appropriate. Select Medical funds this program with cash on hand and borrowings under its revolving credit facility.
During the year ended December 31, 2019, Select Medical repurchased 2,165,221 shares at a cost of approximately $33.2 million, or $15.32 per share, which includes transaction costs. Since the inception of the program through December 31, 2019, Select Medical has repurchased 38,089,349 shares at a cost of approximately $347.9 million, or $9.13 per share, which includes transaction costs.
Financing Transactions
On December 10, 2019, Select Medical issued and sold $675.0 million aggregate principal amount of 6.250% senior notes, due August 15, 2026, as additional notes under the indenture dated August 1, 2019, pursuant to which it previously issued $550.0 million of 6.250% senior notes due 2026. The additional senior notes were issued at 106.00% of the aggregate principal amount.
On December 10, 2019, Select Medical entered into Amendment No. 4 to its senior secured credit agreement. Among other things, Amendment No. 4 provided for an additional $615.0 million in term loans that, along with the existing term loans, have a maturity date of March 6, 2025.
Select Medical used a portion of the net proceeds from the incremental term loans, together with a portion of the net proceeds of the 6.250% additional senior notes, to make a first lien term loan in the aggregate principal amount of approximately $1,240.3 million to Concentra Inc., pursuant to an intercompany loan agreement. Concentra Inc. used the proceeds from the intercompany loan to repay in full the first lien term loan outstanding under Concentra Inc.’s first lien credit agreement. Concentra Inc. continues to have availability of up to $100.0 million under its existing revolving credit facility.
Purchase of Concentra Interest
On January 1, 2020, Select Medical, Welsh, Carson, Anderson & Stowe XII, L.P. ("WCAS"), and Dignity Health Holding Corporation ("DHHC") entered into an agreement pursuant to which Select Medical acquired approximately 17.2% of the outstanding membership interests of Concentra Group Holdings Parent, LLC ("Concentra Parent") on a fully diluted basis from WCAS, DHHC, and other equity holders of Concentra Parent for approximately $338.4 million. On February 1, 2020, Select Medical, WCAS and DHHC entered into an agreement pursuant to which Select Medical acquired an additional 1.4% of the outstanding membership interests of Concentra Parent on a fully diluted basis from WCAS, DHHC, and other equity holders of Concentra Parent for approximately $27.8 million.
These purchases were in lieu of, and considered to be, the exercise of the first put right provided to certain equity holders under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Parent, dated as of February 1, 2018. Following these purchases, Select Medical owns approximately 66.6% of the outstanding membership interests of Concentra Parent on a fully diluted basis and approximately 68.8% of the outstanding voting membership interests of Concentra Parent.
Business Outlook
Select Medical reaffirms its 2020 business outlook, provided most recently in its January 27, 2020 press release, for net operating revenues, Adjusted EBITDA and fully diluted earnings per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2020 to be in the range of $5.575 billion to $5.675 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2020 to be in the range of $725.0 million to $760.0 million. Select Medical continues to expect fully diluted earnings per common share for the full year 2020 to be in the range of $1.27 to $1.46.
Conference Call
Select Medical will host a conference call regarding its results for the fourth quarter and full year ended December 31, 2019, as well as its business outlook, on Friday, February 21, 2020, at 9:00am ET. The domestic dial in number for the call is 1-866-440-2669. The international dial in number is 1-409-220-9844. The conference ID for the call is 8644656. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation’s website www.selectmedicalholdings.com.
For those unable to participate in the conference call, a replay will be available until 12:00pm ET, February 28, 2020. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 8644656. The replay can also be accessed at Select Medical Holdings Corporation’s website, www.selectmedicalholdings.com.