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Press Release

Select Medical Holdings Corporation Announces Results For Its Fourth Quarter and Year Ended December 31, 2017

Select Medical Holdings Corporation
Posted on: 24 Feb 18

MECHANICSBURG, Pa., Feb. 21, 2018 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its fourth quarter and year ended December 31, 2017.

For the fourth quarter ended December 31, 2017, net operating revenues increased 6.5% to $1,114.4 million, compared to $1,046.3 million for the same quarter, prior year. Income from operations increased 37.0% to $76.4 million for the fourth quarter ended December 31, 2017, compared to $55.7 million for the same quarter, prior year. Net income increased to $121.1 million for the fourth quarter ended December 31, 2017, compared to $20.5 million for the same quarter, prior year. Net income for the fourth quarter ended December 31, 2017 included the effects resulting from the federal tax reform legislation enacted on December 22, 2017. Net income for the fourth quarter ended December 31, 2016 included a pre-tax non-operating gain of $5.6 million. Adjusted EBITDA increased 27.6% to $124.6 million for the fourth quarter ended December 31, 2017, compared to $97.7 million for the same quarter, prior year. Income per common share increased to $0.75 on a fully diluted basis for the fourth quarter ended December 31, 2017, compared to $0.15 for the same quarter, prior year. Adjusted income per common share was $0.31 per diluted share for the fourth quarter ended December 31, 2017, compared to $0.12 per diluted share for the fourth quarter ended December 31, 2016. Adjusted income per share excludes the effects resulting from the federal tax reform legislation for the fourth quarter ended December 31, 2017 and the non-operating gain and its related tax effects for the fourth quarter ended December 31, 2016. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table VIII of this release. A reconciliation of income per common share to adjusted income per common share is presented in table IX of this release. 

For the year ended December 31, 2017, net operating revenues increased 3.7% to $4,443.6 million, compared to $4,286.0 million for the prior year. Income from operations increased 18.7% to $355.9 million for the year ended December 31, 2017, compared to $299.8 million for the prior year. Net income was $220.6 million for the year ended December 31, 2017, which includes a pre-tax loss on early retirement of debt of $19.7 million. Net income for the year ended December 31, 2017 also included the effects resulting from the federal tax reform legislation enacted on December 22, 2017. Net income was $125.3 million for the year ended December 31, 2016, which included pre-tax non-operating gains of $42.7 million and pre-tax losses on early retirement of debt of $11.6 million. Adjusted EBITDA increased 15.5% to $538.0 million for the year ended December 31, 2017, compared to $465.8 million for the prior year. Income per common share was $1.33 on a fully diluted basis for the year ended December 31, 2017, compared to $0.87 for the prior year. Adjusted income per common share was $0.97 per diluted share for the year ended December 31, 2017, compared to $0.61 per diluted share for the year ended December 31, 2016. Adjusted income per share excludes the effects resulting from the federal tax reform legislation and the loss on early retirement of debt and its related tax effects for the year ended December 31, 2017 and the non-operating gains, losses on early retirement of debt and their related tax effects for the year ended December 31, 2016. A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. A reconciliation of income per common share to adjusted income per common share is presented in table IX of this release. 

Company Overview

Select Medical began operations in 1997 and has grown to be one of the largest operators of long term acute care hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States based on the number of facilities.  As of December 31, 2017, Select Medical operated 100 long term acute care hospitals in 27 states, 24 rehabilitation hospitals in 10 states, and 1,616 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical's joint venture subsidiary Concentra operated 312 occupational health centers in 38 states. Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics. At December 31, 2017, Select Medical had operations in 47 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.

In 2017, we changed our internal segment reporting structure to reflect how we now manage our business operations, review operating performance, and allocate resources. For the year ended December 31, 2017, our reportable segments include long term acute care, inpatient rehabilitation, outpatient rehabilitation, and Concentra. Prior year results for the year ended December 31, 2016 presented herein have been recast to conform to the current presentation. Prior to 2017, we disclosed our financial information in three reportable segments: specialty hospitals, outpatient rehabilitation, and Concentra.

Long Term Acute Care Segment

For the fourth quarter ended December 31, 2017, net operating revenues for the long term acute care segment increased 2.1% to $431.9 million, compared to $423.1 million for the same quarter, prior year. Adjusted EBITDA for the long term acute care segment increased 24.9% to $58.4 million for the fourth quarter ended December 31, 2017, compared to $46.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the long term acute care segment was 13.5% for the fourth quarter ended December 31, 2017, compared to 11.1% for the same quarter, prior year. The Adjusted EBITDA results for the long term acute care segment include start-up losses of approximately $0.4 million for the fourth quarter ended December 31, 2017. The long term acute care segment did not incur start-up losses for the fourth quarter ended December 31, 2016. Certain long term acute care key statistics for both the fourth quarters ended December 31, 2017 and 2016 are presented in table VI of this release.

For the year ended December 31, 2017, net operating revenues for the long term acute care segment were $1,756.2 million, compared to $1,785.2 million for the prior year. Adjusted EBITDA for the long term acute care segment increased 12.5% to $252.7 million for the year ended December 31, 2017, compared to $224.6 million for the prior year. The Adjusted EBITDA margin for the long term acute care segment was 14.4% for the year ended December 31, 2017, compared to 12.6% for the prior year. The Adjusted EBITDA results for the long term acute care segment include start-up losses of approximately $0.6 million for the year ended December 31, 2017. The long term acute care segment did not incur start-up losses for the year ended December 31, 2016. Certain long term acute care key statistics for both the years ended December 31, 2017 and 2016 are presented in table VII of this release.

Inpatient Rehabilitation Segment

For the fourth quarter ended December 31, 2017, net operating revenues for the inpatient rehabilitation segment increased 24.7% to $171.1 million, compared to $137.1 million for the same quarter, prior year. Adjusted EBITDA for the inpatient rehabilitation segment increased 65.1% to $28.0 million for the fourth quarter ended December 31, 2017, compared to $17.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the inpatient rehabilitation segment was 16.4% for the fourth quarter ended December 31, 2017, compared to 12.4% for the same quarter, prior year. The Adjusted EBITDA results for the inpatient rehabilitation segment include start-up losses of approximately $3.0 million for the fourth quarter ended December 31, 2017, compared to $2.4 million for the same quarter, prior year. Certain inpatient rehabilitation key statistics for both the fourth quarters ended December 31, 2017 and 2016 are presented in table VI of this release.

For the year ended December 31, 2017, net operating revenues for the inpatient rehabilitation  segment increased 25.3% to $631.8 million, compared to $504.3 million for the prior year. Adjusted EBITDA for the inpatient rehabilitation segment increased 58.2% to $90.0 million for the year ended December 31, 2017, compared to $56.9 million for the prior year. The Adjusted EBITDA margin for the inpatient rehabilitation segment was 14.3% for the year ended December 31, 2017, compared to 11.3% for the prior year. The Adjusted EBITDA results for the inpatient rehabilitation segment include start-up losses of approximately $7.5 million for the year ended December 31, 2017, compared to $21.8 million for the prior year. Certain inpatient rehabilitation key statistics for both the years ended December 31, 2017 and 2016 are presented in table VII of this release.

Outpatient Rehabilitation Segment

For the fourth quarter ended December 31, 2017, net operating revenues for the outpatient rehabilitation segment increased 2.7% to $256.4 million, compared to $249.7 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $30.0 million for the fourth quarter ended December 31, 2017, compared to $30.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 11.7% for the fourth quarter ended December 31, 2017, compared to 12.3% for the same quarter, prior year. Certain outpatient rehabilitation key statistics for both the fourth quarters ended December 31, 2017 and 2016 are presented in table VI of this release.

For the year ended December 31, 2017, net operating revenues for the outpatient rehabilitation segment increased 2.6% to $1,020.8 million, compared to $995.4 million for the prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 2.1% to $132.5 million for the year ended December 31, 2017, compared to $129.8 million for the prior year. The Adjusted EBITDA margins for the outpatient rehabilitation segment were 13.0% for both the years ended December 31, 2017 and 2016. The results for the year ended December 31, 2016 include our contract therapy businesses through March 31, 2016 and Physiotherapy Associates Holdings, Inc. ("Physiotherapy") beginning March 4, 2016. Certain outpatient rehabilitation key statistics for both the years ended December 31, 2017 and 2016 are presented in table VII of this release.

Concentra Segment

For the fourth quarter ended December 31, 2017, net operating revenues for the Concentra segment increased 7.9% to $255.0 million, compared to $236.4 million for the same quarter, prior year.   Adjusted EBITDA for the Concentra segment increased 28.0% to $31.9 million for the fourth quarter ended December 31, 2017, compared to $24.9 million for the same quarter, prior year.  The Adjusted EBITDA margin for the Concentra segment was 12.5% for the fourth quarter ended December 31, 2017, compared to 10.5% for the same quarter, prior year. Certain Concentra key statistics for both the fourth quarters ended December 31, 2017 and 2016 are presented in table VI of this release.

For the year ended December 31, 2017, net operating revenues for the Concentra segment increased 3.3% to $1,034.0 million, compared to $1,000.6 million for the prior year.  Adjusted EBITDA for the Concentra segment increased 10.2% to $157.6 million for the year ended December 31, 2017, compared to $143.0 million for the prior year.  The Adjusted EBITDA margin for the Concentra segment was 15.2% for the year ended December 31, 2017, compared to 14.3% for the prior year. Certain Concentra key statistics for both the years ended December 31, 2017 and 2016 are presented in table VII of this release.

Stock Repurchase Program

Select Medical did not repurchase shares during the year ended December 31, 2017 under its authorized $500.0 million stock repurchase program. The program has been extended until December 31, 2018, and will remain in effect until then, unless further extended or earlier terminated by the board of directors. Since the inception of the program through December 31, 2017, Select Medical has repurchased 35,924,128 shares at a cost of approximately $314.7 million, or $8.76 per share, which includes transaction costs.

U.S. HealthWorks Acquisition and Financing

On October 23, 2017, Select Medical announced that Concentra Group Holdings, LLC ("Concentra Group Holdings") entered into an Equity Purchase and Contribution Agreement (the "Purchase Agreement") dated October 22, 2017 with Concentra, Concentra Group Holdings Parent, LLC ("Concentra Group Holdings Parent"), U.S. HealthWorks, Inc. ("U.S. HealthWorks"), and Dignity Health Holding Company ("DHHC"). On February 1, 2018, pursuant to the terms of the Purchase Agreement, Concentra acquired all of the issued and outstanding shares of stock of U.S. HealthWorks, an occupational medicine and urgent care service provider which operates approximately 250 centers and onsite clinics. The operations of U.S. HealthWorks will be included within our Concentra segment.

In connection with the closing of the transaction, Concentra Group Holdings redeemed certain of its outstanding equity interests from existing minority equity holders and subsequently, Concentra Group Holdings and a wholly owned subsidiary of Concentra Group Holdings Parent merged, with Concentra Group Holdings surviving the merger and becoming a wholly owned subsidiary of Concentra Group Holdings Parent. As a result of the merger, the equity interests of Concentra Group Holdings outstanding after the redemption described above were exchanged for membership interests in Concentra Group Holdings Parent.

Concentra acquired U.S. HealthWorks for $753.0 million. DHHC, a subsidiary of Dignity Health, was issued a 20% equity interest in Concentra Group Holdings Parent, which was valued at $238.0 million. Select Medical retained a majority voting interest in Concentra Group Holdings Parent following the closing of the transaction.

On February 1, 2018, in connection with the transactions contemplated under the Purchase Agreement, Concentra amended its first lien credit agreement (the "Concentra first lien credit agreement") to, among other things, provide for (i) an additional $555.0 million in tranche B term loans that, along with the existing tranche B term loans under the Concentra first lien credit agreement, have a maturity date of June 1, 2022 and (ii) an additional $25.0 million to the $50.0 million, five-year revolving credit facility under the terms of the existing Concentra first lien credit agreement. The tranche B term loans bear interest at a rate equal to the Adjusted LIBO Rate (as defined in the Concentra first lien credit agreement) plus 2.75% (subject to an Adjusted LIBO Rate floor of 1.00%) for Eurodollar Borrowings (as defined in the Concentra first lien credit agreement), or Alternate Base Rate (as defined in the Concentra first lien credit agreement) plus 1.75% (subject to an Alternate Base Rate floor of 2.00%) for ABR Borrowings (as defined in the Concentra first lien credit agreement). All other material terms and conditions applicable to the original tranche B term loan commitments are applicable to the additional tranche B term loans created under this amendment.

In addition, Concentra entered into a second lien credit agreement (the "Concentra 2018 second lien credit agreement") that provides for $240.0 million in term loans with an initial maturity date of June 1, 2023. Borrowings under the Concentra 2018 second lien credit agreement will bear interest at a rate equal to the Adjusted LIBO Rate (as defined in the Concentra 2018 second lien credit agreement) plus 6.50% (subject to an Adjusted LIBO Rate floor of 1.00%), or Alternate Base Rate (as defined in the Concentra 2018 second lien credit agreement) plus 5.50% (subject to an Alternate Base Rate floor of 2.00%).

Concentra used borrowings under the Concentra first lien credit agreement and Concentra 2018 second lien credit agreement credit facilities, together with cash on hand, to pay the purchase price for all of the issued and outstanding stock of U.S. HealthWorks to DHHC and to finance the redemption and reorganization transactions contemplated by the Purchase Agreement (as described above).

Proposed Refinancing

Select Medical is currently in negotiations with its lenders regarding a proposed repricing of its senior secured credit facility. The proposed repricing is subject to customary terms and conditions, including negotiation and execution of definitive documentation. Select Medical anticipates that the proposed repricing, if completed, would close in March of 2018.

Business Outlook

Select Medical reaffirms its 2018 business outlook, provided most recently in its January 8, 2018 press release, for net operating revenues, Adjusted EBITDA and fully diluted income per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2018 to be in the range of $5.0 billion to $5.2 billion. Select Medical continues to expect Adjusted EBITDA for the full year 2018 to be in the range of $630.0 million to $660.0 million. Select Medical continues to expect fully diluted income per common share for the full year 2018 to be in the range of $0.97 to $1.12. The above business outlook takes into consideration the consummation of the acquisition of U.S. HealthWorks and the related financing, which occurred on February 1, 2018. Select Medical assumed a 28.0% effective tax rate when preparing the above business outlook, which includes the expected impact resulting from the federal tax reform legislation enacted during 2017.

Conference Call

Select Medical will host a conference call regarding its fourth quarter and full year ended December 31, 2017 results, as well as its business outlook, on Thursday, February 22, 2018, at 9:00am ET. 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 5447859. 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 ET, March 1, 2018. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The passcode for the replay will be 5447859. The replay can also be accessed at Select Medical Holdings Corporation's website, www.selectmedicalholdings.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 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 failure of our long term acute care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;

the failure of our long term acute care hospitals and inpatient rehabilitation facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;

a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;

acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;

our plans and expectations related to the acquisition of U.S. HealthWorks by Concentra and our ability to realize anticipated synergies;

private third-party payors for our services may adopt payment policies that could limit our future net operating revenues and profitability;

the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;

shortages in qualified nurses, therapists, physicians, or other licensed providers could increase our operating costs significantly or limit our ability to staff our facilities;

competition may limit our ability to grow and result in a decrease in our net operating revenues and profitability;

the loss of key members of our management team could significantly disrupt our operations;

the effect of claims asserted against us could subject us to substantial uninsured liabilities;

a security breach of our or our third-party vendors' information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and

other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" of the annual report on Form 10-K for the year ended December 31, 2017.

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

Editor's Details

Mike Wood
PharmiWeb.com
www.pharmiweb.com
editor@pharmiweb.com

Last updated on: 24/02/2018

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