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Select Medical Corporation Announces Results for First Quarter Ended March 31, 2009
Date:5/14/2009

MECHANICSBURG, Pa., May 14 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its first quarter ended March 31, 2009.

For the first quarter ended March 31, 2009, net operating revenues increased 2.4% to $561.2 million compared to $548.3 million for the same quarter, prior year. Income from operations increased 24.4% to $67.6 million compared to $54.3 million for the same quarter, prior year. Net income attributable to Select Medical Corporation increased to $31.7 million compared to $11.6 million for the same quarter, prior year. Additionally, net income before interest, income taxes, depreciation and amortization, gain on early retirement of debt, stock compensation expense, other income, other expense and non-controlling interest ("Adjusted EBITDA") for the first quarter increased 18.1% to $85.7 million compared to $72.5 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

Specialty Hospitals

At March 31, 2009, Select operated 87 long term acute care hospitals and five acute medical rehabilitation hospitals. This compares to 88 long term acute care hospitals and four acute medical rehabilitation hospitals operated at March 31, 2008. For the first quarter of 2009, net operating revenues for all of Select's hospitals increased 3.9% to $393.2 million compared to $378.6 million for the same quarter, prior year. Total patient days for the first quarter of 2009 were 256,273, admissions were 10,805 and net revenue per patient day was $1,508. This compares to 259,559 days, 10,736 admissions and net revenue per patient day of $1,432 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods, patient days in the first quarter of 2009 were 238,535 and admissions were 10,049, compared to 251,287 days and 10,391 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 21.4% to $76.8 million compared to $63.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 19.5% for the first quarter of 2009, compared to 16.7% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods was 21.1% for the first quarter of 2009, compared to 19.0% for the same quarter, prior year.

Outpatient Rehabilitation

At March 31, 2009, Select operated 948 outpatient clinics. This compares to 985 outpatient clinics at March 31, 2008. For the first quarter of 2009, net operating revenues for the segment decreased 1.0% to $167.8 million compared to $169.6 million for the same quarter, prior year. Adjusted EBITDA for the segment for the first quarter increased 5.9% to $21.3 million compared to $20.1 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment for the quarter was 12.7% compared to 11.9% in the same quarter, prior year. Patient visits for the quarter were 1,096,296 compared to 1,155,907 for the same quarter, prior year. Net revenue per visit was $103 for both the first quarter of 2009 and for the same quarter, prior year.

Conference Call

Select Medical Holdings Corporation ("Holdings"), the Parent of Select, has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission ("SEC") in connection with the proposed initial public offering of its common stock. Based on advice of counsel, Select's regular quarterly earnings conference calls will be suspended while Holdings' registration statement is under review by the SEC.

Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select operates 87 long term acute care hospitals and five acute medical rehabilitation hospitals in 25 states. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 948 locations in 37 states and the District of Columbia. Select also provides medical rehabilitation services on a contract basis at nursing homes, hospitals, assisted living and senior care centers, schools and worksites. Information about Select is available at http://www.selectmedicalcorp.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:

  • additional changes in government reimbursement for our services 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 LTCHs, to maintain their status as such may cause our net operating revenues and profitability to decline;
  • the failure of our facilities operated as "hospitals within hospitals," or HIHs, to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
  • implementation of modifications to the admissions policies for our inpatient rehabilitation facilities, as required to achieve compliance with Medicare guidelines, may result in a loss of patient volume at these hospitals and, as a result, may reduce our future net operating revenues and profitability;
  • a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
  • future acquisitions may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
  • private third-party payors for our services may undertake future cost containment initiatives that limit our future net operating revenues and profitability;
  • the failure to maintain established relationships with the physicians in our markets could reduce our net operating revenues and profitability;
  • shortages in qualified nurses or therapists could increase our operating costs significantly;
  • 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 or lack of adequate available insurance could subject us to substantial uninsured liabilities;
  • the ability to obtain any necessary or desired waiver or amendment from our existing lenders may be difficult due to the current uncertainty in the credit markets; and
  • the inability to draw funds under our senior secured credit facility because of lender defaults.


    I.  Condensed Consolidated Statements of Operations
    (In thousands)
    (unaudited)
    For the Three Months Ended March 31, 2008 and 2009

                                                                        %
                                                  2008      2009     Change
    Net operating revenues                    $548,278  $561,172       2.4%

    Costs and expenses:
     Cost of services                          452,271   451,394     (0.2)%
     General and administrative                 11,651    12,775       9.6%
     Bad debt expense                           12,615    11,646     (7.7)%
     Depreciation and amortization              17,397    17,731       1.9%

    Income from operations                      54,344    67,626      24.4%

    Gain on early retirement of debt                 -    11,754       N/M
    Other income (expense)                      (4,293)    1,653       N/M
    Interest income                                126        52    (58.7)%
    Interest expense                           (28,235)  (25,969)    (8.0)%

    Income from operations before income taxes  21,942    55,116     151.2%

    Income tax expense                          10,079    22,368     121.9%

    Net income                                  11,863    32,748     176.1%

    Less:  Net income attributable to
     non-controlling interests                     309     1,021     230.4%

    Net income attributable to Select Medical
     Corporation                               $11,554   $31,727     174.6%


    N/M = Not Meaningful



    II.  Condensed Consolidated Balance Sheets
    (In thousands)
    (unaudited)

                                       December 31,  March 31
                                           2008        2009
                 ASSETS

    Cash                                 $64,260     $12,686

    Accounts receivable, net             312,418     366,317

    Current deferred tax asset            48,594      51,603

    Prepaid income taxes                   7,362           -

    Other current assets                  20,897      25,322

    Total Current Assets                 453,531     455,928

    Property and equipment, net          471,065     462,399

    Goodwill                           1,506,661   1,506,661

    Other identifiable intangibles        74,078      71,868

    Assets held for sale                  12,542      12,542

    Other assets                          44,548      41,880

    Total Assets                      $2,562,425  $2,551,278

    LIABILITIES AND EQUITY

    Payables and accruals               $344,358    $318,685

    Current portion of long-term debt      9,046      12,154

    Total Current Liabilities            353,404     330,839

    Long-term debt, net of current
     portion                           1,460,276   1,426,790

    Non-current deferred tax
     liability                            42,918      47,761

    Other non-current liabilities         67,709      65,479

    Total equity                         638,118     680,409

    Total Liabilities and Equity      $2,562,425  $2,551,278




    III.  Key Statistics
    (unaudited)
    For the Three Months Ended March 31, 2008 and 2009
                                                                         %
                                                    2008      2009   Change

    Specialty Hospitals (a)

    Number of hospitals - end of period              92         92      0.0%

    Net operating revenues (,000)              $378,604   $393,232      3.9%

    Number of patient days                      259,559    256,273    (1.3)%

    Number of admissions                         10,736     10,805      0.6%

    Net revenue per patient day (b)              $1,432     $1,508      5.3%

    Adjusted EBITDA   (,000)                    $63,243    $76,781     21.4%

    Adjusted EBITDA margin - all hospitals        16.7%      19.5%     16.8%
    Adjusted EBITDA margin - same store
     hospitals (c)                                19.0%      21.1%     11.1%

    Outpatient Rehabilitation

    Number of clinics - end of period               985        948    (3.8)%

    Net operating revenues (,000)              $169,577   $167,819    (1.0)%

    Number of visits                          1,155,907  1,096,296    (5.2)%

    Revenue per visit (d)                          $103       $103      0.0%

    Adjusted EBITDA  (,000)                     $20,097    $21,284      5.9%

    Adjusted EBITDA margin                        11.9%      12.7%      6.7%


    (a)  Specialty hospitals consist of long term acute care hospitals and
         acute medical rehabilitation hospitals.

    (b)  Net revenue per patient day is calculated by dividing specialty
         hospital patient service revenue by the total number of patient days.

    (c)  Adjusted EBITDA margin - same store hospitals represents the
         Adjusted EBITDA margin for those hospitals opened or acquired before
         January 1, 2008 and operated throughout both periods.

    (d)  Net revenue per visit is calculated by dividing outpatient
         rehabilitation clinic revenue by the total number of visits.  For
         purposes of this computation, outpatient rehabilitation clinic
         revenue does not include managed clinics or contract services
         revenue.



    IV.   Net Income to Adjusted EBITDA Reconciliation
    (In thousands)
    (unaudited)

    For the Three Months Ended March 31, 2008 and 2009

    The following table reconciles net income to Adjusted EBITDA for Select.
    Adjusted EBITDA is used by Select to report its segment performance in
    accordance with SFAS No. 131.  Adjusted EBITDA is defined as net income
    before interest, income taxes, depreciation and amortization, stock
    compensation expense, gain on early retirement of debt, other income,
    other expense and non-controlling interest.  We believe that the
    presentation of Adjusted EBITDA is important to investors because
    Adjusted EBITDA is used by management to evaluate financial Performance
    and determine resource allocation for each of our operating units.

    Adjusted EBITDA is not a measure of financial performance under Generally
    accepted accounting principles.  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, 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 generally
    accepted accounting principles and is thus susceptible to varying
    calculations, Adjusted EBITDA as presented may not be comparable to other
    similarly titled measures of other companies.

                                                      Three Months Ended
                                                            March 31,
                                                         2008       2009
    Net income                                        $11,554    $31,727
    Non-controlling interest                              309      1,021
    Income tax expense                                 10,079     22,368
    Interest expense, net                              28,109     25,917
    Other expense (income)                              4,293     (1,653)
    Gain on early retirement of debt                        -    (11,754)
    Stock compensation expense
     Included in general and administrative               709        242
     Included in cost of services                          45         53
    Depreciation and amortization                      17,397     17,731
    Adjusted EBITDA                                   $72,495    $85,652

    Specialty hospitals                               $63,243    $76,781
    Outpatient rehabilitation                          20,097     21,284
    Other (1)                                         (10,845)   (12,413)
    Adjusted EBITDA                                   $72,495    $85,652


    (1)  Other primarily includes Select's general and administrative costs.



    The following tables reconcile specialty hospital same store information.


                                                   Three Months Ended
                                           March 31, 2008  March 31, 2009
    Specialty hospitals net operating
     revenue                                     $378,604        $393,232
    Less:   Specialty hospitals in
     development, opened or closed after
     1/1/08                                        10,344          26,633
    Specialty hospitals same store net
     operating revenue                           $368,260        $366,599

    Specialty hospitals Adjusted EBITDA           $63,243         $76,781
    Less:   Specialty hospitals in
     development, opened or closed after
     1/1/08                                        (6,734)           (508)
    Specialty hospitals same store
     Adjusted EBITDA                              $69,977         $77,289

    All specialty hospitals Adjusted
     EBITDA margin                                   16.7%           19.5%
    Specialty hospitals same store
     Adjusted EBITDA margin                          19.0%           21.1%


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SOURCE Select Medical Corporation
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