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Select Medical Corporation Announces Results for Second Quarter Ended June 30, 2009
Date:8/13/2009

MECHANICSBURG, Pa., Aug. 13 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its second quarter ended June 30, 2009.

For the second quarter ended June 30, 2009, net operating revenues increased 3.8% to $559.5 million compared to $538.8 million for the same quarter, prior year. Income from operations increased 35.0% to $65.4 million compared to $48.4 million for the same quarter, prior year. Net income attributable to Select Medical Corporation increased to $25.5 million compared to $12.6 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(expense) and non-controlling interest ("Adjusted EBITDA") for the second quarter increased 25.2% to $83.6 million compared to $66.8 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

For the six months ended June 30, 2009, net operating revenues increased 3.1% to $1,120.7 million compared to $1,087.1 million for the same period, prior year. Income from operations increased 29.4% to $133.0 million compared to $102.8 million for the same period, prior year. Net income attributable to Select Medical Corporation increased to $57.2 million compared to $24.2 million for the same period, prior year. Additionally, Adjusted EBITDA for the six months ended June 30, 2009 increased 21.5% to $169.3 million compared to $139.3 million for the same period, prior year.

Specialty Hospitals

At June 30, 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 June 30, 2008. For the second quarter of 2009, net operating revenues for all of Select's hospitals increased 5.2% to $386.3 million compared to $367.3 million for the same quarter, prior year. Total patient days for the second quarter of 2009 were 252,710, admissions were 10,504 and net revenue per patient day was $1,502. This compares to 252,727 days, 10,178 admissions and net revenue per patient day of $1,425 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 second quarter of 2009 were 235,648 and admissions were 9,811, compared to 243,334 days and 9,789 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 28.5% to $71.0 million compared to $55.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 18.4% for the second quarter of 2009, compared to 15.0% 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 20.1% for the second quarter of 2009, compared to 16.9% for the same quarter, prior year.

For the six months ended June 30, 2009, net operating revenues for all of Select's hospitals increased 4.5% to $779.6 million compared to $745.9 million for the same period, prior year. Total patient days for the six months ended June 30, 2009 were 508,983, admissions were 21,309 and net revenue per patient day was $1,505. This compares to 512,286 days, 20,914 admissions and net revenue per patient day of $1,428 for the same period, prior year. For the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods, patient days for the six months ended June 30, 2009 were 474,183, and admissions were 19,860, compared to 494,621 days and 20,180 admissions in the same period, prior year. Adjusted EBITDA for the segment for the six months ended June 30, 2009 increased 24.7% to $147.7 million compared to $118.5 million for the same period, prior year. The Adjusted EBITDA margin for the segment for the six months ended June 30, 2009 was 19.0%, compared to 15.9% for the same period, 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 20.6% for the six months ended June 30, 2009, compared to 18.0% for the same period, prior year.

Outpatient Rehabilitation

At June 30, 2009, Select operated 948 outpatient clinics. This compares to 970 outpatient clinics at June 30, 2008. For the second quarter of 2009, net operating revenues for the segment increased 1.0% to $173.2 million compared to $171.5 million for the same quarter, prior year. Adjusted EBITDA for the segment for the second quarter increased 6.5% to $25.3 million compared to $23.7 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment for the quarter was 14.6% compared to 13.8% in the same quarter, prior year. Patient visits for the quarter were 1,163,341 compared to 1,167,702 for the same quarter, prior year. Net revenue per visit was $101 for the quarter ended June 30, 2009 compared to $102 for the same quarter, prior year.

For the six months ended June 30, 2009, net operating revenues were $341.0 million compared to $341.1 million for the same period, prior year. Adjusted EBITDA for the six months ended June 30, 2009 increased 6.2% to $46.6 million compared to $43.8 million for the same period, prior year. The Adjusted EBITDA margin for the six months ended June 30, 2009 was 13.7% compared to 12.9% in the same period, prior year. Patient visits for the six months ended June 30, 2009 were 2,259,637 compared to 2,323,609 for the same period, prior year. Net revenue per visit was $102 for the six months ended June 30, 2009 compared to $103 for the same period, prior year.

Credit Facility Amendment

Select and Select's parent corporation, Select Medical Holdings Corporation ("Holdings"), effective August 5, 2009 entered into Amendment No. 3 (the "Amendment") to Select's senior secured credit facility, dated as of February 24, 2005 (as amended to date, the "Credit Facility"), with a group of holders of Tranche B term loans and JPMorgan Chase Bank, N.A., as administrative agent. The Amendment extended the maturity of $384.5 million principal amount of Tranche B term loans from February 24, 2012 to August 22, 2014, and made related technical changes to the Credit Facility. The applicable rate for the Tranche B-1 term loans under the Credit Facility has increased to 3.75% for adjusted LIBOR loans and 2.75% for alternate base rate loans.

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 June 30, 2008 and 2009

                                                                       %
                                                  2008      2009    Change
                                               -------  --------    ------
    Net operating revenues                    $538,806  $559,535       3.8%

    Costs and expenses:
     Cost of services                          449,356   453,011       0.8%
     General and administrative                 12,654    12,885       1.8%
     Bad debt expense                           10,445    10,312      (1.3)%
     Depreciation and amortization              17,930    17,939       0.1%
                                               -------  --------    ------

    Income from operations                      48,421    65,388      35.0%

    Gain on early retirement of debt                 -     3,562       N/M
    Other income (expense)                       1,791       (32)      N/M
    Interest income                                 56        28     (50.0)%
    Interest expense                           (27,773)  (24,853)    (10.5)%
                                               -------  --------    ------

    Income from operations before income
     taxes                                      22,495    44,093      96.0%

    Income tax expense                           9,123    18,207      99.6%
                                               -------  --------    ------

    Net income                                  13,372    25,886      93.6%

    Less:  Net income attributable to
      non-controlling interests                    762       391     (48.7)%
                                               -------  --------    ------

    Net income attributable to Select Medical
     Corporation                               $12,610   $25,495     102.2%
                                               =======   =======    ======

    N/M = Not Meaningful



    II.   Condensed Consolidated Statements of Operations
    (In thousands)
    (unaudited)
    For the Six Months Ended June 30, 2008 and 2009

                                                                      %
                                               2008        2009    Change
                                         ----------  ----------    ------
    Net operating revenues               $1,087,084  $1,120,707       3.1%

    Costs and expenses:
     Cost of services                       901,627     904,405       0.3%
     General and administrative              24,305      25,660       5.6%
     Bad debt expense                        23,060      21,958      (4.8)%
     Depreciation and amortization           35,327      35,670       1.0%
                                         ----------  ----------    ------
    Income from operations                  102,765     133,014      29.4%

    Gain on early retirement of debt              -      15,316       N/M
    Other income (expense)                   (2,502)      1,621       N/M
    Interest income                             182          80     (56.0)%
    Interest expense                        (56,008)    (50,822)     (9.3)%
                                         ----------  ----------    ------
    Income from operations before income
     taxes                                   44,437      99,209     123.3%

    Income tax expense                       19,202      40,575     111.3%
                                         ----------  ----------    ------

    Net income                               25,235      58,634     132.4%

    Less:  Net income attributable to
      non-controlling interests               1,071       1,412      31.8%
                                         ----------  ----------    ------
    Net income attributable to Select
     Medical Corporation                    $24,164     $57,222     136.8%
                                         ==========  ==========    ======
    N/M = Not Meaningful



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

                                    December 31,    June 30,
                                           2008        2009
                                    -----------  ----------
    ASSETS

    Cash                                $64,260     $27,689

    Accounts receivable, net            312,418     339,615

    Current deferred tax asset           48,594      51,316

    Prepaid income taxes                  7,362           -

    Other current assets                 20,897      21,776
                                    -----------  ----------

    Total Current Assets                453,531     440,396

    Property and equipment, net         471,065     460,420

    Goodwill                          1,506,661   1,506,661

    Other identifiable intangibles       74,078      69,663

    Assets held for sale                 12,542      11,342

    Other assets                         44,548      39,818
                                    -----------  ----------

    Total Assets                     $2,562,425  $2,528,300
                                    ===========  ==========

    LIABILITIES AND EQUITY

    Payables and accruals              $344,358    $331,761

    Current portion of long-term
     debt                                 9,046      10,670
                                    -----------  ----------

    Total Current Liabilities           353,404     342,431

    Long-term debt, net of current
     portion                          1,460,276   1,375,046

    Non-current deferred tax
     liability                           42,918      51,967

    Other non-current liabilities        67,709      62,248

    Total equity                        638,118     696,608
                                    -----------  ----------


     Total Liabilities and Equity    $2,562,425  $2,528,300
                                    ===========  ==========



    IV.  Key Statistics
    (unaudited)
    For the Three Months Ended June 30, 2008 and 2009
                                                                        %
                                                   2008          2009 Change
                                              ---------     --------- ------

    Specialty Hospitals (a)

    Number of hospitals - end of period              92            92    0.0%

    Net operating revenues   (,000)            $367,289      $386,331    5.2%

    Number of patient days                      252,727       252,710   (0.0)%

    Number of admissions                         10,178        10,504    3.2%

    Net revenue per patient day (b)              $1,425        $1,502    5.4%

    Adjusted EBITDA   (,000)                    $55,237       $70,960   28.5%

    Adjusted EBITDA margin - all
     hospitals                                     15.0%         18.4%  22.7%
    Adjusted EBITDA margin - same store
     hospitals (c)                                 16.9%         20.1%  18.9%

    Outpatient Rehabilitation

    Number of clinics - end of period               970           948   (2.3)%

    Net operating revenues   (,000)            $171,495      $173,190    1.0%

    Number of visits                          1,167,702     1,163,341   (0.4)%

    Revenue per visit (d)                          $102          $101   (1.0)%

    Adjusted EBITDA  (,000)                     $23,746       $25,294    6.5%

    Adjusted EBITDA margin                         13.8%         14.6%   5.8%

    (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.



    V.  Key Statistics
    (unaudited)
    For the Six Months Ended June 30, 2008 and 2009
                                                                        %
                                                   2008          2009 Change
                                              ---------     --------- ------
    Specialty Hospitals (a)

    Number of hospitals - end of
     period                                          92            92    0.0%

    Net operating revenues   (,000)            $745,893      $779,563    4.5%

    Number of patient days                      512,286       508,983   (0.6)%

    Number of admissions                         20,914        21,309    1.9%

    Net revenue per patient day (b)              $1,428        $1,505    5.4%

    Adjusted EBITDA   (,000)                   $118,480      $147,741   24.7%

    Adjusted EBITDA margin - all
     hospitals                                     15.9%         19.0%  19.5%
    Adjusted EBITDA margin - same
     store hospitals (c)                           18.0%         20.6%  14.4%

    Outpatient Rehabilitation

    Number of clinics - end of period               970           948   (2.3)%

    Net operating revenues   (,000)            $341,072      $341,009   (0.0)%

    Number of visits                          2,323,609    2,259,637    (2.8)%

    Revenue per visit (d)                          $103          $102   (1.0)%

    Adjusted EBITDA  (,000)                     $43,843       $46,578    6.2%

    Adjusted EBITDA margin                         12.9%         13.7%   6.2%

    (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.



     VI.   Net Income to Adjusted EBITDA Reconciliation
    (In thousands)
    (unaudited)
    For the Three and Six Months Ended June 30, 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       Six Months Ended
                                   Ended June 30,          June 30,
                                    2008      2009      2008      2009
                                 -------   -------  --------  --------
    Net income                   $12,610   $25,495   $24,164   $57,222
    Non-controlling interest         762       391     1,071     1,412
    Income tax expense             9,123    18,207    19,202    40,575
    Interest expense, net         27,717    24,825    55,826    50,742
    Other expense (income)        (1,791)       32     2,502    (1,621)
    Gain on early retirement
     of debt                           -    (3,562)        -   (15,316)
    Stock compensation
     expense
     Included in general and
      administrative                 438       241     1,147       483
     Included in cost of
      services                         -        58        45       111
    Depreciation and
     amortization                 17,930    17,939    35,327    35,670
                                 -------   -------  --------  --------
    Adjusted EBITDA              $66,789   $83,626  $139,284  $169,278
                                 =======   =======  ========  ========

    Specialty hospitals          $55,237   $70,960  $118,480  $147,741
    Outpatient rehabilitation     23,746    25,294    43,843    46,578
    Other (1)                    (12,194)  (12,628)  (23,039)  (25,041)
                                 -------   -------  --------  --------
    Adjusted EBITDA              $66,789   $83,626  $139,284  $169,278
                                 =======   =======  ========  ========


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



    The following tables reconcile specialty hospital same store information.

                                                   Three Months Ended
                                            June 30, 2008    June 30, 2009
                                            -------------    -------------
    Specialty hospitals net operating
     revenue                                     $367,289         $386,331
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      12,726           25,257
                                            -------------    -------------
    Specialty hospitals same store net
     operating revenue                           $354,563         $361,074
                                            =============    =============

    Specialty hospitals Adjusted EBITDA           $55,237          $70,960
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      (4,692)          (1,749)
                                            -------------    -------------
    Specialty hospitals same store
     Adjusted EBITDA                              $59,929          $72,709
                                            =============    =============

    All specialty hospitals Adjusted
     EBITDA margin                                   15.0%            18.4%
    Specialty hospitals same store
     Adjusted EBITDA margin                          16.9%            20.1%



                                                    Six Months Ended
                                            June 30, 2008    June 30, 2009
                                            -------------    -------------
    Specialty hospitals net operating
     revenue                                     $745,893         $779,563
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      23,070           51,890
                                            -------------    -------------
    Specialty hospitals same store net
     operating revenue                           $722,823         $727,673
                                            =============    =============

    Specialty hospitals Adjusted EBITDA          $118,480         $147,741
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                     (11,426)          (2,257)
                                            -------------    -------------
    Specialty hospitals same store
     Adjusted EBITDA                             $129,906         $149,998
                                            =============    =============

    All specialty hospitals Adjusted
     EBITDA margin                                   15.9%            19.0%
    Specialty hospitals same store
     Adjusted EBITDA margin                          18.0%            20.6%


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