Select Medical(SEM) - 2023 Q4 - Annual Results

Financial Performance Highlights This section details Select Medical's strong financial results for both the fourth quarter and full year 2023, showcasing significant growth in revenue, net income, and Adjusted EBITDA Fourth Quarter 2023 Performance In the fourth quarter of 2023, Select Medical reported significant growth across key financial metrics compared to the prior year's quarter. Revenue increased by 4.9%, while income from operations and net income saw substantial increases of 31.5% and 63.9% respectively. This performance translated to a 63.6% rise in earnings per common share Q4 2023 vs Q4 2022 Financial Highlights (Millions) | Metric | Q4 2023 | Q4 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,658.9 | $1,581.5 | +4.9% | | Income from Operations | $114.3 | $86.9 | +31.5% | | Net Income | $61.8 | $37.7 | +63.9% | | Adjusted EBITDA | $180.1 | $148.9 | +20.9% | | Earnings per Common Share | $0.36 | $0.22 | +63.6% | Full Year 2023 Performance For the full year ended December 31, 2023, Select Medical demonstrated strong financial growth. Revenue grew by 5.2% year-over-year. Net income and earnings per share increased significantly by 51.4% and 54.9%, respectively. Adjusted EBITDA also saw a robust increase of 24.8%. Notably, other operating income was substantially lower in 2023 as 2022 included significant Provider Relief Fund payments Full Year 2023 vs 2022 Financial Highlights (Millions) | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $6,664.1 | $6,333.5 | +5.2% | | Income from Operations | $554.9 | $403.3 | +37.6% | | Net Income | $299.7 | $198.0 | +51.4% | | Adjusted EBITDA | $807.4 | $646.9 | +24.8% | | Earnings per Common Share | $1.91 | $1.23 | +54.9% | | Adjusted EPS | $1.99 | $1.23 | +61.8% | - Other operating income for 2022 was $28.8 million, primarily from Provider Relief Fund payments, compared to only $1.8 million in 2023[4] Company and Segment Overview This section provides an overview of Select Medical's operational footprint and detailed financial performance across its critical illness recovery, rehabilitation, outpatient, and Concentra segments Company Overview Select Medical is a major US operator of specialized hospitals, outpatient clinics, and occupational health centers. As of December 31, 2023, the company operates across four main segments: critical illness recovery, rehabilitation hospitals, outpatient rehabilitation, and Concentra, with a significant footprint across 46 states and the District of Columbia - As of December 31, 2023, Select Medical operated[5] - 107 critical illness recovery hospitals - 33 rehabilitation hospitals - 1,933 outpatient rehabilitation clinics - 544 occupational health centers Critical Illness Recovery Hospital Segment The Critical Illness Recovery Hospital segment saw modest revenue growth in Q4 and for the full year 2023. However, profitability improved dramatically, with Adjusted EBITDA increasing 29.4% in Q4 and 121.0% for the full year, leading to a significant expansion in the Adjusted EBITDA margin from 5.0% in 2022 to 10.7% in 2023 Critical Illness Recovery Hospital Segment Performance (Millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $567.1 | $561.9 | $2,299.8 | $2,234.1 | | Adjusted EBITDA | $57.4 | $44.3 | $246.0 | $111.3 | | Adjusted EBITDA Margin | 10.1% | 7.9% | 10.7% | 5.0% | Rehabilitation Hospital Segment The Rehabilitation Hospital segment reported strong growth in both revenue and profitability for Q4 and the full year 2023. Q4 revenue increased 9.4% and Adjusted EBITDA grew 18.4%. For the full year, revenue was up 6.9% and Adjusted EBITDA increased by 12.0%, with the Adjusted EBITDA margin improving to 22.6% Rehabilitation Hospital Segment Performance (Millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $260.2 | $237.9 | $979.6 | $916.8 | | Adjusted EBITDA | $66.3 | $56.0 | $221.9 | $198.0 | | Adjusted EBITDA Margin | 25.5% | 23.6% | 22.6% | 21.6% | Outpatient Rehabilitation Segment This segment experienced solid revenue growth and a notable increase in profitability. Q4 revenue rose 6.1%, with Adjusted EBITDA surging 40.9%. For the full year, revenue increased 5.7% and Adjusted EBITDA grew 9.8%, pushing the Adjusted EBITDA margin to 9.4% Outpatient Rehabilitation Segment Performance (Millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $298.2 | $281.1 | $1,188.9 | $1,125.3 | | Adjusted EBITDA | $22.5 | $15.9 | $111.9 | $101.9 | | Adjusted EBITDA Margin | 7.5% | 5.7% | 9.4% | 9.1% | Concentra Segment The Concentra segment showed consistent growth in revenue and earnings. Q4 revenue increased by 6.2% and Adjusted EBITDA by 9.7%. For the full year 2023, revenue grew 6.6% and Adjusted EBITDA increased 8.1%, with a strong Adjusted EBITDA margin of 19.7% Concentra Segment Performance (Millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $440.7 | $415.0 | $1,838.1 | $1,724.4 | | Adjusted EBITDA | $68.3 | $62.2 | $361.3 | $334.3 | | Adjusted EBITDA Margin | 15.5% | 15.0% | 19.7% | 19.4% | Shareholder Returns and Capital Allocation This section outlines Select Medical's capital allocation strategies, including its declared quarterly cash dividend and the ongoing common stock repurchase program Dividend Select Medical's board of directors declared a quarterly cash dividend of $0.125 per share, payable in March 2024. The company notes that future dividend declarations are at the discretion of the board and are not guaranteed - A cash dividend of $0.125 per share was declared on February 13, 2024, payable on or about March 13, 2024, to stockholders of record as of March 1, 2024[14] - The declaration and payment of future dividends are not assured and depend on various factors considered by the board of directors[15] Stock Repurchase Program The company has a $1.0 billion stock repurchase program authorized through December 31, 2025. No shares were repurchased during the year ended December 31, 2023. Since its inception, the program has repurchased approximately $600.3 million worth of shares - The board has authorized a common stock repurchase program of up to $1.0 billion, effective until December 31, 2025[16] - No shares were repurchased during the year ended December 31, 2023. Cumulatively, 48,234,823 shares have been repurchased at a cost of approximately $600.3 million[17] Business Outlook and Forward-Looking Statements This section presents Select Medical's financial guidance for 2024 and discusses key risk factors that could influence future operational and financial outcomes Business Outlook for 2024 Select Medical has issued its financial guidance for the full year 2024, projecting continued growth in revenue, Adjusted EBITDA, and earnings per share 2024 Business Outlook | Metric | Expected Range | | :--- | :--- | | Revenue | $6.9 billion to $7.1 billion | | Adjusted EBITDA | $830 million to $880 million | | Fully Diluted EPS | $1.88 to $2.18 | Forward-Looking Statements and Risk Factors The company highlights several forward-looking statements and associated risks that could materially affect future results. Key risks include changes in government reimbursement, inflationary pressures on labor and other costs, shortages of qualified healthcare professionals, and potential impacts from global health threats - Key risk factors include[24] - Changes in government reimbursement policies - Adverse economic conditions, including inflation, increasing labor and business costs - Shortages of qualified nurses, therapists, and other healthcare professionals - Potential negative impacts from global pandemics - Failure to maintain Medicare certifications for facilities - Risks related to acquisitions, joint ventures, and the potential separation of Concentra Consolidated Financial Statements This section provides a comprehensive overview of Select Medical's financial position and performance through its condensed consolidated statements of operations, balance sheets, and cash flows Condensed Consolidated Statements of Operations The consolidated statements of operations detail the company's revenues, costs, and profitability for the fourth quarter and full year of 2023 compared to 2022. For the full year 2023, revenue increased to $6.66 billion from $6.33 billion in 2022, and net income attributable to Select Medical rose to $243.5 million from $159.0 million Full Year Statement of Operations Highlights (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $6,664,058 | $6,333,538 | | Income from operations | $554,874 | $403,283 | | Net income | $299,731 | $198,026 | | Net income attributable to Select Medical | $243,491 | $158,994 | Condensed Consolidated Balance Sheets The balance sheet as of December 31, 2023, shows total assets of $7.69 billion, a slight increase from $7.67 billion at year-end 2022. Total liabilities decreased to $6.12 billion from $6.27 billion, while total equity increased to $1.55 billion from $1.36 billion Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,257,646 | $1,271,313 | | Total Assets | $7,689,631 | $7,665,293 | | Total Current Liabilities | $1,248,465 | $1,155,151 | | Long-term debt, net | $3,587,675 | $3,835,211 | | Total Liabilities | $6,115,616 | $6,274,686 | | Total Equity | $1,547,718 | $1,356,564 | Condensed Consolidated Statements of Cash Flows For the year ended December 31, 2023, net cash provided by operating activities more than doubled to $582.1 million from $284.8 million in 2022. Net cash used in investing activities increased to $268.5 million, while net cash used in financing activities was $327.5 million, primarily due to debt repayments. The company ended the year with a cash balance of $84.0 million Full Year Cash Flow Highlights (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $582,058 | $284,825 | | Net cash used in investing activities | ($268,477) | ($226,339) | | Net cash used in financing activities | ($327,481) | ($34,890) | | Net (decrease) increase in cash | ($13,900) | $23,596 | | Cash and cash equivalents at end of period | $84,006 | $97,906 | Key Statistics and Reconciliations This section presents key operational metrics across Select Medical's segments and reconciles non-GAAP financial measures like Adjusted EBITDA and Adjusted EPS to their GAAP equivalents Key Operating Statistics This section provides key operational metrics for each business segment for Q4 and the full year 2023. For the full year, the Critical Illness segment saw a slight decrease in patient days but an increase in revenue per patient day. The Rehabilitation Hospital segment grew admissions and patient days. The Outpatient and Concentra segments both saw increased visit volumes Full Year 2023 vs 2022 Key Statistics | Segment / Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Critical Illness Recovery | | | | | Patient Days | 1,108,492 | 1,127,911 | (1.7)% | | Revenue per Patient Day | $2,067 | $1,973 | +4.8% | | Rehabilitation Hospital | | | | | Admissions | 31,627 | 29,736 | +6.4% | | Revenue per Patient Day | $2,017 | $1,953 | +3.3% | | Outpatient Rehabilitation | | | | | Number of Visits | 10,657,558 | 9,573,980 | +11.3% | | Revenue per Visit | $100 | $103 | (2.9)% | | Concentra | | | | | Number of Visits | 12,777,632 | 12,579,468 | +1.6% | | Revenue per Visit | $135 | $127 | +6.3% | Non-GAAP Reconciliations The report provides reconciliations for non-GAAP measures, including Adjusted EBITDA and Adjusted EPS, to their nearest GAAP equivalents. For the full year 2023, Adjusted EBITDA was reconciled from net income, totaling $807.4 million. Adjusted EPS of $1.99 was reconciled from GAAP EPS of $1.91 by excluding a loss on early retirement of debt. A reconciliation for the 2024 Adjusted EBITDA outlook is also provided - Adjusted EBITDA is defined as earnings excluding interest, taxes, depreciation, amortization, stock compensation, and other specified items. It is a key metric used by management to evaluate segment performance[43][44] FY 2023 Net Income to Adjusted EBITDA Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | Net income | $299,731 | | Add: Income tax expense | $82,625 | | Add: Interest expense | $198,639 | | Add: Loss on early retirement of debt | $14,692 | | Add: Stock compensation expense | $43,809 | | Add: Depreciation and amortization | $208,742 | | Less: Equity in earnings of unconsolidated subsidiaries | ($40,813) | | Adjusted EBITDA | $807,425 | FY 2023 EPS to Adjusted EPS Reconciliation | Metric | Per Share Amount | | :--- | :--- | | Diluted EPS | $1.91 | | Add: Loss on early retirement of debt, net of tax | $0.08 | | Adjusted Diluted EPS | $1.99 |