Select Medical(SEM) - 2024 Q1 - Quarterly Results

Executive Summary & First Quarter Financial Highlights Select Medical reported strong financial results for Q1 2024, with significant year-over-year increases across key metrics including revenue, income from operations, net income, Adjusted EBITDA, and earnings per common share Overall Financial Performance Select Medical reported strong financial results for Q1 2024, with significant year-over-year increases across key metrics including revenue, income from operations, net income, Adjusted EBITDA, and earnings per common share Q1 2024 Consolidated Financial Highlights (YoY Growth) | Metric | Q1 2023 (Millions) | Q1 2024 (Millions) | % Change | | :------------------------- | :----------------- | :----------------- | :------- | | Revenue | $1,665.0 | $1,788.8 | 7.4% | | Income from operations | $151.5 | $194.0 | 28.1% | | Net income | $85.3 | $117.2 | 37.4% | | Adjusted EBITDA | $214.1 | $261.9 | 22.4% | | Earnings per common share | $0.56 | $0.75 | 33.9% | | Adjusted earnings per common share | $0.56 | $0.77 | 37.5% | Company Overview Select Medical is a leading operator of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States Business Description and Facilities Select Medical is a leading operator of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States, with operations in 46 states and D.C - Select Medical operates 107 critical illness recovery hospitals, 33 rehabilitation hospitals, 1,922 outpatient rehabilitation clinics, and 547 occupational health centers as of March 31, 2024[4] Segment Performance Review This section reviews the financial and operational performance of Select Medical's critical illness recovery, rehabilitation, outpatient, and Concentra segments Critical Illness Recovery Hospital Segment This segment experienced robust growth in Q1 2024, with significant increases in revenue and Adjusted EBITDA, driven by higher revenue per patient day and a slight increase in admissions, despite a minor dip in occupancy rate Critical Illness Recovery Hospital Segment Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2023 | Q1 2024 | % Change | | :------------------------ | :------ | :------ | :------- | | Revenue (Millions) | $593.9 | $655.9 | 10.4% | | Adjusted EBITDA (Millions) | $76.8 | $115.9 | 51.0% | | Adjusted EBITDA margin | 12.9% | 17.7% | +4.8 pp | | Number of hospitals | 105 | 107 | - | | Number of patient days | 286,746 | 294,622 | 2.7% | | Number of admissions | 9,438 | 9,529 | 1.0% | | Revenue per patient day | $2,058 | $2,219 | 7.8% | | Occupancy rate | 72% | 71% | (1.4)% | Rehabilitation Hospital Segment The rehabilitation hospital segment demonstrated strong performance in Q1 2024, with double-digit growth in revenue and Adjusted EBITDA, supported by increases in patient days, admissions, and revenue per patient day, alongside an improved occupancy rate Rehabilitation Hospital Segment Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2023 | Q1 2024 | % Change | | :------------------------ | :------ | :------ | :------- | | Revenue (Millions) | $231.5 | $265.7 | 14.8% | | Adjusted EBITDA (Millions) | $47.2 | $61.4 | 30.0% | | Adjusted EBITDA margin | 20.4% | 23.1% | +2.7 pp | | Number of hospitals | 32 | 33 | - | | Number of patient days | 107,910 | 116,844 | 8.3% | | Number of admissions | 7,620 | 8,275 | 8.6% | | Revenue per patient day | $1,969 | $2,096 | 6.4% | | Occupancy rate | 86% | 87% | 1.2% | Outpatient Rehabilitation Segment The outpatient rehabilitation segment saw modest revenue growth in Q1 2024, but experienced a decline in Adjusted EBITDA and margin, despite an increase in the number of patient visits Outpatient Rehabilitation Segment Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2023 | Q1 2024 | % Change | | :------------------------ | :------ | :------ | :------- | | Revenue (Millions) | $295.9 | $303.2 | 2.5% | | Adjusted EBITDA (Millions) | $30.2 | $24.9 | (17.5)% | | Adjusted EBITDA margin | 10.2% | 8.2% | (2.0) pp | | Number of clinics | 1,936 | 1,922 | - | | Number of visits | 2,636,770 | 2,735,126 | 3.7% | | Revenue per visit | $101 | $99 | (2.0)% | Concentra Segment The Concentra segment reported slight increases in revenue and Adjusted EBITDA for Q1 2024, maintaining a stable Adjusted EBITDA margin, despite a decrease in the total number of visits Concentra Segment Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2023 | Q1 2024 | % Change | | :------------------------ | :------ | :------ | :------- | | Revenue (Millions) | $456.3 | $467.6 | 2.5% | | Adjusted EBITDA (Millions) | $93.7 | $96.1 | 2.6% | | Adjusted EBITDA margin | 20.5% | 20.6% | +0.1 pp | | Number of centers | 539 | 547 | - | | Number of visits | 3,217,945 | 3,155,655 | (1.9)% | | Revenue per visit | $133 | $139 | 4.5% | Capital Allocation & Shareholder Returns This section outlines Select Medical's capital allocation strategies, including cash dividends and the stock repurchase program Cash Dividend Declaration Select Medical's Board of Directors declared a quarterly cash dividend of $0.125 per share, payable in May 2024 - A cash dividend of $0.125 per share was declared on May 1, 2024, payable on or about May 30, 2024, to stockholders of record as of May 16, 2024[9] - Future dividend declarations are at the discretion of the Board of Directors, considering financial condition, operating results, cash needs, and indebtedness[10] Stock Repurchase Program The company has an authorized stock repurchase program of up to $1.0 billion, which remains in effect until December 31, 2025. No shares were repurchased during Q1 2024 - The Board of Directors authorized a common stock repurchase program of up to $1.0 billion, effective until December 31, 2025[11] - No shares were repurchased under the program during the three months ended March 31, 2024[12] - Since inception through March 31, 2024, Select Medical has repurchased 48,234,823 shares at a cost of approximately $600.3 million, averaging $12.45 per share[12] Business Outlook for 2024 This section provides Select Medical's financial guidance and non-GAAP reconciliations for the full year 2024 2024 Financial Guidance Select Medical reaffirmed its 2024 revenue outlook and adjusted its guidance for Adjusted EBITDA, fully diluted earnings per share, and issued guidance for adjusted earnings per share 2024 Business Outlook | Metric | Range | | :-------------------------- | :------------------- | | Revenue | $6.9 billion to $7.1 billion | | Adjusted EBITDA | $845 million to $885 million | | Fully diluted earnings per share | $1.95 to $2.19 | | Adjusted earnings per share | $1.96 to $2.20 | Outlook Non-GAAP Reconciliations The company provided reconciliations for its full-year 2024 Adjusted EBITDA and adjusted earnings per common share expectations to the closest comparable GAAP financial measures 2024 Business Outlook: Net Income to Adjusted EBITDA Reconciliation (Millions) | Metric | Low Range | High Range | | :------------------------------------ | :-------- | :--------- | | Net income attributable to Select Medical | $252 | $284 | | Net income attributable to non-controlling interests | $68 | $69 | | Net income | $320 | $353 | | Income tax expense | $96 | $105 | | Interest expense | $218 | $218 | | Equity in earnings of unconsolidated subsidiaries | ($43) | ($45) | | Income from operations | $591 | $631 | | Stock compensation expense | $48 | $48 | | Depreciation and amortization | $204 | $204 | | Concentra separation transaction costs | $2 | $2 | | Adjusted EBITDA | $845 | $885 | 2024 Business Outlook: Earnings per Common Share to Adjusted Earnings per Common Share Reconciliation | Metric | Low Range | High Range | | :------------------------------------------ | :-------- | :--------- | | Basic and diluted earnings per common share | $1.95 | $2.19 | | Adjustments: | | | | Concentra separation transaction costs, net of tax | $0.01 | $0.01 | | Adjusted earnings per common share | $1.96 | $2.20 | Condensed Consolidated Financial Statements This section presents Select Medical's key condensed consolidated financial statements for the reporting period Condensed Consolidated Statements of Operations The condensed consolidated statements of operations show a significant increase in revenue and net income for Q1 2024 compared to the prior year, reflecting improved operational efficiency and financial performance Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2023 and 2024) | | 2023 (Thousands) | 2024 (Thousands) | % Change | | :------------------------------------------ | :--------------- | :--------------- | :------- | | Revenue | $1,664,980 | $1,788,809 | 7.4% | | Costs and expenses: | | | | | Cost of services, exclusive of depreciation and amortization | 1,418,819 | 1,494,610 | 5.3 | | General and administrative | 42,279 | 48,447 | 14.6 | | Depreciation and amortization | 52,425 | 54,069 | 3.1 | | Total costs and expenses | 1,513,523 | 1,597,126 | 5.5 | | Other operating income | — | 2,284 | N/M | | Income from operations | 151,457 | 193,967 | 28.1 | | Other income and expense: | | | | | Equity in earnings of unconsolidated subsidiaries | 8,556 | 10,421 | 21.8 | | Interest expense | (48,571) | (50,763) | 4.5 | | Income before income taxes | 111,442 | 153,625 | 37.9 | | Income tax expense | 26,185 | 36,458 | 39.2 | | Net income | 85,257 | 117,167 | 37.4 | | Less: Net income attributable to non-controlling interests | 14,452 | 20,270 | 40.3 | | Net income attributable to Select Medical | $70,805 | $96,897 | 36.9% | | Basic and diluted earnings per common share | $0.56 | $0.75 | - | Earnings per Share Calculation The company calculates earnings per share using the two-class method, accounting for common stock and unvested restricted stock awards as participating securities - Select Medical applies the two-class method for EPS calculation due to unvested restricted stock awards being participating securities[23] Earnings per Share Computation (Three Months Ended March 31, 2023 and 2024) | | 2023 (Thousands, except per share) | 2024 (Thousands, except per share) | | :------------------------------------------ | :--------------------------------- | :--------------------------------- | | Net income attributable to Select Medical | $70,805 | $96,897 | | Less: net income attributable to participating securities | 2,573 | 3,398 | | Net income attributable to common shares | $68,232 | $93,499 | | Common shares (weighted average) | 122,553 | 123,859 | | Basic and Diluted EPS (Common shares) | $0.56 | $0.75 | | Participating securities (weighted average) | 4,622 | 4,501 | | Basic and Diluted EPS (Participating securities) | $0.56 | $0.75 | Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets and total equity from December 31, 2023, to March 31, 2024, with a notable rise in accounts receivable and long-term debt Condensed Consolidated Balance Sheets (December 31, 2023 and March 31, 2024) | | December 31, 2023 (Thousands) | March 31, 2024 (Thousands) | | :------------------------------------------ | :---------------------------- | :--------------------------- | | Assets | | | | Total Current Assets | $1,257,646 | $1,440,340 | | Operating lease right-of-use assets | 1,188,616 | 1,176,713 | | Property and equipment, net | 1,023,561 | 1,024,626 | | Goodwill | 3,513,170 | 3,517,071 | | Identifiable intangible assets, net | 329,916 | 324,125 | | Other assets | 376,722 | 375,388 | | Total Assets | $7,689,631 | $7,858,263 | | Liabilities and Equity | | | | Total Current Liabilities | $1,248,465 | $1,184,377 | | Non-current operating lease liabilities | 1,025,867 | 1,015,160 | | Long-term debt, net of current portion | 3,587,675 | 3,758,631 | | Non-current deferred tax liability | 143,306 | 133,987 | | Other non-current liabilities | 110,303 | 100,175 | | Total Liabilities | $6,115,616 | $6,192,330 | | Redeemable non-controlling interests | 26,297 | 28,290 | | Total equity | 1,547,718 | 1,637,643 | | Total Liabilities and Equity | $7,689,631 | $7,858,263 | Condensed Consolidated Statements of Cash Flows The cash flow statement indicates a shift from net cash provided by operating activities in Q1 2023 to net cash used in Q1 2024, primarily due to changes in accounts receivable. Financing activities provided significant cash in Q1 2024, largely from revolving facilities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023 and 2024) | | 2023 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Operating activities | | | | Net income | $85,257 | $117,167 | | Changes in operating assets and liabilities, net | (90,819) | (246,645) | | Net cash provided by (used in) operating activities | $51,440 | ($66,689) | | Investing activities | | | | Business combinations, net of cash acquired | (397) | (5,405) | | Purchases of property, equipment, and other assets | (58,885) | (52,517) | | Investment in businesses | (9,800) | — | | Proceeds from sale of assets and businesses | 20 | 265 | | Net cash used in investing activities | ($69,062) | ($57,657) | | Financing activities | | | | Borrowings on revolving facilities | 225,000 | 495,000 | | Payments on revolving facilities | (210,000) | (265,000) | | Payments on term loans | — | (79,085) | | Dividends paid to common stockholders | (15,897) | (16,045) | | Net cash provided by financing activities | $3,419 | $132,960 | | Net increase (decrease) in cash and cash equivalents | ($14,203) | $8,614 | | Cash and cash equivalents at beginning of period | 97,906 | 84,006 | | Cash and cash equivalents at end of period | $83,703 | $92,620 | Non-GAAP Financial Measures Reconciliations This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures Net Income to Adjusted EBITDA Reconciliation Adjusted EBITDA is presented as a key analytical indicator for performance evaluation and resource allocation, excluding interest, income taxes, depreciation, amortization, and other non-operating items from net income - Adjusted EBITDA is a non-GAAP measure used by investors and management to evaluate financial performance and allocate resources, excluding specific non-operating and non-cash items[30][31] Net Income to Adjusted EBITDA Reconciliation (Three Months Ended March 31, 2023 and 2024) | | 2023 (Thousands) | 2024 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Net income | $85,257 | $117,167 | | Income tax expense | 26,185 | 36,458 | | Interest expense | 48,571 | 50,763 | | Equity in earnings of unconsolidated subsidiaries | (8,556) | (10,421) | | Income from operations | 151,457 | 193,967 | | Stock compensation expense | 10,181 | 11,610 | | Depreciation and amortization | 52,425 | 54,069 | | Concentra separation transaction costs | — | 2,271 | | Adjusted EBITDA | $214,063 | $261,917 | | Critical illness recovery hospital Adjusted EBITDA | $76,773 | $115,940 | | Rehabilitation hospital Adjusted EBITDA | $47,216 | $61,400 | | Outpatient rehabilitation Adjusted EBITDA | $30,199 | $24,928 | | Concentra Adjusted EBITDA | $93,748 | $96,142 | | Other Adjusted EBITDA | ($33,873) | ($36,493) | Earnings per Common Share to Adjusted Earnings per Common Share Reconciliation Adjusted earnings per common share is a non-GAAP measure provided to reflect the financial performance of ongoing operations and enhance comparability between periods, excluding specific adjustments like Concentra separation transaction costs - Adjusted net income attributable to common shares and adjusted EPS are non-GAAP measures used to reflect ongoing operational performance and improve comparability[35] Earnings per Common Share to Adjusted Earnings per Common Share Reconciliation (Three Months Ended March 31, 2023 and 2024) | | 2023 (Thousands, except per share) | 2024 (Thousands, except per share) | | :------------------------------------------ | :--------------------------------- | :--------------------------------- | | Net income attributable to common shares | $68,232 | $93,499 | | Earnings per common share | $0.56 | $0.75 | | Adjustments: | | | | Concentra separation transaction costs, net of tax | — | 1,619 | | Adjusted net income attributable to common shares | $68,232 | $95,118 | | Adjusted earnings per common share | $0.56 | $0.77 | Forward-Looking Statements & Risk Factors This section outlines the company's forward-looking statements and the various risks and uncertainties that could impact future results Forward-Looking Statements and Associated Risks The report contains forward-looking statements regarding future business outlook, which are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations[17][19] - Key risk factors include changes in government reimbursement policies, adverse economic conditions (including inflation), shortages of qualified healthcare professionals, public health threats (like pandemics), failure to maintain Medicare certifications, government investigations, difficulties with acquisitions or joint ventures, and potential failure of the Concentra separation[18] - Additional risks include private third-party payor policies, loss of physician relationships, competition, loss of key management, substantial uninsured liabilities from claims, and security breaches of IT systems[18][20] Additional Information This section provides details for the upcoming conference call and investor relations contact information Conference Call Details Select Medical will host a conference call on May 3, 2024, to discuss its first-quarter results and business outlook, accessible via webcast or telephone - A conference call for Q1 results and business outlook will be held on Friday, May 3, 2024, at 9:00 AM ET[14] - The call will be a live webcast available on Select Medical Holdings Corporation's website, with a replay available shortly after[14] - Participants can pre-register for dial-in numbers and passcodes for the Q&A session[15] Investor Relations Contact Investor inquiries can be directed to Joel T. Veit, Senior Vice President and Treasurer - Investor inquiries should be directed to Joel T. Veit, Senior Vice President and Treasurer, at 717-972-1100 or ir@selectmedical.com[20]