Select Medical(US:SEM)2024-05-02 20:32PART I: FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion for the quarter ended March 31, 2024 Item 1. Condensed Consolidated Financial Statements Unaudited Q1 2024 financial statements show total assets at $7.86 billion, revenue at $1.79 billion, net income at $96.9 million, and negative operating cash flow of $66.7 million Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2024 Balance Sheet Summary (as of March 31, 2024 vs. December 31, 2023) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $1,440,340 | $1,257,646 | | Total Assets | $7,858,263 | $7,689,631 | | Total Current Liabilities | $1,184,377 | $1,248,465 | | Total Liabilities | $6,192,330 | $6,115,616 | | Total Stockholders' Equity | $1,367,282 | $1,288,304 | | Total Equity | $1,637,643 | $1,547,718 | Condensed Consolidated Statements of Operations This statement outlines the company's revenue, operating income, and net income for the three months ended March 31, 2024 and 2023 Statement of Operations Summary (For the Three Months Ended March 31) | Metric | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $1,788,809 | $1,664,980 | +7.4% | | Income from operations | $193,967 | $151,457 | +28.1% | | Net income | $117,167 | $85,257 | +37.4% | | Net income attributable to Select Medical | $96,897 | $70,805 | +36.9% | | Basic and diluted EPS | $0.75 | $0.56 | +33.9% | Condensed Consolidated Statements of Cash Flows This statement details cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 Cash Flow Summary (For the Three Months Ended March 31) | Activity | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(66,689) | $51,440 | | Net cash used in investing activities | $(57,657) | $(69,062) | | Net cash provided by financing activities | $132,960 | $3,419 | | Net increase (decrease) in cash | $8,614 | $(14,203) | Notes to Condensed Consolidated Financial Statements Notes detail segment performance, debt, legal contingencies, and a declared $0.125 per share quarterly dividend Segment Revenue and Adjusted EBITDA (Q1 2024 vs Q1 2023) | Segment | Revenue Q1 2024 (Millions) | Revenue Q1 2023 (Millions) | Adj. EBITDA Q1 2024 (Millions) | Adj. EBITDA Q1 2023 (Millions) | | :--- | :--- | :--- | :--- | :--- | | Critical illness recovery hospital | $655.9 | $593.9 | $115.9 | $76.8 | | Rehabilitation hospital | $265.7 | $231.5 | $61.4 | $47.2 | | Outpatient rehabilitation | $303.2 | $295.9 | $24.9 | $30.2 | | Concentra | $467.6 | $456.3 | $96.1 | $93.7 | - The company is party to several legal proceedings and investigations, including inquiries from the U.S. Attorney's Office in Oklahoma, the Department of Justice regarding physical therapy billing, the California Department of Insurance, and class action lawsuits related to a third-party data breach. The outcomes are currently unpredictable67697071 - On May 1, 2024, the Board of Directors declared a cash dividend of $0.125 per share, payable on or about May 30, 202472 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2024 financial performance, highlighting 7.4% revenue growth, 22.4% Adjusted EBITDA increase, and the planned Concentra segment separation Overview This section provides an operational overview, including facility count and the planned separation of the Concentra segment - As of March 31, 2024, the company operated 107 critical illness recovery hospitals, 33 rehabilitation hospitals, 1,922 outpatient rehabilitation clinics, and 547 occupational health centers across 46 states and D.C79 - The company announced its intention to separate its Concentra segment into a new, publicly traded company by the end of fiscal year 2024, with a confidential draft registration statement on Form S-1 submitted to the SEC in March 202481 Results of Operations Q1 2024 saw 7.4% revenue growth and 22.4% Adjusted EBITDA increase, driven by Critical Illness Recovery and Rehabilitation Hospital segments Segment Performance YoY Change (Q1 2024 vs Q1 2023) | Segment | Revenue Change | Income from Operations Change | Adjusted EBITDA Change | | :--- | :--- | :--- | :--- | | Critical Illness Recovery Hospital | +10.4% | +64.3% | +51.0% | | Rehabilitation Hospital | +14.8% | +34.6% | +30.0% | | Outpatient Rehabilitation | +2.5% | -27.6% | -17.5% | | Concentra | +2.5% | +0.3% | +2.6% | - The Critical Illness Recovery Hospital segment's performance was boosted by a 7.8% increase in revenue per patient day and a significant decrease in contract labor costs, which fell by approximately 20% YoY120126 - The Outpatient Rehabilitation segment's profitability declined due to higher labor costs and a decrease in revenue per visit from $101 to $99, principally from lower Medicare reimbursement122128 Liquidity and Capital Resources Q1 2024 operating cash flow was negative $66.7 million due to increased accounts receivable, with $202.4 million available on the credit facility - Net cash used in operating activities was $66.7 million, a significant decrease from the $51.4 million provided in the prior-year period, primarily due to an increase in accounts receivable following the Change Healthcare cyber attack136 - Days sales outstanding (DSO) increased to 58 days at March 31, 2024, up from 52 days at December 31, 2023, reflecting the impact of the cybersecurity incident on billing and collections137 - The company did not repurchase any shares in Q1 2024, with an available capacity of $399.7 million under its stock repurchase program, which remains in effect until December 31, 2025143162 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its variable-rate debt, partially mitigated by an interest rate cap expiring September 30, 2024 - The company has an interest rate cap limiting the Term SOFR rate to 1.0% on $2.0 billion of its term loan, which expires on September 30, 2024153 - As of March 31, 2024, a hypothetical 0.25% increase in market interest rates is estimated to increase annual interest expense by $3.8 million, factoring in the expiration of the interest rate cap154 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Based on an evaluation as of March 31, 2024, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures are effective155 - There were no changes in internal control over financial reporting during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, these controls156 PART II: OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and required exhibits for the reporting period Item 1. Legal Proceedings Legal proceedings, including government investigations and data breach lawsuits, are detailed in Note 14 of the financial statements - Information regarding legal proceedings is detailed in Note 14 – Commitments and Contingencies of the financial statements159 Item 1A. Risk Factors No material changes to risk factors were reported from the Annual Report on Form 10-K for December 31, 2023 - There have been no material changes from the risk factors set forth in the company's Annual Report on Form 10-K for the year ended December 31, 2023160 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases occurred in Q1 2024, with $399.7 million remaining authorized for future repurchases - The company did not repurchase any shares under its authorized common stock repurchase program during Q1 2024162 - As of March 31, 2024, the company has an available capacity of $399.7 million under its stock repurchase program162 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and Inline XBRL documents