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Select Medical Corporation Announces Results for Fourth Quarter and Year Ended December 31, 2008

Posted on: Monday, 23 March 2009, 15:00 CDT

MECHANICSBURG, Pa., March 23 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its fourth quarter and year ended December 31, 2008.

For the fourth quarter ended December 31, 2008, net operating revenues increased 5.6% to $547.1 million compared to $518.0 million for the same quarter, prior year. Income from operations increased 37.9% to $57.5 million compared to $41.7 million for the same quarter, prior year. Net income increased 20.5% to $13.5 million compared to $11.2 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 expense and minority interest ("Adjusted EBITDA") for the fourth quarter increased 32.1% to $76.5 million compared to $57.9 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

For the year ended December 31, 2008, net operating revenues increased 8.1% to $2,153.4 million compared to $1,991.7 million for the prior year. Income from operations increased 1.3% to $196.4 million compared to $193.9 million for the prior year. Net income decreased 21.3% to $43.4 million compared to $55.1 million for the prior year. Additionally, Adjusted EBITDA for the year ended December 31, 2008 increased 6.0% to $270.3 million compared to $254.9 million for the prior year.

Specialty Hospitals

At December 31, 2008, Select operated 88 long term acute care hospitals and five acute medical rehabilitation hospitals. This compares to 83 long term acute care hospitals and four acute medical rehabilitation hospitals operated at December 31, 2007. For the fourth quarter of 2008, net operating revenues for all of Select's hospitals increased 8.7% to $383.7 million compared to $352.9 million for the same quarter, prior year. Total patient days for the fourth quarter of 2008 were 249,626, admissions were 10,286 and net revenue per patient day was $1,509. This compares to 245,665 days, 9,913 admissions and net revenue per patient day of $1,410 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods, patient days in the fourth quarter of 2008 were 229,366 and admissions were 9,448, compared to 234,781 days and 9,456 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 40.9% to $68.8 million compared to $48.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 17.9% for the fourth quarter of 2008, compared to 13.8% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods was 20.9% for the fourth quarter of 2008, compared to 16.3% for the same quarter, prior year.

For the year ended December 31, 2008, net operating revenues for all of Select's hospitals increased 7.4% to $1,488.4 million compared to $1,386.4 million for the prior year. Total patient days for the year ended December 31, 2008 were 1,005,719, admissions were 41,177 and net revenue per patient day was $1,453. This compares to 987,624 days, 40,008 admissions and net revenue per patient day of $1,378 for the prior year. For the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods, patient days for the year ended December 31, 2008 were 944,367 and admissions were 38,545, compared to 924,506 days and 37,533 admissions in the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2008 increased 8.8% to $236.4 million compared to $217.2 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2008 was 15.9%, compared to 15.7% for the prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods was 18.4% for the year ended December 31, 2008, compared to 17.5% for the prior year.

Outpatient Rehabilitation

At December 31, 2008, Select operated 956 outpatient clinics. This compares to 999 outpatient clinics at December 31, 2007. For the fourth quarter of 2008, net operating revenues for the segment decreased 1.0% to $163.4 million compared to $165.1 million for the same quarter, prior year. Adjusted EBITDA for the segment for the fourth quarter increased 12.3% to $17.0 million compared to $15.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment for the quarter was 10.4% compared to 9.2% in the same quarter, prior year. Patient visits for the quarter were 1,103,589 compared to 1,145,063 for the same quarter, prior year. Net revenue per visit was $101 for both the fourth quarter of 2008 and for the same quarter, prior year.

For the year ended December 31, 2008, net operating revenues for the segment increased 10.2% to $664.8 million compared to $603.4 million for the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2008 increased 2.4% to $77.3 million compared to $75.4 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2008 was 11.6% compared to 12.5% in the prior year. Patient visits for the year ended December 31, 2008 were 4,533,727 compared to 4,032,197 for the prior year. Net revenue per visit was $102 for the year ended December 31, 2008 compared to $100 for the 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. Holdings and certain of its stockholders are expected to sell shares of its common stock in the offering. 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 88 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 956 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;
• integration of acquired operations (such as the outpatient rehabilitation division of HealthSouth Corporation) and 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 December 31, 2007 and 2008 % 2007 2008 Change Net operating revenues $517,968 $547,099 5.6% Costs and expenses: Cost of services 441,639 448,819 1.6% General and administrative 7,016 9,680 38.0% Bad debt expense 12,366 12,504 1.1% Depreciation and amortization 15,255 18,611 22.0% Income from operations 41,692 57,485 37.9% Gain on early retirement of debt - 912 N/M Other expense (1,946) (1,622) (16.6)% Interest income 147 196 33.3% Interest expense (27,699) (27,461) (0.9)% Income from operations before minority interests and income taxes 12,194 29,510 142.0% Minority interests 164 1,290 N/M Income from operations before income taxes 12,030 28,220 134.6% Income tax expense 829 14,724 N/M Net income $11,201 $13,496 20.5% N/M = Not Meaningful

II. Condensed Consolidated Statements of Operations (In thousands) (unaudited) For the Year Ended December 31, 2007 and 2008 % 2007 2008 Change Net operating revenues $1,991,666 $2,153,362 8.1% Costs and expenses: Cost of services 1,660,049 1,791,841 7.9% General and administrative 42,863 45,523 6.2% Bad debt expense 37,572 47,804 27.2% Depreciation and amortization 57,297 71,786 25.3% Income from operations 193,885 196,408 1.3% Gain on early retirement of debt - 912 N/M Other expense (4,494) (2,802) (37.7)% Interest income 2,103 471 (77.6)% Interest expense (105,497) (110,889) 5.1% Income from operations before minority interests and income taxes 85,997 84,100 (2.2)% Minority interests 1,537 3,393 120.8% Income from operations before income taxes 84,460 80,707 (4.4)% Income tax expense 29,315 37,334 27.4% Net income $55,145 $43,373 (21.3)%

III. Condensed Consolidated Balance Sheets (In thousands) (unaudited) December December 31, 31, 2007 2008 ASSETS Cash $4,529 $64,260 Accounts receivable, net 271,406 312,418 Current deferred tax asset 48,988 48,594 Prepaid income taxes 8,162 7,362 Other current assets 22,507 20,897 Total Current Assets 355,592 453,531 Property and equipment, net 487,026 471,065 Goodwill 1,499,485 1,506,661 Other identifiable intangibles 79,172 74,078 Assets held for sale 14,607 12,542 Other assets 54,895 44,548 Total Assets $2,490,777 $2,562,425 LIABILITIES AND STOCKHOLDER'S EQUITY Payables and accruals $338,674 $344,358 Current portion of long term debt 7,749 9,046 Total Current Liabilities 346,423 353,404 Long term debt, net of current portion 1,438,776 1,460,276 Non-current deferred tax liability 23,380 42,918 Other non-current liabilities 52,266 67,709 Minority interests 5,761 7,803 Stockholder's equity 624,171 630,315 Total Liabilities and Stockholder's Equity $2,490,777 $2,562,425

IV. Key Statistics (unaudited) For the Three Months Ended December 31, 2007 and 2008 % 2007 2008 Change Specialty Hospitals (a) Number of hospitals - end of period 87 93 6.9% Net operating revenues (,000) $352,877 $383,681 8.7% Number of patient days 245,665 249,626 1.6% Number of admissions 9,913 10,286 3.8% Net revenue per patient day (b) $1,410 $1,509 7.0% Adjusted EBITDA (,000) $48,808 $68,771 40.9% Adjusted EBITDA margin - all hospitals 13.8% 17.9% 29.7% Adjusted EBITDA margin - same store hospitals (c) 16.3% 20.9% 28.2% Outpatient Rehabilitation Number of clinics - end of period 999 956 (4.3)% Net operating revenues (,000) $165,057 $163,385 (1.0)% Number of visits 1,145,063 1,103,589 (3.6)% Revenue per visit (d) $101 $101 0.0% Adjusted EBITDA (,000) $15,167 $17,031 12.3% Adjusted EBITDA margin 9.2% 10.4% 13.0% (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, 2007 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 Year Ended December 31, 2007 and 2008 % 2007 2008 Change Specialty Hospitals (a) Number of hospitals - end of period 87 93 6.9% Net operating revenues (,000) $1,386,410 $1,488,412 7.4% Number of patient days 987,624 1,005,719 1.8% Number of admissions 40,008 41,177 2.9% Net revenue per patient day (b) $1,378 $1,453 5.4% Adjusted EBITDA (,000) $217,175 $236,388 8.8% Adjusted EBITDA margin - all hospitals 15.7% 15.9% 1.3% Adjusted EBITDA margin - same store hospitals (c) 17.5% 18.4% 5.1% Outpatient Rehabilitation Number of clinics - end of period 999 956 (4.3)% Net operating revenues (,000) $603,413 $664,760 10.2% Number of visits 4,032,197 4,533,727 12.4% Revenue per visit (d) $100 $102 2.0% Adjusted EBITDA (,000) $75,437 $77,279 2.4% Adjusted EBITDA margin 12.5% 11.6% (7.2)% (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 inpatient 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, 2007 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 Months and Year Ended December 31, 2007 and 2008 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 expense and minority 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 Year Ended December 31, December 31, 2007 2008 2007 2008 Net income $11,201 $13,496 $55,145 $43,373 Income tax expense 829 14,724 29,315 37,334 Minority interest 164 1,290 1,537 3,393 Interest expense, net 27,552 27,265 103,394 110,418 Other expense 1,946 1,622 4,494 2,802 Gain on early retirement of debt - (912) - (912) Stock compensation expense Included in general and administrative 890 337 3,555 1,953 Included in cost of services 47 59 191 140 Depreciation and amortization 15,255 18,611 57,297 71,786 Adjusted EBITDA $57,884 $76,492 $254,928 $270,287 Specialty hospitals $48,808 $68,771 $217,175 $236,388 Outpatient rehabilitation 15,167 17,031 75,437 77,279 Other (1) (6,091) (9,310) (37,684) (43,380) Adjusted EBITDA $57,884 $76,492 $254,928 $270,287 (1) Other primarily includes Select's general and administrative costs.

The following tables reconcile specialty hospital same store information. Three Months Ended December 31, December 31, 2007 2008 Specialty hospitals net operating revenue $352,877 $383,681 Less: Specialty hospitals in development, opened or closed after 1/1/07 12,348 29,264 Specialty hospitals same store net operating revenue $340,529 $354,417 Specialty hospitals Adjusted EBITDA $48,808 $68,771 Less: Specialty hospitals in development, opened or closed after 1/1/07 (6,863) (5,287) Specialty hospitals same store Adjusted EBITDA $55,671 $74,058 All specialty hospitals Adjusted EBITDA margin 13.8% 17.9% Specialty hospitals same store Adjusted EBITDA margin 16.3% 20.9% Year Ended December 31, December 31, 2007 2008 Specialty hospitals net operating revenue $1,386,410 $1,488,412 Less: Specialty hospitals in development, opened or closed after 1/1/07 79,500 85,709 Specialty hospitals same store net operating revenue $1,306,910 $1,402,703 Specialty hospitals Adjusted EBITDA $217,175 $236,388 Less: Specialty hospitals in development, opened or closed after 1/1/07 (10,928) (21,339) Specialty hospitals same store Adjusted EBITDA $228,103 $257,727 All specialty hospitals Adjusted EBITDA margin 15.7% 15.9% Specialty hospitals same store Adjusted EBITDA margin 17.5% 18.4%

SOURCE Select Medical Corporation

Source: PR Newswire

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