Select Medical Holdings Corporation Announces Results For Its Fourth Quarter and Year Ended December 31, 2020

Rhea-AI Summary

Select Medical Holdings Corporation (NYSE: SEM) reported robust financial results for the fourth quarter and year ended December 31, 2020. Revenue rose 6.2% to $1.46 billion in Q4, with net income up 134.1% to $102.2 million. The year saw total revenue increase by 1.4% to $5.53 billion, while net income surged 71.4% to $344.6 million. Key segments, especially critical illness recovery hospitals, saw significant growth, aided by Provider Relief Fund payments of $36.2 million in Q4. Adjusted EBITDA for the year reached $800.6 million, representing a 12.6% increase compared to 2019.

Positive

• Q4 revenue increased 6.2% to $1.46 billion.
• Net income for Q4 surged 134.1% to $102.2 million.
• Full-year revenue grew by 1.4% to $5.53 billion.
• Full-year net income increased 71.4% to $344.6 million.
• Adjusted EBITDA for the year rose 12.6% to $800.6 million.
• Critical illness recovery hospital segment revenue increased 18.2% in Q4.

Negative

• Outpatient rehabilitation segment revenue decreased 5.3% in Q4.
• Concentra segment revenue declined 7.8% compared to the previous year.

MECHANICSBURG, Pa., Feb. 25, 2021 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical," "we," "us," or "our") (NYSE: SEM) today announced results for its fourth quarter and year ended December 31, 2020.

For the fourth quarter ended December 31, 2020, revenue increased 6.2% to $1,460.5 million, compared to $1,374.6 million for the same quarter, prior year. Income from operations increased 45.4% to $163.3 million for the fourth quarter ended December 31, 2020, compared to $112.4 million for the same quarter, prior year. Income from operations included other operating income of $36.2 million related to the recognition of payments received under the Provider Relief Fund. Net income increased 134.1% to $102.2 million for the fourth quarter ended December 31, 2020, compared to $43.7 million for the same quarter, prior year. Net income included pre-tax losses on early retirement of debt of $19.4 million for the fourth quarter ended December 31, 2019. Adjusted EBITDA increased 28.7% to $221.3 million for the fourth quarter ended December 31, 2020, compared to $171.9 million for the same quarter, prior year. Earnings per common share increased to $0.57 on a fully diluted basis for the fourth quarter ended December 31, 2020, compared to $0.24 for the same quarter, prior year. Adjusted earnings per common share was $0.57 on a fully diluted basis for the fourth quarter ended December 31, 2020, compared to $0.31 for the same quarter, prior year. Adjusted earnings per common share excludes the losses on early retirement of debt and their related tax effects for the fourth quarter ended December 31, 2019. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release. 

For the year ended December 31, 2020, revenue increased 1.4% to $5,531.7 million, compared to $5,453.9 million for the prior year. Income from operations increased 20.3% to $567.7 million for the year ended December 31, 2020, compared to $471.9 million for the prior year. For the year ended December 31, 2020, income from operations included other operating income of $90.0 million related to the recognition of payments received under the Provider Relief Fund. Net income increased 71.4% to $344.6 million for the year ended December 31, 2020, compared to $201.0 million for the prior year. For the year ended December 31, 2020, net income included pre-tax gains on sales of businesses of $12.4 million. For the year ended December 31, 2019, net income included pre-tax losses on early retirement of debt of $38.1 million and a pre-tax gain on sale of businesses of $6.5 million. Adjusted EBITDA increased 12.6% to $800.6 million for the year ended December 31, 2020, compared to $710.9 million for the prior year. Earnings per common share increased to $1.93 on a fully diluted basis for the year ended December 31, 2020, compared to $1.10 for the prior year. Adjusted earnings per common share was $1.89 on a fully diluted basis for the year ended December 31, 2020, compared to $1.24 for the prior year. Adjusted earnings per common share excludes the gains on sales of businesses and their related tax effects for the year ended December 31, 2020. Adjusted earnings per common share excludes the losses on early retirement of debt and related costs, the gain on sale of businesses, and their related tax effects for the year ended December 31, 2019. The definition of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are presented in table IX of this release. A reconciliation of earnings per common share to adjusted earnings per common share is presented in table X of this release. 

Please refer to "Effects of the COVID-19 Pandemic on Select Medical's Results of Operations" below for further discussion.

Company Overview

Select Medical is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States based on number of facilities. Select Medical's reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and the Concentra segment. As of December 31, 2020, Select Medical operated 99 critical illness recovery hospitals in 28 states, 30 rehabilitation hospitals in 12 states, and 1,788 outpatient rehabilitation clinics in 37 states and the District of Columbia. Select Medical's joint venture subsidiary Concentra operated 517 occupational health centers in 41 states. At December 31, 2020, Select Medical had operations in 46 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.com.

CARES Act Provider Relief Fund

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted. The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the coronavirus disease 2019 ("COVID-19") pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to the COVID-19 pandemic.

For the three months and year ended December 31, 2020, Select Medical recognized payments received under the Provider Relief Fund for loss of revenue and health care related expenses attributable to the COVID-19 pandemic as other operating income. For the three months ended December 31, 2020, other operating income of $36.2 million is included within the operating results of Select Medical's other activities. For the year ended December 31, 2020, $88.9 million and $1.1 million of other operating income is included within the operating results of Select Medical's other activities and its Concentra segment, respectively.

Critical Illness Recovery Hospital Segment

For the fourth quarter ended December 31, 2020, revenue for the critical illness recovery hospital segment increased 18.2% to $537.9 million, compared to $454.9 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 24.5% to $75.3 million for the fourth quarter ended December 31, 2020, compared to $60.5 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 14.0% for the fourth quarter ended December 31, 2020, compared to 13.3% for the same quarter, prior year. Certain critical illness recovery hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2020 and 2019.

For the year ended December 31, 2020, revenue for the critical illness recovery hospital segment increased 13.1% to $2,077.5 million, compared to $1,836.5 million for the prior year. Adjusted EBITDA for the critical illness recovery hospital segment increased 34.4% to $342.4 million for the year ended December 31, 2020, compared to $254.9 million for the prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 16.5% for the year ended December 31, 2020, compared to 13.9% for the prior year. Certain critical illness recovery hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2020 and 2019.

Rehabilitation Hospital Segment

For the fourth quarter ended December 31, 2020, revenue for the rehabilitation hospital segment increased 7.2% to $195.9 million, compared to $182.7 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment was $42.4 million for the fourth quarter ended December 31, 2020, compared to $43.3 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 21.6% for the fourth quarter ended December 31, 2020, compared to 23.7% for the same quarter, prior year. Certain rehabilitation hospital key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2020 and 2019.

For the year ended December 31, 2020, revenue for the rehabilitation hospital segment increased 9.5% to $734.7 million, compared to $671.0 million for the prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 12.8% to $153.2 million for the year ended December 31, 2020, compared to $135.9 million for the prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 20.9% for the year ended December 31, 2020, compared to 20.2% for the prior year. The Adjusted EBITDA results for the rehabilitation hospital segment include start-up losses of approximately $8.8 million for the year ended December 31, 2019. Certain rehabilitation hospital key statistics are presented in table VIII of this release for both the years ended December 31, 2020 and 2019.

Outpatient Rehabilitation Segment

For the fourth quarter ended December 31, 2020, revenue for the outpatient rehabilitation segment was $257.5 million, compared to $271.9 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $27.7 million for the fourth quarter ended December 31, 2020, compared to $40.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 10.8% for the fourth quarter ended December 31, 2020, compared to 14.8% for the same quarter, prior year. Certain outpatient rehabilitation key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2020 and 2019.

For the year ended December 31, 2020, revenue for the outpatient rehabilitation segment was $919.9 million, compared to $1,046.0 million for the prior year. Adjusted EBITDA for the outpatient rehabilitation segment was $79.2 million for the year ended December 31, 2020, compared to $151.8 million for the prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 8.6% for the year ended December 31, 2020, compared to 14.5% for the prior year. Certain outpatient rehabilitation key statistics are presented in table VIII of this release for both the years ended December 31, 2020 and 2019.

Concentra Segment

For the fourth quarter ended December 31, 2020, revenue for the Concentra segment increased 0.4% to $398.7 million, compared to $397.1 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment increased 22.9% to $69.4 million for the fourth quarter ended December 31, 2020, compared to $56.5 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 17.4% for the fourth quarter ended December 31, 2020, compared to 14.2% for the same quarter, prior year. Certain Concentra key statistics are presented in table VII of this release for both the fourth quarters ended December 31, 2020 and 2019.

For the year ended December 31, 2020, revenue for the Concentra segment was $1,501.4 million, compared to $1,628.8 million for the prior year. Adjusted EBITDA for the Concentra segment was $252.9 million for the year ended December 31, 2020, compared to $276.5 million for the prior year. The Adjusted EBITDA margin for the Concentra segment was 16.8% for the year ended December 31, 2020, compared to 17.0% for the prior year. Certain Concentra key statistics are presented in table VIII of this release for both the years ended December 31, 2020 and 2019.

Effects of the COVID-19 Pandemic on Select Medical's Results of Operations

The unpredictable effects of the COVID-19 pandemic, including the duration and extent of disruption on Select Medical's operations, creates uncertainties about Select Medical's future operating results and financial condition. Select Medical has provided revenue and certain operating statistics for each of its segments during the three months and year ended December 31, 2020.

Critical Illness Recovery Hospital Segment.  Select Medical's critical illness recovery hospitals are a key component of the inpatient hospital continuum of care. Beginning in March 2020, a number of waivers and modifications of certain requirements under the Medicare, Medicaid and Children's Health Insurance Program ("CHIP") programs were authorized, including certain regulations concerning patient length of stay requirements under the Medicare program which apply to Select Medical's critical illness recovery hospitals. The length of stay requirements were suspended in order to facilitate the transfer of patients from general acute care hospitals and expand hospital bed capacity to care for COVID-19 patients. During the year ended December 31, 2020, Select Medical's critical illness recovery hospitals played a critical role in caring for patients during the COVID-19 pandemic due, in part, to the rapid preparation and implementation of modifications that supported the treatment of COVID-19 patients.

The following table shows revenue, patient days, and occupancy rates for each of the periods presented, as well as the number of critical illness recovery hospitals Select Medical owned at the end of each period.

		Revenue											Patient Days							Occupancy Rate					Number of Hospitals Owned(1)
		2019				2020				% Change			2019		2020		% Change			2019		2020			2019		2020
		(in thousands, except percentages)
January		$	149,799			$	163,238			9.0%			86,238		90,783		5.3%			69%		69%			96		100
February		145,586				165,375				13.6%			80,806		87,844		8.7%			71%		72%			96		100
March		162,149				171,908				6.0%			91,085		91,831		0.8%			73%		70%			96		100
Three Months Ended March 31		$	457,534			$	500,521			9.4%			258,129		270,458		4.8%			71%		70%			96		100
April		$	156,231			$	171,445			9.7%			88,357		90,710		2.7%			70%		71%			99		100
May		156,422				178,223				13.9%			89,350		95,191		6.5%			69%		72%			99		100
June		148,490				169,958				14.5%			85,153		90,988		6.9%			68%		71%			99		100
Three Months Ended June 30		$	461,143			$	519,626			12.7%			262,860		276,889		5.3%			69%		72%			99		100
Six Months Ended June 30		$	918,677			$	1,020,147			11.0%			520,989		547,347		5.1%			70%		71%			99		100
July		$	151,416			$	175,253			15.7%			87,143		94,144		8.0%			67%		71%			99		99
August		155,485				173,967				11.9%			86,553		93,964		8.6%			66%		71%			99		99
September		155,991				170,234				9.1%			84,393		90,955		7.8%			67%		71%			99		99
Three Months Ended September 30		$	462,892			$	519,454			12.2%			258,089		279,063		8.1%			67%		71%			99		99
Nine Months Ended September 30		$	1,381,569			$	1,539,601			11.4%			779,078		826,410		6.1%			69%		71%			99		99
October		$	152,791			$	181,251			18.6%			87,188		95,616		9.7%			66%		71%			100		100
November		150,399				174,133				15.8%			84,540		92,651		9.6%			67%		71%			100		99
December		151,759				182,514				20.3%			87,555		97,079		10.9%			67%		72%			100		99
Three Months Ended December 31		$	454,949			$	537,898			18.2%			259,283		285,346		10.1%			67%		71%			100		99
Twelve Months Ended December 31		$	1,836,518			$	2,077,499			13.1%			1,038,361		1,111,756		7.1%			68%		71%			100		99

(1)	Represents the number of hospitals owned at the end of each period presented.

Rehabilitation Hospital Segment.  Select Medical's rehabilitation hospitals receive most of their admissions from general acute care hospitals. Beginning in March 2020, a number of waivers and modifications of certain requirements under the Medicare, Medicaid and CHIP programs were authorized, including certain regulations governing admissions into rehabilitation hospitals. This was done in order to facilitate the transfer of patients from general acute care hospitals and critical illness recovery hospitals and to expand hospital bed capacity to care for COVID-19 patients. Select Medical's rehabilitation hospitals were affected by the suspension of elective surgeries at hospitals and other facilities at the beginning of the pandemic, which resulted in reduced need for inpatient rehabilitation services. Beginning in May 2020, state governments and health departments began to ease restrictions and hospitals began to perform elective surgeries again, which has increased the need for the services provided by our rehabilitation hospitals.

The following table shows revenue, patient days, and occupancy rates for each of the periods presented, as well as the number of rehabilitation hospitals Select Medical owned at the end of each period.

		Revenue											Patient Days							Occupancy Rate					Number of Hospitals Owned(1)
		2019				2020				% Change			2019		2020		% Change			2019		2020			2019		2020
		(in thousands, except percentages)
January		$	50,615			$	61,673			21.8%			27,434		32,111		17.0%			74%		79%			17		19
February		48,080				60,690				26.2%			25,442		31,813		25.0%			76%		84%			17		19
March		55,863				59,656				6.8%			29,940		30,644		2.4%			78%		76%			18		19
Three Months Ended March 31		$	154,558			$	182,019			17.8%			82,816		94,568		14.2%			76%		79%			18		19
April		$	51,991			$	45,878			(11.8)%			28,266		23,553		(16.7)%			76%		61%			18		19
May		56,019				57,815				3.2%			29,730		29,787		0.2%			75%		73%			19		19
June		52,364				64,974				24.1%			28,529		30,741		7.8%			73%		78%			19		19
Three Months Ended June 30		$	160,374			$	168,667			5.2%			86,525		84,081		(2.8)%			75%		71%			19		19
Six Months Ended June 30		$	314,932			$	350,686			11.4%			169,341		178,649		5.5%			76%		75%			19		19
July		$	57,077			$	62,312			9.2%			30,054		31,986		6.4%			75%		81%			19		18
August		58,072				63,673				9.6%			30,228		32,518		7.6%			75%		83%			19		18
September		58,220				62,090				6.6%			29,172		31,176		6.9%			75%		82%			19		18
Three Months Ended September 30		$	173,369			$	188,075			8.5%			89,454		95,680		7.0%			75%		82%			19		18
Nine Months Ended September 30		$	488,301			$	538,761			10.3%			258,795		274,329		6.0%			75%		77%			19		18
October		$	61,975			$	66,591			7.4%			31,767		33,378		5.1%			78%		82%			19		19
November		60,353				64,610				7.1%			31,022		31,581		1.8%			79%		80%			19		19
December		60,342				64,711				7.2%			31,447		31,545		0.3%			78%		78%			19		19
Three Months Ended December 31		$	182,670			$	195,912			7.2%			94,236		96,504		2.4%			78%		80%			19		19
Twelve Months Ended December 31		$	670,971			$	734,673			9.5%			353,031		370,833		5.0%			76%		78%			19		19

(1)	Represents the number of hospitals owned at the end of each period presented.

Outpatient Rehabilitation Segment.  Beginning in mid-March 2020, state governments began implementing mandatory closures of non-essential or non-life sustaining businesses, restricting travel and individual activities outside of the home, closing schools, and mandating other social distancing measures. Additionally, hospitals and other facilities began to suspend elective surgeries. As a result, Select Medical's outpatient rehabilitation clinics experienced significantly less patient visit volume due to a decline in patient referrals from physicians, a reduction in workers' compensation injury visits resulting from the temporary closure of businesses, and the suspension of elective surgeries which would have required outpatient rehabilitation services. Beginning in May 2020, state governments began to ease restrictions imposed on businesses and individuals, physician offices began reopening for routine office visits, and hospitals and other facilities began performing elective surgeries again, which has resulted in an increased need for the services provided by Select Medical's outpatient rehabilitation clinics.

The following table shows revenue and patient visits for each of the periods presented, as well as the number of working days for each period.

		Revenue											Visits							Working Days(1)
		2019				2020				% Change			2019		2020		% Change			2019		2020
		(in thousands, except percentages)
January		$	83,185			$	90,924			9.3%			687,007		757,171		10.2%			22		22
February		78,573				88,239				12.3%			658,610		739,061		12.2%			20		20
March		85,147				76,086				(10.6)%			708,866		626,433		(11.6)%			21		22
Three Months Ended March 31		$	246,905			$	255,249			3.4%			2,054,483		2,122,665		3.3%			63		64
April		$	90,230			$	49,084			(45.6)%			762,914		386,108		(49.4)%			22		22
May		90,272				51,186				(43.3)%			759,829		409,703		(46.1)%			22		20
June		81,389				66,868				(17.8)%			680,762		546,456		(19.7)%			20		22
Three Months Ended June 30		$	261,891			$	167,138			(36.2)%			2,203,505		1,342,267		(39.1)%			64		64
Six Months Ended June 30		$	508,796			$	422,387			(17.0)%			4,257,988		3,464,932		(18.6)%			127		128
July		$	89,267			$	77,793			(12.9)%			754,102		636,826		(15.6)%			22		22
August		90,687				79,034				(12.8)%			743,813		651,738		(12.4)%			22		21
September		85,376				83,215				(2.5)%			706,413		694,808		(1.6)%			20		21
Three Months Ended September 30		$	265,330			$	240,042			(9.5)%			2,204,328		1,983,372		(10.0)%			64		64
Nine Months Ended September 30		$	774,126			$	662,429			(14.4)%			6,462,316		5,448,304		(15.7)%			191		192
October		$	96,868			$	88,274			(8.9)%			808,649		745,562		(7.8)%			23		22
November		87,072				82,102				(5.7)%			722,607		685,885		(5.1)%			20		20
December		87,945				87,108				(1.0)%			725,710		713,593		(1.7)%			21		22
Three Months Ended December 31		$	271,885			$	257,484			(5.3)%			2,256,966		2,145,040		(5.0)%			64		64
Twelve Months Ended December 31		$	1,046,011			$	919,913			(12.1)%			8,719,282		7,593,344		(12.9)%			255		256

(1)	Represents the number of days in which normal business operations were conducted during the periods presented.

Concentra Segment.  Beginning in mid-March 2020, state governments began placing significant restrictions on businesses and mandating closures of non-essential or non-life sustaining businesses, causing many employers to furlough their workforce and temporarily cease or significantly reduce their operations. These actions have had significant effects on patient visit volumes. Beginning in May 2020, state governments began to ease restrictions imposed on businesses and employers began to increase their workforce, which has resulted in an increased need for occupational health services. During the year ended December 31, 2020, Concentra expanded its services to provide COVID-19 screening and testing at its centers and various onsite clinics located at employer worksites.

The following table shows revenue and patient visits for each of the periods presented, as well as the number of working days for each period.

		Revenue											Visits							Working Days(1)
		2019				2020				% Change			2019		2020		% Change			2019		2020
		(in thousands, except percentages)
January		$	133,507			$	141,236			5.8%			985,598		1,032,069		4.7%			22		22
February		126,309				133,690				5.8%			919,065		965,741		5.1%			20		20
March		136,505				123,609				(9.4)%			1,006,944		879,585		(12.6)%			21		22
Three Months Ended March 31		$	396,321			$	398,535			0.6%			2,911,607		2,877,395		(1.2)%			63		64
April		$	140,050			$	91,178			(34.9)%			1,040,543		610,555		(41.3)%			22		22
May		143,183				99,228				(30.7)%			1,073,763		674,629		(37.2)%			22		20
June		130,218				121,932				(6.4)%			988,783		865,896		(12.4)%			20		22
Three Months Ended June 30		$	413,451			$	312,338			(24.5)%			3,103,089		2,151,080		(30.7)%			64		64
Six Months Ended June 30		$	809,772			$	710,873			(12.2)%			6,014,696		5,028,475		(16.4)%			127		128
July		$	142,385			$	132,465			(7.0)%			1,057,809		930,427		(12.0)%			22		22
August		144,452				130,291				(9.8)%			1,087,165		933,555		(14.1)%			22		21
September		135,063				129,103				(4.4)%			1,005,929		963,065		(4.3)%			20		21
Three Months Ended September 30		$	421,900			$	391,859			(7.1)%			3,150,903		2,827,047		(10.3)%			64		64
Nine Months Ended September 30		$	1,231,672			$	1,102,732			(10.5)%			9,165,599		7,855,522		(14.3)%			191		192
October		$	149,260			$	139,365			(6.6)%			1,113,408		1,011,816		(9.1)%			23		22
November		123,152				126,431				2.7%			908,159		867,918		(4.4)%			19		19
December		124,733				132,906				6.6%			881,699		892,648		1.2%			21		22
Three Months Ended December 31		$	397,145			$	398,702			0.4%			2,903,266		2,772,382		(4.5)%			63		63
Twelve Months Ended December 31		$	1,628,817			$	1,501,434			(7.8)%			12,068,865		10,627,904		(11.9)%			254		255

(1)	Represents the number of days in which normal business operations were conducted during the periods presented.

Purchase of Concentra Interest

On December 31, 2020, Select Medical, Welsh, Carson, Anderson & Stowe XII, L.P. ("WCAS"), and Dignity Health Holding Corporation ("DHHC") entered into an agreement pursuant to which Select Medical acquired approximately 11.1% of the outstanding membership interests of Concentra Group Holdings Parent, LLC on a fully diluted basis from WCAS, DHHC, and other equity holders of Concentra Group Holdings Parent, LLC for approximately $210.2 million.

This purchase was in lieu of, and deemed to be, the exercise of the second put right provided to certain equity holders under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent, LLC, dated as of February 1, 2018. Following this purchase, Select Medical owns approximately 78.0% of the outstanding membership interests of Concentra Group Holdings Parent, LLC on a fully diluted basis and approximately 79.8% of the outstanding voting membership interests of Concentra Group Holdings Parent, LLC.

Stock Repurchase Program

The board of directors of Select Medical has authorized a common stock repurchase program to repurchase up to $500.0 million worth of shares of its common stock. The program has been extended until December 31, 2021, and will remain in effect until then, unless further extended or earlier terminated by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Select Medical deems appropriate. Select Medical funds this program with cash on hand and borrowings under its revolving credit facility.

Select Medical did not repurchase shares during the quarter ended December 31, 2020. During the year ended December 31, 2020, Select Medical repurchased 491,559 shares at a cost of approximately $8.7 million, or $17.68 per share, which includes transaction costs. Since the inception of the program through December 31, 2020, Select Medical has repurchased 38,580,908 shares at a cost of approximately $356.6 million, or $9.24 per share, which includes transaction costs.

Business Outlook

Select Medical is issuing its business outlook for 2021. Select Medical expects for the full year of 2021 revenue to be in the range of $5.65 billion to $5.85 billion and Adjusted EBITDA for the full year of 2021 to be in the range of $840.0 million to $880.0 million. Select Medical expects fully diluted earnings per common share for the full year 2021 to be in the range of $2.26 to $2.48. A reconciliation of net income to Adjusted EBITDA for the full year of 2021 is presented in table XI of this release.

Select Medical is also providing a three-year compound annual growth rate target for the years 2021 through 2023. Select Medical is targeting compound annual growth for revenue in the range of 4% to 6% from 2021 through 2023. Select Medical is targeting compound annual growth for Adjusted EBITDA in the range of 7% to 8% from 2021 through 2023. Select Medical is targeting compound annual growth for fully diluted earnings per common share in the range of 17% to 20% from 2021 through 2023.

Conference Call

Select Medical will host a conference call regarding its results for the fourth quarter and full year ended December 31, 2020, as well as its business outlook and the impact of the COVID-19 pandemic on each of its reporting segments, on Friday, February 26, 2021, at 9:00am ET. The domestic dial in number for the call is 1-866-440-2669. The international dial in number is 1-409-220-9844. The conference ID for the call is 4288605. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website www.selectmedicalholdings.com.

For those unable to participate in the conference call, a replay will be available until 12:00pm ET, March 5, 2021. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 4288605. The replay can also be accessed at Select Medical Holdings Corporation's website, www.selectmedicalholdings.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), including statements related to Select Medical's 2021 and long-term business outlook. 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:

• developments related to the COVID-19 pandemic including, but not limited to, the duration and severity of the pandemic, additional measures taken by government authorities and the private sector to limit the spread of COVID-19, and further legislative and regulatory actions which impact healthcare providers, including actions that may impact the Medicare program;
• changes in government reimbursement for our services and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;
• the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our revenue and profitability to decline;
• the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our revenue and profitability to decline;
• a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
• acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
• our plans and expectations related to our acquisitions and our ability to realize anticipated synergies;
• private third-party payors for our services may adopt payment policies that could limit our future revenue and profitability;
• the failure to maintain established relationships with the physicians in the areas we serve could reduce our  revenue and profitability;
• shortages in qualified nurses, therapists, physicians, or other licensed providers, or the inability to attract or retain healthcare professionals due to the heightened risk of infection related to the COVID-19 pandemic, could increase our operating costs significantly or limit our ability to staff our facilities;
• competition may limit our ability to grow and result in a decrease in our revenue and profitability;
• the loss of key members of our management team could significantly disrupt our operations;
• the effect of claims asserted against us could subject us to substantial uninsured liabilities;
• a security breach of our or our third-party vendors' information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and
• other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" of the annual report on Form 10-K for the year ended December 31, 2020.

Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance.

Investor inquiries:

Joel T. Veit
Senior Vice President and Treasurer
717-972-1100
ir@selectmedical.com

I.  Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 2019 and 2020
(In thousands, except per share amounts, unaudited)
		2019				2020				% Change
Revenue		$	1,374,584			$	1,460,494			6.2	%
Costs and expenses:
Cost of services, exclusive of depreciation and amortization		1,175,649				1,246,594				6.0
General and administrative		34,062				35,229				3.4
Depreciation and amortization		52,504				51,526				(1.9)
Total costs and expenses		1,262,215				1,333,349				5.6
Other operating income		—				36,184				N/M
Income from operations		112,369				163,329				45.4
Other income and expense:
Loss on early retirement of debt		(19,440)				—				N/M
Equity in earnings of unconsolidated subsidiaries		6,279				9,763				55.5
Loss on sale of businesses		—				(303)				N/M
Interest expense		(43,959)				(35,512)				(19.2)
Income before income taxes		55,249				137,277				148.5
Income tax expense		11,578				35,062				202.8
Net income		43,671				102,215				134.1
Less: Net income attributable to non-controlling interests		11,604				24,941				114.9
Net income attributable to Select Medical		$	32,067			$	77,274			141.0	%
Diluted earnings per common share:(1)		$	0.24			$	0.57

(1)	Refer to table III for calculation of earnings per common share.
N/M	Not meaningful

 

II.  Condensed Consolidated Statements of Operations For the Years Ended December 31, 2019 and 2020 (In thousands, except per share amounts, unaudited)
		2019				2020				% Change
Revenue		$	5,453,922			$	5,531,713			1.4	%
Costs and expenses:
Cost of services, exclusive of depreciation and amortization		4,641,002				4,710,372				1.5
General and administrative		128,463				138,037				7.5
Depreciation and amortization		212,576				205,659				(3.3)
Total costs and expenses		4,982,041				5,054,068				1.4
Other operating income		—				90,012				N/M
Income from operations		471,881				567,657				20.3
Other income and expense:
Loss on early retirement of debt		(38,083)				—				N/M
Equity in earnings of unconsolidated subsidiaries		24,989				29,440				17.8
Gain on sale of businesses		6,532				12,387				N/M
Interest expense		(200,570)				(153,011)				(23.7)
Income before income taxes		264,749				456,473				72.4
Income tax expense		63,718				111,867				75.6
Net income		201,031				344,606				71.4
Less: Net income attributable to non-controlling interests		52,582				85,611				62.8
Net income attributable to Select Medical		$	148,449			$	258,995			74.5	%
Diluted earnings per common share:(1)		$	1.10			$	1.93

(1)	Refer to table III for calculation of earnings per common share.
N/M	Not meaningful

III.  Earnings per Share
For the Three Months and Years Ended December 31, 2019 and 2020
(In thousands, except per share amounts, unaudited)

Select Medical's capital structure includes common stock and unvested restricted stock awards. To compute earnings per share ("EPS"), Select Medical applies the two-class method because its unvested restricted stock awards are participating securities which are entitled to participate equally with its common stock in undistributed earnings.

The following table sets forth the net income attributable to Select Medical, its common shares outstanding, and its participating securities outstanding for the three months and years ended December 31, 2019 and 2020:

		Diluted EPS
		Three Months Ended December 31,								Years Ended December 31,
		2019				2020				2019				2020
Net income		$	43,671			$	102,215			$	201,031			$	344,606
Less: net income attributable to non-controlling interests		11,604				24,941				52,582				85,611
Net income attributable to Select Medical		32,067				77,274				148,449				258,995
Less: net income attributable to participating securities		1,101				2,638				4,994				8,896
Net income attributable to common shares		$	30,966			$	74,636			$	143,455			$	250,099

The following tables set forth the computation of EPS under the two-class method for the three months and years ended December 31, 2019 and 2020:

		Three Months Ended December 31,
		2019												2020
		Net Income Allocation				Shares(1)			Diluted EPS					Net Income Allocation				Shares(1)			Diluted EPS
Common shares		$	30,966			129,676			$	0.24				$	74,636			130,269			$	0.57
Participating securities		1,101				4,610			$	0.24				2,638				4,605			$	0.57
Total		$	32,067											$	77,274
		Years Ended December 31,
		2019												2020
		Net Income Allocation				Shares(1)			Diluted EPS					Net Income Allocation				Shares(1)			Diluted EPS
Common shares		$	143,455			130,276			$	1.10				$	250,099			129,780			$	1.93
Participating securities		4,994				4,535			$	1.10				8,896				4,616			$	1.93
Total		$	148,449											$	258,995

(1)	Represents the weighted average share count outstanding during the period.

 

IV.  Condensed Consolidated Balance Sheets (In thousands, unaudited)
		December 31,
		2019				2020
Assets
Current Assets:
Cash and cash equivalents		$	335,882			$	577,061
Accounts receivable		762,677				896,763
Other current assets		114,433				120,176
Total Current Assets		1,212,992				1,594,000
Operating lease right-of-use assets		1,003,986				1,032,217
Property and equipment, net		998,406				943,420
Goodwill		3,391,955				3,379,014
Identifiable intangible assets, net		409,068				387,541
Other assets		323,881				319,207
Total Assets		$	7,340,288			$	7,655,399
Liabilities and Equity
Current Liabilities:
Payables and accruals		$	681,163			$	800,918
Government advances		—				321,807
Unearned government assistance		—				82,607
Current operating lease liabilities		207,950				220,413
Current portion of long-term debt and notes payable		25,167				12,621
Total Current Liabilities		914,280				1,438,366
Non-current operating lease liabilities		852,897				875,367
Long-term debt, net of current portion		3,419,943				3,389,398
Non-current deferred tax liability		148,258				132,421
Other non-current liabilities		101,334				168,703
Total Liabilities		5,436,712				6,004,255
Redeemable non-controlling interests		974,541				398,171
Total equity		929,035				1,252,973
Total Liabilities and Equity		$	7,340,288			$	7,655,399

 

V.  Condensed Consolidated Statements of Cash Flows For the Three Months Ended December 31, 2019 and 2020 (In thousands, unaudited)
		2019				2020
Operating activities
Net income		$	43,671			$	102,215
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries		6,613				13,670
Depreciation and amortization		52,504				51,526
Provision for expected credit losses		694				323
Equity in earnings of unconsolidated subsidiaries		(6,279)				(9,763)
Loss on extinguishment of debt		11,970				—
Loss on sale of assets and businesses		28				2,160
Stock compensation expense		7,020				6,422
Amortization of debt discount, premium and issuance costs		2,097				549
Deferred income taxes		(188)				(159)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable		35,434				(25,188)
Other current assets		1,757				4,040
Other assets		4,863				1,252
Accounts payable and accrued expenses		18,358				44,722
Unearned government assistance		—				15,669
Net cash provided by operating activities		178,542				207,438
Investing activities
Business combinations, net of cash acquired		(7,436)				(6,732)
Purchases of property and equipment		(33,170)				(40,868)
Investment in businesses		(5,422)				(5,568)
Proceeds from sale of assets and businesses		9				—
Net cash used in investing activities		(46,019)				(53,168)
Financing activities
Proceeds from term loans		614,423				—
Payments on term loans		(1,243,086)				—
Proceeds from 6.250% senior notes		705,811				—
Borrowings of other debt		4,943				5,022
Principal payments on other debt		(7,976)				(5,561)
Repurchase of common stock		(1,222)				(1,792)
Proceeds from exercise of stock options		92				—
Proceeds from issuance of non-controlling interests		159				5,878
Distributions to and purchases of non-controlling interests		(5,748)				(10,393)
Purchase of membership interests of Concentra Group Holdings Parent		—				(210,163)
Net cash provided by (used in) financing activities		67,396				(217,009)
Net increase (decrease) in cash and cash equivalents		199,919				(62,739)
Cash and cash equivalents at beginning of period		135,963				639,800
Cash and cash equivalents at end of period		$	335,882			$	577,061
Supplemental information:
Cash paid for interest		$	33,902			$	15,062
Cash paid for taxes		$	12,120			$	26,945

 

VI.  Condensed Consolidated Statements of Cash Flows For the Years Ended December 31, 2019 and 2020 (In thousands, unaudited)
		2019				2020
Operating activities
Net income		$	201,031			$	344,606
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries		20,222				35,390
Depreciation and amortization		212,576				205,659
Provision for expected credit losses		3,038				604
Equity in earnings of unconsolidated subsidiaries		(24,989)				(29,440)
Loss on extinguishment of debt		22,130				—
Gain on sale of assets and businesses		(6,321)				(22,563)
Stock compensation expense		26,451				27,250
Amortization of debt discount, premium and issuance costs		11,566				2,184
Deferred income taxes		(7,435)				(14,715)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable		(57,991)				(116,601)
Other current assets		(4,259)				(18,775)
Other assets		6,122				17,587
Accounts payable and accrued expenses		43,041				196,164
Government advances		—				318,116
Unearned government assistance		—				82,607
Net cash provided by operating activities		445,182				1,028,073
Investing activities
Business combinations, net of cash acquired		(93,705)				(20,808)
Purchases of property and equipment		(157,126)				(146,440)
Investment in businesses		(66,090)				(31,425)
Proceeds from sale of assets and businesses		192				83,320
Net cash used in investing activities		(316,729)				(115,353)
Financing activities
Borrowings on revolving facilities		700,000				470,000
Payments on revolving facilities		(720,000)				(470,000)
Proceeds from term loans		1,208,106				—
Payments on term loans		(1,618,170)				(39,843)
Proceeds from 6.250% senior notes		1,244,987				—
Payment on 6.375% senior notes		(710,000)				—
Revolving facility debt issuance costs		(310)				—
Borrowings of other debt		24,225				40,108
Principal payments on other debt		(30,604)				(48,381)
Repurchase of common stock		(38,531)				(16,034)
Proceeds from exercise of stock options		964				—
Decrease in overdrafts		(25,083)				—
Proceeds from issuance of non-controlling interests		18,447				7,564
Distributions to and purchases of non-controlling interests		(21,780)				(38,589)
Purchase of membership interests of Concentra Group Holdings Parent		—				(576,366)
Net cash provided by (used in) financing activities		32,251				(671,541)
Net increase in cash and cash equivalents		160,704				241,179
Cash and cash equivalents at beginning of period		175,178				335,882
Cash and cash equivalents at end of period		$	335,882			$	577,061
Supplemental information:
Cash paid for interest		$	182,992			$	155,236
Cash paid for taxes		$	70,592			$	108,890

 

VII.  Key Statistics For the Three Months Ended December 31, 2019 and 2020 (unaudited)
		2019				2020				% Change
Critical Illness Recovery Hospital
Number of hospitals – end of period(a)		101				99
Revenue (,000)		$	454,949			$	537,898			18.2	%
Number of patient days(b)(c)		259,283				285,346				10.1	%
Number of admissions(b)(d)		9,095				9,376				3.1	%
Revenue per patient day(b)(e)		$	1,742			$	1,881			8.0	%
Adjusted EBITDA (,000)		$	60,485			$	75,284			24.5	%
Adjusted EBITDA margin		13.3		%		14.0		%
Rehabilitation Hospital
Number of hospitals – end of period(a)		29				30
Revenue (,000)		$	182,670			$	195,912			7.2	%
Number of patient days(b)(c)		94,236				96,504				2.4	%
Number of admissions(b)(d)		6,636				6,592				(0.7)	%
Revenue per patient day(b)(e)		$	1,739			$	1,839			5.8	%
Adjusted EBITDA (,000)		$	43,312			$	42,392			(2.1)	%
Adjusted EBITDA margin		23.7		%		21.6		%
Outpatient Rehabilitation
Number of clinics – end of period(a)		1,740				1,788
Revenue (,000)		$	271,885			$	257,484			(5.3)	%
Number of visits(b)		2,256,966				2,145,040				(5.0)	%
Revenue per visit(b)(f)		$	104			$	103			(1.0)	%
Adjusted EBITDA (,000)		$	40,216			$	27,701			(31.1)	%
Adjusted EBITDA margin		14.8		%		10.8		%
Concentra
Number of centers – end of period(b)		521				517
Revenue (,000)		$	397,145			$	398,702			0.4	%
Number of visits(b)		2,903,266				2,772,382				(4.5)	%
Revenue per visit(b)(f)		$	122			$	122			0.0	%
Adjusted EBITDA (,000)		$	56,458			$	69,382			22.9	%
Adjusted EBITDA margin		14.2		%		17.4		%

(a)	Includes managed locations.
(b)	Excludes managed locations. For purposes of the Concentra segment, onsite clinics and community-based outpatient clinics are excluded.
(c)	Each patient day represents one patient occupying one bed for one day during the periods presented.
(d)	Represents the number of patients admitted to our hospitals during the periods presented.
(e)	Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.
(f)	Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits.

 

VIII.  Key Statistics For the Years Ended December 31, 2019 and 2020 (unaudited)
		2019				2020				% Change
Critical Illness Recovery Hospital
Number of hospitals – end of period(a)		101				99
Revenue (,000)		$	1,836,518			$	2,077,499			13.1	%
Number of patient days(b)(c)		1,038,361				1,111,756				7.1	%
Number of admissions(b)(d)		36,774				37,456				1.9	%
Revenue per patient day(b)(e)		$	1,753			$	1,858			6.0	%
Adjusted EBITDA (,000)		$	254,868			$	342,427			34.4	%
Adjusted EBITDA margin		13.9		%		16.5		%
Rehabilitation Hospital
Number of hospitals – end of period(a)		29				30
Revenue (,000)		$	670,971			$	734,673			9.5	%
Number of patient days(b)(c)		353,031				370,833				5.0	%
Number of admissions(b)(d)		24,889				25,081				0.8	%
Revenue per patient day(b)(e)		$	1,685			$	1,793			6.4	%
Adjusted EBITDA (,000)		$	135,857			$	153,203			12.8	%
Adjusted EBITDA margin		20.2		%		20.9		%
Outpatient Rehabilitation
Number of clinics – end of period(a)		1,740				1,788
Revenue (,000)		$	1,046,011			$	919,913			(12.1)	%
Number of visits(b)		8,719,282				7,593,344				(12.9)	%
Revenue per visit(b)(f)		$	103			$	104			1.0	%
Adjusted EBITDA (,000)		$	151,831			$	79,164			(47.9)	%
Adjusted EBITDA margin		14.5		%		8.6		%
Concentra
Number of centers – end of period(b)		521				517
Revenue (,000)		$	1,628,817			$	1,501,434			(7.8)	%
Number of visits(b)		12,068,865				10,627,904				(11.9)	%
Revenue per visit(b)(f)		$	122			$	123			0.8	%
Adjusted EBITDA (,000)		$	276,482			$	252,892			(8.5)	%
Adjusted EBITDA margin		17.0		%		16.8		%

(a)	Includes managed locations.
(b)	Excludes managed locations. For purposes of the Concentra segment, onsite clinics and community-based outpatient clinics are excluded.
(c)	Each patient day represents one patient occupying one bed for one day during the periods presented.
(d)	Represents the number of patients admitted to our hospitals during the periods presented.
(e)	Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.
(f)	Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits.

IX.  Net Income to Adjusted EBITDA Reconciliation
For the Three Months and Years Ended December 31, 2019 and 2020
(In thousands, unaudited)

The presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used to evaluate financial performance and determine resource allocation for each of Select Medical's operating segments. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles ("GAAP"). 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, income from operations, 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 GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

The following table reconciles net income to Adjusted EBITDA for Select Medical. Adjusted EBITDA is used by Select Medical to report its segment performance. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries.

	Three Months Ended December 31,								Years Ended December 31,
	2019				2020				2019				2020
Net income	$	43,671			$	102,215			$	201,031			$	344,606
Income tax expense	11,578				35,062				63,718				111,867
Interest expense	43,959				35,512				200,570				153,011
Loss (gain) on sale of businesses	—				303				(6,532)				(12,387)
Equity in earnings of unconsolidated subsidiaries	(6,279)				(9,763)				(24,989)				(29,440)
Loss on early retirement of debt	19,440				—				38,083				—
Income from operations	112,369				163,329				471,881				567,657
Stock compensation expense:
Included in general and administrative	5,485				5,565				20,334				22,053
Included in cost of services	1,535				857				6,117				5,197
Depreciation and amortization	52,504				51,526				212,576				205,659
Adjusted EBITDA	$	171,893			$	221,277			$	710,908			$	800,566
Critical illness recovery hospital	$	60,485			$	75,284			$	254,868			$	342,427
Rehabilitation hospital	43,312				42,392				135,857				153,203
Outpatient rehabilitation	40,216				27,701				151,831				79,164
Concentra(a)	56,458				69,382				276,482				252,892
Other(a)(b)	(28,578)				6,518				(108,130)				(27,120)
Adjusted EBITDA	$	171,893			$	221,277			$	710,908			$	800,566

(a)	For the three months and year ended December 31, 2020, Select Medical recognized payments received under the Provider Relief Fund for loss of revenue and health care related expenses attributable to the COVID-19 pandemic as other operating income. The other operating income is included within the operating results of Select Medical's other activities and its Concentra segment. Refer to "CARES Act Provider Relief Fund" for further discussion.
(b)	Other primarily includes general and administrative costs.

X.  Reconciliation of Earnings per Common Share to Adjusted Earnings per Common Share
For the Three Months and Years Ended December 31, 2019 and 2020
(In thousands, except per share amounts, unaudited)

Adjusted net income attributable to common shares and adjusted earnings per common share are not measures of financial performance under GAAP.  Items excluded from adjusted net income attributable to common shares and adjusted earnings per common share are significant components in understanding and assessing financial performance. Select Medical believes that the presentation of adjusted net income attributable to common shares and adjusted earnings per common share are important to investors because they are reflective of the financial performance of Select Medical's ongoing operations and provide better comparability of its results of operations between periods. Adjusted net income attributable to common shares and adjusted earnings per common share should not be considered in isolation or as alternatives to, or substitutes 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 net income attributable to common shares and adjusted earnings per common share are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, adjusted net income attributable to common shares and adjusted earnings per common share as presented may not be comparable to other similarly titled measures of other companies.

The following tables reconcile net income attributable to common shares and earnings per common share on a fully diluted basis to adjusted net income attributable to common shares and adjusted earnings per common share on a fully diluted basis.

	Three Months Ended December 31,
	2019				Per Share(a)				2020				Per Share(a)
Net income attributable to common shares(a)	$	30,966			$	0.24			$	74,636			$	0.57
Adjustments:(b)
Loss on early retirement of debt	9,505				0.07				—				—
Loss on sale of businesses	—				—				201				—
Adjusted net income attributable to common shares	$	40,471			$	0.31			$	74,837			$	0.57
	Years Ended December 31,
	2019				Per Share(a)				2020				Per Share(a)
Net income attributable to common shares(a)	$	143,455			$	1.10			$	250,099			$	1.93
Adjustments:(b)
Loss on early retirement of debt and related costs(c)	22,286				0.17				—				—
Gain on sale of businesses	(4,543)				(0.03)				(4,888)				(0.04)
Adjusted net income attributable to common shares	$	161,198			$	1.24			$	245,211			$	1.89

(a)	Net income attributable to common shares and earnings per common share are calculated based on the diluted weighted average common shares outstanding, as presented in table III.
(b)	Adjustments to net income attributable to common shares include estimated income tax and non-controlling interest impacts and are calculated based on the diluted weighted average common shares outstanding. The estimated income tax impact, which is determined using tax rates based on the nature of the adjustment and the jurisdiction in which the adjustment occurred, includes both current and deferred income tax expense or benefit.
	For the three months ended December 31, 2019, the adjustments to net income attributable to common shares include an estimated income tax benefit of approximately $5.2 million. For the three months ended December 31, 2020, the estimated income tax effect on the adjustment made to net income attributable to common shares was immaterial.
	For the year ended December 31, 2019, the adjustments to net income attributable to common shares include an estimated income tax benefit of approximately $9.2 million. For the year ended December 31, 2020, the adjustments to net income attributable to common shares include estimated income tax expense of approximately $3.3 million.
(c)	Select Medical redeemed its $710.0 million 6.375% senior notes on August 30, 2019 and issued and sold $550.0 million 6.250% senior notes on August 1, 2019. As a result, Select Medical recognized interest expense on both the 6.250% senior notes and the 6.375% senior notes during August 2019. The adjustment to net income attributable to common shares for the loss on early retirement of debt and related costs includes the interest expense recognized on the 6.375% senior notes during August 2019 and its related tax effects.

XI.  Net Income to Adjusted EBITDA Reconciliation
Business Outlook for the Year Ending December 31, 2021
(In millions, unaudited)

The following is a reconciliation of full year 2021 Adjusted EBITDA expectations as computed at the low and high points of the range to the closest comparable GAAP financial measure. Refer to table IX for the definition of Adjusted EBITDA and a discussion of Select Medical's use of Adjusted EBITDA in evaluating financial performance. Each item presented in the below table is an estimation of full year 2021 expectations.

	Range
Non-GAAP Measure Reconciliation	Low				High
Net income attributable to Select Medical	$	306			$	336
Net income attributable to non-controlling interests	70				70
Net income	376				406
Income tax expense	130				140
Interest expense	147				147
Equity in earnings of unconsolidated subsidiaries	(39)				(39)
Income from operations	614				654
Stock compensation expense	28				28
Depreciation and amortization	198				198
Adjusted EBITDA	$	840			$	880

 

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SOURCE Select Medical Holdings Corporation