Exhibit 99.1

 

FOR IMMEDIATE RELEASE	4714 Gettysburg Road Mechanicsburg, PA 17055
	NYSE Symbol:  SEM

 

Select Medical Holdings Corporation Announces Results for

Second Quarter Ended June 30, 2015

 

MECHANICSBURG, PENNSYLVANIA — August 6, 2015 — Select Medical Holdings Corporation (“Select Medical”) (NYSE: SEM) today announced results for its second quarter ended June 30, 2015.

 

On June 1, 2015, MJ Acquisition Corporation, a joint venture that Select Medical created with Welsh, Carson, Anderson & Stowe XII, L.P. (“WCAS”), consummated the acquisition of Concentra Inc. (“Concentra”), which provides occupational health, consumer health, physical therapy, and veteran’s healthcare services throughout the United States. Select Medical owns 50.1% of the voting interests of Concentra Group Holdings, LLC, the indirect parent of Concentra. Concentra’s financial results are consolidated with Select Medical’s effective June 1, 2015.

 

For the second quarter ended June 30, 2015, net operating revenues increased 14.8% to $887.1 million, compared to $772.8 million for the same quarter, prior year.  Income from operations was $85.0 million for the second quarter ended June 30, 2015, compared to $82.2 million for the same quarter, prior year.  Net income attributable to Select Medical was $36.9 million for the second quarter ended June 30, 2015, compared to $35.3 million for the same quarter, prior year.  Net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Concentra acquisition costs, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense) (“Adjusted EBITDA”) for the second quarter ended June 30, 2015 increased 13.4% to $114.9 million, compared to $101.4 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release. Income per common share for the second quarter ended June 30, 2015 was $0.28 on a fully diluted basis compared to income per common share of $0.27 for the same quarter, prior year.

 

For the six months ended June 30, 2015, net operating revenues increased 9.6% to $1,682.4 million compared to $1,535.3 million for the same period, prior year.  Income from operations was $164.3 million for the six months ended June 30, 2015, compared to $160.6 million for the same period, prior year.  Net income attributable to Select Medical was $72.0 million for the six months ended June 30, 2015, compared to $68.4 million for the same period, prior year.  Net income attributable to Select Medical for the six months ended June 30, 2014 includes a loss on early retirement of debt, net of tax, of $1.4 million.  Adjusted EBITDA for the six months ended June 30, 2015 increased 7.9% to $213.8 million compared to $198.2 million for the same period, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release.  Income per common share for the six months ended June 30, 2015 was $0.55 on a fully diluted basis compared to income per common share of $0.51 for the six months ended June 30, 2014.  Excluding the loss related to the early retirement of debt and the related tax effect, adjusted income per common share was $0.52 per diluted share for the six months ended June 30, 2014.  A reconciliation of net income per common share to adjusted income per common share for the six months ended June 30, 2014 is presented in table IX of this release.

 

 

Specialty Hospital Segment

 

For the second quarter ended June 30, 2015, net operating revenues for the specialty hospital segment increased 6.2% to $592.3 million, compared to $557.8 million for the same quarter, prior year.  Adjusted EBITDA for the specialty hospital segment increased 3.1% to $91.4 million for the second quarter ended June 30, 2015, compared to $88.7 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 15.4% for the second quarter ended June 30, 2015, compared to 15.9% for the same quarter, prior year.  The Adjusted EBITDA results for the specialty hospital segment include start-up losses of approximately $3.3 million for the second quarter ended June 30, 2015 and $3.9 million for the same quarter, prior year.  Certain specialty hospital key statistics for both the second quarter ended June 30, 2015 and 2014 are presented in table VI of this release.

 

For the six months ended June 30, 2015, net operating revenues for the specialty hospital segment increased 6.1% to $1,191.1 million, compared to $1,122.5 million for the same period, prior year.  Adjusted EBITDA for the specialty hospital segment for the six months ended June 30, 2015 increased 3.9% to $187.9 million, compared to $180.8 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 15.8% for the six months ended June 30, 2015, compared to 16.1% for the same period, prior year.  The Adjusted EBITDA results for the specialty hospital segment include start-up losses of approximately $8.8 million for the six months ended June 30, 2015 and $4.7 million for the same period, prior year.  Certain specialty hospital key statistics for both the six months ended June 30, 2015 and 2014 are presented in table VII of this release.

 

Outpatient Rehabilitation Segment

 

For the second quarter ended June 30, 2015, net operating revenues for the outpatient rehabilitation segment decreased 3.3% to $207.8 million, compared to $214.8 million for the same quarter, prior year.  Adjusted EBITDA for the outpatient rehabilitation segment decreased 5.6% to $28.7 million for the second quarter ended June 30, 2015, compared to $30.4 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 13.8% for the second quarter ended June 30, 2015, compared to 14.2% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for both the second quarter ended June 30, 2015 and 2014 are presented in table VI of this release.

 

For the six months ended June 30, 2015, net operating revenues for the outpatient rehabilitation segment decreased 2.0% to $404.2 million, compared to $412.6 million for the same period, prior year.  Adjusted EBITDA for the outpatient rehabilitation segment for the six months ended June 30, 2015 decreased 1.1% to $50.9 million, compared to $51.4 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 12.6% for the six months ended June 30, 2015, compared to 12.5% for the same period, prior year.  Certain outpatient rehabilitation key statistics for both the six months ended June 30, 2015 and 2014 are presented in table VII of this release.

 

Concentra Segment

 

For both the second quarter and six months ended June 30, 2015, which only includes results beginning June 1, 2015, net operating revenues for the Concentra segment were $86.8 million.  Adjusted EBITDA for the Concentra segment was $11.2 million for both the second quarter and six months ended June 30, 2015.  The Adjusted EBITDA margin for the Concentra segment was 12.9% for both the second quarter and six months ended June 30, 2015.  Certain Concentra key statistics for both the second quarter and six months ended June 30, 2015 are presented in table VI and table VII, respectively, of this release.

 

 

Stock Repurchase Program

 

The board of directors of Select Medical has authorized a $500.0 million stock repurchase program that will remain in effect until December 31, 2016, unless 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 is funding this program with cash on hand and borrowings under Select’s revolving facility.  Select Medical did not repurchase shares during the six months ended June 30, 2015.  Since the inception of the program through June 30, 2015, Select Medical has repurchased 34,891,794 shares at a cost of approximately $301.1 million, or an average price of $8.63 per share, which includes transaction costs.

 

Business Outlook

 

Select Medical is updating its most recent business outlook to incorporate both the first half of 2015’s actual financial performance as well as the expected contribution from Concentra, which closed on June 1st and is now consolidated in our financial results. We now expect for the full year of 2015 consolidated net operating revenues to be in the range of $3.675 billion to $3.750 billion, Adjusted EBITDA in the range of $430.0 million to $445.0 million and fully diluted income per common share for the full year 2015 to be in the range of $0.90 to $0.96.

 

The Concentra segment is expected to contribute approximately $550.0 million of net operating revenues, approximately $55.0 million of Adjusted EBITDA and approximately $0.01 fully diluted income per common share, which amounts are included in the above revised business outlook.

 

Select Medical’s business outlook includes expected Adjusted EBITDA start-up losses during the full year 2015 of approximately $17.0 million at Select Medical’s long term acute care hospitals (LTCHs) and inpatient rehabilitation facilities (IRFs) recently opened or under development. Select Medical assumed a 39.0% effective tax rate for the second half of 2015 when preparing the above business outlook.

 

Conference Call

 

Select Medical will host a conference call regarding its second quarter results and its business outlook on Friday, August 7, 2015, at 9:00am EDT. The domestic dial in number for the call is 1-877-415-3178. The international dial in number is 1-857-244-7321. The passcode for the call is 97808155. The conference call will be webcast simultaneously and can be accessed at Select Medical’s website www.selectmedicalholdings.com.

 

For those unable to participate in the conference call, a replay will be available until 11:59pm EDT, August 14, 2015. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 47080385. The replay can also be accessed at Select Medical’s website, www.selectmedicalholdings.com.

 

*   *   *   *   *

 

Select Medical began operations in 1997 and has grown to be one of the largest operators of specialty hospitals and outpatient rehabilitation clinics in the United States based on number of facilities.  On June 1, 2015, a joint venture created by Select Medical and WCAS consummated the acquisition of Concentra, which provides occupational health, consumer health, physical therapy, and veteran’s healthcare services throughout the United States.  As of June 30, 2015, Select Medical operated 111 long term acute care hospitals and 17 acute medical rehabilitation hospitals in 28 states, and 1,028 outpatient rehabilitation clinics in 31 states and the District of Columbia.  Select Medical’s contract therapy business provides medical rehabilitation services on a contracted basis to nursing homes, hospitals, assisted living

 

 

and senior care centers, schools, and work sites.  Concentra operated 300 centers in 38 states.  Concentra also provides contract services at employer worksites and Department of Veterans Affairs community-based outpatient clinics.  As of June 30, 2015, Select Medical had operations in 46 states and the District of Columbia. Information about Select Medical is available at www.selectmedical.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:

 

·                       changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies (including, for example, the expiration of the moratorium limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;

 

·                       the impact of the Bipartisan Budget Act of 2013, which establishes new payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals;

 

·                    the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;

 

·                    the failure of our facilities operated as “hospitals within hospitals” to qualify as hospitals separate from their host hospitals may cause our net operating revenues 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 the Concentra acquisition, including expectations regarding the expected capital expenditures related to the acquisition, and our ability to realize anticipated synergies;

 

·                    private third-party payors for our services may undertake future cost containment initiatives that could limit our future net operating revenues and profitability;

 

·                    the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;

 

·                    shortages in qualified nurses, therapists, physicians, or other licensed providers 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 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 could subject us to substantial uninsured liabilities; and

 

 

·                    other factors discussed from time to time in our filings with the Securities and Exchange Commission, including factors discussed under the heading “Risk Factors” of our quarterly report on Form 10-Q and of the annual report on Form 10-K.

 

Investor inquiries:

Joel T. Veit

Senior Vice President and Treasurer

717-972-1100

ir@selectmedical.com

 

SOURCE: Select Medical Holdings Corporation

 

 

I.  Condensed Consolidated Statements of Operations

For the Three Months Ended June 30, 2014 and 2015

(In thousands, except per share amounts, unaudited)

 

		2014			2015			% Change
Net operating revenues		$	772,762		$	887,065		14.8	%
Costs and expenses:
Cost of services		642,881			743,879			15.7	%
General and administrative		19,377			24,041			24.1	%
Bad debt expense		11,115			12,286			10.5	%
Depreciation and amortization		17,196			21,848			27.1	%
Income from operations		82,193			85,011			3.4	%
Equity in earnings of unconsolidated subsidiaries		1,239			3,848			210.6	%
Interest expense		(21,663		)	(25,288		)	16.7	%
Income before income taxes		61,769			63,571			2.9	%
Income tax expense		23,775			23,517			(1.1	)%
Net income		37,994			40,054			5.4	%
Less: Net income attributable to non-controlling interests		2,653			3,114			17.4	%
Net income attributable to Select Medical Holdings Corporation		$	35,341		$	36,940		4.5	%
Weighted average shares outstanding(1):
Basic		127,038			127,674
Diluted		127,541			128,009
Income per common share(1):
Basic		$	0.27		$	0.28
Diluted		$	0.27		$	0.28
Dividends paid per share		$	0.10		$	—

 

(1)              Under the two-class method for calculating income per common share, unvested restricted stock is a separate, participating class.  Income per common share and weighted average common shares outstanding exclude amounts attributed to the unvested restricted class of stockholders.  Net income allocated to the unvested restricted stockholders was $1.0 million and $0.9 million for the three months ended June 30, 2015 and 2014, respectively.  Unvested restricted weighted average shares were 3,591 thousand and 3,390 thousand for the three months ended June 30, 2015 and 2014, respectively.

 

 

II.  Condensed Consolidated Statements of Operations

For the Six Months Ended June 30, 2014 and 2015

(In thousands, except per share amounts, unaudited)

 

		2014			2015			% Change
Net operating revenues		$	1,535,340		$	1,682,408		9.6	%
Costs and expenses:
Cost of services		1,281,645			1,408,264			9.9	%
General and administrative		37,500			45,716			21.9	%
Bad debt expense		22,133			24,956			12.8	%
Depreciation and amortization		33,425			39,196			17.3	%
Income from operations		160,637			164,276			2.3	%
Loss on early retirement of debt		(2,277		)	—			N/M
Equity in earnings of unconsolidated subsidiaries		2,147			6,440			200.0	%
Interest expense		(42,279		)	(46,676		)	10.4	%
Income before income taxes		118,228			124,040			4.9	%
Income tax expense		45,867			46,701			1.8	%
Net income		72,361			77,339			6.9	%
Less: Net income attributable to non- controlling interests		3,976			5,336			34.2	%
Net income attributable to Select Medical Holdings Corporation		$	68,385		$	72,003		5.3	%
Weighted average shares outstanding(1):
Basic		131,266			127,620
Diluted		131,766			127,944
Income per common share(1):
Basic		$	0.51		$	0.55
Diluted		$	0.51		$	0.55
Dividends paid per share		$	0.20		$	0.10

 

(1)               Under the two-class method for calculating income per common share, unvested restricted stock is a separate, participating class.  Income per common share and weighted average common shares outstanding exclude amounts attributed to the unvested restricted class of stockholders.  Net income allocated to the unvested restricted stockholders was $2.0 million and $1.7 million for the six months ended June 30, 2015 and 2014, respectively.  Unvested restricted weighted average shares were 3,616 thousand and 3,312 thousand for the six months ended June 30, 2015 and 2014, respectively.

 

N/M = Not Meaningful

 

 

III.  Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

		December 31, 2014			June 30, 2015
Assets
Cash		$	3,354		$	25,191
Accounts receivable, net		444,269			633,621
Current deferred tax asset		15,991			17,355
Other current assets		64,030			78,153
Total Current Assets		527,644			754,320
Property and equipment, net		542,310			771,410
Goodwill		1,642,083			2,353,975
Other identifiable intangibles		72,519			261,642
Other assets		140,253			199,988
Total Assets		$	2,924,809		$	4,341,335
Liabilities and Equity
Payables and accruals		$	383,550		$	470,931
Current portion of long-term debt		10,874			17,448
Total Current Liabilities		394,424			488,379
Long-term debt, net of current portion		1,542,102			2,431,319
Non-current deferred tax liability		109,203			167,908
Other non-current liabilities		92,855			142,383
Total Liabilities		2,138,584			3,229,989
Redeemable non-controlling interests		10,985			257,187
Total equity		775,240			854,159
Total Liabilities and Equity		$	2,924,809		$	4,341,335

 

 

IV.  Condensed Consolidated Statement of Cash Flows

For the Three Months Ended June 30, 2014 and 2015

(In thousands, unaudited)

 

		2014			2015
Operating Activities
Net Income		$	37,994		$	40,054
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries		—			24
Depreciation and amortization		17,196			21,848
Provision for bad debts		11,115			12,286
Equity in earnings of unconsolidated subsidiaries		(1,239		)	(3,848		)
Loss from sale of assets		22			246
Non-cash stock compensation expense		1,965			3,395
Amortization of debt discount, premium and issuance costs		1,798			2,098
Deferred income taxes		1,218			(1,957		)
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable		3,188			(27,455		)
Other current assets		209			(2,114		)
Other assets		476			1,905
Accounts payable		5,611			3,593
Accrued expenses		(1,283		)	(6,050		)
Income taxes		(20,101		)	(6,500		)
Net cash provided by operating activities		58,169			37,525
Investing activities
Purchases of property and equipment		(23,194		)	(41,064		)
Investment in businesses		(51		)	145
Acquisition of businesses, net of cash acquired		(79		)	(1,045,311		)
Net cash used in investing activities		(23,324		)	(1,086,230		)
Financing activities
Borrowings on revolving facilities		230,000			445,000
Payments on revolving facilities		(225,000		)	(225,000		)
Proceeds from Concentra term loans, net of discounts		—			646,875
Borrowings of other debt		—			3,008
Principal payments on other debt		(3,982		)	(3,736		)
Proceeds from (repayment of) bank overdrafts		(9,284		)	8,411
Debt issuance costs		—			(23,300		)
Dividends paid to common stockholders		(13,097		)	—
Repurchase of common stock		(18,000		)	—
Proceeds from issuance of common stock		3,354			836
Proceeds from issuance of non-controlling interest		—			217,065
Tax benefit from stock based awards		—			6
Distributions to non-controlling interests		(388		)	(1,857		)
Net cash provided by (used in) financing activities		(36,397		)	1,067,308
Net increase (decrease) in cash and cash equivalents		(1,552		)	18,603
Cash and cash equivalents at beginning of period		4,692			6,588
Cash and cash equivalents at end of period		$	3,140		$	25,191
Supplemental Cash Flow Information
Cash paid for interest		$	24,700		$	31,197
Cash paid for taxes		$	42,659		$	31,969

 

 

V.  Condensed Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2014 and 2015

(In thousands, unaudited)

 

		2014			2015
Operating Activities
Net Income		$	72,361		$	77,339
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries		—			52
Depreciation and amortization		33,425			39,196
Provision for bad debts		22,133			24,956
Equity in earnings of unconsolidated subsidiaries		(2,147		)	(6,440		)
Loss from sale of assets		143			251
Loss on early retirement of debt		2,277			—
Non-cash stock compensation expense		4,120			5,794
Amortization of debt discount, premium and issuance costs		3,849			4,027
Deferred income taxes		1,275			(4,428		)
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable		(84,249		)	(89,265		)
Other current assets		(2,935		)	(8,038		)
Other assets		(3,462		)	3,568
Accounts payable		10,343			8,925
Accrued expenses		(14,086		)	707
Income taxes		(878		)	18,416
Net cash provided by operating activities		42,169			75,060
Investing activities
Purchases of property and equipment		(50,493		)	(68,912		)
Investment in businesses		(175		)	(855		)
Acquisition of businesses, net of cash acquired		(454		)	(1,047,997		)
Net cash used in investing activities		(51,122		)	(1,117,764		)
Financing activities
Borrowings on revolving facilities		515,000			660,000
Payments on revolving facilities		(425,000		)	(400,000		)
Payments on Select term loans		(33,994		)	(26,884		)
Issuance of 6.375% senior notes, includes premium		111,650			—
Proceeds from Concentra term loans, net of discounts		—			646,875
Borrowings of other debt		6,111			9,590
Principal payments on other debt		(7,049		)	(8,320		)
Proceeds from (repayment of) bank overdrafts		(3,314		)	5,590
Debt issuance costs		(4,434		)	(23,300		)
Dividends paid to common stockholders		(27,153		)	(13,129		)
Repurchase of common stock		(127,500		)	—
Proceeds from issuance of common stock		5,297			1,325
Proceeds from issuance of non-controlling interest		—			217,065
Tax benefit from stock based awards		—			11
Distributions to non-controlling interests		(1,840		)	(4,282		)
Net cash provided by financing activities		7,774			1,064,541
Net increase (decrease) in cash and cash equivalents		(1,179		)	21,837
Cash and cash equivalents at beginning of period		4,319			3,354
Cash and cash equivalents at end of period		$	3,140		$	25,191
Supplemental Cash Flow Information
Cash paid for interest		$	39,107		$	39,932
Cash paid for taxes		$	45,471		$	32,702

 

 

VI.  Key Statistics

For the Three Months Ended June 30, 2014 and 2015

(unaudited)

 

		2014			2015			% Change
Specialty Hospitals
Number of hospitals — end of period:
Long term acute care hospitals (a)		112			111
Rehabilitation hospitals (a)		15			17
Total specialty hospitals		127			128
Net operating revenues (,000)		$	557,833		$	592,336		6.2	%
Number of patient days (b)		330,378			343,515			4.0	%
Number of admissions (b)		13,796			14,024			1.7	%
Net revenue per patient day (b)(c)		$	1,562		$	1,590		1.8	%
Adjusted EBITDA (,000)		$	88,688		$	91,447		3.1	%
Adjusted EBITDA margin		15.9		%	15.4		%
Outpatient Rehabilitation
Number of clinics — end of period (d)		1,019			1,028
Net operating revenues (,000)		$	214,798		$	207,795		(3.3	)%
Number of visits (e)		1,289,782			1,336,284			3.6	%
Revenue per visit (e)(f)		$	103		$	103		—
Adjusted EBITDA (,000)		$	30,432		$	28,722		(5.6	)%
Adjusted EBITDA margin		14.2		%	13.8		%
Concentra
Number of centers — end of period (g)					300
Net operating revenues (,000)					$	86,829
Number of visits (g)					673,834
Revenue per visit (g)(h)					$	112
Adjusted EBITDA (,000)					$	11,199
Adjusted EBITDA margin					12.9		%

 

(a)	Includes managed hospitals.
(b)	Excludes managed hospitals.
(c)	Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the total number of patient days.
(d)	Includes managed clinics.
(e)	Excludes managed clinics.
(f)	Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic direct patient service revenue does not include managed clinics or contract therapy revenue.
(g)	Excludes onsite clinics and community-based outpatient clinics.
(h)	Net revenue per visit is calculated by dividing center direct patient service revenue by the total number of center visits.

 

 

VII.  Key Statistics

For the Six Months Ended June 30, 2014 and 2015

(unaudited)

 

		2014			2015			% Change
Specialty Hospitals
Number of hospitals — end of period:
Long term acute care hospitals (a)		112			111
Rehabilitation hospitals (a)		15			17
Total specialty hospitals		127			128
Net operating revenues (,000)		$	1,122,458		$	1,191,117		6.1	%
Number of patient days (b)		671,929			695,754			3.5	%
Number of admissions (b)		27,737			28,425			2.5	%
Net revenue per patient day (b)(c)		$	1,550		$	1,583		2.1	%
Adjusted EBITDA (,000)		$	180,838		$	187,919		3.9	%
Adjusted EBITDA margin		16.1		%	15.8		%
Outpatient Rehabilitation
Number of clinics — end of period: (d)		1,019			1,028
Net operating revenues (,000)		$	412,648		$	404,238		(2.0	)%
Number of visits (e)		2,464,572			2,572,772			4.4	%
Revenue per visit (e)(f)		$	104		$	103		(1.0	)%
Adjusted EBITDA (,000)		$	51,421		$	50,855		(1.1	)%
Adjusted EBITDA margin		12.5		%	12.6		%
Concentra
Number of centers — end of period (g)					300
Net operating revenues (,000)					$	86,829
Number of visits (g)					673,834
Revenue per visit (g)(h)					$	112
Adjusted EBITDA (,000)					$	11,199
Adjusted EBITDA margin					12.9		%

 

(a)	Includes managed hospitals.
(b)	Excludes managed hospitals.
(c)	Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the total number of patient days.
(d)	Includes managed clinics.
(e)	Excludes managed clinics.
(f)	Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic direct patient service revenue does not include managed clinics or contract therapy revenue.
(g)	Excludes onsite clinics and community-based outpatient clinics.
(h)	Net revenue per visit is calculated by dividing center direct patient service revenue by the total number of center visits.

 

 

VIII.  Net Income to Adjusted EBITDA Reconciliation

For the Three and Six Months Ended June 30, 2014 and 2015

(In thousands, unaudited)

 

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 net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, Concentra acquisition costs, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense).  The Company believes that 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 by management to evaluate financial performance and determine resource allocation for each of its 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 June 30,						Six Months Ended June 30,
		2014			2015			2014			2015
Net income		$	37,994		$	40,054		$	72,361		$	77,339
Income tax expense		23,775			23,517			45,867			46,701
Loss on early retirement of debt		—			—			2,277			—
Interest expense		21,663			25,288			42,279			46,676
Equity in earnings of unconsolidated subsidiaries		(1,239		)	(3,848		)	(2,147		)	(6,440		)
Stock compensation expense:
Included in general and administrative		1,480			2,749			3,190			4,640
Included in cost of services		485			574			930			1,010
Depreciation and amortization		17,196			21,848			33,425			39,196
Concentra acquisition costs		—			4,715			—			4,715
Adjusted EBITDA		$	101,354		$	114,897		$	198,182		$	213,837
Specialty hospitals		$	88,688		$	91,447		$	180,838		$	187,919
Outpatient rehabilitation		30,432			28,722			51,421			50,855
Concentra					11,199						11,199
Other (a)		(17,766		)	(16,471		)	(34,077		)	(36,136		)
Adjusted EBITDA		$	101,354		$	114,897		$	198,182		$	213,837

 

(a)         Other primarily includes general and administrative costs.