Select Medical Holdings Corporation Announces Results for Second Quarter Ended June 30, 2011

MECHANICSBURG, Pa., Aug. 4, 2011 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE:  SEM) today announced results for its second quarter ended June 30, 2011.

For the second quarter ended June 30, 2011, net operating revenues increased 20.5% to $698.7 million compared to $579.9 million for the same quarter, prior year.  Income from operations increased 11.6% to $81.0 million compared to $72.6 million for the same quarter, prior year.  Net income attributable to Select Medical decreased to $11.7 million compared to $24.5 million for the same quarter, prior year.  Net income attributable to Select Medical for the quarter ended June 30, 2011 included a loss on early retirement of debt, net of tax of $19.3 million associated with the June 1, 2011 refinancing of a portion of its indebtedness.  Net income before interest, income taxes, depreciation and amortization, loss on early retirement of debt, stock compensation expense, other income and equity in losses of unconsolidated subsidiaries ("Adjusted EBITDA") for the second quarter increased 11.5% to $99.9 million compared to $89.6 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is attached to this release.  Income per common share for the second quarter ended June 30, 2011 was $0.08 on a fully diluted basis compared to income per common share of $0.15 for the quarter ended June 30, 2010.  Excluding the non-recurring loss related to the early retirement of debt and its tax effect of $0.12 per share, net income available to common stockholders on an adjusted basis was $0.20 per diluted share for the quarter ended June 30, 2011.  A reconciliation of net income per share to adjusted net income per share is attached to this release.

For the six months ended June 30, 2011, net operating revenues increased 19.5% to $1,391.9 million compared to $1,164.7 million for the same period, prior year. Income from operations increased 16.1% to $168.7 million compared to $145.2 million for the same period, prior year. Net income attributable to Select Medical decreased 6.8% to $45.4 million compared to $48.7 million for the same period, prior year.  Net income attributable to Select Medical for the six months ended June 30, 2011 includes a loss on early retirement of debt, net of tax, of $19.3 million associated with the June 1, 2011 refinancing of a portion of its indebtedness.  Additionally, Adjusted EBITDA for the six months ended June 30, 2011 increased 13.9% to $205.7 million compared to $180.5 million for the same period, prior year.  A reconciliation of net income to Adjusted EBITDA is attached to this release.  Income per common share for the six months ended June 30, 2011 was $0.29 on a fully diluted basis compared to income per common share of $0.30 for the six months ended June 30, 2010.  Excluding the non-recurring loss related to the early retirement of debt and its tax effect, net income available to common stockholders on an adjusted basis was $0.42 per diluted share for the six months ended June 30, 2011.  A reconciliation of net income per share to adjusted net income per share is attached to this release.

Specialty Hospitals

Certain specialty hospital key statistics are presented on schedules attached to this release.  For the second quarter of 2011, net operating revenues for all of Select Medical's hospitals increased 29.1% to $520.3 million compared to $403.1 million for the same quarter, prior year.  The hospitals acquired in the Regency acquisition contributed $80.8 million of this increase.  Adjusted EBITDA for the specialty hospital segment increased 24.2% to $91.1 million compared to $73.3 million for the same quarter, prior year.  The hospitals acquired in the Regency acquisition contributed $8.7 million of this increase.  The Adjusted EBITDA margin for the segment was 17.5% for the second quarter of 2011, compared to 18.2% for the same quarter, prior year.  Excluding the effect of the Regency hospitals, the Adjusted EBITDA margin would have been 18.7% for the second quarter of 2011.

For the six months ended June 30, 2011, net operating revenues for all of Select Medical's hospitals increased 27.7% to $1,040.2 million compared to $814.8 million for the same period, prior year.  The hospitals acquired in the Regency acquisition contributed to $170.9 million of this increase.  Adjusted EBITDA for the segment for the six months ended June 30, 2011 increased 22.5% to $191.4 million compared to $156.2 million for the same period, prior year. The hospitals acquired in the Regency acquisition contributed $23.2 million of this increase.  The Adjusted EBITDA margin for the segment for the six months ended June 30, 2011 was 18.4%, compared to 19.2% for the same period, prior year. Excluding the effect of the Regency hospitals, the Adjusted EBITDA margin would have been 19.4% for the six months ended June 30, 2011.

Outpatient Rehabilitation

Certain outpatient rehabilitation key statistics are presented on schedules attached to this release.  For the second quarter of 2011, net operating revenues for the outpatient rehabilitation segment increased 1.0% to $178.5 million compared to $176.8 million for the same quarter, prior year.  Adjusted EBITDA for the segment for the second quarter decreased 5.7% to $24.5 million compared to $26.0 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 13.7% for the second quarter of 2011, compared to 14.7% for the same quarter, prior year.

For the six months ended June 30, 2011, net operating revenues for the outpatient rehabilitation segment increased 0.5% to $351.7 million compared to $349.9 million for the same period, prior year. Adjusted EBITDA for the six months ended June 30, 2011 decreased 1.3% to $45.9 million compared to $46.5 million for the same period, prior year. The Adjusted EBITDA margin for the six months ended June 30, 2011 was 13.0% compared to 13.3% in the same period, prior year.

Stock Repurchase Program

Select Medical's board of directors has authorized a program to repurchase up to $100.0 million worth of shares of Select Medical's common stock.  On August 3, 2011, the board of directors of Select Medical authorized an increase of $50.0 million in the capacity of its common stock repurchase program, from $100.0 million to $150.0 million.  The program will remain in effect until January 31, 2012, unless extended 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.  The timing of purchases of stock will be based upon market conditions and other factors.  Select Medical is funding this program with cash on hand or borrowings under its revolving credit facility.  Select Medical repurchased 139,784 shares at a cost of $1.3 million and 409,775 shares at a cost of $3.3 million, which includes transaction costs, during the quarter and six months ended June 30, 2011, respectively. Since the inception of the program through June 30, 2011, Select Medical has repurchased 7,315,475 shares at a cost of $47.4 million, which includes transaction costs.

Indebtedness

On June 1, 2011, Select Medical Corporation ("Select") entered into a new senior secured credit agreement that provides for $1.15 billion in senior secured credit facilities, comprised of an $850.0 million, seven-year term loan and a $300.0 million five-year revolving credit facility of which $125.0 million was drawn at closing. The refinancing also included the completion of a cash tender offer for $266.5 million aggregate principal amount of Select's 7 5/8% senior subordinated notes due 2015 and the repurchase of all $150.0 million principal amount of Select Medical's 10.0% senior subordinated notes.

At June 30, 2011 Select had outstanding an $850.0 million term loan (at aggregate principal value) and a $65.0 million revolving loan balance under its senior secured credit facilities and $345.0 million in principal amount of Select's 7 5/8% senior subordinated notes due 2015. Select Medical also had $167.3 million in principal amount outstanding of its senior floating rate notes due 2015.

Business Outlook

Select Medical is updating its prior business outlook for calendar year 2011 to reflect the impact of the refinancing completed on June 1st. Select Medical continues to expect net revenue for the full year 2011 to be in the range of $2.65 billion to $2.75 billion and Adjusted EBITDA for the full year to be in the range of $365 million to $385 million. Select Medical now expects fully diluted income per common share to be in the range of $0.57 to $0.62. On an adjusted basis excluding the non-recurring loss related to the early retirement of debt and its tax effect from the refinancing, fully diluted income per common share is expected to be in the range of $0.69 to $0.74, compared to its previous income per common share guidance of $0.67 to $0.72 per share.

Conference Call

Select Medical will host a conference call regarding its second quarter results and its business outlook on Friday, August 5, 2011, at 9:00 am EDT. The domestic dial in number for the call is 1-866-770-7146.  The international dial in number is 1-617-213-8068.  The pass code for the call is 40517924.  The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website http://www.selectmedicalholdings.com/.

For those unable to participate in the conference call, a replay will be available until 11:59 pm EDT, August 12, 2011. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 15171628. The replay can also be accessed at Select Medical Holdings Corporation's website, http://www.selectmedicalholdings.com.

Select Medical is a leading operator of specialty hospitals and outpatient rehabilitation clinics in the United States.  As of June 30, 2011, Select Medical operated 110 long term acute care hospitals and nine acute medical rehabilitation hospitals in 28 states, and 952 outpatient rehabilitation clinics in 34 states and the District of Columbia.  Select Medical 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 Medical 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, including changes that will result from the expiration of the moratorium for long term acute care hospitals established by the Medicare, Medicaid and SCHIP Extension Act of 2007, the American Recovery and Reinvestment Act, and the Patient Protection and Affordable Care Act may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
• 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;
• 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 the areas we serve 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 could subject us to substantial uninsured liabilities and in the future we may not be able to obtain insurance at a reasonable price;
• other factors discussed from time to time in our filings with the Securities and Exchange Commission, including factors under the heading "Risk Factors" in our annual report on Form 10-K.

Investor inquiries:
Joel Veit, 717/972-1100

VII. Net Income to Adjusted EBITDA Reconciliation

For the Three and Six Months Ended June 30, 2010 and 2011

(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, stock compensation expense, other income, loss on early retirement of debt and equity in losses of unconsolidated subsidiaries.  The Company believes 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 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 calculation, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

SOURCE Select Medical Holdings Corporation