Select Medical Holdings Corporation Announces Results For Its Third Quarter Ended September 30, 2021 and Cash Dividend

MECHANICSBURG, Pa., Nov. 4, 2021 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical," "we," "us," or "our") (NYSE: SEM) today announced results for its third quarter ended September 30, 2021 and the declaration of a cash dividend.

For the third quarter ended September 30, 2021, revenue increased 7.8% to $1,534.2 million, compared to $1,423.9 million for the same quarter, prior year. Income from operations was $150.3 million for the third quarter ended September 30, 2021, compared to $156.1 million for the same quarter, prior year. Income from operations included $1.7 million of other operating income related to the recognition of payments received under the Provider Relief Fund for the third quarter ended September 30, 2021, compared to a reduction of other operating income of $1.2 million related to payments received under the Provider Relief Fund for the same quarter, prior year. Refer to "CARES Act Provider Relief Fund" for further discussion. Net income was $100.2 million for the third quarter ended September 30, 2021, compared to $104.5 million for the same quarter, prior year. Net income included pre-tax gains on sales of businesses of $5.1 million for the third quarter ended September 30, 2020. Adjusted EBITDA was $208.6 million for the third quarter ended September 30, 2021, compared to $213.2 million for the same quarter, prior year. Earnings per common share was $0.57 for both the third quarters ended September 30, 2021 and 2020. Adjusted earnings per common share was $0.57 for the third quarter ended September 30, 2021, compared to $0.56 for the same quarter, prior year. Adjusted earnings per common share excluded the gains on sales of businesses and related tax effects for the third quarter ended September 30, 2020. 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 nine months ended September 30, 2021, revenue increased 14.1% to $4,644.7 million, compared to $4,071.2 million for the same period, prior year. Income from operations increased 57.4% to $636.2 million for the nine months ended September 30, 2021, compared to $404.3 million for the same period, prior year. Income from operations included $115.8 million of other operating income related to the recognition of payments received under the Provider Relief Fund for the nine months ended September 30, 2021, compared to $53.8 million for the same period, prior year. Refer to "CARES Act Provider Relief Fund" for further discussion. Net income increased 78.9% to $433.6 million for the nine months ended September 30, 2021, compared to $242.4 million for the same period, prior year. Net income included pre-tax gains on sales of businesses of $12.7 million for the nine months ended September 30, 2020. Adjusted EBITDA increased 39.6% to $808.9 million for the nine months ended September 30, 2021, compared to $579.3 million for the same period, prior year. Earnings per common share increased to $2.61 for the nine months ended September 30, 2021, compared to $1.35 for the same period, prior year. Adjusted earnings per common share was $2.61 for the nine months ended September 30, 2021, compared to $1.31 for the same period, prior year. Adjusted earnings per common share excluded the gains on sales of businesses and related tax effects for the nine months ended September 30, 2020. 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 regarding the impact of the coronavirus disease 2019 ("COVID-19") pandemic on Select Medical's operating results.

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 September 30, 2021, Select Medical operated 100 critical illness recovery hospitals in 28 states, 30 rehabilitation hospitals in 12 states, and 1,850 outpatient rehabilitation clinics in 39 states and the District of Columbia. Select Medical's joint venture subsidiary Concentra operated 519 occupational health centers in 41 states. At September 30, 2021, 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 COVID-19 pandemic, including 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 COVID-19, and for reimbursing eligible health care providers for health care related expenses and lost revenues that are attributable to COVID-19.

For the three and nine months ended September 30, 2021, Select Medical recognized $1.7 million and $115.8 million of payments received under the Provider Relief Fund as other operating income, respectively.

For the three months ended September 30, 2020, Select Medical recognized a reduction to other operating income of $1.2 million related to payments received under the Provider Relief Fund. This resulted from changes in the terms and conditions associated with the Provider Relief Fund program. For the nine months ended September 30, 2020, Select Medical recognized $53.8 million of payments received under the Provider Relief Fund as other operating income.

Critical Illness Recovery Hospital Segment

For the third quarter ended September 30, 2021, revenue for the critical illness recovery hospital segment increased 2.2% to $530.6 million, compared to $519.5 million for the same quarter, prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $57.2 million for the third quarter ended September 30, 2021, compared to $88.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 10.8% for the third quarter ended September 30, 2021, compared to 17.1% for the same quarter, prior year. Certain critical illness recovery hospital key statistics are presented in table VII of this release for both the third quarters ended September 30, 2021 and 2020.

For the nine months ended September 30, 2021, revenue for the critical illness recovery hospital segment increased 8.4% to $1,669.6 million, compared to $1,539.6 million for the same period, prior year. Adjusted EBITDA for the critical illness recovery hospital segment was $243.4 million for the nine months ended September 30, 2021, compared to $267.1 million for the same period, prior year. For the nine months ended September 30, 2021, Adjusted EBITDA included $17.9 million of other operating income related to the outcome of litigation with the Centers for Medicare & Medicaid Services. The Adjusted EBITDA margin for the critical illness recovery hospital segment was 14.6% for the nine months ended September 30, 2021, compared to 17.4% for the same period, prior year. Certain critical illness recovery hospital key statistics are presented in table VIII of this release for both the nine months ended September 30, 2021 and 2020.

Rehabilitation Hospital Segment

For the third quarter ended September 30, 2021, revenue for the rehabilitation hospital segment increased 13.0% to $212.4 million, compared to $188.1 million for the same quarter, prior year. Adjusted EBITDA for the rehabilitation hospital segment was $44.1 million for the third quarter ended September 30, 2021, compared to $44.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 20.7% for the third quarter ended September 30, 2021, 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 third quarters ended September 30, 2021 and 2020.

For the nine months ended September 30, 2021, revenue for the rehabilitation hospital segment increased 17.5% to $632.9 million, compared to $538.8 million for the same period, prior year. Adjusted EBITDA for the rehabilitation hospital segment increased 31.2% to $145.4 million for the nine months ended September 30, 2021, compared to $110.8 million for the same period, prior year. The Adjusted EBITDA margin for the rehabilitation hospital segment was 23.0% for the nine months ended September 30, 2021, compared to 20.6% for the same period, prior year. Certain rehabilitation hospital key statistics are presented in table VIII of this release for both the nine months ended September 30, 2021 and 2020.

Outpatient Rehabilitation Segment

For the third quarter ended September 30, 2021, revenue for the outpatient rehabilitation segment increased 14.4% to $274.5 million, compared to $240.0 million for the same quarter, prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased 26.6% to $38.8 million for the third quarter ended September 30, 2021, compared to $30.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 14.1% for the third quarter ended September 30, 2021, compared to 12.8% for the same quarter, prior year. Certain outpatient rehabilitation key statistics are presented in table VII of this release for both the third quarters ended September 30, 2021 and 2020.

For the nine months ended September 30, 2021, revenue for the outpatient rehabilitation segment increased 21.8% to $806.9 million, compared to $662.4 million for the same period, prior year. Adjusted EBITDA for the outpatient rehabilitation segment increased to $110.7 million for the nine months ended September 30, 2021, compared to $51.5 million for the same period, prior year. The Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.7% for the nine months ended September 30, 2021, compared to 7.8%  for the same period, prior year. Certain outpatient rehabilitation key statistics are presented in table VIII of this release for both the nine months ended September 30, 2021 and 2020.

Concentra Segment

For the third quarter ended September 30, 2021, revenue for the Concentra segment increased 12.8% to $442.2 million, compared to $391.9 million for the same quarter, prior year. Adjusted EBITDA for the Concentra segment increased 23.9% to $99.8 million for the third quarter ended September 30, 2021, compared to $80.5 million for the same quarter, prior year. Adjusted EBITDA included other operating income of $1.6 million related to the recognition of payments received under the Provider Relief Fund for the third quarter ended September 30, 2021, compared to $0.4 million for the same quarter, prior year. The Adjusted EBITDA margin for the Concentra segment was 22.6% for the third quarter ended September 30, 2021, compared to 20.6% for the same quarter, prior year. Certain Concentra key statistics are presented in table VII of this release for both the third quarters ended September 30, 2021 and 2020.

For the nine months ended September 30, 2021, revenue for the Concentra segment increased 19.8% to $1,321.4 million, compared to $1,102.7 million for the same period, prior year. Adjusted EBITDA for the Concentra segment increased to $318.9 million for the nine months ended September 30, 2021, compared to $183.5 million for the same period, prior year. Adjusted EBITDA included other operating income of $33.8 million related to the recognition of payments received under the Provider Relief Fund for the nine months ended September 30, 2021, compared to $1.1 million for the same period, prior year. The Adjusted EBITDA margin for the Concentra segment was 24.1% for the nine months ended September 30, 2021, compared to 16.6% for the same period, prior year. Certain Concentra key statistics are presented in table VIII of this release for both the nine months ended September 30, 2021 and 2020.

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

Beginning in March 2020, state governments placed significant restrictions on businesses and mandated closures of non-essential or non-life sustaining businesses, causing many employers to furlough their workforce and temporarily cease or significantly reduce their operations. State governments also implemented restrictions on travel and individual activities outside of the home, closed schools, and mandated other social distancing measures. At the same time, hospitals and other facilities began suspending elective surgeries. In an effort to ensure hospitals and health systems had the capacity to absorb and effectively manage surges of COVID-19 patients, a number of waivers and modifications of certain requirements under the Medicare, Medicaid and Children's Health Insurance Program ("CHIP") programs were authorized in March 2020, including certain regulations under the Medicare program which govern admissions into Select Medical's critical illness recovery hospitals and rehabilitation hospitals. Specifically, Select Medical's critical illness recovery hospitals which are certified as long-term care hospitals ("LTCHs") became exempt from the greater-than-25-day average length of stay requirement for all cost reporting periods that include the COVID-19 public health emergency period. Select Medical's rehabilitation hospitals which are certified as inpatient rehabilitation facilities ("IRFs") could exclude patients admitted solely to respond to the emergency from the calculation of the "60 percent rule" thresholds to receive payment as an IRF. The COVID-19 public health emergency period has been extended and is currently in effect through January 15, 2022.

The adverse effects of the COVID-19 pandemic, along with the actions of governmental authorities and those in the private sector to limit the spread of COVID-19, caused disruptions in each of Select Medical's segments; these disruptions were most significant within the outpatient rehabilitation and Concentra segments. By mid-March 2020, Select Medical's outpatient rehabilitation clinics began experiencing significantly less patient visit volume due to declines 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. Select Medical's Concentra centers experienced similar declines in patient visit volume due to businesses furloughing their workforce and temporarily ceasing or significantly reducing their operations. Since March 2021, Select Medical's outpatient rehabilitation clinics and Concentra centers have experienced patient visit volumes which approximate or exceed the levels experienced in the months prior to the widespread emergence of COVID-19 in the United States. Although they have experienced temporary disruptions in their core businesses as a result of the COVID-19 pandemic, Select Medical's outpatient rehabilitation and Concentra segments have been able to expand their services to provide COVID-19 screening and testing.

Select Medical's critical illness recovery hospitals have played a critical role in caring for patients during the COVID-19 pandemic, and the relaxation of certain admission restrictions have contributed to volume increases in certain of its hospitals. The revenue of Select Medical's critical illness recovery hospitals and rehabilitation hospitals has also benefited from the temporary suspension of the 2.0% cut to Medicare payments due to sequestration, which began May 1, 2020 following the enactment of the CARES Act, and has been extended through December 31, 2021. Certain of Select Medical's rehabilitation hospitals experienced temporary declines in patient volume, beginning in March 2020, in areas more significantly impacted by the spread of COVID-19, and as a result of the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services. Additionally, some of Select Medical's rehabilitation hospitals temporarily restricted admissions as a result of the COVID-19 pandemic. Beginning at the onset of the COVID-19 pandemic, both Select Medical's critical illness recovery hospitals and rehabilitation hospitals modified certain of their protocols in order to follow the guidelines and recommendations for patient treatment and for the protection of their patients and staff members. This has resulted in increased labor costs, including increased contracted labor usage, as well as additional costs resulting from the purchase of personal protective equipment.

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 below for each of its segments for each of the periods presented. Please refer to our risk factors previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion.

Stock Repurchase Program

The board of directors of Select Medical previously authorized a common stock repurchase program to repurchase up to $500.0 million worth of shares of its common stock. On November 2, 2021, the board of directors increased the capacity of the program from $500.0 million to $1.0 billion worth of shares and the program has been extended until December 31, 2023. The common stock repurchase program 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.

During the quarter ended September 30, 2021, Select Medical repurchased 1,383,508 shares at a cost of approximately $47.5 million, or $34.34 per share, which includes transaction costs.  Since the inception of the common stock repurchase program through September 30, 2021, Select Medical has repurchased 39,964,416 shares at a cost of approximately $404.1 million, or $10.11 per share, which includes transaction costs.

Dividend

On November 2, 2021, Select Medical's board of directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about November 29, 2021 to stockholders of record as of the close of business on November 16, 2021.

There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of Select Medical's board of directors after taking into account various factors, including, but not limited to, Select Medical's financial condition, operating results, available cash and current and anticipated cash needs, the terms of Select Medical's indebtedness, and other factors Select Medical's board of directors may deem to be relevant.

Business Outlook

Select Medical is updating its business outlook for 2021 following the reporting of its third quarter 2021 results. Select Medical now expects revenue for the full year of 2021 to be in the range of $6.05 billion to $6.15 billion and Adjusted EBITDA for the full year of 2021 to be in the range of $980.0 million to $1.0 billion. Select Medical now expects fully diluted earnings per common share for the full year of 2021 to be in the range of $2.98 to $3.09. A reconciliation of net income to Adjusted EBITDA for the full year of 2021 is presented in table XI of this release.

Select Medical reaffirms its target compound annual growth rates, provided most recently in its August 5, 2021 press release, for revenue, Adjusted EBITDA, and earnings per common share. Select Medical continues to expect its compound annual growth for revenue to be in the range of 4% to 6% and compound annual growth for Adjusted EBITDA to be in the range of 7% to 8% from 2021 through 2023. Select Medical continues to expect compound annual growth for earnings per common share to be in the range of 17% to 20% from 2021 through 2023.

Conference Call

Select Medical will host a conference call regarding its third quarter results, as well as its business outlook and the impact of the COVID-19 pandemic on each of its reportable segments, on Friday, November 5, 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 2359393. 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, November 12, 2021. The replay number is 1-855-859-2056 (domestic) or 1-404-537-3406 (international). The conference ID for the replay will be 2359393. 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 quarterly reports on Form 10-Q and 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