Select Medical Holdings Corp
NYSE:SEM
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
22.6
40.0718
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Select Medical Holdings Corp
You don't have any saved screeners yet
Good morning, and thank you for joining us today for the Select Medical Holdings Corporation earnings conference call to discuss the first quarter 2021 results and the company's business outlook.
Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter and open the call for questions.
Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to the Select plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to the management of the Select Medical today, and the company assumes no obligation to update these statements as circumstances change.
At this time, I will turn the conference call over to Robert Ortenzio.
Thank you, operator. Good morning, everyone. Thanks for joining us for Select Medical's first quarter earnings conference call for 2021. First, I'd like to say we're very pleased with the results of this quarter. Our inpatient businesses, including our critical illness recovery hospitals and our inpatient rehabilitation hospitals realized significant growth in revenue, EBITDA and occupancy rates. Occupancy rates in both business segments grew 500 basis points on a same quarter year-over-year basis.
Our Concentra business segment has continued the trend we saw in Q4 with nice growth in revenue, EBITDA and EBITDA margins. And while our outpatient rehabilitation business experienced double-digit negative variance in patient visits in both January and February, we saw a surge of visits in March, and this has continued through April. All in all, it was a stellar quarter for Select.
In addition, you may have saw in our earnings press release that our Board of Directors has authorized a cash dividend of $0.125 for holders of our stock as of May '19. As we've done over the past year, we have outlined our business segment monthly revenue, volume and occupancy statistics in our earnings press release and public filings. We will continue to outline this information as long as we believe it provides insight to the impact of COVID-19 on the company's financial performance.
Overall, our net revenue for the first quarter increased 9.3% to $1.55 billion. Net revenue in our critical illness recovery hospital segment in the first quarter increased 18.9% to $595 million compared to $501 million in the same quarter last year. Patient days were up 8.4% compared to same quarter last year with over 293,000 patient days. Occupancy in our critical illness recovery hospital segment was 75% in the first quarter compared to 70% the same quarter last year.
Net revenue per patient day increased 10.1% to $2,024 per patient day in the first quarter. We continue to see strong referrals and higher acuity patients, which is driving both volume and rate in our critical illness recovery hospitals. Case mix index in our critical illness recovery hospitals was 1.35 in the first quarter compared to 1.27 in the same quarter last year.
Net revenue in our rehabilitation hospital segment in the first quarter increased 14.2% to $208 million compared to $182 million in the same quarter last year. Patient days increased 8.3% compared to same quarter last year with over 102,000 patient days. Occupancy in our rehabilitation hospitals was 84% in the first quarter compared to 79% same quarter last year. Net revenue per patient day increased 7% to $1,853 per day in the first quarter.
Net revenue in our outpatient rehab segment for the first quarter declined 1.3% to $252 million compared to $255 million in the same quarter last year. Patient business were down 1.1% with 2.1 million visits in the quarter. Our net revenue per visit was $104 in both the first quarter this year and last year. We did have 1 fewer operational days in the first quarter this year compared to the same quarter last year. Our visits per operational day this quarter increased slightly compared to the same quarter last year.
Net revenue in our Concentra segment in the first quarter increased 6.1% to $423 million compared to $399 million in the same quarter last year. For the centers, patient business were down 2.8%, a 2-point [Audio Gap] in business in the quarter. Net revenue per visit in the centers increased slightly to $125 in the first quarter compared to $123 in the same quarter last year.
While patient visit volumes in our centers was down, we realized increases in revenue from COVID screening and testing services, offset in part by sale of the veterans administration community-based outpatient clinics last year. I also want to highlight that we recorded $34 million in other operating income in the first quarter this year. This included $16.1 million related to payments received under the CARES Act for incremental costs incurred as a result of COVID. The adjusted EBITDA results for our operating segments do not include any recognitions of these funds. They are included in our other activities.
It also included $17.9 million related to the positive outcome of litigation with CMS. The adjusted EBITDA results for our critical illness recovery hospital segment included the recognition of this income. Total company adjusted EBITDA for the first quarter increased 37.9% to $258.3 million compared to $187.3 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 16.7% for the first quarter compared to 13.2% for the same quarter last year.
Our critical illness recovery hospital segment adjusted EBITDA increased 27.9% to $113.3 million compared to $88.6 million same quarter last year. Adjusted EBITDA margin for the segment was 19% in the first quarter compared to 17.7% in the same quarter last year. Our rehab hospital segment adjusted EBITDA increased 31% to $50.5 million compared to $38.6 million the same quarter last year. Adjusted EBITDA margin for the rehab hospital segment was 24.3% in the first quarter compared to 21.2% in the same quarter last year.
Our outpatient rehab adjusted EBITDA was $26.3 million compared to $27.1 million in the same quarter last year. Adjusted EBITDA margin for the outpatient segment was 10.4% in the first quarter compared to 10.6% same quarter last year. Our Concentra adjusted EBITDA increased 33.4% to $82 million compared to $61.5 million in the same quarter last year. Adjusted EBITDA margin was 19.4% in the first quarter compared to 15.4% in the same quarter last year.
Earnings per common share increased 105% to $0.82 for the first quarter compared to $0.40 for the same quarter last year. Adjusted earnings per common share was $0.37 in the first quarter last year. Adjusted earnings per common share excludes the nonoperating gain as related tax effects for the first quarter last year.
In April, both the inpatient rehab and long-term acute care hospital proposed rules for 2022 were posted by CMS. The proposed inpatient rehab rule, if adopted, would see an increase in the standard payment amount 2.47% and an increase in the high cost outlier threshold. The proposed long-term acute care rule, if adopted, would see an increase in the standard federal rate of 2.45% and an increase in the high cost outlier threshold. We expect these rules to be finalized in August after the required comment period.
Additionally, the Medicare Sequester Relief bill extended temporary suspension of the 2% Medicare sequestration cut that was set to expire March 31 through the end of 2021.
That concludes my remarks. I'll now turn the call over to Marty Jackson for some additional financial details before we open the call up for questions.
Thanks, Bob, and good morning, everyone. For the first quarter, our operating expenses, which include our cost of services and in general and administrative expenses were $1.33 billion or 85.9% of net revenue. For the same quarter last year, operating expenses were $1.23 billion and 87.3% of net revenues. Cost of services were $1.29 billion for the first quarter. This compares to $1.2 billion in the same quarter last year. As a percent of net revenue, cost of services were 83.6% for the first quarter. This compares to 84.9% in the same quarter last year.
G&A expense was $35.4 million in the first quarter. This compares to $33.8 million in the same quarter last year. G&A as a percent of net revenue was 2.3% in the first quarter. This compares to 2.4% of net revenue for the same quarter last year. As Bob mentioned, total adjusted EBITDA was $258.3 million and the adjusted EBITDA margin was 15.7% for the first quarter. This compares to total adjusted EBITDA of $187.3 million and adjusted EBITDA margin of 13.2% in the same quarter last year.
Depreciation and amortization was $49.6 million in the first quarter. This compares to $51.8 million in the same quarter last year. We generated $9.9 million in equity and earnings [Audio Gap] subsidiaries during the first quarter, this compares to $2.6 million in the same quarter last year. We also had a nonoperating gain of $7.2 million in the first quarter last year. Interest expense was $34.4 million in the first quarter. This compares to $46.1 million in the same quarter last year.
We recorded income tax expense of $45.1 million in the first quarter this year, which represents an effective tax rate of 24.7%. This compares to the tax expense of $21.9 million and an effective rate of 23.7% in the same quarter last year. Net income attributable to noncontrolling interest were $26.7 million in the first quarter. This compared to $17.3 million in the same quarter last year. Net income attributable to Select Medical Holdings was $110.5 million in the first quarter, and earnings per common share was $0.82.
At the end of the first quarter, we had $3.4 billion of debt outstanding and over $750 million of cash on the balance sheet. Our debt balances at the end of the quarter included $2.1 billion in term loans, $1.2 billion and 6.25% senior notes and $75 million of other miscellaneous debt. Net leverage based on our credit agreement EBITDA dropped to 3.02x at the end of the first quarter. This is down from 3.48x at the end of the year and 4.76x at the end of the first quarter last year.
Operating activities provided $239.9 million of cash flow in the first quarter. This compares to $44.1 million in the same quarter last year. Our day sales outstanding, or DSO, was 56 days at the end of March. This compares to 56 days at the end of December of 2020 and 53 days at March 31 of 2020. Investing activities used $52.6 million of cash in the first quarter. The use of cash included $39.7 million -- $39.7 million in the purchase of property and equipment and $12.9 million in acquisition and investment activities in the first quarter. Financing activities used $14.1 million of cash in the first quarter. This includes $13.7 million in payments and distributions to noncontrolling interest of $400,000 in net repayments of other debts in the quarter.
Our total available liquidity at the end of the first quarter was $1.25 billion, which includes $75 million of cash and close to $500 million in revolver availability under the Select and Concentra credit agreements. Additionally, in our earnings press release, we provided updated business outlook for calendar year 2021. For the full year 2021, we now expect revenue in the range of $5.7 billion to $5.9 billion, expected adjusted EBITDA to be in the range of $870 million to $900 million and expected earnings per common share to be in the range of $2.41 to $2.58.
This concludes our prepared remarks. At this time, we'd like to turn it back to the operator to open up the call for questions.
[Operator Instructions] Our first question comes from the line of Justin Bowers of Deutsche Bank.
Congratulations on another strong quarter of performance. Just wanted to get your updated thoughts on capital allocation and capital deployment. With -- and also with the initiation of the dividend, is there kind of a target payout ratio or free cash flow distribution ratio you guys are targeting for that? And I'll pause for the follow-up.
Thanks, Justin, it's Bob. In terms of capital deployment, the way -- our #1 priority is the balance of the Concentra buyout of our minority partners that will happen early next year. And so that's the number one priority. I think the dividend I think reflects from our Board of Directors and the company, our confidence in where we are and our cash flow through the balance of this year and through next year and beyond.
We will continue to look at opportunities to deploy capital in M&A, but they'll be relatively small given the size of the company. And we certainly hope that having initiated the dividend that we'll be able to continue that in the foreseeable future.
Yes. Justin, as far as a percentage, we expect to be in that 1.5% range as far as the dividend is concerned.
Understood. And then on a related note, can you just remind us of kind of the facility or bed additions across the hospitals that have been announced over the next 1, 2 years? And then how the pipeline looks for other capacity expansion?
Yes. I'll comment on the pipeline. We typically do not project bed additions, either on the rehab hospitals or on the critical illness recovery hospitals. We will probably institute a practice of announcing new hospitals when they open. And we also often announce significant joint ventures when signed, and we will do that. I will say that our pipeline is I think as good as it's ever been. We have a strong pipeline of deals, and we expect to add some new partners. And when we do sign those and add them, we will announce them at that time. But I feel very good about the pipeline and feel good about growing on the inpatient segment, both critical illness and rehab as well as doing some fold-in acquisitions on the outpatient side and some de novo.
Understood. And then maybe just one more. Do you have some additional capacity coming online later this year in the IRF segment? And then the volumes look pretty good there this quarter. And do you think we're going to continue on that trajectory for the rest of the year?
Yes. Well, I do know that we will be opening -- our plan is to open subject to the construction schedule, our third rehabilitation hospital with the Banner Health System in Arizona this year, and then we'll probably be announcing some hospitals that will -- are in the pipeline now that will be new hospitals that will be opening either the latter part of this year or next year. And those -- you can assume, given that time frame, that those would be in the hospital within a hospital model.
Next question comes from the line of Frank Morgan of RBC Capital Markets.
Really good, strong quarter. I'm just amazed at the level of acuity that you're able to sustain here. And I think the 1.35 in is even up from last quarter, 1.31. So as good as that is, I'm just curious about your thoughts. When you think about the balance of the year, the ability to sustain that level of acuity in your buildings and how that's reflected into price in your pricing. But I also wanted to ask, as it relates to pricing, did the 10% pricing growth, did that include the prior period settlement? Or was that literally all pure acuity in the period?
Yes, Frank, it's a good catch on the case mix index. The level of acuity this quarter I think is the highest in the company's history on that critical illness. And that does reflect I think the last year and the performance of our hospitals in the local markets and their ability to be good, strong referral partners with large acute care hospitals with significant ICU bed capacity. And we do hope to be able to continue that through the balance of this year and beyond.
But as you know, that's always dependent upon the level of occupancy and census at the acute care hospitals. But we see strong -- we see as a strong pipeline, and we have strong optimism relative to our acuity and our census. And to the latter question, I'll let Marty take that.
Yes, Frank, the settlement with CMS, that is not included in the pricing that you see. So that is actually below the revenue line in other income.
Okay. Really strong. And then when I think about margins in that segment, I know labor is kind of the major issue, particularly for ICU nurses. So what are your -- how do you assess your ability to kind of manage labor in this very difficult environment when you clearly have lots of demand?
Well, it's a big -- it is a big issue. It is I think probably one of the top issues in our critical illness recovery hospitals is nursing. We -- as you know, and I think most all the provider side have announced this earnings season is that the cost for contract or temporary labor is very high. Recruitment costs are very high and scarcity of nurses is significant.
It's not the first time that we've seen a nursing shortage in this industry. So we will manage through it, and there will be some additional costs. At this point, I would say that we do not see significant, what we call bed holds, where we're not able to admit. If that is happening, it's minimal at this point. So we're still able to admit our patients and not been able to put a hold on admissions.
Frank, we'll also say that we think quarter 1 really was probably the high mark for agency nursing rates. We have seen that start to come down, and we're hopeful that will continue through the balance of the year to more historical rates.
Got you. And then my second one is just -- you sort of touched on this in your prepared remarks, but just a little more color on the momentum that you carried over out of March into April, if you could maybe go into a little more detail by segment in terms of sort of the magnitude of that continuation of growth in utilization?
Well, that's really -- what you're referring is really on the outpatient rehab segment. I think that that's the segment that is probably the most remarkable in terms of that. And you see in our hospital side of the business that it's the momentum -- we've already seen the momentum. I mean, we are at all-time high in terms of occupancies. But on the outpatient rehab, we've really seen the business come back the latter part of the quarter, and that momentum is continuing. And I think that's just a function of the -- being on the backend of the pandemic and more people being out, more elective surgeries and people coming back to outpatient clinics. So we saw it strong, and it seems to be continuing. The momentum seems to be very good right now.
Next question comes from the line of Kevin Fischbeck of Bank of America.
This is actually Courtney on the line for Kevin. So just to dig into these trends a little bit more. So in your critical illness section, the occupancy rate fell a little bit in March. Is that just because COVID moderated? Or is that like a normal fluctuation? And if you can you give some color on how that's trending in April?
Yes, Courtney, the difference there is really immaterial. I mean, it's -- we saw a very little drop-off in March.
Yes. That -- I wouldn't read anything into that. That would be -- we would consider that just normal variances.
Okay. That makes sense. And then I guess just to circle back a little bit. I know you've kind of flushed out the labor trends and the labor dynamics, but are you guys seeing any other barriers on the labor front to actually fully ramping up occupancy and capacity? It sounds like now everything is kind of falling in line. So is there anything else on the labor side you can think of that would kind of prevent you from hitting full stride?
No. I mean, we have a close eye on cost and with respect to attracting and maintaining labor. But beyond what we've seen, as Marty commented, we'd like to think that we could see some improvement from here on those -- on the labor.
Next question comes from the line of Bill Sutherland of Benchmark.
Marty, did you mention the impact of the sequester extent -- relief extension in your guidance changes for the year?
Bill, we have incorporated that into our new guidance. It's going to be probably a little bit north of $20 million.
The top line. Well, it's EBITDA as well.
Yes.
Yes. And then just so I understand the LTAC margin, just to clarify, that litigation settlement is in the critical illness EBITDA?
Yes, it is. But the way it gets there, Bill, is through other income, so it doesn't impact the revenue.
Right. But just the margin is what I'm thinking about is thinking about what that would be, absent the so...
Yes. The way -- yes, Bill, the way that we take a look at the margin, you're right, it was 19%. If you back out the 17.9%, what you also have to do, the way we take a look at it is, as you recall, the grant dollars that we spent $16.1 million, about $14 million of that was associated with the critical illness recovery hospitals. And those are for expenses that we've incurred. That's not in the segment reporting.
You really have to add that back. So if you take the $113.3 million of EBITDA, minus the $17.9 million, add back the $14 million, you're at $109 million. That gets you to about 18.3% margin.
Okay. Good clarification. And then last one for me. Maybe, Bob, could you widen the lens a little bit on your 3-year CAGR outlook for the businesses? And maybe just talk a bit about some of the assumptions that underlay that that's the color.
Yes. In terms of our longer term, Marty and I felt that it was important that last quarter that we start to give some sense to shareholders and investors of how we're thinking about the growth of the business long term. You should -- the bigger assumptions are obviously the consolidate -- the complete consolidation of all the ownership interest in Concentra, which come in, and we will look to see incremental growth. Now 2021 is an unusual year for all the things that you see that have been coming through the income statement and the -- going through COVID and now somewhat the aftermath of COVID. But we see growth in all of our segments.
And that's I think the most important thing that I can say about the color and us being able to achieve the longer-term growth targets. And we have a lot of runway on our outpatient business even though outpatient has been the slowest to recover from the pandemic, we believe that that business is a very strong segment going forward. And we have a lot of opportunities to grow with snap-on acquisitions and de novo. The critical illness recovery hospitals have actually have never been stronger in terms of their perception in the market.
And as I mentioned from an earlier question, our pipeline has never been stronger. So in terms of that, we will see growth in new hospitals in the critical illness segment. And rehab, our joint venture partners, we continue to grow with them. So we have the opportunity to grow with new partners such as Rush in Chicago, which we recently signed and will be starting construction soon. And with some new partners that will -- are interested in rehabilitation hospitals as well as potentially critical illness recovery hospitals and outpatient.
So if you look at all 4 of the segments, they all play a role in kind of giving us some sense of being able to project growth rates in the out years. I will say that there are no large significant acquisitions in Marty's and my thinking in terms of what we can do through 2023. Hope that answers the question. Marty, do you want to add anything?
Yes, Bill, I think one additional thing that we wanted to make sure that investors realize is that on the EPS line, when you take a look at our capital structure, some of the refinancings that we've done, today we pay on our $2.1 billion senior secured proceeds, we paid 2.36%. And through September of '24, with a cap that we've put in place, the maximum rate we'll pay is 3.25%. We wanted to make sure that people understood that that you wouldn't see any increase in the rates there.
Right. Right. That's good. I guess one, just -- that's great color. One thing I hear from investors is how critical illness trends as COVID recedes. And maybe you addressed this. I got on a few minutes late. But just on a same-store basis I would -- do you think you can replace those cases and the case mix for the most part?
Well, that's certainly our plan. And what we know is there are LTAC criteria-compliant patients that are out there in the ICUs of large acute care hospitals. And Marty and I have spoken on that many times in the past before -- even before the pandemic. The issue was -- is continuing to be able to expand the breadth of the referrals and the timeliness of the referrals that we get from those hospitals and those ICUs. The pandemic accelerated our education and the opportunity for us to prove the importance of the services that we provide. So it is our plan to build on that as we took the most complex patients during the pandemic, which you can see through our case mix index. And to continue that with referral sources so that they have continued the comfort level they've had with complex COVID patients, for example, that were on vents to being able to take some of their other highly complex patients such as transplants and other things that we feel we have the capabilities and capacity to treat. So yes, it is our plan to continue that.
And Marty can kind of backstop those comments with some data and some information that we often look at and consider.
Yes. Bill, to put Bob's comments in quantitative terms, I think if you take a look at the Medicare mid-part data, we believe there's approximately 325,000 to 350,000 patients a year that qualify for LTAC services. And if you take a look at the most recent MEDPAR data release, the total LTAC industry had only 69,000 total LTAC-qualified discharges. And the fact is that most of the potential patients don't utilize LTAC services, but continue to stay in the acute care hospitals.
And as Bob mentioned, we believe with this continued education of the referral sources, there really is an opportunity to provide these specialized clinical programs that this population requires in the LTAC setting.
There are no further questions at this time. I would like to turn the call back to the management for closing remarks.
No closing remarks. Thank you, operator. So thanks all of you for joining us to review the results.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.