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

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

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

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

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

Company Overview

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

CARES Act Provider Relief Fund

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

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

Critical Illness Recovery Hospital Segment

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

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

Rehabilitation Hospital Segment

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

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

Outpatient Rehabilitation Segment

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

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

Concentra Segment

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

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

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

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

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

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



Revenue



Patient Days



Occupancy Rate



Number of
Hospitals Owned(1)



2019


2020


% Change



2019


2020


% Change



2019


2020



2019


2020



(in thousands, except percentages)


















January


$

149,799



$

163,238



9.0%



86,238


90,783


5.3%



69%


69%



96


100

February


145,586



165,375



13.6%



80,806


87,844


8.7%



71%


72%



96


100

March


162,149



171,908



6.0%



91,085


91,831


0.8%



73%


70%



96


100

Three Months Ended March 31


$

457,534



$

500,521



9.4%



258,129


270,458


4.8%



71%


70%



96


100

























April


$

156,231



$

171,445



9.7%



88,357


90,710


2.7%



70%


71%



99


100

May


156,422



178,223



13.9%



89,350


95,191


6.5%



69%


72%



99


100

June


148,490



169,958



14.5%



85,153


90,988


6.9%



68%


71%



99


100

Three Months Ended June 30


$

461,143



$

519,626



12.7%



262,860


276,889


5.3%



69%


72%



99


100

Six Months Ended June 30


$

918,677



$

1,020,147



11.0%



520,989


547,347


5.1%



70%


71%



99


100

























July


$

151,416



$

175,253



15.7%



87,143


94,144


8.0%



67%


71%



99


99

August


155,485



173,967



11.9%



86,553


93,964


8.6%



66%


71%



99


99

September


155,991



170,234



9.1%



84,393


90,955


7.8%



67%


71%



99


99

Three Months Ended September 30


$

462,892



$

519,454



12.2%



258,089


279,063


8.1%



67%


71%



99


99

Nine Months Ended September 30


$

1,381,569



$

1,539,601



11.4%



779,078


826,410


6.1%



69%


71%



99


99

























October


$

152,791



$

181,251



18.6%



87,188


95,616


9.7%



66%


71%



100


100

November


150,399



174,133



15.8%



84,540


92,651


9.6%



67%


71%



100


99

December


151,759



182,514



20.3%



87,555


97,079


10.9%



67%


72%



100


99

...

Three Months Ended December 31


$

454,949



$

537,898



18.2%



259,283


285,346


10.1%



67%


71%



100


99

Twelve Months Ended December 31


$

1,836,518



...

$

2,077,499



13.1%



1,038,361


1,111,756


7.1%



68%


71%



100


99





























(1)

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

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

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



Revenue



Patient Days



Occupancy Rate



Number of
Hospitals Owned(1)



2019


2020


% Change



2019


2020


% Change



2019


2020



2019


2020



(in thousands, except percentages)


















January


$

50,615



$

61,673



21.8%



27,434


32,111


17.0%



74%


79%



17


19

February


48,080



60,690



26.2%



25,442


31,813


25.0%



76%


84%



17


19

March


55,863



59,656



6.8%



29,940


30,644


2.4%



78%


76%



18


19

Three Months Ended March 31


$

154,558



$

182,019



17.8%



82,816


94,568


14.2%



76%


79%



18


19

























April


$

51,991



$

45,878



(11.8)%



28,266


23,553


(16.7)%



76%


61%



18


19

May


56,019



57,815



3.2%



29,730


29,787


0.2%



75%


73%



19


19

June


52,364



64,974



24.1%



28,529


30,741


7.8%



73%


78%



19


19

Three Months Ended June 30


$

160,374



$

168,667



5.2%



86,525


84,081


(2.8)%



75%


71%



19


19

Six Months Ended June 30


$

314,932



$

350,686



11.4%



169,341


178,649


5.5%



76%


75%



19


19

























July


$

57,077



$

62,312



9.2%



30,054


31,986


6.4%



75%


81%



19


18

August


58,072



63,673



9.6%



30,228


32,518


7.6%



75%


83%



19


18

September


58,220



62,090



6.6%



29,172


31,176


6.9%



75%


82%



19


18

Three Months Ended September 30


$

173,369



$

188,075



8.5%



89,454


95,680


7.0%



75%


82%



19


18

Nine Months Ended September 30


$

488,301



$

538,761



10.3%



258,795


274,329


6.0%



75%


77%



19


18

























October


$

61,975



$

66,591



7.4%



31,767


33,378


5.1%



78%


82%



19


19

November


60,353



64,610



7.1%



31,022


31,581


1.8%



79%


80%



19


19

December


60,342



64,711



7.2%



31,447


31,545


0.3%



78%


78%



19


19

Three Months Ended December 31


$

182,670



$

195,912



7.2%



94,236


96,504


2.4%



78%


80%



19


19

Twelve Months Ended December 31


$

670,971



$

734,673



9.5%



353,031


370,833


5.0%



76%


78%



19


19





(1)

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

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

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



Revenue



Visits



Working Days(1)




2019


2020


% Change



2019


2020


% Change



2019


2020




(in thousands, except percentages)














January


$

83,185



$

90,924



9.3%



687,007


757,171


10.2%



22


22


February


78,573



88,239



12.3%



658,610


739,061


12.2%



20


20


March


85,147



76,086



(10.6)%



708,866


626,433


(11.6)%



21


22


Three Months Ended March 31


$

246,905



$

255,249



3.4%



2,054,483


2,122,665


3.3%



63


64






















April


$

90,230



$

49,084



(45.6)%



762,914


386,108


(49.4)%



22


22


May


90,272



51,186



(43.3)%



759,829


409,703


(46.1)%



22


20


June


81,389



66,868



(17.8)%



680,762


546,456


(19.7)%



20


22


Three Months Ended June 30


$

261,891



$

167,138



(36.2)%



2,203,505


1,342,267


(39.1)%



64


64


Six Months Ended June 30


$

508,796



$

422,387



(17.0)%



4,257,988


3,464,932


(18.6)%



127


128






















July


$

89,267



$

77,793



(12.9)%



754,102


636,826


(15.6)%



22


22


August


90,687



79,034



(12.8)%



743,813


651,738


(12.4)%



22


21


September


85,376



83,215



(2.5)%



706,413


694,808


(1.6)%



20


21


Three Months Ended September 30


$

265,330



$

240,042



(9.5)%



2,204,328


1,983,372


(10.0)%



64


64


Nine Months Ended September 30


$

774,126



$

662,429



(14.4)%



6,462,316


5,448,304


(15.7)%



191


192






















October


$

96,868



$

88,274



(8.9)%



808,649


745,562


(7.8)%



23


22


November


87,072



82,102



(5.7)%



722,607


685,885


(5.1)%



20


20


December


87,945



87,108



(1.0)%



725,710


713,593


(1.7)%



21


22


Three Months Ended December 31


$

271,885



$

257,484



(5.3)%



2,256,966


2,145,040


(5.0)%



64


64


Twelve Months Ended December 31


$

1,046,011



$

919,913



(12.1)%



8,719,282


7,593,344


(12.9)%



255


256







(1)

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

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

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



Revenue



Visits



Working Days(1)




2019


2020


% Change



2019


2020


% Change



2019


2020




(in thousands, except percentages)














January


$

133,507



$

141,236



5.8%



985,598


1,032,069


4.7%



22


22


February


126,309



133,690



5.8%



919,065


965,741


5.1%



20


20


March


136,505



123,609



(9.4)%



1,006,944


879,585


(12.6)%



21


22


Three Months Ended March 31


$

396,321



$

398,535



0.6%



2,911,607


2,877,395


(1.2)%



63


64






















April


$

140,050



$

91,178



(34.9)%



1,040,543


610,555


(41.3)%



22


22


May


143,183



99,228



(30.7)%



1,073,763


674,629


(37.2)%



22


20


June


130,218



121,932



(6.4)%



988,783


865,896


(12.4)%



20


22


Three Months Ended June 30


$

413,451



$

312,338



(24.5)%



3,103,089


2,151,080


(30.7)%



64


64


Six Months Ended June 30


$

809,772



$

710,873



(12.2)%



6,014,696


5,028,475


(16.4)%



127


128






















July


$

142,385



$

132,465



(7.0)%



1,057,809


930,427


(12.0)%



22


22


August


144,452



130,291



(9.8)%



1,087,165


933,555


(14.1)%



22


21


September


135,063



129,103



(4.4)%



1,005,929


963,065


(4.3)%



20


21


Three Months Ended September 30


$

421,900



$

391,859



(7.1)%



3,150,903


2,827,047


(10.3)%



64


64


Nine Months Ended September 30


$

1,231,672



$

1,102,732



(10.5)%



9,165,599


7,855,522


(14.3)%



191


192






















October


$

149,260



$

139,365



(6.6)%



1,113,408


1,011,816


(9.1)%



23


22


November


123,152



126,431



2.7%



908,159


867,918


(4.4)%



19


19


December


124,733



132,906



6.6%



881,699


892,648


1.2%



21


22


Three Months Ended December 31


$

397,145



$

398,702



0.4%



2,903,266


2,772,382


(4.5)%



63


63


Twelve Months Ended December 31


$

1,628,817



$

1,501,434



(7.8)%



12,068,865


10,627,904


(11.9)%



254


255






(1)

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

Purchase of Concentra Interest

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

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

Stock Repurchase Program

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

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

Business Outlook

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

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

Conference Call

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

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

Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), including statements related to Select Medical's 2021 and long-term business outlook. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements due to factors including the following:

  • developments related to the COVID-19 pandemic including, but not limited to, the duration and severity of the pandemic, additional measures taken by government authorities and the private sector to limit the spread of COVID-19, and further legislative and regulatory actions which impact healthcare providers, including actions that may impact the Medicare program;

  • changes in government reimbursement for our services and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;

  • the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our revenue and profitability to decline;

  • the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our revenue and profitability to decline;

  • a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;

  • acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;

  • our plans and expectations related to our acquisitions and our ability to realize anticipated synergies;

  • private third-party payors for our services may adopt payment policies that could limit our future revenue and profitability;

  • the failure to maintain established relationships with the physicians in the areas we serve could reduce our revenue and profitability;

  • shortages in qualified nurses, therapists, physicians, or other licensed providers, or the inability to attract or retain healthcare professionals due to the heightened risk of infection related to the COVID-19 pandemic, could increase our operating costs significantly or limit our ability to staff our facilities;

  • competition may limit our ability to grow and result in a decrease in our revenue and profitability;

  • the loss of key members of our management team could significantly disrupt our operations;

  • the effect of claims asserted against us could subject us to substantial uninsured liabilities;

  • a security breach of our or our third-party vendors' information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and

  • other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" of the annual report on Form 10-K for the year ended December 31, 2020.

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

Investor inquiries:

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

I. Condensed Consolidated Statements of Operations

For the Three Months Ended December 31, 2019 and 2020

(In thousands, except per share amounts, unaudited)




2019


2020


% Change

Revenue


$

1,374,584



$

1,460,494



6.2

%

Costs and expenses:







Cost of services, exclusive of depreciation and amortization


1,175,649



1,246,594



6.0


General and administrative


34,062



35,229



3.4


Depreciation and amortization


52,504



51,526



(1.9)


Total costs and expenses


1,262,215



1,333,349



5.6


Other operating income




36,184



N/M

Income from operations


112,369



163,329



45.4


Other income and expense:







Loss on early retirement of debt


(19,440)





N/M

Equity in earnings of unconsolidated subsidiaries


6,279



9,763



55.5


Loss on sale of businesses




(303)



N/M

Interest expense


(43,959)



(35,512)



(19.2)


Income before income taxes


55,249



137,277



148.5


Income tax expense


11,578



35,062



202.8


Net income


43,671



102,215



134.1


Less: Net income attributable to non-controlling interests


11,604



24,941



114.9


Net income attributable to Select Medical


$

32,067



$

77,274



141.0

%

Diluted earnings per common share:(1)


$

0.24



$

0.57





(1)

Refer to table III for calculation of earnings per common share.

N/M

Not meaningful

II. Condensed Consolidated Statements of Operations

For the Years Ended December 31, 2019 and 2020

(In thousands, except per share amounts, unaudited)




2019


2020


% Change

Revenue


$

5,453,922



$

5,531,713



1.4

%

Costs and expenses:







Cost of services, exclusive of depreciation and amortization


4,641,002



4,710,372



1.5


General and administrative


128,463



138,037



7.5


Depreciation and amortization


212,576



205,659



(3.3)


Total costs and expenses


4,982,041



5,054,068



1.4


Other operating income




90,012



N/M

Income from operations


471,881



567,657



20.3


Other income and expense:







Loss on early retirement of debt


(38,083)





N/M

Equity in earnings of unconsolidated subsidiaries


24,989



29,440



17.8


Gain on sale of businesses


6,532



12,387



N/M

Interest expense


(200,570)



(153,011)



(23.7)


Income before income taxes


264,749



456,473



72.4


Income tax expense


63,718



111,867



75.6


Net income


201,031



344,606



71.4


Less: Net income attributable to non-controlling interests


52,582



85,611



62.8


Net income attributable to Select Medical


$

148,449



$

258,995



74.5

%

Diluted earnings per common share:(1)


$

1.10



$

1.93






(1)

Refer to table III for calculation of earnings per common share.

N/M

Not meaningful

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

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

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



Diluted EPS




Three Months Ended
December 31,


Years Ended
December 31,




2019


2020


2019


2020


Net income


$

43,671



$

102,215



$

201,031



$

344,606



Less: net income attributable to non-controlling interests


11,604



24,941



52,582



85,611



Net income attributable to Select Medical


32,067



77,274



148,449



258,995



Less: net income attributable to participating securities


1,101



2,638



4,994



8,896



Net income attributable to common shares


$

30,966



$

74,636



$

143,455



$

250,099



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



Three Months Ended December 31,



2019



2020



Net Income
Allocation


Shares(1)


Diluted EPS



Net Income
Allocation


Shares(1)


Diluted EPS

Common shares


$

30,966



129,676



$

0.24




$

74,636



130,269



$

0.57


Participating securities


1,101



4,610



$

0.24




2,638



4,605



$

0.57


Total


$

32,067








$

77,274









Years Ended December 31,



2019



2020



Net Income
Allocation


Shares(1)


Diluted EPS



Net Income
Allocation


Shares(1)


Diluted EPS

Common shares


$

143,455



130,276



$

1.10




$

250,099



129,780



$

1.93


Participating securities


4,994



4,535



$

1.10




8,896



4,616



$

1.93


Total


$

148,449








$

258,995








(1)

Represents the weighted average share count outstanding during the period.

IV. Condensed Consolidated Balance Sheets

(In thousands, unaudited)




December 31,



2019


2020

Assets





Current Assets:





Cash and cash equivalents


$

335,882



$

577,061


Accounts receivable


762,677



896,763


Other current assets


114,433



120,176


Total Current Assets


1,212,992



1,594,000


Operating lease right-of-use assets


1,003,986



1,032,217


Property and equipment, net


998,406



943,420


Goodwill


3,391,955



3,379,014


Identifiable intangible assets, net


409,068



387,541


Other assets


323,881



319,207


Total Assets


$

7,340,288



$

7,655,399


Liabilities and Equity





Current Liabilities:





Payables and accruals


$

681,163



$

800,918


Government advances




321,807


Unearned government assistance




82,607


Current operating lease liabilities


207,950



220,413


Current portion of long-term debt and notes payable


25,167



12,621


Total Current Liabilities


914,280



1,438,366


Non-current operating lease liabilities


852,897



875,367


Long-term debt, net of current portion


3,419,943



3,389,398


Non-current deferred tax liability


148,258



132,421


Other non-current liabilities


101,334



168,703


Total Liabilities


5,436,712



6,004,255


Redeemable non-controlling interests


974,541



398,171


Total equity


929,035



1,252,973


Total Liabilities and Equity


$

7,340,288



$

7,655,399


V. Condensed Consolidated Statements of Cash Flows

For the Three Months Ended December 31, 2019 and 2020

(In thousands, unaudited)




2019


2020

Operating activities





Net income


$

43,671



$

102,215


Adjustments to reconcile net income to net cash provided by operating activities:





Distributions from unconsolidated subsidiaries


6,613



13,670


Depreciation and amortization


52,504



51,526


Provision for expected credit losses


694



323


Equity in earnings of unconsolidated subsidiaries


(6,279)



(9,763)


Loss on extinguishment of debt


11,970




Loss on sale of assets and businesses


28



2,160


Stock compensation expense


7,020



6,422


Amortization of debt discount, premium and issuance costs


2,097



549


Deferred income taxes


(188)



(159)


Changes in operating assets and liabilities, net of effects of business combinations:





Accounts receivable


35,434



(25,188)


Other current assets


1,757



4,040


Other assets


4,863



1,252


Accounts payable and accrued expenses


18,358



44,722


Unearned government assistance




15,669


Net cash provided by operating activities


178,542



207,438


Investing activities





Business combinations, net of cash acquired


(7,436)



(6,732)


Purchases of property and equipment


(33,170)



(40,868)


Investment in businesses


(5,422)



(5,568)


Proceeds from sale of assets and businesses


9




Net cash used in investing activities


(46,019)



(53,168)


Financing activities





Proceeds from term loans


614,423




Payments on term loans


(1,243,086)




Proceeds from 6.250% senior notes


705,811




Borrowings of other debt


4,943



5,022


Principal payments on other debt


(7,976)



(5,561)


Repurchase of common stock


(1,222)



(1,792)


Proceeds from exercise of stock options


92




Proceeds from issuance of non-controlling interests


159



5,878


Distributions to and purchases of non-controlling interests


(5,748)



(10,393)


Purchase of membership interests of Concentra Group Holdings Parent




(210,163)


Net cash provided by (used in) financing activities


67,396



(217,009)


Net increase (decrease) in cash and cash equivalents


199,919



(62,739)


Cash and cash equivalents at beginning of period


135,963



639,800


Cash and cash equivalents at end of period


$

335,882



$

577,061


Supplemental information:





Cash paid for interest


$

33,902



$

15,062


Cash paid for taxes


$

12,120



$

26,945


VI. Condensed Consolidated Statements of Cash Flows

For the Years Ended December 31, 2019 and 2020

(In thousands, unaudited)




2019


2020

Operating activities





Net income


$

201,031



$

344,606


Adjustments to reconcile net income to net cash provided by operating activities:





Distributions from unconsolidated subsidiaries


20,222



35,390


Depreciation and amortization


212,576



205,659


Provision for expected credit losses


3,038



604


Equity in earnings of unconsolidated subsidiaries


(24,989)



(29,440)


Loss on extinguishment of debt


22,130




Gain on sale of assets and businesses


(6,321)



(22,563)


Stock compensation expense


26,451



27,250


Amortization of debt discount, premium and issuance costs


11,566



2,184


Deferred income taxes


(7,435)



(14,715)


Changes in operating assets and liabilities, net of effects of business combinations:





Accounts receivable


(57,991)



(116,601)


Other current assets


(4,259)



(18,775)


Other assets


6,122



17,587


Accounts payable and accrued expenses


43,041



196,164


Government advances




318,116


Unearned government assistance




82,607


Net cash provided by operating activities


445,182



1,028,073


Investing activities





Business combinations, net of cash acquired


(93,705)



(20,808)


Purchases of property and equipment


(157,126)



(146,440)


Investment in businesses


(66,090)



(31,425)


Proceeds from sale of assets and businesses


192



83,320


Net cash used in investing activities


(316,729)



(115,353)


Financing activities





Borrowings on revolving facilities


700,000



470,000


Payments on revolving facilities


(720,000)



(470,000)


Proceeds from term loans


1,208,106




Payments on term loans


(1,618,170)



(39,843)


Proceeds from 6.250% senior notes


1,244,987




Payment on 6.375% senior notes


(710,000)




Revolving facility debt issuance costs


(310)




Borrowings of other debt


24,225



40,108


Principal payments on other debt


(30,604)



(48,381)


Repurchase of common stock


(38,531)



(16,034)


Proceeds from exercise of stock options


964




Decrease in overdrafts


(25,083)




Proceeds from issuance of non-controlling interests


18,447



7,564


Distributions to and purchases of non-controlling interests


(21,780)



(38,589)


Purchase of membership interests of Concentra Group Holdings Parent




(576,366)


Net cash provided by (used in) financing activities


32,251



(671,541)


Net increase in cash and cash equivalents


160,704



241,179


Cash and cash equivalents at beginning of period


175,178



335,882


Cash and cash equivalents at end of period


$

335,882



$

577,061


Supplemental information:





Cash paid for interest


$

182,992



$

155,236


Cash paid for taxes


$

70,592



$

108,890


VII. Key Statistics

For the Three Months Ended December 31, 2019 and 2020

(unaudited)




2019


2020


% Change

Critical Illness Recovery Hospital







Number of hospitals – end of period(a)


101



99




Revenue (,000)


$

454,949