SEM - Earnings call transcript Q2 2019 | Select Medical Holdings Corporation

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Operator

Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the second quarter 2019 results and the company's business outlook.

Speaking today are 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 then 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 Select Medical's plans, expectations, strategies, intentions and beliefs.

These forward-looking statements are based on the information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change.

will conference I Mr. over time, this turn call the to At Ortenzio. Robert

You may begin, sir.

Robert Ortenzio

Good Thanks revenue our XXXX. morning, for Operator. internal four in you, Thank everyone. of meeting of EBITDA Second with overall our Earnings growth the pleased all quarter Select and for Quarter Call adjusted were operating for achieving segments. We expectations the performance and Medical us joining in

updates some since operational our I to summary metrics, comments with and presented Before I outline we provide want quarter. last you

aware, you provide financing the some July of to As and yesterday, details adjusted operating earnings second plans quarter we Marty refinancing that comments. his in on are preannounced revenues of I'll let ranges the results XX EBITDA the net with a for in company's connection for Jackson debt. both launch completed and We

we essentially a nonconsolidating JVs revenues function costs provided we our pass-through transparency expenses was at lease of part activities the margin. which them those our believe operating of and other revenues expense report no how as and We and this to employees where to also longer of with segment often in services as included We we report an segments, a made second quarter, the margins. In we reporting to administrative those zero improve and referred ventures leasing as several revenue what quarter. we change have joint employee our

changed also results We have as reflect prior comparative change to this well.

year. recovery in attributable last increase Patient day to in second $XXX $X.X illness at hospital $XXX last second billion to the to in and the increased revenue is quarter. compared XX% same Occupancy the in for XXX,XXX was year the million year critical quarter quarter X.X% billion $X,XXX day. in second recovery the Net year. quarter hospital increased year. segment both the revenue million day $X.XX the patient the day the revenue quarter same in our with to X.X% quarter Net net quarter increased $X,XXX segment patient last patient our patient volumes XX% in to patient same to last days per illness X% in quarter revenue the compared almost increased increase per in this same Overall, year. critical to second in last per compared quarter compared quarter day second our The per to patient to X.X%

days XX,XXX Net per same year. $XXX $X,XXX per same rehabilitation patient per in hospital quarter second $X,XXX days day to day same increased to the compared Net Patient the the to segment quarter last to quarter days day quarter last XX.X% compared in XX,XXX to year. increased the X.X% last increased our revenue in XX.X% over to million in million second year. quarter in the in $XXX compared revenue

in Net million the Patient to revenue in $XXX X.X% to year. same quarter second X.X% X.X million in X.X our year. increased compared million visits visits last quarter to outpatient rehab increased over the $XXX same quarter visits segment in the compared the million quarter in to second last

in per year. compared to the visit the quarter $XXX last in net revenue Our $XXX was second same quarter

year at Concentra our and in flat the in revenue relatively quarter second year. $XXX million was both Net segment this last

clinics generated the community-based our of outpatient balance and For and services. other from the was million, clinics, from $XX second quarter, on-site revenue $XXX was approximately centers million

last increased year. visits the over same visits X.X% patient visits quarter centers, X.X to the For million million X just compared in to

due per decline yield visits, mix was visit per which in visit net visit was the revenue services second year. primarily net to per $XXX to quarter per same $XXX quarter last rates. in compared visit of the lower revenue higher Our in employer The

compared to in million for the EBITDA year. the adjusted quarter last same company Total $XXX.X quarter to million $XXX.X second X.X% increased

Our this consolidated year quarter last and for the year. EBITDA margin adjusted was both second XX.X%

increased million adjusted in illness last In in segment, to year. year. the X.X% critical the was margin same million compared $XX quarter hospital XX.X% same for in segment Adjusted the compared recovery last EBITDA second the XX.X% our to in quarter EBITDA quarter to second $XX.X the quarter

last XX.X% in volume EBITDA the in in same EBITDA an Our hospitals. compared segment EBITDA primarily in was attributable compared our adjusted year. to rehab rehabilitation year. hospital The $XX.X second for hospital in quarter the XX.X% the segment existing increase to adjusted Adjusted was $XX increased increase million million margin in X.X% at quarter to second the same to quarter of last the several quarter

impacted adjusted Our million second $X negatively last $X.X quarter million quarter in same compared the which were losses, start-up the to EBITDA by and margin year. were in

Excluding the points in improved would've losses both the margins quarter start-up XXX periods, second basis in year-over-year.

the second quarter second X.X% a rehab year. clinics. EBITDA $XX.X Outpatient EBITDA result for developed million the to adjusted compared quarter and the relatively of quarter increased in $XX.X outpatient second XX.X% the in was Adjusted to as quarter XX.X% segment last the to EBITDA in increased same in margin quarter the last acquired year. in Adjusted compared million newly

EBITDA Concentra $XX.X result in the second increase million was $XX.X compared across synergies margin businesses. was our HealthWorks in a cost X.X% the adjusted XX.X% of to for quarter to achieving and increased last second EBITDA same million compared the operating The year. Concentra in same and EBITDA us combined the last year. quarter U.S. XX.X% quarter margin adjusted to quarter Adjusted in

gains share share effects tax last quarter fully was to year. quarter excluding Earnings earnings in for of $X.XX compared nonoperating second diluted for the $X.XX the last related second quarter was per the the same per fully Adjusted and $X.XX diluted year.

Florida, in three Health partnership with and we in rehabilitation under critical illness recovery also new a rehabilitation acquired we Dignity in We're two second hospitals the new our Nevada. During in Health construction planned with quarter, of hospitals hospital on opened new three Banner Arizona. partnership in

final copy a rule in for vested final that refinements came final The X.X% line in of adjustments. the the year for advanced and rule posted rule for XXXX. calls hospitals an market to rehabilitation CMGs. CMS other out increase with to XX, proposed includes July was the patient On The April rule subject fiscal

We see on these are for portfolio hospitals positive our overall impact as changes still evaluating hospitals. but of our

brings pleased that is on have Board our appointed of also earlier we to Board Select, the Daniel XX this Thomas health of active board. Board's will an him Finally, of of on care we've Concentra week Dan Dan experience serve the announced to of Board, are we years Directors member Audit of Committee. and and Directors to and over the also

details up for questions. the some I'll call now before opening turn it over for financial to Marty Jackson additional

Martin Jackson

Bob. morning, everyone. Thanks, Good

our which quarter, cost expenses, were second the include For administrative general of and operating billion. expenses, our services and $X.XX

XX.X% in same $X.XX the this of a year. billion last of Cost As second the quarter second $X.XX expenses operating quarter net percent in year. compared year the both for were services of quarter to and revenue, billion were last

a net services of As quarter were last this the and of of revenue, percent both year. cost year XX.X% for second

million in last of $XX.X quarter. last year. year. in second $XX.X the X.X% was of second This this a revenue the million to compares G&A was year quarter the net percent both and expense G&A as same quarter

the and adjusted XX.X% in to margins this as the mentioned, quarter Bob $XXX.X and pass-through quarter labor EBITDA adjusted margins compared the last for related adjusted of total in was the EBITDA expense year. quarter million second million That $XX.X of quarter EBITDA compares million As and revenue same second to total $XX.X the million, last was was in year. same year. Total XX.X% $XXX.X adjusted EBITDA to

compared adjusted to EBITDA last pass-through, the labor overall the basis margins of same Excluding the impact quarter in points improved this XX quarter year. year would've second

and The $XX.X to in earnings the be $X.X was our months. million for $XX.X in the $X.X $X.X subsidiaries as illness over million approximately to was We same need This in in year. unconsolidated to cost $XX.X The the year. primarily quarter. quarter. the in XX.X%. year. expense outpatient Florida Interest of attributable XX and expense to year. expensed attributable to subsidiaries in compares Depreciation were same to second tax in quarter million critical This recovery million of compares in fully compares income the quarter. these clinics in sale quarter. growth increase last intangible million as the quarter. the rate hospitals rehabilitation million effective a to $XX.X quarter nonconsolidating generated result This both increase This We unamortized $XX.X of million quarter was was in million second million quarter compares last in the recorded last the nonconsolidating periods tax same the last of earnings certificate subsidiaries equity was which appealed, equity and the the same during of assets of last This amortization the $XX of second regulations to

quarter, of the Medical and the end income in we was Net per $XX.X million and the million on balance of Select fully second earnings diluted was share $XXX attributable of Holdings sheet. to billion cash $X.XX. the At debt $X.X outstanding had quarter,

in senior the lien million at in $XXX million lien $XXX million in discounts, second debt. in debt million liability, $X term included billion Our revolving term Select debt balance X/X% Select end first the loans, X loans, of billion in Concentra quarter notes, Select balance premiums of the reduce $XX we miscellaneous had loans, Concentra unamortized term other debt cost in $XX overall to million and $XXX and loans, sheet issuance $X.X

of transaction yesterday, existing new X from and loans. the X/X% million is our issuance tend year which as the balance term senior the a proceeds we of We out which notes the terms net loan, senior loan. $XXX mentioned, refinancing term same our revolving million As our incremental coupon to of seven a Bob to $XXX existing notes new debt the X.XX% of million completed at included new $XXX and pay redeem use a on

$XX.X Operating income. cash activities cash quarter. for by provision second operating flow quarter cash is flow primarily in provided the of million driven The the of

XX second DSO, days of to and days XX, Our quarter. acquisition days XX, March days activity XXXX. This during million Investing and activities purchases June was quarter. related The $XXX.X of or $XX.X outstanding, cash XXXX. equipment investment $XXX.X XX million and as December compares sales used and at XXXX, was use to XX, of at of the cash million in in of property the XX

in activities of the Financing million to and noncontrolling on $XX We borrowings in the related had million proceeds interest $XX.X net revolving Select's quarter. $XX.X in quarter. million net cash provided second loans of

XXX,XXX part program. We approximately also to as repurchase share authorized spent of million shares common million of our our $XXX $XX.X repurchase stock

we provided press we Additionally, in reaffirmed our for our year calendar outlook release, business earlier year. this XXXX earnings

nonoperating million. revenue in We expected gain the and the million in $X to EBITDA to range earnings its effects. the $XXX be recently range of $X.X to any expected range to net include from is of which related diluted expect be be $X.XX Adjusted the $XXX tax to and not to to billion billion. is of does to share impact transactions. per $X.X per the adjusted excludes outlook $X.XX refinancing Fully $X.XX, be This the in in completed earnings share

This And to concludes this our prepared we'd call the it remarks. to like back questions. turn open to up the for operator time, at

Operator

Instructions]. [Operator

Frank the RBC comes from question Capital first line Your of Morgan Markets. with

Frank Morgan

losses de is we third start-up at for curious us if typically you this the -- a quarter there's hoping bigger you're the two $X like the -- think had on of the quarter of year. just around contribution the also it at number was guidance commentary And million half seasonally year And with weaker could But in a weakest. I second give considering guided looks obviously, general looks it could originally just I coming quarter. the any last to quarter. seasonally million $X you over kind like start of the in -- you I'm of novos,

that in well. wondering So how just plays as

Martin Jackson

have that the will Yes. in we hospitals With and positive particularly fourth regard would Frank, to our positive is have this We'll quarter. Marty. gains. actually start two the anticipate of to EBITDA start-up losses,

So can at million we to year. when in look taking million look essence, the the take at we we're you $X full a -- were $X a about, talking

that, have positive I anticipate quarter, fourth as So would EBITDA. should we said, we some

Frank Morgan

And you. then... Got

Martin Jackson

That [indiscernible]. will be

Frank Morgan

Got you.

to going fair quarter it's a assessment? So than third bigger quarter. fourth it like a Is that much be sounds

Martin Jackson

fourth better than is Well, quarter Yes. the typically the third much quarter.

Frank Morgan

Okay. dip this But on especially development the side? with

Martin Jackson

correct. That's

Frank Morgan

have the having is CON Okay. what how kind I past had you in you know you in Florida that do In on change net-net? CONs. in any with is I'm just of have approach we curious some the of any Florida? loss, Florida impact and this case, activity

Robert Ortenzio

and Well, where position Frank, what But that can our us. for financial think CON market yes. in their the right at or be regulatory we But will good with the vulnerabilities. we Florida determine to impact there's don't changes Well, in is now. we're going Florida I assets opportunities any project all looking any away, of expansion think net-net,

Frank Morgan

Maybe one more. Okay.

end think start at you how got and mentioned use of proceeds? But positions you proceeds, financing. when just Carson think about I you've this your think any contemplated it use the you know don't about year, and I but the your it next very I as how your should about Welsh about we guidance, of thinking refinancing high-level commentary option for

Martin Jackson

expectation is equity was really the to our was of financing the going partners part Frank, the on put we did for regards contemplating with Yes. Concentra. what private with

first the to they if comes quarter, do the put in know so first you choose As it.

contemplation when part the have that we did So is yes, that of refi. we the

Operator

of Wells line Your Peter next Costa from comes Securities. Fargo with question the

Peter Costa

A couple for me. of questions

IRFs for your The first one -- is on XXXX. the

mean year-over-year? you the market for be them expect pass-through increase? you are just rate you the than said mean positive more CMGs positive Do positive for do you. Or you You to

Martin Jackson

mean year-over-year, positive We Yes. Pete.

Peter Costa

Okay.

the CMGs, will do are negative? you not a -- little negative they be So think for tremendously you but bit

Martin Jackson

We they'll for No. negative do not us. anticipate be

Peter Costa

Okay. And Concentra question is business. the on other have then I the

be in that If And about should that pressure a point that then the sites phenomenon mix Is thinking continuing? like in talking to in see seeing from more top And rate we you're use do you're work fact so accelerating ultimately things you be it faster result mix will time that that? your line? this that. And seeing about you employers, suggests seem to from and at more talk more and employers. an

Martin Jackson

with increase drug there's we Yes. of done with is services, less is charged And a visits saw have to lot -- actually our do resulted that, we little a that we an the employer elasticity because which in drug there in bit And really has What price testing. testing. on believe that. really

it We in drop saw pricing. there saw essence, it increase. we So in our

we Our workers' comp ultimately space. expectation Pete, is, into some the pull-through from see will those employers

driving was So of that the reducing really was price, pricing. process what drug the that thought

Peter Costa

Okay.

So that's talking what I'm sort than of a phenomenon separate about.

site Are It's more asking usage? for way So more work it's is are work this seeing stable of a at really years? more Or now? usage employers number just been you point? the it site

Robert Ortenzio

I'd have say to it's stable.

Operator

the line with of Your next question from of Fischbeck Kevin comes America. Bank

Kevin Fischbeck

of quarter of synergies HealthWorks revenue what in growth you I growth I But margins obviously, or going what the maintain to kind you this the on is comparison we're in bit seeing guess improve a forward? the to to here of going quarter. Concentra. think segment another normal to a wanted do do of And that question you here boosting Can this be first talk This of the kind expect revenue U.S. you forward? get margins kind you kind kind about some nice need margins there.

Martin Jackson

a flat expect bit is little X% basically to Kevin, see same-store Yes. coming that can you pricing. X% think see to And I maybe then the or that from we Concentra. volume balance a to and expect growth really on basis on what revenue up

Kevin Fischbeck

kind maintain enough once margins all tailwinds? to that through the you is of get synergy And Okay.

Martin Jackson

said early ago. going on the margin would a be in to job. the range what? done XX% The We have -- meaning have Two in the early operators XX% the We were thought -- margins terrific on range. to XX% years thought we be

a a basis range. good three XX% number or first been lower the to ballpark quarter, in that fourth has XX% quarter at are This in Remember -- the that bit fourth XX.X%. The a quarter higher. we're total. probably an little little XX% annualized on that is in bit Probably in always quarters

Kevin Fischbeck

done are more me from U.S. you you in how And can Okay. expect we now? that remind synergies do Or much with HealthWorks? still just

Martin Jackson

that. not Yes. No, done with we're

see I think $XX next by fourth probably full full million then $XX year. that we rate, this you'll And of talked the about you'll run million the year. the quarter come see

Kevin Fischbeck

Okay.

So that now? how million to are $XX close you

Martin Jackson

We're pretty it's million $X close. mean I $X away. million maybe probably to

Kevin Fischbeck

guys to critical while first was the in adds kind then Okay. little side. bought yes, this seen you hospitals, hospital of that a we've just on hospitals. It some time And the net

as you may more of what adding will the the hospitals that see actually story growth there? be there opportunity So part

Robert Ortenzio

some growth. do possibility We see for

with for the on the promised as itself shakes the deal the out, a may of hospital. for industry markets. in But then full you add implementation recovery to outpatient have kind was see to us the think and that the do novo will rehab be for rare on unexpected critical but all opportunities those throughout acquisition illness As fully of novo originated resetting partners hospitals de basis I have of opportunities criteria, see think out bankruptcy be that moving we And rehab, number the I of de know with that that potential been we country that hospitals. good us. some mean has we growth inpatient the in of there'll It acquisitions. to some with a

ones I So on get the see you of back the a will coming growth per over year. couple think new years, us

Operator

question next Your A.J. the Rice of comes from Suisse. line Crédit with

Albert J. Rice

When -- as dipped others down, dipped critical -- or a looks payers business we care has the little at well business up. or payer down picked of bit are the like other as and IRFs, Medicare mix access critical look it

of see is XX IRFs step days running you there at Or this XX% that been those tweaks is what patient do you making Medicare And in were XX in in that or -- and LTAC think conversions about Is mix? XX. guess business in down I -- you're to quarter. I the is payer from there sort the Advantage?

Martin Jackson

our in commercial. is commercial. A.J., Advantage include the Medicare is Advantage Medicare primarily because Yes. that We it are payers

moving and or essence, Medicare category. in is what So joining seeing you're Medicare Advantage -- patients from basically

Albert J. Rice

you -- in you that neutral or do are is difference that? profitability whatever payer between and there to -- any is of those two? sort rates Or And Okay.

Martin Jackson

There illness to for of hospitals. A.J., part in But critical -- be, particular, some used the most differences. the recovery on

most part, most of payments. are of off now payers the piggybacking the For DRG Medicare traditional

inpatient rehab it on side, the the in. you're located On depends geography

Medicare Some better where some -- regions profitability the locations on got on you've there that's and are you're better Advantage, case. not

Albert J. Rice

Okay. it you don't productivity I remarks I turnover labor seeing wage what and however what And hear pressure versus updates. Any on you're of of employees, -- Or seeing or prepared don't comments -- on across specifically elsewhere? Any rates. on points are easing you your I seeing measure tight? if that? where your you buckets the know comment types different sort the year of in side last didn't are know was

Martin Jackson

With labor, to relief with on side. pretty year. And over -- the increases I regards it's Yes. rates. primarily nursing have the consistent last turnover think overall same regards seen not to always period mean in it's we any I and it's

Albert J. Rice

What average at? describe would your you rates

Martin Jackson

X% that in what we're increase It's range is seeing.

Albert J. Rice

Okay. And of and me right. last All one. a for just then technical sort

like looks any any it with of the refinancing, making there should sort did the have interest transition or double of third factor month? cost carry ongoing Did is while But this? on in awash in interest were you I the wonder quarter you With redundant the in we a expense. that anything

Martin Jackson

double a provided. negative band within period it we but There'll the And of will carry one slight have Yes. on impact a be month that EPS, for -- the for time. it's

Albert J. Rice

to that guidance. say was I within still it's going the

Martin Jackson

That's right.

Operator

question Sutherland next with comes from of Benchmark the The Your Company. line Bill

William Sutherland

just rehab on net very notable per to the just noticed several steady here. off because was Anything bit had going that? a was So outpatient revenue about been It for little quarters. I focus I visit

Martin Jackson

really bit Bill. just was of in the on respect, $X little that margin. $X.XX, had compression impact that a -- Actually, And It of were really off. it Yes. we the

William Sutherland

in it to look you my the actually other us and might Solutions. with all color asked. earlier how Alternate then the what a give work impact Maybe quarter just future? operational have in And things the the missed on announced been going you in can JV little Okay. I like that's financial

Robert Ortenzio

cases, outpatient since we hospitals. and had only a rehab day rehab, think -- we our partners have post-acute to developed offerings such in some did joint a I venture inpatient -- critical and rehab illness from Yes. recovery expanded We found strong what of network our have not

partners can Some would the care joint offering. of we our onto that were perhaps that a requesting -- snap venture home

it with of the -- is plan does bring market. local doesn't by require operator that's our Solutions. care ventures we'll to But we have we home joint local it requested what service where some need the their where our being for to Alternate platform. to our that -- experienced us is our the local we And nationwide And established bring partnership it So to and partners. is markets expertise what us do expertise have a in a ventures that our joint can

William Sutherland

systems requisitions? to somewhat to integrated it? of through pass the you you're be Are being able in are going to going how terms Or handle

Robert Ortenzio

rep home and care are a other Well, the different. the lot are ones systems for cycle, of

So the post-acute But we with anticipation provides. it tell local platforms systems through can't the would will venture services be -- be that is market I be the the market. the joint other the services in but will be will the not the that services integrated that integrated. you integrated

William Sutherland

And then in how mean how reflect Bob? reflected you financial I get your statements, this -- does do

Robert Ortenzio

It the will so line, entity, nonconsolidating Bill. be a below

William Sutherland

Okay. It right. All will?

Robert Ortenzio

Yes.

William Sutherland

on top employer X% of or that, Would follow-up same-store be either Concentra. expansion, like think? clinic one feeling it actually was there on do to you referred outlook X%. Marty, to you And

Martin Jackson

absolutely Yes, be. would there

And make know, X to acquisitions opportunistic we're do as centers. on continue We you when we that. or X

prices. very we there -- yes, of But So anticipate that. some attractive will be

Operator

to I'm back remarks. over it turn time, for further management like no this showing to questions. closing I'd At

Robert Ortenzio

quarter. No closing forward to us. updating remarks. Thanks next We for look joining you

Operator

Ladies thank the This participating in today's for program. and conference. you gentlemen, concludes

disconnect. now You Good day. may

Select Medical (SEM) 2 Aug 192019 Q2 Earnings call transcript