SEM - Earnings call transcript Q3 2019 | Select Medical Holdings Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the third quarter 2019 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 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 the 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, the turn call the to At Ortenzio. Robert

Robert Ortenzio

for morning, Thank Third Select Call for you, Quarter everyone, Conference thanks Operator. Good and for joining us Earnings XXXX. Medical's

saying fourth QX me for with business by prior segment of critical X double-digit specialty out exceeding Let over illness X hospitals in segments over adjusted was grew us hospitals business start our terms year very nice good a of growth, hospital quarter X%. business in by admissions growing EBITDA and by almost with EBITDA at growth our recovery rehabilitation growing X% XX%. We patient inpatient experienced and our at

more Our X% over visits and outpatient Concentra by clinic rehabilitation grew by than grew visits X%.

our in pricing. We also nice saw growth

during remarks. significant both Marty completed quarter which Concentra, refinancing at his provide and We some in will transactions the color Select two

joint to third quarter in XX% quarter days last quarter to day illness per revenue increased a quarter in and critical $X,XXX quarter. days compared Louisiana. last our X% is year to same year. per patient to affiliated patient segment Net the in compared in $XXX several same compared opened both third to partners new also million to the revenue in increase increased Patient We same third the volumes last patient hospital the last XXX,XXX rehabilitation net nonconsolidating X.X% quarter, Occupancy day. recovery the Net compared $X.XX the year. revenue $X.XX hospital billion year, patient segment the with in same $X,XXX increased X.X% day XX.X% patient to in was third increase patient in this revenue compared our year. per for last quarter Orleans, in critical to million hospital illness $XXX the XX% to in in in year. billion the with day The the in New quarter quarter quarter venture recovery Overall, quarter per our increased third an attributable the

in year. our to $X,XXX day increased over days revenue increased in last to $XXX the the days was a quarter Patient in third days third compared quarter Net well to in opened per X% the to The $XXX the days recently year. same same hospitals. new hospital in million in million same to in XX,XXX the to XX.X% quarter $X,XXX existing to that XX,XXX XX.X% last our patient rehabilitation day hospitals in compared increase segment as year. quarter patient increased related day increase per Net revenue as X% compared quarter per last

last quarter same last in X.X% revenue X.X Net year. increased million outpatient to million Patient was of visits year. quarter this in quarter the the both rehab to segment to compared million Net revenue our and last quarter X year. to the year the visits third in $XXX X.X% in visit same quarter $XXX million the in per $XXX in increased visits compared third

compared segment Concentra X.X% million same our quarter year. million to in last $XXX Net increased the $XXX the quarter revenue third to in in

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

little the to X.X year. same visits less over compared the last than X.X% million centers, quarter increased visits in X visits patient a For million to

yield employer decline drug last service year. $XXX rates. revenue the which The visits, same screens, the per mix net in visit lower quarter third per to Our visit a in visit including was quarter higher due revenue net per $XXX primarily compared per-visit to in was of

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

Adjusted the the the newly in third adjusted segment the EBITDA million to related XX.X% in hospital year. quarter to XX.X% margin decline the in to XX.X% than last for $XX.X EBITDA in third compared adjusted margin X.X% year. third in existing Illness year. margins segment, our quarter critical last to The consolidated at operating recovery EBITDA is was increased same same margin XX.X% in $XX.X last In EBITDA compared same quarter was quarter quarter our the Our to hospitals acquired in our quarter hospitals. lower the million compared

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

reduction was EBITDA rehab third the the in in quarter in the XX.X% EBITDA XX.X% implemented in the EBITDA of quarter third the a $XX.X quarter. million last increased Outpatient well same Adjusted as adjusted compared compared increased same to $XX segment other to margin year. in the for million as XX% last in to the quarter year. outpatient cost initiatives quarter volumes Adjusted result as margin increased quarter

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

earnings retirement of and last the Earnings their was tax the per fully $X.XX third the $X.XX loss year. and quarter. debt on third quarter in same share for which $X.XX the quarter diluted early diluted excludes was in share, Adjusted fully related costs per to compared

earnings share, businesses-related tax During the year, per effects gain third quarter adjusted sale last on of was excluding diluted $X.XX. fully

I'll some we additional questions. Marty open for details for point, call financial this over At the call to turn Jackson before the

Martin Jackson

Thanks, Bob. Good morning, everyone.

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

the operating compares in This XX.X% revenue, quarter a third were last As year. this XX.X% quarter of year. to the same in percentage expenses

to third quarter was Cost billion services billion the last of $X.XX in compares year. $X.XX for same This quarter. the

As the in compares the $XX same X.X% million cost quarter third year. $XX.X quarter revenue, the This compares same XX.X% G&A year. the this revenue as to the quarter a of to expense XX.X% services in quarter. the million a $X.X last net same in percent year. for in of third This last in quarter last quarter was percent was net G&A compared of million year. was third to

total in $XXX.X EBITDA million this year. adjusted million quarter was Bob year. last XX.X% margin this As in EBITDA and million EBITDA the and EBITDA the quarter, the the last Depreciation compares XX.X% was to adjusted of third total of adjusted $XX.X to mentioned, in same the $XXX.X for compares was margin amortization $XX.X third million adjusted quarter same and quarter,

of million equity the this during subsidiaries. $X our generated subsidiaries million nonconsolidated earnings these quarter, increase growth the equity nonconsolidating and attributable of last compares $X.X to earnings result as unconsolidated quarter in in clinics to subsidiaries We outpatient of the rehabilitation sale same was in of The and to year. the a

$X.X per X in year. senior X/X% X was income of in earnings expense the $XX.X million quarter the effective in quarter, and includes and Interest of timing Net interest million quarter same million notes. notes the recorded attributable of X/X% repayment $XX.X the We Holdings $XX.X incremental to third Interest quarter and share rate to due earnings third to million quarter. per tax in Select's was of expense senior XX.X% this last diluted $X.XX Select's compares new the expense third tax quarter. existing share diluted the fully the in Medical $X.XX adjusted $XX.X third an the issuing in was income fully in Select with million was

balance lien loans to adding Concentra an lien Concentra's its first XXX entered term million loan, notes mentioned, the cash Bob term the -- loans. a coupon billion X.XX% additional amendment a an of Proceeds sheet, senior million paid balance outstanding. transaction, we the term completed new third net $XXX Select a August balance On transactions quarter. Select's loan, We term repay of X, and its with in million to second $XXX issuance to as September new lien X-year term senior used loans from incremental the in our $X.XX loan, on incremental million new loan. of As included X X/X% On to on term first XX, first X at the refinancing into and which refinancing terms lien existing $XXX excess cash proceeds in XXXX, from completed of with now notes million the used incremental the the our existing is off our full redeem existing the were the $XXX $XXX on debt together which revolving sheet. same to

sheet. of we of At debt million cash outstanding and the billion the quarter, $XXX end balance of the $X.X had on

other end at debt discounts unamortized included: had Our debt. $XXX the million premiums reduced of overall debt quarter the $XX term miscellaneous debt loans, of billion Select $XX first loans, in Select and in costs sheet $X.XX senior million we in X.XX% balance Concentra notes, million issuance in term that balance $X.XX liability the lien billion and

cash is and of increase $XXX.X provision accrued provided cash for driven income quarter flow in of quarter. by operating an activities flow Operating cash third the in million expenses. The primarily the

XXXX, This DSO, or XX September compares days XXXX. at days XX, was at XX, outstanding, at XX and XXXX. days sales Our days XX December June to XX,

the note of $XXX.X activities $XX.X is quarter. $XX.X purchases $X.X third We talked used revolving million related and Financing on million and we of million million activities third repayments Investing million million. of quarter. of during loan The used equipment in cash in use was net loans the to refinancing of $XXX by activities in and senior just property the $XX.X about. cash related offset of quarter. This term in investment the and had acquisition the the to net borrowings cash activities

in debt cash bank also excess $XX.X as balances checks. had outstanding million over We offset reduction

million used we interest quarter, million net of million distributions net quarter. payments repurchase $X.X noncontrolling stock addition, debt other $XX.X to In and in the $X.X during to of in the

company's million at which shares program repurchase of transaction quarter. includes authorized We purchased during an price costs X.XX $XX.XX, third average under the the

we share range our be on in adjusted for per to adjusted excludes of in Additionally, which earnings $XXX press related debt per to of the to sale businesses the of costs $X.XX updated net of billion now revenue the fully $X.XXX to the on and retirement release, early XXXX. $X.XX to loss share gain be $X.XX, the related be to of $X the effects. million range tax and expect in and in earnings its billion, We business of earnings and outlook calendar to EBITDA $XXX million, the our $X.XXX diluted range year

concludes This And our at open we'd time, like the this up prepared remarks. to call.

do so. please can you if operator, So

Operator

[Operator Instructions].

comes question Frank first Capital with RBC Our from Morgan Markets.

Frank Morgan

up wanted in declining, you've do those of Advantage decline color I side, side, been heard growth seeing but [indiscernible] about I talk so rates We've growth in bit strong other kind on on can rates might the fee-for-service IRF that the that And those Medicare past. probably the hearing But strong the just any mix a the And have in well? their the in the rate been thing around I thing little had the the color that? the to in discounts then business, we've the compare? days how case believe that? that call out some you business rate the acuity you that about just LTAC of growth overall driven And change talk across that? IRF -- to there, on hospital mix same or that have a others segments. know there's -- are any in as any Any rehab about there. really that rates

Martin Jackson

increase the pricing saw a on up We on rates the -- side, Yes. we decent there. Medicaid LTAC in bump Frank, in side. saw the a

So of increases predominantly that the was predominantly the saw items. why one that there. was the rate we reason Actually,

On the had, I -- the next the... think, on was question you

Frank Morgan

strong there. IRF rate growth side, the On

Martin Jackson

Yes.

same we new see the coming hospitals. on one that rates of see as has that our for do, like with of increase increase. we're in increase type more California do very going rates probably there. will particular, good the mitigate that's we board, of see And increase I drivers predominant the start-ups of because We And think portion California rehab. that in not some to nice a to

Frank Morgan

maybe Advantage paying was you. didn't over if point, catch that Medicare is how And the rates in you us And year, fee-for-service? of do which compare growth additional would rollout mix one part development that the to are you of earlier kind that you are just a how Got coming compare? then maybe -- the And and much how next -- that And online? back Is that you in you have of how the on remind the the that case questions or a rehab seeing rates? those rates hospital of business? does day big quarters

Martin Jackson

Sure.

last the first, question and that Medicare Let me -- your answer Advantage. is

Advantage that Medicare piggyback Medicare rehab seeing the Medicare. compare? hospital the LTACs across does and are increase We traditional both rates specialty outpatient how Advantage hospitals. off And of -- of Most across

So we're said, reimbursement not just We're It's on case predominantly, traditional it's as basically diems. rates. that see seeing per we not I same Medicare. doing seeing the --

Robert Ortenzio

variation Medicare around Advantage, think, geographically I the Medicare the And is have about some is obviously, unlike that Frank, to other country. thing fee-for-service going

different different see We different things standard, with those hospitals. rates the so parts in we'll not of country have -- are and

Operator

Wells Costa next And our Peter comes question with Fargo. from

Peter Costa

Congratulations sheet and think to Can the the then the balance do question expense. and expense you've us, on year? going going that's the you Nice busy quarter. tell happen? kind My job, more that's if balance going Marty, of the And out on sheet happen the for guys. where interest been of rest on you is about to timing on to can talk there. puts interest the is when you settle

Martin Jackson

Pete. Sure,

place a to little X to $XXX we our there's much XXXX. in a a in the second a interest or we've a payments bit the annual on lien. because As we million just $XX somewhere that will provide $XX -- basis a on range. would seen the Select notes, difference in But that dollar million so put you let comparison. That took that refi on is on that there's There of -- taking basis the take on that added of at pretax had far coming apples-to-apples -- be close was I amount, The on me number an as with of X nominal X/X% occurred first, at went let lien elimination million we impact basically of we've look anticipate -- the overall a was million spread What to have up me another, out there. of first X/X% refinancing, second should so an that there. not Concentra significant information $XXX what quarter or -- consideration the a into put think, additional

a So there's on savings of really that Select not the refinancing. much

Peter Costa

Okay. so million then the quarter itself, in And right? the had you gone, that's $X.X of just costs, transitional

Martin Jackson

That's correct. Yes, right. that's

at tax range. amount -- probably you and million, should that If look the that somewhere tax $XX overall $XX a I in think nominal $XX -- adjust million million, about take the was

Peter Costa

quarter the second Okay. puts in And if occur? of then they next the will year occur

Martin Jackson

the basically it's start -- that put can anniversary Based year Yes. transaction. the contract, second mechanism the on of have -- we is first the U.S. the on HealthWorks

a in that that, do Our quarter. so probably would of And joint be it to anticipate the couple done. evaluation second take and could venture partners request be we can to months

Peter Costa

screenings business the drug then know would far that that started thought the there do? question. drug I seen And last the in you screenings first of you road. this lead continued Okay. down some happen terms of Have to any quarter. those that was to so more The

Martin Jackson

us with employers of worker the to now back come have We pull-through screens. additional comp the business have some because seen drug

to the that So is, answer yes.

Operator

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

Joanna Gajuk

today. Joanna for filling is in this Actually, Gajuk Kevin

down in now implies quarter-over-quarter in year the this past, will about more So guidance, or almost X% sequentially know $XX EBITDA QX, million from seasonality revenue first decline. was I and sequentially. decline EBITDA a your question but be actually QX such will this was the implies that guidance dramatic on that which so down of

So mean, want driving I just what's to clarify, that. I

Martin Jackson

Yes.

through You're I those you're going again -- mean, don't again? to Could Joanna, -- have that you see. we us walk to because, numbers the say

Joanna Gajuk

year-to-date, for billion it's So $X.X right, yes. is revenues, guidance The and billion. $X for annual

your $X.X So the for QX. a call I'm -- of, it, it's X% a midpoint annual decline decline doing billion from EBITDA so on quarter similar and versus it's $XXX it sequentially, $XXX implies million. year-to-date adjusted QX math fourth million And

call it, QX. midpoint at QX, $XXX so $XXX that million from So so million for implies, down that's

Martin Jackson

It's Joanna. going actually up,

Joanna Gajuk

Okay.

So year-to-date. maybe I incorrect guess, the using

year-to-date the EBITDA. what's So

Robert Ortenzio

Year-over-year income.

Martin Jackson

to what 'XX you've 'XX of going mean, QX you've to to I got and compare got Yes. both is of situations, it's do QX in up.

Joanna Gajuk

Right. sequentially But from year I'm looking at QX this just of to QX.

Martin Jackson

Everyone we knows down that business is don't Joanne, Yes. QX. business in sequentially. at a look the take Concentra's

Joanna Gajuk

seasonality? In

Martin Jackson

Yes.

Joanna Gajuk

right. Okay,

I that. So clarify want to just

Okay, I good. revisions case you does also positive. business? mix what the it for would that previously, to And be for assume the in-patient then said regulation guidance in the -- Did final terms guess, rehab implications QX, the of

there So a way to is quantify this?

Martin Jackson

that not, impact basically There is positive. little We no. is neutral a bit the said to

the assume And would you that so it's think same. pretty what I much

Joanna Gajuk

Okay. And I segments, somehow guess, then so good the new question, pretty last the the [indiscernible] were by hospitals. margins impacted in all

So you these these saw IRF It good segment, like and are the outpatient pretty run a for also I this doing this seems -- guess, are good were segment we quarter and that margins, are at rate? Concentra. they

are into reported seasonality upside So mean, numbers? some margins guess quarter-to-quarter, these any good this there's revenue quarter? you're I you seeing these I but

Martin Jackson

No.

that on should margins, we this board we and acquired time. on I little call, or margins margins LTAC those as grow business margins They'll were segments, but digits into a of think the go brought the single bit. each their that predominantly our down we hospitals you the that's through board, brought our because But mentioned the up. are new if on hospitals be

as see to board. fluctuations new For range. nicely, continue you're in over up the where inpatient was rehab it's XX% on add rehab going to inpatient inpatient we But rehab, hospitals that

to think could see would expect margins. XX% I you XX% So to

And rates, rates that's Concentra on pretty good think range. think I in a rate. basis XX%, at an annualized I XX% outpatient probably then on are the On Concentra that

Operator

question And Justin comes our from next with Deutsche Bank. Bowers

Justin Bowers

this performance broad-based nice A quarter.

looking going at the So few segments. of a just --

On like in side, what volume or the looks to a just the on the what it get of trying from underlying LTAC kind the basis? guys the of ads, versus sense a admission another hospital like either added growth contribution new And quarter. you I'm was the --

Martin Jackson

Yes.

Justin, we is a That hospital. did add another nonconsolidating hospital.

So under come through just that line. the P&L, not the will equity

nice right? a volume answer Dignity So in increase rehab inpatient should new Las there, we've seen hospitals the the second the And one, first and your question, Shands very on that was generated then that particular, what the due to Vegas. at was and

Justin Bowers

And just Okay. what Got of ahead, start-up Or XXXX? moderate looking more to saw then of a losses? it. something be the in... we we about in we in terms pace going Is of are terms looking kind thinking are just to similar little it at in what of

Martin Jackson

to just and QX. and we'll QX, losses, hospitals losses, the regards going on, see With coming we'll banner little the next then start probably bit a some QX see see not okay? two Yes. to in due startup we're that's time some start-up to in And more,

Justin Bowers

terms of thinking terms are in are Is What Yes. a And a guys kind of the we critical is up core margins. back trajectory? to new that Or year, thinking in that? how year get and the you illness. about the then two X just of hospitals that ramp those to

Martin Jackson

How the three we thinking two it Yes. see would about we're quarters. to to improvements expect is, in

Justin Bowers

Okay.

mean deductible seasonality plans? I just there there. just on with Or to -- was the well? the rehab. like something it was high thoughts some Is as any just then And Okay. volume that outpatient impressive funky

Martin Jackson

seasonality is There third it's Yes. business. down the quarter. in that typically, And with

quarters, third volume you operators the and but So did typically terrific in fourth the see down, the a job. that

they was terrific. the So that and they can margin And it talked to said think the we've continue. -- operators,

Operator

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

A.J. Rice

across board. know good I results you had the

help performance? of of was sized much the numbers about have a did they volume and how Some get in that a these from extra day. companies that of talked business of little you sort factor bit Have how

Martin Jackson

$X.X It about A.J., million. was to Yes. million $X

A.J. Rice

much? That's company, pretty across Okay. entire the

Martin Jackson

Yes. correct. That's

A.J. Rice

-- realized And point? sort you Any of much come on at that update are point? was there U.S. still how helpful. All this right. a that to And is synergies you've do Or rate at more HealthWorks that? exactly you run we this have mentioned a at on of

Martin Jackson

$X quarter, we've or the an the third additional think to million of most achieved quarter there's X. Through probably million over $X next We the synergies.

A.J. Rice

$XXX EBITDA, Okay. or that on reflecting any And in about relative your the to forecast think on guidance? when mainly raise, made in million to revenue $XX.X your QX million that guidance, you assumption about is updated outperformance internal QX you adjustment in the maybe

Martin Jackson

in It's basically what QX. occurred taken into consideration

Operator

next question with Frank from Markets. our Capital Morgan comes RBC And

Frank Morgan

occupancies more actually asked, but was big But question there. I a see On of obviously, back. project how that follow-up much growth Where the today? one? you a do will upside know But how Research been do see My maybe I that's little just left rate of and lots much California in maybe a there? the big capacity. you has center like are upside source Institute, left color,

Robert Ortenzio

Frank. some occupancy. very The is there's Well, upside, hospital running high

So we shortly, constrained. will -- very our capacity be

-- but perhaps we then some think there's and to -- other out develop begin outpatient. can opportunities there, and So I

You the of the with amounts the Rehab of really modest California inpatient been from all outpatients. results has know Institute inpatient

have we've snap-on, to to, use inpatient done then hopefully, I begin share that on look services. to other some incremental market little and of say, in So we'll gained census, the would other bit expand as we've and we a opportunity markets to,

Operator

Ortenzio questions any further the I'm Mr. any time. would to back showing this at And for call not to remarks. I further turn now like

Robert Ortenzio

No quarter. you us, look further forward updating for and comments. next Thanks, joining to everybody, we'll again

Operator

and conference participating. gentlemen, today's concludes call. you this Thank Ladies for

all may You disconnect.

Select Medical (SEM) 1 Nov 192019 Q3 Earnings call transcript