Q1 2021 Select Medical Holdings Corp Earnings Call
Good morning, and thank you for joining us for the select Medical Holdings Corporation earnings Conference call to discuss the first quarter 2021 results and the company's business out there.
Speaking today are the company's executive Chairman and co founder Robert <unk>, The company's executive Vice President and Chief Financial Officer, Martin Jackson Management will give you an overview of the quarter and open the call for questions before we get started we would like to remind you that this conference call may contain for.
Forward looking statements.
Future events or future financial performance of the company, including without limitation statements regarding operating results growth.
Oh for charities and other statements that refer to select plans expectations strategies intentions and beliefs.
These forward looking statements are based on information available to the management of select medical today and the company assumes no obligation to update these statements as circumstances change.
At this time I will turn the conference call is we shouldn't Robert Ortenzio.
Thank you operator, good morning, everyone. Thanks for joining us for select Medical's first quarter earnings conference call for 2021 first I'd like to say, we're very pleased with the results of this quarter, our inpatient businesses, including our critical illness recovery hospitals in our inpatient rehabilitation hospitals realize significant.
Growth in revenue EBITDA and occupancy rates.
Occupancy rates in both business segments grew 500 basis points on a same quarter year over year basis.
Our concern for business segment has continued the trend we saw in Q4 with nice growth in revenue EBITDA and EBITDA margins.
And while our outpatient rehabilitation business experienced double digit negative variance in patient visits in both January and February we saw a surge of visits in March and this has continued through April.
All in all it was a stellar quarter for select in addition, you may have saw in our earnings press release that our board of directors has authorized a cash dividend $12.05 for holders of our stock as of May 19th.
As we've done over the past year, we have outlined our business segment monthly revenue volume and occupancy statistics in our earnings press release and public filings. We will continue to outline this information as long as we believe it provides insight to the impact of COVID-19 on the company's financial performance.
Overall, our net revenue for the first quarter increased nine 3% for $1.55 billion.
Net revenue in our critical illness recovery hospitals segment in the first quarter increased 18, 9% to $595 million compared to $501 million from the same quarter last year.
Patient days were up eight 4% compared the same quarter last year with over 293000 patient day occupancy.
Occupancy in our critical illness recovery hospitals segment was <unk> 75 per cent in the first quarter compared to 70% the same quarter last year.
Net revenue per patient day increased 10, 1% to $2024 per patient day in the first quarter. We continued to see strong referrals and higher acuity patients, which is driving both volume and rate in our critical illness recovery hospitals.
Case mix index in our critical illness recovery hospitals with 1.35 in the first quarter compared to 1.27 in the same quarter last year.
Net revenue in our rehabilitation hospitals segment in the first quarter increased 14, 2% to $208 million compared to 182 million in the same quarter last year.
Patient days increased eight 3% compared to same quarter last year with over 102000 patient day.
FNC in our rehabilitation hospitals was 84% in the first quarter compared to 79% same quarter last year net.
Revenue per patient day increased 7% for $1853 per day in the first quarter.
Net revenue in our outpatient rehab segment for the first quarter declined one 3% $252 million compared to $255 million in the same quarter of last year.
Patient visits were down one 1% with two 1 million visits in the quarter.
Our net revenue per visit was $104 in both the first quarter this year and last year.
We did have one fewer operational days in the first quarter this year compared to the same quarter last year.
Our visits per operational day, this quarter increased slightly compared to the same quarter last year.
Net revenue in our Concentrix segment in the first quarter increased six 1% to $423 million compared to 399 million in the same quarter last year for the centers patient visits were down two 8% at $2 8 million visits for the quarter net revenue per visit in the centers increased slot.
<unk> to $125 in the first quarter compared to $123 in the same quarter last year.
Patient visit volumes in our centers was down we realized increases in revenue from COVID-19 screening and testing services offset in part by our sale of the Veterans administration community based outpatient clinics last year.
I also want to highlight that we recorded $34 million in other operating income in the first quarter of this year.
This included $16 1 million.
Related to payments received under the cares act for incremental costs incurred as a result of the COVID-19 the.
The adjusted EBITDA results for our operating segments do not include any recognitions of these funds. They are included in our other activities.
It also included $17 $9 million related to the positive outcome of litigation with CMS the.
Adjusted EBIT EBITDA results for our critical illness recovery hospitals segment included a recognition of this income.
Total company adjusted EBITDA for the first quarter increased 37, 9% for $258 $3 million compared to 187 3 million for same quarter of last year.
Our consolidated adjusted EBITDA margin was 16, 7% for the first quarter compared to 13, 2% for the same quarter last year, our critical illness recovery hospitals segment, adjusted EBITDA increased 27, 9% to $113 $3 million compared to $88.
6 million same quarter last year adjusted EBITDA margin for the segment was 19% in the first quarter compared to $17 seven in the same quarter last year.
Our rehab hospitals segment, adjusted EBITDA increased 31% to $55 million compared to $38 6 million in the same quarter last year.
Adjusted EBITDA margin for the REIT Hype Hospital segment was 24, 3% in the first quarter compared to 21, 2% interest.
Same quarter last year.
Our outpatient rehab outpatient rehab adjusted EBITDA was $26 $3 million compared to $27 1 million in the same quarter last year adjusted EBITDA margin for the outpatient segment was 10, 4% in the first quarter compared to 10, 6% same quarter last year.
Our concentrix adjusted EBITDA increased 33, 4% to $82 million compared to $61 5 million in the same quarter last year. Adjusted EBITDA margin was 19, 4% in the first quarter compared to $15 four per cent and the same quarter last year.
Earnings per common share increased 105% to 82 for the first quarter compared to <unk> 40 for.
For the same quarter last year adjust.
Adjusted earnings per common share was 37 cents for the first quarter of last year adjusted earnings per common share excludes the non operating gain and its related tax effects for the first quarter last year.
In April both the inpatient rehab and long term acute care hospital proposed rules for 2022 were posted by CMS. The proposed inpatient rehab rule if adopted.
We'd see an increase in the standard payment amount of two point for 7% and an increase in high cost outlier threshold. The proposed long term acute care rule, if adopted would be an increase in the standard federal rate of two point for 5% and an increase in the high cost outlier threshold.
We expect these rules to be finalized in August after the required common period.
Additionally, the Medicare sequestration sequester relief Bill extended temporary suspension of the 2% Medicare sequestration cuts that were set to expire March 31 through the end of 2021.
That concludes my remarks, I'll now turn the call over to Marty Jackson for some additional financial details before we open the call up for questions.
Thanks, Bob.
Good morning, everyone for.
For the first quarter, our operating expenses, which include our cost of services and general and administrative expenses were $1 $33 billion for 85, 9% of net revenue.
For the same quarter last year operating expenses were $123 billion and 87, 3% from that.
Revenue cost of services for 129 billion for the first quarter. This compares to $1 2 billion in the same quarter last year.
As a percentage of net revenue cost of services for 83, 6% for the first quarter. This compares to 84, 9% in the same quarter last year.
G&A expense was $35 4 million in the first quarter. This compares to $33 8 million in the same quarter last year G&A as a percentage of net revenue was two 3% in the first quarter. This compares to $2 four per cent of net revenue for the same quarter last year.
As Bob mentioned total adjusted EBITDA was $258 $3 million and the adjusted EBITDA margin for 16, 7% for the first quarter. This compares to total adjusted EBITDA of $187 $3 million and adjusted EBITDA margin of 13, 2% in the same quarter last year.
<unk> and amortization was $49 6 million in the first quarter. This compares to $51 $8 million in the same quarter last year.
We generated $9 $9 million in equity and earnings.
City areas during the first quarter. This compares to $2 $6 million from the same quarter last year. We also had a non operating gain of $7 $2 million in the first quarter last year.
Interest expense was $34 $4 million from the first quarter. This compares to $46 $1 million in the same quarter last year.
We recorded income tax expense of $45 $1 million in the first quarter of this year, which represents an effective tax rate of 24.7%. This.
This compares to the tax expense of $21 $9 million.
Effective rate of 23, 7% in the same quarter last year.
Net income attributable to Noncontrolling interest were $26 $7 million in the first quarter.
Compared to $17 $3 million in the same quarter last year.
Net income attributable to select medical holdings was $110 5 million for first quarter and earnings per common share was <unk> <unk>.
At the end of the first quarter, we had $3 $4 billion of debt outstanding and over $750 million of cash on the balance sheet, our debt balances at the end of the quarter included $2 1 billion in term loans $1 2 billion, 6.25% senior notes and $75 million of other miscellaneous.
This debt net.
Net leverage based on our credit agreement EBITDA dropped to three two times at the end of the first quarter. This is down from $3 four eight times at the end of the year for seven six times at the end of the first quarter of last year.
Operating activities provided $239 $9 million of cash flow in the first quarter. This compares to $44.1 million in the same quarter last year.
Our day sales outstanding or DSO was 56 days at the end of March. This compares to 56 days at the end of December of 2020, and 53 days at March 31 from 2020.
Investing activities used $52 $6 million of cash from the first quarter.
<unk> of cash included $39 7 million dollar share.
$39 7 million from the purchase of property and equipment and.
$12 $9 million in acquisition and investment activities in the first quarter.
Financing activities used $14 $1 million of cash in the first quarter. This includes $13 $7 million in payments and.
And distributions to Noncontrolling interest of $400000 in net repayments of other debt in the quarter.
Our total available liquidity at the end of the first quarter was $1 $25 billion, which includes $75 million of cash from close to $500 million.
Availability under the select in Concentrix credit agreements.
Additionally, in our earnings press release, we provided updated business outlook for calendar year 2021.
For the full year 2021, we now expect revenue in the range of five seven to $5 9 billion.
<unk> adjusted EBITDA to be in the range of 870 day $900 million.
And expected earnings per common share to be in the range of $2 41 to $2 58.
This concludes our prepared remarks and at this time I'd like to turn it back to the operator to open up the call for questions.
Thank you at this time, if you would like Catholic question. Please press Star then the number one on your telephone keypad once again Thats star one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.
Q.
Our first question comes from the line of Justin Bowers of Deutsche Bank. Your line is open.
Yeah.
Hi, good morning, everyone and congratulations on another strong quarter for performance.
Just wanted to get your updated thoughts on on.
On capital allocation and capital deployment.
You know what.
And also with the with the initiation of the dividend is there.
And have a target payout ratio or free cash flow distribution ratio you guys are targeting for that.
I'll pause for the follow ups.
Thanks, Justin it's Bob.
And in terms of capital deployment.
Our number one priority is debt.
The balance of the can sentra bye.
Buyout of our minority partners that will happen early next year and so.
That's our number one priority I mean, I think the dividend I think reflects from our our board of directors and the company our confidence on where we are in our cash flow.
Through the balance of this year and through next year and beyond.
We will continue to look at opportunities to deploy capital and M&A, but they'll be relatively small.
Given the size of the company and and we certainly hope that having any.
David the dividend debt will be able to continue that.
In the foreseeable future adjusted as far as a percentage, we expect to be in that one 5% range.
As far as the dividend is concerned.
Understood and then.
On a related note can you can you just remind us.
Kind of facility or bed additions across the across the hospitals.
That have been announced over the next.
You know one or two years, and then and then how the pipeline looks for other capacity expansion.
Yeah I'll comment on the pipeline, we typically do not project a bed additions either on the rehab hospitals are on the critical illness recovery hospitals.
We will.
Billy Institute, a practice of announcing a new.
New hospitals, when they open and we also often announce significant joint ventures, when signed and we will do that.
I will say that our pipeline is.
I think it's as good as it's ever been we have a strong pipeline of deals and.
We expect to add some new partners and when we do sign those and add them.
We will announce them at that time, but I feel very good about the pipeline and feel good about growing on the inpatient segment, both critical illness, and rehab as well as doing some bolt on acquisitions on the outpatient side and some de novo.
Understood and then maybe maybe just one more.
Do you have it.
Some additional capacity coming on line later this year in India herbs segment and then.
The volumes were pretty good there.
This quarter and do you think we are.
You know, where we're going to continue on that trajectory for the for the rest of the year.
Yes, I do know that we will be opening our plan is to open subject at the construction schedule, our third rehabilitation hospital with the banner health system in Arizona This year.
And then we'll probably be.
Announcing some.
Hospitals that will are in the pipeline now that will be new hospitals that will be opening in the latter part of this year or next year and those you can assume given that timeframe that those would be in the hospital within a hospital model.
Understood. Thanks, so much I'll hop back in queue.
Thank you Joseph.
Thank you next question comes from the line of Frank Morgan of RBC.
RBC capital markets. Your line is open.
Good morning, really good strong quarter.
Amazed at the level of acuity that you're able to.
Sustained here and I think the 1.35 is even up from last quarter 131. So.
As good as that is I'm just curious about your thoughts.
When you think about the balance of the year the ability to sustain that level of acuity in your buildings.
How that's reflected in into price and in your pricing.
I wanted to ask as it relates to pricing.
Did the 10% price you're seeing growth did that include the prior period.
Settlement or was that literally all pure acuity in the period.
Yeah, Frank it's a good catch on the case mix index the level of acuity. This quarter I think is the highest in the company's history on critical illness and that that does reflect I think the last year and the performance of our hospitals and the local mark.
And there our ability to be good strong referral partners with large acute care hospitals with significant ICU bed capacity.
And we do hope to be able to continue that for the balance of this year.
And beyond but you know that's always dependent upon the level of occupancy in census at the acute care hospitals, but we see strong.
We see as a strong pipeline and we have strong optimism.
Relative to our acuity and.
In our census.
For the latter question I'll, let Marty take that.
Frank the settlement with CMS that is not included in the pricing. So that is actually below the revenue line in other income.
Well, Okay really strong and then when you think about margins in that segment.
The labor is kind of the major industry, particularly for us it you'd nurses.
What are your hiring how do you assess your ability to kind of manage the labor and.
This very difficult environment, when you clearly have lots of demand.
Well, it's it's a bank is a big issue. It is a I think probably one of the top issues in our critical illness recovery hospitals is nursing we price.
As you know and I think most all the provider side have announced US St. This earnings season is that.
The cost for contract our temporary labor is very high.
The recruitment costs are very high and scarcity of nurses is significant.
It's not the first time that we've seen a nursing shortage and this industry. So we will manage through it and there will be some additional costs.
At this point I.
I would say that we do not see a cigna.
Significant what we called bad holds while we're not able to admit it if that is happening. It's it's a it's minimal at this point. So we're still able to net our patients and not been able to put a hold on emissions free.
<unk> will also say that we think quarter, one really was probably the high mark for.
For.
Agency nursing rates, we have seen that start to come down.
We're hopeful that will continue through the balance of the year to more historical rates.
Got you and then my second one is just you sort of touched on this in your prepared remarks, but just a little more color on.
The momentum that you carried over out of March into April if you could maybe go into a little more detail by segment.
In terms of sort of the magnitude of that continuation of our growth and utilization and I'll hop off thank you.
Well, that's really what you're referring to is really on the outpatient rehab segment I think that that's the segment that is probably the most from marketable in terms of that and you see in our in our hospital side of the business that patents.
The momentum we've already seen the momentum I mean, we are at all time high in terms of occupancy, but on the outpatient rehab line, we've really seen net business come back the latter part of the quarter and that momentum is continuing and I think thats just a function of the of the debt.
On the back end of the pandemic and more people being out more elective surgeries and people coming back to outpatient clinics. So.
We saw a strong and it seems to be continuing the momentum seems to be very good right now.
Okay. Thank you very much good quarter.
Thanks, Brian.
Thank you next question comes from the line of Kevin Fischbeck of Bank of America. Your line is open.
Hi, guys. This is actually Courtney on the line for Kevin. So just just to dig into these trends a little bit more so.
Oh My section you know for the occupancy rate fell a little bit in March is that just because COVID-19 moderated or is that like a normal fluctuation and if you guys could give some color on how that's trending in April.
Yes coordinated the difference there is really immaterial.
We saw very little drop off in March yeah, there that I wouldn't read anything into that that would be what we would consider that just normal.
For instance.
Okay that makes sense and then I guess just.
Circle back a little bit I know, you've kind of flushed out that the labor trends from the labor dynamics, but are you guys seeing any other barriers on the labor line to actually you know fully ramping up occupancy and capacity. It sounds like now everything is kind of falling in line and so is there anything else on the labor side, you can think of that would kind of prevent you from hitting full stride.
No I mean, we have we have a close eye on costs and with respect to attracting and maintaining labor but.
Beyond what we've seen is Marty.
Commented.
We'd like to think that we could see some improvement from here on on that is.
On the labor.
Okay. That's helpful. Thank you.
Thank you. Nick next question comes from the line of Bill Sutherland of Benchmark. Your line is open.
Thank you good morning, everybody Marty.
Marty did you mention the impact of the sequester its debt relief extension in your guidance.
Changes for the year.
Phil we have incorporated that into our.
New guidance.
It's going to be.
Probably a little bit north of $20 million.
That's offline.
Well its EBIT as well.
Yeah.
And then.
Just so I understand the Alphatec margin just to clarify debt sub debt that that litigation settlement is in.
The critical illness.
EBITDA.
Yes. It is.
Okay.
But the way it gets there bill is through other income so it doesn't impact our revenue.
Right, but just the margin is what I'm thinking about it.
Thinking about what that would be absent.
No.
Yes. This is wade yeah. So the way that we take a look at the margin you are right. It was 19%.
You back out the 17, 9%.
Would you also have to do the way we take a look at us.
As you recall the grant dollars that we spent $16 $1 million about $14 million of that was associated with the.
The critical illness recovery hospitals and those are for expenses.
Heard that's not in this segment reporting you really have to add that back so.
So if you take the U $113 $3 million of EBITDA minus 17, nine add backs of $14 million you're at 109 net.
Gets you to about 18, 3% margin.
Okay. Good clarification. Thank you and then last one for me.
Maybe Bob could you.
Widen the lens a little bit on your three year CAGR outlook for the businesses and maybe just talk a bit about some of the assumptions that.
Andre lays out.
That's a good color.
Yeah.
And in terms of our longer term margin I felt that it was important debt last quarter that we start to give some.
Some sense to shareholders and investors of how we're thinking about the growth of the business long term.
You should as you know it's the bigger assumptions are obviously the consolidate the complete consolidation of all the ownership interest income central which come in and we will look to see incremental growth out 'twenty 'twenty. One is an unusual year.
For all the things that you see that have been coming through the income statement and the gone from COVID-19 and now somewhat the aftermath of COVID-19, but we see growth in all of our segments and that's I think the most important thing that I can say about the color and us being able to achieve the longer term growth targets and we.
Have a lot of runway on our outpatient business, even though outpatient has been the slowest to recover from the pandemic.
We believe that that business has a very strong segment going forward and we have a lot of opportunities to growth.
With snap on acquisitions and de Novo the critical illness recovery hospitals.
Actually I have never been stronger in terms of their perception in the market and as I mentioned from an earlier question. Our pipeline has never been stronger so in.
In terms of that we will see growth in new hospitals, and a critical illness segment and rehab our joint venture partners. We continue to grow with them. So we have the opportunity to grow with new partners such as a rush in Chicago, which we recently signed and all will be starting construction soon.
And with some new partners that are interested in rehabilitation hospitals as well as potentially critical illness recovery hospitals and outpatient. So if you look at all for the segments. They all play a role in and kind of giving us some sense of being able to project.
Uh huh.
Growth rates.
In the out years I will say that there are no large significant acquisitions and marty's in my thinking in terms of what we can do through 2023.
It answers the question Marty you want to add anything.
Bill I think one additional thing that we wanted to make sure that the investors are realized is that on the EPS line. When you take a look at our capital structure.
Some of the refinancings that we've done today.
We pay on our $2 $1 billion.
Senior senior secured.
Proceeds, we paid $2, 36% and through September of 'twenty for with a cap that we put in place the maximum rig will pay US 325, we wanted to make sure that people understood that debt.
You wouldn't see any increase in the rates there.
Alright, that's good.
I guess one just.
That's great color, but one thing I hear from investors is.
You know how critical illness trends as COVID-19 recedes.
And maybe you addressed this I got on a few minutes late but.
Just from a same store basis.
Do you do you do you think you can replace those cases in the case mix.
So for the most part.
Well.
That's certainly our plan and what we know is there are al Tac.
Criteria compliant patients that are out there in the ICU is a large acute care hospitals.
And Marty and I have spoken on that many times in the past before even before.
The pandemic. The issue was is continuing to be able to expand the debt.
Breath of the referrals and the timeliness of the referrals that we get from those.
Hospitals and those Ics.
The pandemic.
Yeah.
Accelerated our education and the opportunity for us to prove the importance.
Of the services that we provide so.
It is our plan to build on that as we took the the most complex patients during the pandemic, which you can see through our case mix index and to continue that with referral sources. So that they have continued.
Continue the comfort level, they've had with complex COVID-19 patients for example that we're all in advance to being able to take some of their other highly complex patients such as transplant and other things that we feel we have the.
Capabilities and capacity to treat so yes.
Yes that is our plan to continue that.
Hi, Marty Marty can you.
Can you kind of.
Backstop those comments with some some data and some information that we often look at consider.
Bill to put bobs comments in quantitative terms I think if you take a look at the Medicare mid part data.
We believe there is approximately 325 to 350000 patients a year that qualify for <unk> services.
And if you take a look at the most recent mid part data released the total L. Tech industry had only 69000 total <unk> qualified discharges.
And the fact is that most of the potential patients don't utilize <unk> services book.
Can you just stay in the acute care hospitals.
As Bob mentioned, we believe with this continued education of the referral sources, there really isn't an opportunity to provide these specialized clinical programs that this population requires.
The old tax day.
Okay.
Got it that's great color. Thanks again guys.
Thank you there are no further question at this time I would like to turn the call back to management for closing remarks.
No closing remarks, thank you operator, and thanks, all of you for joining us to review the results.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Good day.
Okay.
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