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xbrli:shares iso4217:USD iso4217:USD xbrli:shares
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
One)
|
|
|
|
☒
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
Quarterly Period Ended
March 31, 2020
OR
|
|
|
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period
from to
Commission
file numbers: 001-34465
SELECT MEDICAL
HOLDINGS CORPORATION
(Exact name of
Registrant as specified in its Charter)
|
|
|
|
|
Delaware
|
|
20-1764048
|
|
(State or Other Jurisdiction
of Incorporation or Organization)
|
|
(I.R.S. Employer
Identification Number)
|
4714 Gettysburg
Road,
P.O. Box 2034
Mechanicsburg,
PA
17055
(Address of
Principal Executive Offices and Zip code)
(717) 972-1100
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each
class
|
Trading Symbol(s)
|
Name of each exchange on which
registered
|
|
Common Stock, par value
$0.001 per share
|
SEM
|
New York Stock
Exchange
|
|
|
|
(NYSE)
|
Indicate by check
mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter periods as such Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒
No ☐
Indicate by check
mark whether the Registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the Registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check
mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
Large accelerated
filer
|
☒
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☐
|
|
|
|
Emerging Growth
Company
|
☐
|
If an emerging growth company,
indicate by check mark if the Registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
☐
No ☒
As of April 30,
2020, Select Medical Holdings Corporation had outstanding
133,977,064
shares of common
stock.
Unless the context
indicates otherwise, any reference in this report to “Holdings”
refers to Select Medical Holdings Corporation and any reference to
“Select” refers to Select Medical Corporation, the wholly owned
operating subsidiary of Holdings, and any of Select’s subsidiaries.
Any reference to “Concentra” refers to Concentra Group Holdings
Parent, LLC (“Concentra Group Holdings Parent”) and its
subsidiaries, including Concentra Inc. References to the “Company,”
“we,” “us,” and “our” refer collectively to Holdings, Select, and
Concentra.
TABLE OF
CONTENTS
PART I:
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Select
Medical Holdings Corporation
Condensed
Consolidated Balance Sheets
(unaudited)
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
March 31,
2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
335,882
|
|
|
$
|
73,163
|
|
|
|
Accounts
receivable
|
762,677
|
|
|
816,405
|
|
|
|
Prepaid income
taxes
|
18,585
|
|
|
12,634
|
|
|
|
Other current
assets
|
95,848
|
|
|
95,828
|
|
|
|
Total Current
Assets
|
1,212,992
|
|
|
998,030
|
|
|
|
Operating lease
right-of-use assets
|
1,003,986
|
|
|
1,014,969
|
|
|
|
Property and equipment,
net
|
998,406
|
|
|
978,547
|
|
|
|
Goodwill
|
3,391,955
|
|
|
3,391,078
|
|
|
|
Identifiable intangible
assets, net
|
409,068
|
|
|
405,374
|
|
|
|
Other assets
|
323,881
|
|
|
327,569
|
|
|
|
Total
Assets
|
$
|
7,340,288
|
|
|
$
|
7,115,567
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current operating lease
liabilities
|
$
|
207,950
|
|
|
$
|
212,884
|
|
|
|
Current portion of long-term
debt and notes payable
|
25,167
|
|
|
17,161
|
|
|
|
Accounts payable
|
145,731
|
|
|
131,601
|
|
|
|
Accrued payroll
|
183,754
|
|
|
140,009
|
|
|
|
Accrued vacation
|
124,111
|
|
|
128,705
|
|
|
|
Accrued interest
|
33,853
|
|
|
11,339
|
|
|
|
Accrued other
|
191,076
|
|
|
194,165
|
|
|
|
Income taxes
payable
|
2,638
|
|
|
8,090
|
|
|
|
Total Current
Liabilities
|
914,280
|
|
|
843,954
|
|
|
|
Non-current
operating lease liabilities
|
852,897
|
|
|
860,796
|
|
|
|
Long-term debt, net of current
portion
|
3,419,943
|
|
|
3,553,056
|
|
|
|
Non-current deferred tax
liability
|
148,258
|
|
|
158,782
|
|
|
|
Other non-current
liabilities
|
101,334
|
|
|
103,783
|
|
|
|
Total Liabilities
|
5,436,712
|
|
|
5,520,371
|
|
|
|
Commitments and contingencies
(Note 11)
|
|
|
|
|
|
|
|
Redeemable non-controlling
interests
|
974,541
|
|
|
620,377
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value, 700,000,000 shares authorized, 134,328,112 and 133,823,713
shares issued and outstanding at 2019 and 2020,
respectively
|
134
|
|
|
134
|
|
|
|
Capital in excess of
par
|
491,038
|
|
|
491,824
|
|
|
|
Retained earnings
|
279,800
|
|
|
316,680
|
|
|
|
Total Stockholders’
Equity
|
770,972
|
|
|
808,638
|
|
|
|
Non-controlling
interests
|
158,063
|
|
|
166,181
|
|
|
|
Total Equity
|
929,035
|
|
|
974,819
|
|
|
|
Total
Liabilities and Equity
|
$
|
7,340,288
|
|
|
$
|
7,115,567
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Select
Medical Holdings Corporation
Condensed
Consolidated Statements of Operations
(unaudited)
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended March 31,
|
|
|
|
2019
|
|
2020
|
|
|
Net operating
revenues
|
$
|
1,324,631
|
|
|
$
|
1,414,632
|
|
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
Cost of services, exclusive of
depreciation and amortization
|
1,132,092
|
|
|
1,200,371
|
|
|
|
General and
administrative
|
28,677
|
|
|
33,831
|
|
|
|
Depreciation and
amortization
|
52,138
|
|
|
51,752
|
|
|
|
Total costs and
expenses
|
1,212,907
|
|
|
1,285,954
|
|
|
|
Income from
operations
|
111,724
|
|
|
128,678
|
|
|
|
Other income and
expense:
|
|
|
|
|
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
4,366
|
|
|
2,588
|
|
|
|
Gain on sale of
businesses
|
6,532
|
|
|
7,201
|
|
|
|
Interest expense
|
(50,811
|
)
|
|
(46,107
|
)
|
|
|
Income before income
taxes
|
71,811
|
|
|
92,360
|
|
|
|
Income tax
expense
|
18,467
|
|
|
21,912
|
|
|
|
Net income
|
53,344
|
|
|
70,448
|
|
|
|
Less: Net income attributable
to non-controlling interests
|
12,510
|
|
|
17,323
|
|
|
|
Net income attributable to
Select Medical Holdings Corporation
|
$
|
40,834
|
|
|
$
|
53,125
|
|
|
|
Earnings per common share
(Note 10):
|
|
|
|
|
|
|
|
Basic
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
|
Diluted
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Select
Medical Holdings Corporation
Condensed
Consolidated Statements of Changes in Equity and
Income
(unaudited)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’
Equity
|
|
|
|
|
|
|
Common
Stock
Issued
|
|
Common
Stock
Par Value
|
|
Capital
in
Excess
of Par
|
|
Retained
Earnings
|
|
Total
Stockholders’ Equity
|
|
Non-controlling
Interests
|
|
Total
Equity
|
|
Balance at December 31,
2019
|
134,328
|
|
|
$
|
134
|
|
|
$
|
491,038
|
|
|
$
|
279,800
|
|
|
$
|
770,972
|
|
|
$
|
158,063
|
|
|
$
|
929,035
|
|
|
Net income attributable to
Select Medical Holdings Corporation
|
|
|
|
|
|
|
|
|
|
53,125
|
|
|
53,125
|
|
|
|
|
|
53,125
|
|
|
Net income attributable to
non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
10,067
|
|
|
10,067
|
|
|
Issuance of restricted
stock
|
2
|
|
|
0
|
|
|
0
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Forfeitures of unvested
restricted stock
|
(15
|
)
|
|
0
|
|
|
0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Vesting of restricted
stock
|
|
|
|
|
6,136
|
|
|
|
|
6,136
|
|
|
|
|
6,136
|
|
|
Repurchase of common
shares
|
(492
|
)
|
|
0
|
|
|
(5,350
|
)
|
|
(3,341
|
)
|
|
(8,691
|
)
|
|
|
|
(8,691
|
)
|
|
Issuance of non-controlling
interests
|
|
|
|
|
|
|
|
|
—
|
|
|
1,679
|
|
|
1,679
|
|
|
Distributions to and purchases
of non-controlling interests
|
|
|
|
|
|
|
|
|
|
(2,726
|
)
|
|
(2,726
|
)
|
|
(4,048
|
)
|
|
(6,774
|
)
|
|
Redemption adjustment on
non-controlling interests
|
|
|
|
|
|
|
|
|
|
(10,123
|
)
|
|
(10,123
|
)
|
|
|
|
|
(10,123
|
)
|
|
Other
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
(55
|
)
|
|
420
|
|
|
365
|
|
|
Balance at March 31,
2020
|
133,823
|
|
|
$
|
134
|
|
|
$
|
491,824
|
|
|
$
|
316,680
|
|
|
$
|
808,638
|
|
|
$
|
166,181
|
|
|
$
|
974,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
Common
Stock
Issued
|
|
Common
Stock
Par Value
|
|
Capital
in
Excess
of Par
|
|
Retained
Earnings
|
|
Total
Stockholders’ Equity
|
|
Non-controlling
Interests
|
|
Total
Equity
|
|
Balance at December 31,
2018
|
135,266
|
|
|
$
|
135
|
|
|
$
|
482,556
|
|
|
$
|
320,351
|
|
|
$
|
803,042
|
|
|
$
|
113,198
|
|
|
$
|
916,240
|
|
|
Net income attributable to
Select Medical Holdings Corporation
|
|
|
|
|
|
|
40,834
|
|
|
40,834
|
|
|
|
|
40,834
|
|
|
Net income attributable to
non-controlling interests
|
|
|
|
|
|
|
|
|
—
|
|
|
4,810
|
|
|
4,810
|
|
|
Issuance of restricted
stock
|
21
|
|
|
0
|
|
|
0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Forfeitures of unvested
restricted stock
|
(24
|
)
|
|
0
|
|
|
0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Vesting of restricted
stock
|
|
|
|
|
5,488
|
|
|
|
|
5,488
|
|
|
|
|
5,488
|
|
|
Issuance of non-controlling
interests
|
|
|
|
|
|
|
|
|
—
|
|
|
6,837
|
|
|
6,837
|
|
|
Distributions to and purchases
of non-controlling interests
|
|
|
|
|
259
|
|
|
|
|
259
|
|
|
(2,739
|
)
|
|
(2,480
|
)
|
|
Redemption adjustment on
non-controlling interests
|
|
|
|
|
|
|
(47,470
|
)
|
|
(47,470
|
)
|
|
|
|
(47,470
|
)
|
|
Other
|
|
|
|
|
|
|
(122
|
)
|
|
(122
|
)
|
|
413
|
|
|
291
|
|
|
Balance at March 31,
2019
|
135,263
|
|
|
$
|
135
|
|
|
$
|
488,303
|
|
|
$
|
313,593
|
|
|
$
|
802,031
|
|
|
$
|
122,519
|
|
|
$
|
924,550
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Select
Medical Holdings Corporation
Condensed
Consolidated Statements of Cash Flows
(unaudited)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended March 31,
|
|
|
|
2019
|
|
2020
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net income
|
$
|
53,344
|
|
|
$
|
70,448
|
|
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Distributions from
unconsolidated subsidiaries
|
7,872
|
|
|
8,479
|
|
|
|
Depreciation and
amortization
|
52,138
|
|
|
51,752
|
|
|
|
Provision for expected credit
losses
|
1,567
|
|
|
199
|
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
(4,366
|
)
|
|
(2,588
|
)
|
|
|
Gain on sale of assets and
businesses
|
(6,233
|
)
|
|
(7,339
|
)
|
|
|
Stock compensation
expense
|
6,255
|
|
|
6,903
|
|
|
|
Amortization of debt discount,
premium and issuance costs
|
3,231
|
|
|
553
|
|
|
|
Deferred income
taxes
|
(81
|
)
|
|
9,364
|
|
|
|
Changes in operating assets
and liabilities, net of effects of business
combinations:
|
|
|
|
|
|
|
|
Accounts
receivable
|
(74,752
|
)
|
|
(53,928
|
)
|
|
|
Other current
assets
|
(7,523
|
)
|
|
27
|
|
|
|
Other assets
|
57,319
|
|
|
2,248
|
|
|
|
Accounts payable
|
4,324
|
|
|
(8,992
|
)
|
|
|
Accrued expenses
|
(69,163
|
)
|
|
(44,455
|
)
|
|
|
Income taxes
|
17,830
|
|
|
11,413
|
|
|
|
Net cash provided by operating
activities
|
41,762
|
|
|
44,084
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Business combinations, net of
cash acquired
|
(6,120
|
)
|
|
(6,833
|
)
|
|
|
Purchases of property and
equipment
|
(49,073
|
)
|
|
(39,208
|
)
|
|
|
Investment in
businesses
|
(27,608
|
)
|
|
(9,848
|
)
|
|
|
Proceeds from sale of assets
and businesses
|
2
|
|
|
11,230
|
|
|
|
Net cash used in investing
activities
|
(82,799
|
)
|
|
(44,659
|
)
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Borrowings on revolving
facilities
|
360,000
|
|
|
460,000
|
|
|
|
Payments on revolving
facilities
|
(220,000
|
)
|
|
(295,000
|
)
|
|
|
Payments on term
loans
|
(132,685
|
)
|
|
(39,843
|
)
|
|
|
Borrowings of other
debt
|
8,290
|
|
|
6,487
|
|
|
|
Principal payments on other
debt
|
(6,155
|
)
|
|
(8,099
|
)
|
|
|
Repurchase of common
stock
|
—
|
|
|
(8,691
|
)
|
|
|
Increase in
overdrafts
|
6,050
|
|
|
—
|
|
|
|
Proceeds from issuance of
non-controlling interests
|
3,425
|
|
|
1,679
|
|
|
|
Distributions to and purchases
of non-controlling interests
|
(5,251
|
)
|
|
(12,474
|
)
|
|
|
Purchase of membership
interests of Concentra Group Holdings Parent (Note 4)
|
—
|
|
|
(366,203
|
)
|
|
|
Net cash provided by (used in)
financing activities
|
13,674
|
|
|
(262,144
|
)
|
|
|
Net decrease in cash and cash
equivalents
|
(27,363
|
)
|
|
(262,719
|
)
|
|
|
Cash and cash equivalents at
beginning of period
|
175,178
|
|
|
335,882
|
|
|
|
Cash and cash equivalents at
end of period
|
$
|
147,815
|
|
|
$
|
73,163
|
|
|
|
Supplemental
Information
|
|
|
|
|
|
|
|
Cash paid for
interest
|
$
|
37,199
|
|
|
$
|
67,885
|
|
|
|
Cash paid for
taxes
|
718
|
|
|
1,135
|
|
|
|
Operating lease right-of-use
assets obtained in exchange for lease liabilities, excluding
adoption impact of ASC Topic 842 at January 1, 2019
|
24,176
|
|
|
67,894
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
SELECT
MEDICAL HOLDINGS CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited
condensed consolidated financial statements of Select Medical
Holdings Corporation (“Holdings”) include the accounts of its
wholly owned subsidiary, Select Medical Corporation (“Select”).
Holdings conducts substantially all of its business through Select
and its subsidiaries. Holdings and Select and its subsidiaries are
collectively referred to as the “Company.” The unaudited condensed
consolidated financial statements of the Company as of
March 31,
2020, and
for the three month periods ended
March 31,
2019 and 2020, have been prepared pursuant
to the rules and regulations of the Securities Exchange
Commission (the “SEC”) for interim reporting and accounting
principles generally accepted in the United States of America
(“GAAP”). Accordingly, certain information and disclosures required
by GAAP, which are normally included in the notes to consolidated
financial statements, have been condensed or omitted pursuant to
those rules and regulations, although the Company believes the
disclosure is adequate to make the information presented not
misleading. In the opinion of management, such information contains
all adjustments, which are normal and recurring in nature,
necessary for a fair statement of the financial position, results
of operations and cash flow for such periods. All significant
intercompany transactions and balances have been
eliminated.
The results of
operations for the three months ended
March 31,
2020, are
not necessarily indicative of the results to be expected for the
full fiscal year ending December 31,
2020.
These unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31,
2019,
contained in the Company’s Annual Report on Form 10-K filed
with the SEC on February 20, 2020.
Use of Estimates
The preparation
of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, including disclosure of contingencies,
at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Recently Adopted Accounting Pronouncements
Financial
Instruments
On January 1,
2020, the Company adopted Accounting Standards Update (“ASU”)
2016-13, Financial
Instruments - Credit Losses: Measurement of Credit Losses on
Financial Instruments (Topic 326), which replaced the incurred
loss approach for recognizing credit losses on financial
instruments with an expected loss approach. The expected loss
approach is subject to management judgments using assessments of
incurred credit losses, assessments of current conditions, and
forecasts using reasonable and supportable assumptions. The
standard was required to be applied using the modified
retrospective approach with a cumulative-effect adjustment to
retained earnings, if any, upon adoption.
The Company’s
primary financial instrument subject to the standard is its
accounts receivable derived from contracts with patients.
Historically, the Company has experienced infrequent, immaterial
credit losses related to its accounts receivable and, based on its
experience, believes the risk of material defaults is low. The
Company experienced credit losses of $1.1
million for the year ended December
31, 2017, credit loss recoveries of $0.1
million for the year ended December
31, 2018, and credit losses of $3.0
million for the year ended December
31, 2019. The Company’s historical credit losses have been
infrequent and immaterial largely because the Company’s accounts
receivable are typically paid for by highly-solvent, creditworthy
payors such as Medicare, other governmental programs, and
highly-regulated commercial insurers, on behalf of the patient. The
Company believes it has moderate credit risk related to defaults on
self-pay amounts in accounts receivable; however, these amounts
represented less than 1.0%
of the Company’s
accounts receivable at January 1, 2020.
In estimating the
Company’s expected credit losses under Topic 326, the Company
considers its incurred loss experience and adjusts for known and
expected events and other circumstances, identified using periodic
assessments implemented by the Company, which management believes
are relevant in assessing the collectability of its accounts
receivable. Because of the infrequent and insignificant nature of
the Company’s historical credit losses, forecasts of expected
credit losses are generally unnecessary. Expected credit losses are
recognized by the Company through an allowance for credit losses
and related credit loss expense.
As of January 1,
2020, the Company completed its expected credit loss assessment for
its financial instruments subject to Topic 326. The Company’s
estimate of expected credit losses as of January 1, 2020, resulted
in no
adjustments to
the allowance for credit losses and no
cumulative-effect
adjustment to retained earnings on the adoption date of the
standard.
|
|
|
3.
|
Credit Risk
Concentrations
|
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash balances and accounts
receivables. The Company’s excess cash is held with large financial
institutions. The Company grants unsecured credit to its patients,
most of whom reside in the service area of the Company’s facilities
and are insured under third-party payor agreements. The Company’s
general policy is to verify insurance coverage prior to the date of
admission for patients admitted to its critical illness recovery
hospitals and rehabilitation hospitals. Within the Company’s
outpatient rehabilitation clinics, insurance coverage is verified
prior to the patient’s visit. Within the Company’s Concentra
centers, insurance coverage is verified or an authorization is
received from the patient’s employer prior to the patient’s
visit.
Because of the
diversity in the Company’s non-governmental third-party payor base,
as well as their geographic dispersion, patient accounts receivable
which are due from the Medicare program represent the Company’s
only significant concentration of credit risk. Approximately
15%
and
18%
of the Company’s
accounts receivable is from Medicare at December 31,
2019, and March 31,
2020,
respectively.
|
|
|
4.
|
Redeemable
Non-Controlling Interests
|
The ownership
interests held by outside parties in subsidiaries, limited
liability companies, and limited partnerships controlled by the
Company are classified as non-controlling interests. Some of the
Company’s non-controlling ownership interests consist of outside
parties that have certain redemption rights that, if exercised,
require the Company to purchase the parties’ ownership interests.
These interests are classified and reported as redeemable
non-controlling interests and have been adjusted to their
approximate redemption values.
On January 1,
2020, Select acquired approximately 17.2%
of the
outstanding membership interests of Concentra Group Holdings Parent
on a fully diluted basis from Welsh, Carson, Anderson & Stowe
XII, L.P. (“WCAS”), Dignity Health Holding Corporation (“DHHC”),
and certain other sellers in exchange for an aggregate purchase
price of approximately $338.4
million. On February 1, 2020, Select
acquired an additional 1.4%
of the
outstanding membership interests of Concentra Group Holdings Parent
on a fully diluted basis from WCAS, DHHC, and certain other sellers
in exchange for an aggregate purchase price of approximately
$27.8
million. These purchases were in
lieu of, and are considered to be, the exercise of the first put
right provided to certain equity holders under the terms of the
Amended and Restated Limited Liability Company Agreement of
Concentra Group Holdings Parent, dated as of February 1, 2018, as
amended (the “Concentra LLC Agreement”).
Following these
purchases, Select owns approximately 66.6%
of the
outstanding membership interests of Concentra Group Holdings Parent
on a fully diluted basis and approximately 68.8%
of the
outstanding Class A membership interests of Concentra Group
Holdings Parent.
The changes in
redeemable non-controlling interests are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
2019
|
|
2020
|
|
Balance as of January
1
|
$
|
780,488
|
|
|
$
|
974,541
|
|
|
Net income attributable to
redeemable non-controlling interests
|
7,700
|
|
|
7,256
|
|
|
Distributions to and purchases
of redeemable non-controlling interests
|
(2,771
|
)
|
|
(5,687
|
)
|
|
Purchase of membership
interests of Concentra Group Holdings Parent
|
—
|
|
|
(366,203
|
)
|
|
Redemption adjustment on
redeemable non-controlling interests
|
47,470
|
|
|
10,123
|
|
|
Other
|
354
|
|
|
347
|
|
|
Balance as of March
31
|
$
|
833,241
|
|
|
$
|
620,377
|
|
|
|
|
5.
|
Variable
Interest Entities
|
Concentra does
not own many of its medical practices, as certain states prohibit
the “corporate practice of medicine,” which restricts business
corporations from practicing medicine through the direct employment
of physicians or from exercising control over medical decisions by
physicians. In these states, Concentra typically enters into
long-term management agreements with professional corporations or
associations that are owned by licensed physicians, which, in turn,
employ or contract with physicians who provide professional medical
services in Concentra’s occupational health centers.
The management
agreements have terms that provide for Concentra to conduct,
supervise, and manage the day-to-day non-medical operations of the
occupational health centers and provide all management and
administrative services. Concentra receives a management fee for
these services, which is based, in part, on the performance of the
professional corporation or association. Additionally, the
outstanding voting equity interests of the professional
corporations or associations are typically owned by licensed
physicians appointed at Concentra’s discretion. Concentra has the
ability to direct the transfer of ownership of the professional
corporation or association to a new licensed physician at any
time.
The total assets
of Concentra’s variable interest entities, which are comprised
principally of accounts receivable, were $178.4
million and $173.7
million at December 31,
2019, and March 31,
2020,
respectively. The total liabilities of Concentra’s variable
interest entities, which are comprised principally of accounts
payable, accrued expenses, and obligations payable for services
received under the aforementioned management agreements,
were $176.7
million and $172.1
million at December 31,
2019, and March 31,
2020,
respectively.
Goodwill
The following
table shows changes in the carrying amounts of goodwill by
reporting unit for the three months ended
March 31,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Illness Recovery Hospital
|
|
Rehabilitation
Hospital
|
|
Outpatient
Rehabilitation
|
|
Concentra
|
|
Total
|
|
|
(in
thousands)
|
|
Balance as of
December 31, 2019
|
$
|
1,078,804
|
|
|
$
|
430,900
|
|
|
$
|
649,763
|
|
|
$
|
1,232,488
|
|
|
$
|
3,391,955
|
|
|
Acquired
|
—
|
|
|
—
|
|
|
610
|
|
|
4,567
|
|
|
5,177
|
|
|
Sold
|
—
|
|
|
—
|
|
|
(6,034
|
)
|
|
—
|
|
|
(6,034
|
)
|
|
Measurement period
adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
(20
|
)
|
|
Balance as of March 31,
2020
|
$
|
1,078,804
|
|
|
$
|
430,900
|
|
|
$
|
644,339
|
|
|
$
|
1,237,035
|
|
|
$
|
3,391,078
|
|
Identifiable Intangible Assets
The following
table provides the gross carrying amounts, accumulated
amortization, and net carrying amounts for the Company’s
identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
March 31,
2020
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
(in thousands)
|
|
Indefinite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
166,698
|
|
|
$
|
—
|
|
|
$
|
166,698
|
|
|
$
|
166,698
|
|
|
$
|
—
|
|
|
$
|
166,698
|
|
|
Certificates of
need
|
|
17,157
|
|
|
—
|
|
|
17,157
|
|
|
18,348
|
|
|
—
|
|
|
18,348
|
|
|
Accreditations
|
|
1,874
|
|
|
—
|
|
|
1,874
|
|
|
1,874
|
|
|
—
|
|
|
1,874
|
|
|
Finite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
5,000
|
|
|
(5,000
|
)
|
|
—
|
|
|
5,000
|
|
|
(5,000
|
)
|
|
—
|
|
|
Customer
relationships
|
|
287,373
|
|
|
(87,346
|
)
|
|
200,027
|
|
|
288,963
|
|
|
(93,814
|
)
|
|
195,149
|
|
|
Non-compete
agreements
|
|
32,114
|
|
|
(8,802
|
)
|
|
23,312
|
|
|
32,845
|
|
|
(9,540
|
)
|
|
23,305
|
|
|
Total identifiable intangible
assets
|
|
$
|
510,216
|
|
|
$
|
(101,148
|
)
|
|
$
|
409,068
|
|
|
$
|
513,728
|
|
|
$
|
(108,354
|
)
|
|
$
|
405,374
|
|
The Company’s
accreditations and indefinite-lived trademarks have renewal terms
and the costs to renew these intangible assets are expensed as
incurred. At March 31,
2020, the
accreditations and indefinite-lived trademarks have a weighted
average time until next renewal of 1.5 years
and
6.9
years, respectively.
The Company’s
finite-lived intangible assets amortize over their estimated useful
lives. Amortization expense was $7.1
million and $6.9
million for the three months ended
March 31,
2019 and 2020, respectively.
|
|
|
7.
|
Long-Term
Debt and Notes Payable
|
As of
March 31,
2020, the
Company’s long-term debt and notes payable were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Outstanding
|
|
Unamortized
Premium
(Discount)
|
|
Unamortized
Issuance
Costs
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Select 6.250% senior
notes
|
$
|
1,225,000
|
|
|
$
|
38,437
|
|
|
$
|
(19,200
|
)
|
|
$
|
1,244,237
|
|
|
|
$
|
1,222,673
|
|
|
Select credit
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select revolving
facility
|
165,000
|
|
|
—
|
|
|
—
|
|
|
165,000
|
|
|
|
164,381
|
|
|
Select term loan
|
2,103,437
|
|
|
(9,905
|
)
|
|
(10,796
|
)
|
|
2,082,736
|
|
|
|
1,987,748
|
|
|
Other debt, including finance
leases
|
78,617
|
|
|
—
|
|
|
(373
|
)
|
|
78,244
|
|
|
|
78,244
|
|
|
Total debt
|
$
|
3,572,054
|
|
|
$
|
28,532
|
|
|
$
|
(30,369
|
)
|
|
$
|
3,570,217
|
|
|
|
$
|
3,453,046
|
|
Principal
maturities of the Company’s long-term debt and notes payable were
approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
Select 6.250% senior
notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,225,000
|
|
|
$
|
1,225,000
|
|
|
Select credit
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select revolving
facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
165,000
|
|
|
—
|
|
|
165,000
|
|
|
Select term loan
|
—
|
|
|
—
|
|
|
—
|
|
|
4,757
|
|
|
11,150
|
|
|
2,087,530
|
|
|
2,103,437
|
|
|
Other debt, including finance
leases
|
14,318
|
|
|
8,130
|
|
|
17,215
|
|
|
3,364
|
|
|
23,550
|
|
|
12,040
|
|
|
78,617
|
|
|
Total debt
|
$
|
14,318
|
|
|
$
|
8,130
|
|
|
$
|
17,215
|
|
|
$
|
8,121
|
|
|
$
|
199,700
|
|
|
$
|
3,324,570
|
|
|
$
|
3,572,054
|
|
As of
December 31,
2019, the
Company’s long-term debt and notes payable were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Outstanding
|
|
Unamortized
Premium
(Discount)
|
|
Unamortized
Issuance
Costs
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Select 6.250% senior
notes
|
$
|
1,225,000
|
|
|
$
|
39,988
|
|
|
$
|
(19,944
|
)
|
|
$
|
1,245,044
|
|
|
|
$
|
1,322,020
|
|
|
Select credit
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select revolving
facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Select term loan
|
2,143,280
|
|
|
(10,411
|
)
|
|
(11,348
|
)
|
|
2,121,521
|
|
|
|
2,145,959
|
|
|
Other debt, including finance
leases
|
78,941
|
|
|
—
|
|
|
(396
|
)
|
|
78,545
|
|
|
|
78,545
|
|
|
Total debt
|
$
|
3,447,221
|
|
|
$
|
29,577
|
|
|
$
|
(31,688
|
)
|
|
$
|
3,445,110
|
|
|
|
$
|
3,546,524
|
|
Excess Cash Flow Payment
In February 2020,
Select made a principal prepayment of approximately
$39.8
million associated with its term
loans in accordance with the provision in its senior secured credit
agreement, dated March 6, 2017 (together with any borrowings
thereunder, the “Select credit facilities”) that requires mandatory
prepayments of term loans as a result of annual excess cash flow,
as defined in the Select credit facilities.
Fair Value
The Company
considers the inputs in the valuation process to be Level 2 in
the fair value hierarchy for its 6.250%
senior notes due
August 15, 2026 (the “senior notes”) and the Select credit
facilities. Level 2 in the fair value hierarchy is defined as
inputs that are observable for the asset or liability, either
directly or indirectly, which includes quoted prices for identical
assets or liabilities in markets that are not active. The fair
value of the Select credit facilities was based on quoted market
prices for this debt in the syndicated loan market. The fair value
of the senior notes was based on quoted market prices. The carrying
amount of other debt, principally short-term notes payable,
approximates fair value.
The Company’s
reportable segments include the critical illness recovery hospital
segment, rehabilitation hospital segment, outpatient rehabilitation
segment, and Concentra segment. Other activities include the
Company’s corporate shared services, certain investments, and
employee leasing services with non-consolidating
subsidiaries.
The Company
evaluates performance of the segments based on Adjusted EBITDA.
Adjusted EBITDA is defined as earnings excluding interest, income
taxes, depreciation and amortization, gain (loss) on early
retirement of debt, stock compensation expense, gain (loss) on sale
of businesses, and equity in earnings (losses) of unconsolidated
subsidiaries. The Company has provided additional information
regarding its reportable segments, such as total assets, which
contributes to the understanding of the Company and provides useful
information to the users of the consolidated financial
statements.
The following
tables summarize selected financial data for the Company’s
reportable segments. Prior year results presented herein have been
changed to conform to the current presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
2019
|
|
2020
|
|
|
(in thousands)
|
|
Net operating
revenues:(1)
|
|
|
|
|
|
|
|
Critical illness recovery
hospital
|
|
$
|
457,534
|
|
|
$
|
500,521
|
|
|
Rehabilitation
hospital
|
|
154,558
|
|
|
182,019
|
|
|
Outpatient
rehabilitation
|
|
246,905
|
|
|
255,249
|
|
|
Concentra
|
|
396,321
|
|
|
398,535
|
|
|
Other
|
|
69,313
|
|
|
78,308
|
|
|
Total Company
|
|
$
|
1,324,631
|
|
|
$
|
1,414,632
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
Critical illness recovery
hospital
|
|
$
|
72,998
|
|
|
$
|
88,570
|
|
|
Rehabilitation
hospital
|
|
25,797
|
|
|
38,569
|
|
|
Outpatient
rehabilitation
|
|
28,991
|
|
|
27,122
|
|
|
Concentra
|
|
66,258
|
|
|
61,466
|
|
|
Other
|
|
(23,927
|
)
|
|
(28,394
|
)
|
|
Total Company
|
|
$
|
170,117
|
|
|
$
|
187,333
|
|
|
Total assets:
|
|
|
|
|
|
|
|
Critical illness recovery
hospital
|
|
$
|
2,062,659
|
|
|
$
|
2,148,779
|
|
|
Rehabilitation
hospital
|
|
1,089,391
|
|
|
1,127,267
|
|
|
Outpatient
rehabilitation
|
|
1,250,015
|
|
|
1,285,449
|
|
|
Concentra
|
|
2,464,317
|
|
|
2,354,169
|
|
|
Other
|
|
155,110
|
|
|
199,903
|
|
|
Total Company
|
|
$
|
7,021,492
|
|
|
$
|
7,115,567
|
|
|
Purchases of property and
equipment:
|
|
|
|
|
|
|
|
Critical illness recovery
hospital
|
|
$
|
10,160
|
|
|
$
|
8,965
|
|
|
Rehabilitation
hospital
|
|
13,183
|
|
|
3,325
|
|
|
Outpatient
rehabilitation
|
|
9,040
|
|
|
8,384
|
|
|
Concentra
|
|
15,698
|
|
|
15,586
|
|
|
Other
|
|
992
|
|
|
2,948
|
|
|
Total Company
|
|
$
|
49,073
|
|
|
$
|
39,208
|
|
_______________________________________________________________________________
|
|
|
(1)
|
Prior to the
quarter ended June 30, 2019, the financial results of employee
leasing services provided to non-consolidating subsidiaries were
included with the Company’s reportable segments. These results are
now reported as part of the Company’s other activities. Net
operating revenues have been conformed to the current presentation
for the three months ended
March 31,
2019.
|
A reconciliation
of Adjusted EBITDA to income before income taxes is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2019
|
|
|
Critical
Illness Recovery Hospital
|
|
Rehabilitation
Hospital
|
|
Outpatient
Rehabilitation
|
|
Concentra
|
|
Other
|
|
Total
|
|
|
(in thousands)
|
|
Adjusted EBITDA
|
$
|
72,998
|
|
|
$
|
25,797
|
|
|
$
|
28,991
|
|
|
$
|
66,258
|
|
|
$
|
(23,927
|
)
|
|
|
|
|
Depreciation and
amortization
|
(11,451
|
)
|
|
(6,402
|
)
|
|
(7,032
|
)
|
|
(24,904
|
)
|
|
(2,349
|
)
|
|
|
|
|
Stock compensation
expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(767
|
)
|
|
(5,488
|
)
|
|
|
|
|
Income (loss) from
operations
|
$
|
61,547
|
|
|
$
|
19,395
|
|
|
$
|
21,959
|
|
|
$
|
40,587
|
|
|
$
|
(31,764
|
)
|
|
$
|
111,724
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,366
|
|
|
Gain on sale of
businesses
|
|
|
|
|
|
|
|
|
|
|
6,532
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,811
|
)
|
|
Income before income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
|
|
Critical
Illness Recovery Hospital
|
|
Rehabilitation
Hospital
|
|
Outpatient
Rehabilitation
|
|
Concentra
|
|
Other
|
|
Total
|
|
|
(in thousands)
|
|
Adjusted EBITDA
|
$
|
88,570
|
|
|
$
|
38,569
|
|
|
$
|
27,122
|
|
|
$
|
61,466
|
|
|
$
|
(28,394
|
)
|
|
|
|
|
Depreciation and
amortization
|
(12,336
|
)
|
|
(6,887
|
)
|
|
(7,218
|
)
|
|
(22,887
|
)
|
|
(2,424
|
)
|
|
|
|
|
Stock compensation
expense
|
—
|
|
|
—
|
|
|
—
|
|
|
(767
|
)
|
|
(6,136
|
)
|
|
|
|
|
Income (loss) from
operations
|
$
|
76,234
|
|
|
$
|
31,682
|
|
|
$
|
19,904
|
|
|
$
|
37,812
|
|
|
$
|
(36,954
|
)
|
|
$
|
128,678
|
|
|
Equity in earnings of
unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,588
|
|
|
Gain on sale of
businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,201
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,107
|
)
|
|
Income before income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
92,360
|
|
|
|
|
9.
|
Revenue from
Contracts with Customers
|
Net operating
revenues consist primarily of revenues generated from services
provided to patients and other revenues for services provided to
healthcare institutions under contractual arrangements. The
following tables disaggregate the Company’s net operating revenues
for the three months ended
March 31,
2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2019
|
|
|
Critical
Illness Recovery Hospital
|
|
Rehabilitation
Hospital
|
|
Outpatient
Rehabilitation
|
|
Concentra
|
|
Other
|
|
Total
|
|
|
(in
thousands)
|
|
Patient service
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare
|
$
|
238,169
|
|
|
$
|
74,579
|
|
|
$
|
40,278
|
|
|
$
|
555
|
|
|
$
|
—
|
|
|
$
|
353,581
|
|
|
Non-Medicare
|
216,959
|
|
|
70,642
|
|
|
187,914
|
|
|
393,236
|
|
|
—
|
|
|
868,751
|
|
|
Total patient services
revenues
|
455,128
|
|
|
145,221
|
|
|
228,192
|
|
|
393,791
|
|
|
—
|
|
|
1,222,332
|
|
|
Other
revenues(1)
|
2,406
|
|
|
9,337
|
|
|
18,713
|
|
|
2,530
|
|
|
69,313
|
|
|
102,299
|
|
|
Total net operating
revenues
|
$
|
457,534
|
|
|
$
|
154,558
|
|
|
$
|
246,905
|
|
|
$
|
396,321
|
|
|
$
|
69,313
|
|
|
$
|
1,324,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
|
|
Critical
Illness Recovery Hospital
|
|
Rehabilitation
Hospital
|
|
Outpatient
Rehabilitation
|
|
Concentra
|
|
Other
|
|
Total
|
|
|
(in
thousands)
|
|
Patient service
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare
|
$
|
241,509
|
|
|
$
|
90,752
|
|
|
$
|
40,832
|
|
|
$
|
472
|
|
|
$
|
—
|
|
|
$
|
373,565
|
|
|
Non-Medicare
|
255,947
|
|
|
81,436
|
|
|
196,890
|
|
|
395,033
|
|
|
—
|
|
|
929,306
|
|
|
Total patient services
revenues
|
497,456
|
|
|
172,188
|
|
|
237,722
|
|
|
395,505
|
|
|
—
|
|
|
1,302,871
|
|
|
Other revenues
|
3,065
|
|
|
9,831
|
|
|
17,527
|
|
|
3,030
|
|
|
78,308
|
|
|
111,761
|
|
|
Total net operating
revenues
|
$
|
500,521
|
|
|
$
|
182,019
|
|
|
$
|
255,249
|
|
|
$
|
398,535
|
|
|
$
|
78,308
|
|
|
$
|
1,414,632
|
|
_______________________________________________________________________________
|
|
|
(1)
|
Prior to the
quarter ended June 30, 2019, the financial results of employee
leasing services provided to non-consolidating subsidiaries were
included with the Company’s reportable segments. These results are
now reported as part of the Company’s other activities. Net
operating revenues have been conformed to the current presentation
for the three months ended
March 31,
2019.
|
The Company’s
capital structure includes common stock and unvested restricted
stock awards. To compute earnings per share (“EPS”), the Company
applies the two-class method because the Company’s unvested
restricted stock awards are participating securities which are
entitled to participate equally with the Company’s common stock in
undistributed earnings. Application of the Company’s two-class
method is as follows:
|
|
|
(i)
|
Net income
attributable to the Company is reduced by the amount of dividends
declared and by the contractual amount of dividends that must be
paid for the current period for each class of stock. There
were no
dividends
declared or contractual dividends paid for the three months ended
March 31,
2019 and 2020.
|
|
|
|
(ii)
|
The remaining
undistributed net income of the Company is then equally allocated
to its common stock and unvested restricted stock awards, as if all
of the earnings for the period had been distributed. The total net
income allocated to each security is determined by adding both
distributed and undistributed net income for the
period.
|
|
|
|
(iii)
|
The net income
allocated to each security is then divided by the weighted average
number of outstanding shares for the period to determine the EPS
for each security considered in the two-class method.
|
The following
table sets forth the net income attributable to the Company, its
common shares outstanding, and its participating securities
outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
Diluted
EPS
|
|
|
|
|
Three Months
Ended March 31,
|
|
Three Months
Ended March 31,
|
|
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
|
|
|
(in
thousands)
|
|
|
Net income
|
|
$
|
53,344
|
|
|
$
|
70,448
|
|
|
$
|
53,344
|
|
|
$
|
70,448
|
|
|
|
Less: net income attributable
to non-controlling interests
|
|
12,510
|
|
|
17,323
|
|
|
12,510
|
|
|
17,323
|
|
|
|
Net income attributable to the
Company
|
|
40,834
|
|
|
53,125
|
|
|
40,834
|
|
|
53,125
|
|
|
|
Less: net income attributable
to participating securities
|
|
1,343
|
|
|
1,818
|
|
|
1,343
|
|
|
1,818
|
|
|
|
Net income attributable to
common shares
|
|
$
|
39,491
|
|
|
$
|
51,307
|
|
|
$
|
39,491
|
|
|
$
|
51,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2019
|
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic
EPS
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Diluted
EPS
|
|
|
|
(in
thousands, except for per share amounts)
|
|
Common shares
|
|
$
|
39,491
|
|
|
130,821
|
|
|
$
|
0.30
|
|
|
|
$
|
39,491
|
|
|
130,861
|
|
|
$
|
0.30
|
|
|
Participating
securities
|
|
1,343
|
|
|
4,449
|
|
|
$
|
0.30
|
|
|
|
1,343
|
|
|
4,449
|
|
|
$
|
0.30
|
|
|
Total Company
|
|
$
|
40,834
|
|
|
|
|
|
|
|
$
|
40,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Basic
EPS
|
|
|
Net Income
Allocation
|
|
Shares(1)
|
|
Diluted
EPS
|
|
|
|
(in
thousands, except for per share amounts)
|
|
Common shares
|
|
$
|
51,307
|
|
|
129,638
|
|
|
$
|
0.40
|
|
|
|
$
|
51,307
|
|
|
129,638
|
|
|
$
|
0.40
|
|
|
Participating
securities
|
|
1,818
|
|
|
4,594
|
|
|
$
|
0.40
|
|
|
|
1,818
|
|
|
4,594
|
|
|
$
|
0.40
|
|
|
Total Company
|
|
$
|
53,125
|
|
|
|
|
|
|
|
$
|
53,125
|
|
|
|
|
|
_______________________________________________________________________________
(1) Represents
the weighted average share count outstanding during the
period.
|
|
|
11.
|
Commitments
and Contingencies
|
Litigation
The Company is a
party to various legal actions, proceedings, and claims (some of
which are not insured), and regulatory and other governmental
audits and investigations in the ordinary course of its business.
The Company cannot predict the ultimate outcome of pending
litigation, proceedings, and regulatory and other governmental
audits and investigations. These matters could potentially subject
the Company to sanctions, damages, recoupments, fines, and other
penalties. The Department of Justice, Centers for Medicare &
Medicaid Services (“CMS”), or other federal and state enforcement
and regulatory agencies may conduct additional investigations
related to the Company’s businesses in the future that may, either
individually or in the aggregate, have a material adverse effect on
the Company’s business, financial position, results of operations,
and liquidity.
To address claims
arising out of the Company’s operations, the Company maintains
professional malpractice liability insurance and general liability
insurance coverages through a number of different programs that are
dependent upon such factors as the state where the Company is
operating and whether the operations are wholly owned or are
operated through a joint venture. For the Company’s wholly owned
operations, the Company currently maintains insurance coverages
under a combination of policies with a total annual aggregate limit
of up to $40.0
million. The Company’s insurance for
the professional liability coverage is written on a “claims-made”
basis, and its commercial general liability coverage is maintained
on an “occurrence” basis. These coverages apply after a
self-insured retention limit is exceeded. For the Company’s joint
venture operations, the Company has numerous programs that are
designed to respond to the risks of the specific joint venture. The
annual aggregate limit under these programs ranges from
$6.0
million to $20.0
million. The policies are generally
written on a “claims-made” basis. Each of these programs has either
a deductible or self-insured retention limit. The Company reviews
its insurance program annually and may make adjustments to the
amount of insurance coverage and self-insured retentions in future
years. The Company also maintains umbrella liability insurance
covering claims which, due to their nature or amount, are not
covered by or not fully covered by the Company’s other insurance
policies. These insurance policies also do not generally cover
punitive damages and are subject to various deductibles and policy
limits. Significant legal actions, as well as the cost and possible
lack of available insurance, could subject the Company to
substantial uninsured liabilities. In the Company’s opinion, the
outcome of these actions, individually or in the aggregate, will
not have a material adverse effect on its financial position,
results of operations, or cash flows.
Healthcare
providers are subject to lawsuits under the qui tam provisions of
the federal False Claims Act. Qui tam lawsuits typically remain
under seal (hence, usually unknown to the defendant) for some time
while the government decides whether or not to intervene on behalf
of a private qui tam plaintiff (known as a relator) and take the
lead in the litigation. These lawsuits can involve significant
monetary damages and penalties and award bounties to private
plaintiffs who successfully bring the suits. The Company is and has
been a defendant in these cases in the past, and may be named as a
defendant in similar cases from time to time in the
future.
Wilmington
Litigation. On
January 19, 2017, the United States District Court for the District
of Delaware unsealed a qui tam Complaint in United States of
America and State of Delaware ex rel. Theresa Kelly v. Select
Specialty Hospital-Wilmington, Inc. (“SSH‑Wilmington”), Select
Specialty Hospitals, Inc., Select Employment
Services, Inc., Select Medical Corporation, and Crystal Cheek,
No. 16‑347‑LPS. The Complaint was initially filed under seal
in May 2016 by a former chief nursing officer at
SSH‑Wilmington and was unsealed after the United States filed a
Notice of Election to Decline Intervention in January 2017.
The corporate defendants were served in March 2017. In the
complaint, the plaintiff‑relator alleges that the Select defendants
and an individual defendant, who is a former health information
manager at SSH‑Wilmington, violated the False Claims Act and the
Delaware False Claims and Reporting Act based on allegedly
falsifying medical practitioner signatures on medical records and
failing to properly examine the credentials of medical
practitioners at SSH‑Wilmington. In response to the Select
defendants’ motion to dismiss the Complaint, in May 2017 the
plaintiff-relator filed an Amended Complaint asserting the same
causes of action. The Select defendants filed a Motion to Dismiss
the Amended Complaint based on numerous grounds, including that the
Amended Complaint did not plead any alleged fraud with sufficient
particularity, failed to plead that the alleged fraud was material
to the government’s payment decision, failed to plead sufficient
facts to establish that the Select defendants knowingly submitted
false claims or records, and failed to allege any reverse false
claim. In March 2018, the District Court dismissed the
plaintiff‑relator’s claims related to the alleged failure to
properly examine medical practitioners’ credentials, her reverse
false claims allegations, and her claim that defendants violated
the Delaware False Claims and Reporting Act. It denied the
defendants’ motion to dismiss claims that the allegedly falsified
medical practitioner signatures violated the False Claims Act.
Separately, the District Court dismissed the individual defendant
due to plaintiff-relator’s failure to timely serve the amended
complaint upon her.
In March 2017,
the plaintiff-relator initiated a second action by filing a
Complaint in the Superior Court of the State of Delaware in Theresa
Kelly v. Select Medical Corporation, Select Employment
Services, Inc., and SSH‑Wilmington, C.A. No. N17C-03-293 CLS.
The Delaware Complaint alleges that the defendants retaliated
against her in violation of the Delaware Whistleblowers’ Protection
Act for reporting the same alleged violations that are the subject
of the federal Amended Complaint. The defendants filed a motion to
dismiss, or alternatively to stay, the Delaware Complaint based on
the pending federal Amended Complaint and the failure to allege
facts to support a violation of the Delaware Whistleblowers’
Protection Act. In January 2018, the Court stayed the
Delaware Complaint pending the outcome of the federal
case.
The Company
intends to vigorously defend these actions, but at this time the
Company is unable to predict the timing and outcome of this
matter.
Contract
Therapy Subpoena. On May 18, 2017, the Company
received a subpoena from the U.S. Attorney’s Office for the
District of New Jersey seeking various documents principally
relating to the Company’s contract therapy division, which
contracted to furnish rehabilitation therapy services to residents
of skilled nursing facilities (“SNFs”) and other providers. The
Company operated its contract therapy division through a subsidiary
until March 31, 2016, when the Company sold the stock of the
subsidiary. The subpoena seeks documents that appear to be aimed at
assessing whether therapy services were furnished and billed in
compliance with Medicare SNF billing requirements, including
whether therapy services were coded at inappropriate levels and
whether excessive or unnecessary therapy was furnished to justify
coding at higher paying levels. The Company does not know whether
the subpoena has been issued in connection with a qui tam lawsuit
or in connection with possible civil, criminal or administrative
proceedings by the government. The Company has produced documents
in response to the subpoena and intends to fully cooperate with
this investigation. At this time, the Company is unable to predict
the timing and outcome of this matter.
On March 27,
2020, the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”) was enacted. The CARES Act includes changes to
certain tax law related to net operating losses and the
deductibility of interest expense and depreciation. ASC
740, Income
Taxes,
requires the effects of changes in tax rates and laws on deferred
tax balances to be recognized in the period in which the
legislation is enacted. This legislation had the effect of
increasing the Company’s deferred income taxes and decreasing its
current income taxes payable by approximately $15.5
million during the three months ended
March 31, 2020.
Title VIII in
Division B of the CARES Act established the Public Health and
Social Services Emergency Fund, also referred to as the Cares Act
Provider Relief Fund, which set aside $100.0 billion
to be
administered through grants and other mechanisms to hospitals,
public entities, not-for-profit entities, and Medicare- and
Medicaid-enrolled suppliers and institutional providers. The
purpose of these funds is to reimburse providers for
lost revenue attributable to the
coronavirus disease 2019 (“COVID-19”) pandemic, such as forgone
revenues from canceled procedures, and to provide support for
related healthcare expenses, such as constructing temporary
structures or emergency operation centers, retrofitting facilities,
purchasing medical supplies and equipment including personal
protective equipment and testing supplies, and increasing
workforce. Further, these relief funds ensure uninsured patients
are receiving testing and treatment for COVID-19. On April 10,
2020, the U.S. Department of Health & Human Services began
making payments to healthcare providers from the
$100.0
billion appropriation. These are
payments, rather than loans, to healthcare providers, and will not
need to be repaid. The Company received approximately
$93.7
million of payments as part of the
Cares Act Provider Relief Fund. The Company concluded that the
receipt of these payments would be accounted for in periods
subsequent to March 31, 2020, as the Company was not able to
determine eligibility for the assistance or the amounts that would
be distributed until April 2020.
Additionally, the
CARES Act allows for qualified healthcare providers to receive
advanced payments under the existing Medicare Accelerated and
Advance Payments Program during the COVID-19 pandemic. Under this
program, healthcare providers may receive advanced payments for
future Medicare services provided. The Company applied for and
received approval from CMS in April 2020 to receive advanced
payments and, through April 30, 2020, the Company has
received $316.1
million under this program.
Because these payments
are made on behalf of patients before services are provided, the
Company will record these payments as a contract liability until
all performance obligations have been met. These advanced payments will
be recouped by CMS through future Medicare claims billed by the
Company, beginning 121 days after receipt of the advanced payment.
After 120 days, any new Medicare claim billed by the Company will
reduce the liability owed to CMS. The Company is required to repay
any advanced payments not recouped by CMS within 210 days from the
date the Company originally received the payment. Failure to repay
the advanced payments when due will result in interest charges on
the outstanding balance owed.
In April 2020,
the Company began deferring payment on its share of payroll taxes
owed, as allowed by the CARES Act through December 31, 2020. The
Company is able to defer half of its share of payroll taxes owed
until December 31, 2021, with the remaining half due on December
31, 2022.
ITEM
2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should
read this discussion together with our unaudited condensed
consolidated financial statements and accompanying
notes.
Forward-Looking Statements
This report on
Form 10-Q contains forward-looking statements within the
meaning of the federal securities laws. Statements that are not
historical facts, including statements about our beliefs and
expectations, are forward-looking statements. Forward-looking
statements include statements preceded by, followed by or that
include the words “may,” “could,” “would,” “should,” “believe,”
“expect,” “anticipate,” “plan,” “target,” “estimate,” “project,”
“intend,” and similar expressions. These statements include, among
others, statements regarding our expected business outlook,
anticipated financial and operating results, including the
potential impact of the COVID-19 pandemic on those financial and
operating results, our business strategy and means to implement our
strategy, our objectives, the amount and timing of capital
expenditures, the likelihood of our success in expanding our
business, financing plans, budgets, working capital needs, and
sources of liquidity.
Forward-looking
statements are only predictions and are not guarantees of
performance. These statements are based on our management’s beliefs
and assumptions, which in turn are based on currently available
information. Important assumptions relating to the forward-looking
statements include, among others, assumptions regarding our
services, the expansion of our services, competitive conditions,
and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve known and
unknown risks and uncertainties, which could cause actual results
to differ materially from those contained in any forward-looking
statement. Many of these factors are beyond our ability to control
or predict. Such factors include, but are not limited to, 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 net operating revenues, an
increase in costs, and a reduction in profitability;
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•
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the failure of
our Medicare-certified long term care hospitals or inpatient
rehabilitation facilities to maintain their Medicare certifications
may cause our net operating revenues and profitability to
decline;
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•
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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 net operating revenues and profitability to
decline;
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•
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a government
investigation or assertion that we have violated applicable
regulations may result in sanctions or reputational harm and
increased costs;
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•
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acquisitions or
joint ventures may prove difficult or unsuccessful, use significant
resources, or expose us to unforeseen liabilities;
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•
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our plans and
expectations related to our acquisitions and our ability to realize
anticipated synergies;
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•
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private
third-party payors for our services may adopt payment policies that
could limit our future net operating revenues and
profitability;
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•
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the failure to
maintain established relationships with the physicians in the areas
we serve could reduce our net operating revenues and
profitability;
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•
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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;
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•
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competition may
limit our ability to grow and result in a decrease in our net
operating revenues and profitability;
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•
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the loss of key
members of our management team could significantly disrupt our
operations;
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•
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the effect of
claims asserted against us could subject us to substantial
uninsured liabilities;
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•
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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
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•
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other factors
discussed from time to time in our filings with the SEC, including
factors discussed under the heading “Risk Factors” in our Annual
Report on Form 10-K for the year ended
December 31, 2019, as such risk factors may be
updated from time to time in our periodic filings with the SEC,
including the risk factors discussed in Item 1A. Risk Factors on
this Form 10-Q.
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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.
Investors should
also be aware that while we do, from time to time, communicate with
securities analysts, it is against our policy to disclose to
securities analysts any material non-public information or other
confidential commercial information. Accordingly, stockholders
should not assume that we agree with any statement or report issued
by any securities analyst irrespective of the content of the
statement or report. Thus, to the extent that reports issued by
securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of the
Company.
Overview
We began
operations in 1997 and, based on number of facilities, are one of
the largest operators of critical illness recovery hospitals,
rehabilitation hospitals, outpatient rehabilitation clinics, and
occupational health centers in the United States. As of
March 31,
2020, we
had operations in 47 states and the District of
Columbia. We operated 101 critical illness recovery
hospitals in 28 states, 29 rehabilitation hospitals
in 12 states, and
1,753
outpatient
rehabilitation clinics in 37 states and the District of
Columbia. Concentra, a joint venture subsidiary, operated
523
occupational
health centers in 41 states as of
March 31,
2020.
Concentra also provides contract services at employer worksites and
Department of Veterans Affairs community-based outpatient clinics
(“CBOCs”).
Our reportable
segments include the critical illness recovery hospital segment,
the rehabilitation hospital segment, the outpatient rehabilitation
segment, and the Concentra segment. We had net operating revenues
of $1,414.6
million for the
three
months
ended March 31,
2020. Of
this total, we earned approximately 35% of our net operating revenues
from our critical illness recovery hospital segment,
approximately 13% from our rehabilitation
hospital segment, approximately 18% from our outpatient
rehabilitation segment, and approximately 28% from our Concentra segment.
Our critical illness recovery hospital segment consists of
hospitals designed to serve the needs of patients recovering from
critical illnesses, often with complex medical needs, and our
rehabilitation hospital segment consists of hospitals designed to
serve patients that require intensive physical rehabilitation care.
Patients are typically admitted to our critical illness recovery
hospitals and rehabilitation hospitals from general acute care
hospitals. Our outpatient rehabilitation segment consists of
clinics that provide physical, occupational, and speech
rehabilitation services. Our Concentra segment consists of
occupational health centers that provide workers’ compensation
injury care, physical therapy, and consumer health services as well
as onsite clinics located at employer worksites that deliver
occupational medicine services. Additionally, our Concentra segment
delivers veteran’s healthcare through its Department of Veterans
Affairs CBOCs.
During the
quarter ended June 30, 2019, we began reporting the net operating
revenues and expenses associated with employee leasing services
provided to our non-consolidating subsidiaries as part of our other
activities. Previously, these services were reflected in the
financial results of our reportable segments. Under these employee
leasing arrangements, actual labor costs are passed through to our
non-consolidating subsidiaries, resulting in our recognition of net
operating revenues equal to the actual labor costs incurred. Prior
year results presented herein have been changed to conform to the
current presentation.
Non-GAAP
Measure
We believe that
the presentation of Adjusted EBITDA, as defined below, is important
to investors because Adjusted EBITDA is commonly used as an
analytical indicator of performance by investors within the
healthcare industry. Adjusted EBITDA is used by management to
evaluate financial performance and determine resource allocation
for each of our operating segments. Adjusted EBITDA is not a
measure of financial performance under GAAP. Items excluded from
Adjusted EBITDA are significant components in understanding and
assessing financial performance. Adjusted EBITDA should not be
considered in isolation or as an alternative to, or substitute for,
net income, income from operations, cash flows generated by
operations, investing or financing activities, or other financial
statement data presented in the consolidated financial statements
as indicators of financial performance or liquidity. Because
Adjusted EBITDA is not a measurement determined in accordance with
GAAP and is thus susceptible to varying definitions, Adjusted
EBITDA as presented may not be comparable to other similarly titled
measures of other companies.
We define
Adjusted EBITDA as earnings excluding interest, income taxes,
depreciation and amortization, gain (loss) on early retirement of
debt, stock compensation expense, gain (loss) on sale of
businesses, and equity in earnings (losses) of unconsolidated
subsidiaries. We will refer to Adjusted EBITDA throughout the
remainder of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The table below
reconciles net income and income from operations to Adjusted EBITDA
and should be referenced when we discuss Adjusted
EBITDA:
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Three Months
Ended March 31,
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2019
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2020
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(in thousands)
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Net income
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$
|
53,344
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|
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$
|
70,448
|
|
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Income tax
expense
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|
18,467
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|
|
21,912
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|
|
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Interest expense
|
|
50,811
|
|
|
46,107
|
|
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Gain on sale of
businesses
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|
(6,532
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)
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|
(7,201
|
)
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Equity in earnings of
unconsolidated subsidiaries
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|
(4,366
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)
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|
(2,588
|
)
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Income from
operations
|
|
111,724
|
|
|
128,678
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|
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Stock compensation
expense:
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Included in general and
administrative
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|
4,748
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|
|
5,437
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Included in cost of
services
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|
1,507
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|
|
1,466
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|
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Depreciation and
amortization
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|
52,138
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|
|
51,752
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Adjusted EBITDA
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$
|
170,117
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$
|
187,333
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Effects of
the COVID-19 Pandemic on our Results of Operations
The broader
implications of the COVID-19 pandemic on our results of operations
and overall financial performance remain uncertain. We are a
healthcare service provider that provides patient care services in
both inpatient and outpatient settings. We have provided certain
additional performance metrics to assist readers in understanding
how the COVID-19 pandemic impacted each of our segments during the
one month ended March 31, 2020, including our (i) net operating
revenues and Adjusted EBITDA for the two months ended February 29,
2020 and February 28, 2019, (ii) net operating revenues and
Adjusted EBITDA for the one month ended March 31, 2020 and 2019,
(iii) net operating revenues and Adjusted EBITDA for the three
months ended March 31, 2020 and 2019, and (iv) certain operating
statistics for each of the aforementioned periods. Please refer to
our risk factors discussed in Item 1A “Risk
Factors”
of this Form 10-Q and as previously reported in our Annual Report
on Form 10-K for the year ended December 31, 2019 for further
discussion.
Critical
Illness Recovery Hospital Segment. Our critical illness recovery
hospitals are a key part of the inpatient hospital continuum of
care. Both CMS and Congress acted to temporarily suspend certain
regulations concerning length of stay requirements, which impact
our critical illness recovery hospitals, in order to facilitate the
transfer of patients from general acute care hospitals (see
“Regulatory
Changes” for further discussion of the
temporary suspension of regulations). This was done in order to
expand hospital bed capacity to care for COVID-19 patients. As
COVID-19 has spread in the general acute care hospitals in many
markets where we operate, we have admitted patients with COVID-19
and have faced the challenging task of treating them while
attempting to protect our patients and staff members who do not
have COVID-19. We have followed CDC guidelines, directives and
recommendations with regard to the use of personal protective
equipment and the isolation and treatment of patients with
COVID-19. The pandemic has caused, and will continue to cause,
disruptions in our critical illness recovery hospitals, which
include, in some cases, the addition or reduction of beds, the
creation of isolated units and spaces, temporary increases or
restrictions on admissions, the incurrence of additional costs,
staff illnesses, and the increased use of contract clinical
labor.
Rehabilitation
Hospital Segment. Our rehabilitation hospitals
receive most of their admissions from general acute care hospitals.
Both CMS and Congress acted to temporarily suspend certain
regulations that govern admissions into our rehabilitation
hospitals to facilitate the transfer of patients from general acute
care hospitals and critical illness recovery hospitals (see
“Regulatory
Changes” for further discussion of the
temporary suspension of regulations). This was done in order to
expand hospital bed capacity to care for COVID-19 patients. As
COVID-19 has spread in the general acute care hospitals in many
markets where we operate, we have admitted patients with COVID-19
and have faced the challenging task of treating them while
attempting to protect our patients and staff members who do not
have COVID-19. We have followed CDC guidelines, directives and
recommendations with regard to the use of personal protective
equipment and the isolation and treatment of patients with
COVID-19. The pandemic has caused, and will continue to cause,
disruptions in our rehabilitation hospitals, which include, in some
cases, the addition or reduction of beds, the creation of isolated
units and spaces, temporary restrictions on admissions, the
incurrence of additional costs, staff illnesses, and the increased
use of contract clinical labor. Additionally, elective surgeries at
hospitals and other facilities have been suspended which is
reducing the need for inpatient rehabilitation
services.
Outpatient
Rehabilitation Segment. Beginning in mid-March,
hospitals and other facilities began to suspend elective surgeries.
Additionally, state governments in the areas experiencing the most
significant growth of COVID-19 infections began implementing
mandatory closures of non-essential or non-life sustaining
businesses, restrictions on individual activities outside of the
home, restrictions on travel, and closures of schools. These
actions continued to expand throughout March and by the end of
March, most states implemented significant restrictions on
businesses and individuals. The suspension of elective surgeries at
hospitals and other facilities and the reduction of physician
office visits combined with recommendations of social distancing
and the other items noted above have had significant effects on our
patient visit volumes. As a result, we have temporarily
consolidated the operations of some of our clinics by transferring
staff and patients.
Concentra
Segment. Beginning in mid-March, state
governments in the areas experiencing the most significant growth
of COVID-19 infections began implementing mandatory closures of
non-essential or non-life sustaining businesses. These actions
continued to expand throughout March. By the end of March, most
states implemented significant restrictions on businesses. These
actions have had significant effects on our patient visit volumes
as employers have furloughed workforces and temporarily ceased
operations or have significantly reduced their operations. As a
result, we have temporarily consolidated the operations of some of
our centers by transferring staff and patients.
We provided below
certain performance measures and operating statistics used by
management to help illustrate the impact of the COVID-19 pandemic
on our operating results. For the quarter ended March 31, 2020, we
defined the pre-COVID-19 outbreak period as the two months ended
February 29, 2020, and the post-COVID-19 outbreak period as the one
month ended March 31, 2020. We provided prior year comparative data
for the pre-COVID-19 and post-COVID-19 outbreak periods presented.
The following performance measures and operating
statistics should be considered in conjunction with the
operating results for the full quarter ended March 31, 2020. The
performance measures and operating statistics presented for the two
months ended February 29, 2020 and the one month ended March 31,
2020 are, when combined, equal to the performance measures and
operating statistics presented for the full quarter ended March 31,
2020. The same is true for the prior year comparative
data.
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|
|
|
|
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Two Months
Ended February
|
|
|
One Month
Ended March
|
|
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Three Months
Ended March
|
|
|
|
2019
|
|
2020
|
|
%
Change
|
|
|
2019
|
|
2020
|
|
%
Change
|
|
|
2019
|
|
2020
|
|
Selected
financial data:
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|
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Net operating
revenues:
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|
|
|
|
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|
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|
Critical illness recovery
hospital
|
|
$
|
295,385
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|
|
$
|
328,613
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|
|
11.2
|
%
|
|
|
$
|
162,149
|
|
|
$
|
171,908
|
|
|
6.0
|
%
|
|
|
$
|
457,534
|
|
|
$
|
500,521
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|
|
Rehabilitation
hospital
|
|
98,695
|
|
|
122,363
|
|
|
24.0
|
|
|
|
55,863
|
|
|
59,656
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|
|
6.8
|
|
|
|
154,558
|
|
|
182,019
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|
|
Outpatient
rehabilitation
|
|
161,758
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|
|
179,163
|
|
|
10.8
|
|
|
|
85,147
|
|
|
76,086
|
|
|
(10.6
|
)
|
|
|
246,905
|
|
|
255,249
|
|
|
Concentra
|
|
259,816
|
|
|
274,926
|
|
|
5.8
|
|
|
|
136,505
|
|
|
123,609
|
|
|
(9.4
|
)
|
|
|
396,321
|
|
|
398,535
|
|
|
Other(1)
|
|
38,532
|
|
|
54,283
|
|
|
40.9
|
|
|
|
30,781
|
|
|
24,025
|
|
|
(21.9
|
)
|
|
|
69,313
|
|
|
78,308
|
|
|
Total Company
|
|
$
|
854,186
|
|
|
$
|
959,348
|
|
|
12.3
|
%
|
|
|
$
|
470,445
|
|
|
$
|
455,284
|
|
|
(3.2
|
)%
|
|
|
$
|
1,324,631
|
|
|
$
|
1,414,632
|
|
|
Income (loss) from
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical illness recovery
hospital
|
|
$
|
36,355
|
|
|
$
|
48,395
|
|
|
33.1
|
%
|
|
|
$
|
25,192
|
|
|
$
|
27,839
|
|
|
10.5
|
%
|
|
|
$
|
61,547
|
|
|
$
|
76,234
|
|
|
Rehabilitation
hospital
|
|
11,605
|
|
|
22,855
|
|
|
96.9
|
|
|
|