Select Medical Holdings Corpora (NYSE:SEM)

Third quarter ended September 30, 2012.

• Net operating revenues increased 2.8% to $713.7 million compared to $694.1 million for the same quarter, prior year.
• Income per common share for the third quarter ended September 30, 2012 and 2011 was $0.17 on a fully diluted basis.

Business Outlook

Select Medical reaffirms its prior financial guidance for calendar year 2012. Select Medical expects consolidated net operating revenues for the full year 2012 to be in the range of $2.9 billion to $2.975 billion. Select Medical expects Adjusted EBITDA for the full year 2012 to be in the range of $400.0 million to $410.0 million. Select Medical now expects fully diluted income per common share for the full year 2012 to be in the range of $0.99 to $1.04, and excluding the loss related to the early retirement of debt in the third quarter 2012 and its related tax effect, Adjusted Net Income Per Share for the full year 2012 to be in the range of $1.01 to $1.06.

Special Cash Dividend

On October 30, 2012, Select Medical's board of directors declared a special cash dividend of $1.50 per share, totaling approximately $210.8 million. This special cash dividend will be paid on or about December 12, 2012 to all stockholders of record at the close of business on December 5, 2012. "The dividend allows us to return capital to stockholders without diminishing our ability to pursue investment and acquisition opportunities," stated Robert A. Ortenzio, Select Medical's Chief Executive Officer. The dividend is expected to be funded with cash on hand and borrowings under Select Medical's existing revolving credit facility. Select Medical anticipates using approximately $100.0 million of available cash on hand toward the funding of the dividend. Select Medical's leverage ratio (total debt to Adjusted EBITDA) at September 30, 2012 was 3.35, compared to 3.62 at December 31, 2011.

Stock Repurchase Program

The board of directors of Select Medical has authorized a common stock repurchase program of $250.0 million. The program will remain in effect until March 31, 2013, unless extended by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Select Medical deems appropriate. The timing of purchases of stock will be based upon market conditions and other factors. Select Medical is funding this program with cash on hand or borrowings under its revolving credit facility. Select Medical did not repurchase shares during the three months ended September 30, 2012. Select Medical repurchased 5,725,782 shares at a cost of $46.8 million, which includes transaction costs, during the nine months ended September 30, 2012. Since the inception of the program through September 30, 2012, Select Medical has repurchased 22,490,389 shares at a cost of $163.6 million, an average cost per share of $7.28, which includes transaction costs.

On 06/28/2011 we added SEM to the GeoSpecial list @ $9.09

Catalyst: Strong 2011 first quarter earnings results of $0.22 vs $0.15 in prior year quarter.  Company issued EPS guidacne of $0.67 to $0.72 for fiscal 2011,which implied growth of 45.6%. 

We are now removing SEM from the GeoSpeicial List @ $8.37

Current road block: Weak GPR for next 8 quarters, meaning that EPS growth will not consistently fall into our minimum required range of 20% to 30%. At $0.84, the company actually exceeded it's 2011 EPS guidance. But this comes with a double edge sword as 2012 EPS growth will be difficult to accomplish.

Performance:

• Peak performance: Reached a high of  $9.66 on 06/21/2011 for a maiximum potential return of 6%
• Current Price: $8.37

Third Quarter 2011 Results

• Net operating revenues increased 18.0% to $694.1 million compared to $588.3 million for the same quarter, prior year.
• Income from operations increased 62.3% to $68.1 million compared to $42.0 million for the same quarter, prior year.
• Income per common share for the third quarter ended September 30, 2011 was $0.17 on a fully diluted basis compared to income per common share of $0.05 for the quarter ended September 30, 2010.

Business Outlook

Select Medical is increasing its prior business outlook for calendar year 2011.  Select Medical now expects net revenue for the full year 2011 to be in the range of $2.76 billion to $2.80 billion and Adjusted EBITDA for the full year to be in the range of $375 million to $390 million.  Select Medical expects fully diluted income per common share to be in the range of $0.62 to $0.68.  Adjusted Net Income Per Share is now expected to be in the range of $0.75 to $0.81.

For the second quarter ended June 30, 2011, net operating revenues increased 20.5% to $698.7 million compared to $579.9 million for the same quarter, prior year.  Income from operations increased 11.6% to $81.0 million compared to $72.6 million for the same quarter, prior year.  Net income attributable to Select Medical decreased to $11.7 million compared to $24.5 million for the same quarter, prior year.  Net income attributable to Select Medical for the quarter ended June 30, 2011 included a loss on early retirement of debt, net of tax of $19.3 million associated with the June 1, 2011 refinancing of a portion of its indebtedness.  Net income before interest, income taxes, depreciation and amortization, loss on early retirement of debt, stock compensation expense, other income and equity in losses .of unconsolidated subsidiaries ("Adjusted EBITDA") for the second quarter increased 11.5% to $99.9 million compared to $89.6 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is attached to this release.  Income per common share for the second quarter ended June 30, 2011 was $0.08 on a fully diluted basis compared to income per common share of $0.15 for the quarter ended June 30, 2010.  Excluding the non-recurring loss related to the early retirement of debt and its tax effect of $0.12 per share, net income available to common stockholders on an adjusted basis was $0.20 per diluted share for the quarter ended June 30, 2011.  A reconciliation of net income per share to adjusted net income per share is attached to this release.

Business Outlook

Select Medical is updating its prior business outlook for calendar year 2011 to reflect the impact of the refinancing completed on June 1st. Select Medical continues to expect net revenue for the full year 2011 to be in the range of $2.65 billion to $2.75 billion and Adjusted EBITDA for the full year to be in the range of $365 million to $385 million. Select Medical now expects fully diluted income per common share to be in the range of $0.57 to $0.62. On an adjusted basis excluding the non-recurring loss related to the early retirement of debt and its tax effect from the refinancing, fully diluted income per common share is expected to be in the range of $0.69 to $0.74, compared to its previous income per common share guidance of $0.67 to $0.72 per share.