Select Medical’s Mixed Earnings Call: Growth Amid Challenges

Select Medical ((SEM)) has held its Q4 earnings call. Read on for the main highlights of the call.

The latest earnings call for Select Medical presented a mixed sentiment. The company showcased significant revenue growth and successful debt refinancing, alongside a robust expansion plan. However, challenges emerged with the decline in inpatient rehab EBITDA and occupancy rates. While the outpatient rehab division showed strong improvements, the overall sentiment was balanced by the dilution loss per share and other operational setbacks.

Spin-off and Debt Refinancing

Select Medical has successfully completed the spin-off of Concentra through a special stock distribution and refinanced $1.6 billion of debt. This financial restructuring included issuing $1.05 billion in new seven-year term loans and $550 million in senior notes due in 2032, which is expected to strengthen the company’s financial position.

Revenue and EBITDA Growth

The company reported an impressive 8% increase in revenue for the fourth quarter, with adjusted EBITDA growing by 4% to $116 million. For the full year, revenue growth reached 7%, and adjusted EBITDA saw a 14% increase, underlining the company’s positive financial trajectory.

Inpatient Rehab Expansion

Select Medical is aggressively expanding its inpatient rehab capacity, adding 94 beds in the fourth quarter with plans to add 481 more by 2026. This expansion includes new facilities and partnerships with other health systems, indicating a strong growth strategy in the rehab sector.

Outpatient Rehab Division Improvement

The outpatient rehab division demonstrated notable improvements, with a 7% increase in revenue and a 4% rise in patient volume for Q4. Adjusted EBITDA grew by an impressive 18%, despite the adverse effects of hurricanes, showcasing the division’s resilience and operational efficiency.

Inpatient Rehab EBITDA Decline

Challenges were noted in the inpatient rehab division, where adjusted EBITDA declined by 6%, and the margin fell from 25.5% to 21.2%. This decline was attributed to startup losses, integration costs, and a reduction in referrals following Hurricane Helene.

Occupancy Rate Challenges

The company faced occupancy rate challenges, with a decrease from 85% to 81% in the rehab division. This was primarily due to the impact of new hospitals on overall occupancy, which the company is addressing through strategic adjustments.

Dilution Loss Per Share

Select Medical reported a dilution loss per common share from continuing operations of $0.19 for Q4, compared to earnings of $0.12 in the prior year, reflecting some of the financial challenges faced during this period.

Forward-Looking Guidance

Looking ahead, Select Medical management provided guidance for fiscal year 2025, projecting revenue between $5.4 billion and $5.6 billion. Adjusted EBITDA is expected to range from $520 million to $540 million, with adjusted EPS anticipated to be between $1.09 and $1.19. The company has undergone significant financial restructuring and plans a 30% increase in inpatient rehab beds over the next two years, expecting substantial EBITDA growth from these expansions into 2026 and 2027. Anticipated capital expenditures for 2025 are between $160 million and $200 million, reflecting ongoing investment in development projects.

In conclusion, Select Medical’s earnings call highlighted a mixture of growth and challenges. While revenue and EBITDA figures show promising trends, the company faces hurdles in the rehab division’s occupancy and profitability. Forward-looking guidance suggests optimism for continued expansion and financial performance improvements, setting the stage for future growth.