Select Medical(SEM) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents the company's interim financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Condensed Consolidated Financial Statements This section presents the unaudited interim financial statements for the periods ended June 30, 2025, along with accompanying notes detailing accounting policies, dispositions, segment information, debt, and legal contingencies Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, including assets, liabilities, and equity, as of June 30, 2025, and December 31, 2024 Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,080,890 | $1,019,777 | | Total Assets | $5,742,250 | $5,607,951 | | Total Current Liabilities | $938,990 | $977,651 | | Long-term debt, net of current portion | $1,839,631 | $1,691,546 | | Total Liabilities | $3,742,988 | $3,610,856 | | Total Equity | $1,990,769 | $1,986,928 | Condensed Consolidated Statements of Operations This statement presents the company's revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 Income Statement (in thousands) | Income Statement (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,339,579 | $1,281,748 | $2,692,751 | $2,602,959 | | Income from continuing operations, net of tax | $57,879 | $37,638 | $132,611 | $99,167 | | Income from discontinued operations, net of tax | $0 | $57,128 | $0 | $112,766 | | Net income attributable to Holdings | $40,571 | $77,563 | $97,252 | $174,460 | | EPS from continuing operations (basic & diluted) | $0.32 | $0.17 | $0.76 | $0.50 | | Total EPS (basic & diluted) | $0.32 | $0.60 | $0.76 | $1.35 | - Net income and total EPS decreased significantly in 2025 due to the absence of discontinued operations, while continuing operations showed strong growth[10] Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Cash Flow Highlights (in thousands) | Cash Flow Highlights (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $106,835 | $211,463 | | Net cash used in investing activities | ($116,984) | ($111,725) | | Net cash provided by (used in) financing activities | $2,804 | ($72,584) | | Net (decrease) increase in cash | ($7,345) | $27,154 | - Net cash from operating activities significantly decreased in the first six months of 2025 due to the Concentra spin-off, while financing activities included $97.6 million in common stock repurchases[21] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the accounting policies, significant transactions, and other disclosures supporting the financial statements - Dispositions (Note 3): The tax-free distribution of Concentra was completed in November 2024, with its 2024 financial results presented as discontinued operations[31][33] - Segment Information (Note 10): In Q2 2025, Rehabilitation Hospital revenue grew 17.2% to $313.8 million, Outpatient Rehabilitation revenue grew 3.8% to $327.6 million, while Critical Illness Recovery Hospital revenue decreased 0.6% to $601.1 million[55] - Long-Term Debt (Note 9): Total debt as of June 30, 2025, was approximately $1.88 billion, comprising a $1.04 billion term loan, $250 million revolving facility, and $550 million in senior notes[47] - Legal Proceedings (Note 13): The company faces ongoing U.S. Department of Justice investigations concerning billing practices for physical and respiratory therapy services at certain locations[66][67][68] - Subsequent Events (Note 14): On July 30, 2025, the Board of Directors declared a quarterly cash dividend of $0.0625 per share[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's operational and financial performance, including segment results, regulatory changes, liquidity, and capital resources Results of Operations This section analyzes the company's financial performance across its operating segments for the quarter and year-to-date periods Segment Performance (Q2 2025 vs Q2 2024) | Segment Performance (Q2 2025 vs Q2 2024) | Revenue Change | Adjusted EBITDA Change | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Critical illness recovery hospital | (0.6)% | (21.6)% | 9.4% (vs 11.9%) | | Rehabilitation hospital | 17.2% | 14.7% | 22.6% (vs 23.1%) | | Outpatient rehabilitation | 3.8% | 6.1% | 9.3% (vs 9.1%) | | Total Company | 4.5% | 0.5% | 9.4% (vs 9.7%) | - The Critical Illness segment experienced revenue and profitability declines in Q2 2025 due to lower revenue per patient day, higher Medicare high-cost outlier thresholds, and increased labor expenses[119][124] - The Rehabilitation Hospital segment demonstrated strong performance in Q2 2025 with a 17.2% revenue increase, driven by a 7.6% rise in patient days and a 5.8% increase in revenue per patient day[120] - General and administrative expenses decreased to 2.7% of revenue in Q2 2025 from 3.9% in Q2 2024, primarily due to lower stock compensation expense post-Concentra spin-off[122] Regulatory Changes This section outlines recent legislative and regulatory developments impacting the company's operations and reimbursement rates - The 'One Big Beautiful Bill Act' (OBBBA), enacted July 4, 2025, is projected to reduce federal Medicaid funding by approximately $1 trillion over 10 years, potentially leading to state-level reimbursement cuts[93] - For fiscal year 2025, the Medicare standard federal rate for Long-Term Care Hospitals (LTCHs) increased to $49,383 from $48,117, though increased fixed-loss amounts for high-cost outlier cases may negatively impact revenue[96] - For fiscal year 2025, the Medicare standard payment conversion factor for Inpatient Rehabilitation Facilities (IRFs) increased to $18,907 from $18,541[104] Liquidity and Capital Resources This section discusses the company's cash flows, debt, and available capital, including details on its stock repurchase program - Net cash from operating activities for the first six months of 2025 was $106.8 million, a significant decrease from $211.5 million in 2024, primarily due to the Concentra spin-off[150] - The company repurchased 6.4 million shares of common stock for approximately $96.5 million during the first six months of 2025 under its $1.0 billion repurchase program[156] - As of June 30, 2025, the company held $52.3 million in cash and had $319.1 million available under its revolving credit facility[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate fluctuations on variable-rate debt, and strategies for mitigation - The company is exposed to interest rate risk on its variable-rate credit facilities, totaling approximately $1.29 billion as of June 30, 2025[164][165] - An interest rate cap agreement is in effect until March 31, 2028, which limits the Term SOFR rate to 4.5% on $1.0 billion of the term loan principal[166] - A hypothetical 0.25% increase in market interest rates would increase the company's annual interest expense by $2.5 million[167] Item 4. Controls and Procedures Based on an evaluation as of June 30, 2025, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures are effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[168] - There were no changes in internal control over financial reporting during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, these controls[169] PART II: OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, equity sales, and other corporate information Item 1. Legal Proceedings This section directs readers to Note 13 of the condensed consolidated financial statements for information regarding the company's ongoing legal matters and contingencies - For details on legal proceedings, the report refers to the 'Litigation' section within Note 13 – Commitments and Contingencies[171] Item 1A. Risk Factors This section provides an update to the company's risk factors, emphasizing the potential negative effects of changes in U.S. tariff and import/export regulations - The company highlights risks related to U.S. trade policy, including new tariffs and potential changes to treaties, which could materially affect global economic conditions and the business[173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details its stock repurchase activity under its authorized $1.0 billion program Share Repurchases (Q2 2025) | Share Repurchases (Q2 2025) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 31,620 | $18.24 | | May 2025 | 5,164,095 | $14.84 | | June 2025 | 599,078 | $14.95 | | Total Q2 2025 | 5,794,793 | $14.87 | - The company's Board of Directors authorized a common stock repurchase program of up to $1.0 billion, effective until December 31, 2025[174] Item 5. Other Information During the second quarter of 2025, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan for the purchase or sale of company securities - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[180] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and XBRL data files - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[181]