Select Medical's (SEM) Stock Down 16.9% Despite Q2 Earnings Beat

Core Viewpoint - Select Medical Holdings Corporation (SEM) experienced a 16.9% decline in stock price following the release of its second-quarter 2024 results, despite beating earnings estimates due to improved patient days in certain units. Concerns arose regarding elevated expenses and declining visits in the Concentra unit [1] Financial Performance - SEM reported adjusted earnings per share (EPS) of 60 cents, exceeding the Zacks Consensus Estimate by 1.7%, although this represented a 1.6% decline year over year [2] - Net operating revenues reached $1.8 billion, reflecting a 5.1% year-over-year increase and surpassing the consensus mark by 1.6% [2] - Total costs and expenses rose 5.7% year over year to $1.6 billion, exceeding estimates due to increased service costs and rising administrative expenses [3] - Adjusted EBITDA was $226.3 million, a 3.1% year-over-year increase, outperforming the Zacks Consensus Estimate of $222 million [3] Segmental Update - Critical Illness Recovery Hospital: Revenues were $604.9 million, a 5.2% year-over-year increase, but fell short of the consensus estimate. Revenue per patient day increased by 4%, while patient days improved by 1% [4] - Rehabilitation Hospital: Revenues grew 11.2% year over year to $267.8 million, exceeding the consensus mark. Adjusted EBITDA rose 13.3% year over year to $62 million [6] - Outpatient Rehabilitation: Revenues reached $315.5 million, a 4.1% year-over-year increase, driven by a 3.9% rise in patient visits. Adjusted EBITDA declined 12.4% year over year to $28.8 million [7] - Concentra: Revenues were $477.9 million, a 2.3% year-over-year increase, benefiting from a 4.5% growth in revenue per visit despite a 1.6% decline in visits [8] Financial Position - As of June 30, 2024, SEM had cash and cash equivalents of $111.2 million, up from $84 million at the end of 2023. Total assets increased to $7.9 billion from $7.7 billion [10] - Long-term debt was $3.6 billion, slightly up from the end of 2023, while total equity rose to $1.7 billion from $1.5 billion [10] Cash Flow and Shareholder Returns - Cash flow from operations was $278.2 million, an 18.4% year-over-year increase [11] - No share repurchases occurred in Q2 2024 under the $1 billion program, which is set to expire on December 31, 2025. A cash dividend of 12.5 cents per share was approved for payment on August 30, 2024 [12] IPO and Future Outlook - The Concentra unit completed its IPO on July 26, 2024, pricing 22.5 million shares at $23.50 each. SEM retains 82% of Concentra's shares and plans to distribute its remaining interest within 12 months [13] - Management reaffirmed revenue guidance for 2024 between $6.9 billion and $7.1 billion, suggesting a 4.5% growth from 2023. Adjusted EBITDA is expected between $845 million and $885 million, indicating a 7.1% rise from 2023 [14][15]