Select Medical (SEM) Q3 2025 Earnings Transcript

Core Insights - The company plans to add 395 inpatient rehabilitation beds by 2027 through new openings and strategic additions, including a 45-bed hospital in Temple, Texas, and a 32-bed unit in Orlando, Florida [1][5] - The delay of the 20% transmittal rule by CMS is seen as beneficial, allowing for a favorable revenue adjustment this quarter, with expectations of a smaller impact in future periods due to stabilized labor costs [2][3][29] - Revenue for the third quarter grew over 7% to $1.36 billion, with adjusted EBITDA also increasing over 7% to $111.7 million, and earnings per share from continuing operations rose over 21% to $0.23 [7][12] Development and Expansion - The company opened a fourth rehab hospital in partnership with the Cleveland Clinic, adding 32 new beds, and plans to open additional facilities in 2026 and 2027, including a 76-bed rehab hospital in Jersey City, New Jersey [1][5] - Future development efforts will focus on the inpatient rehabilitation segment, with plans to add two acute rehab units and two neurotransitional units [5][6] Financial Performance - Inpatient rehab hospital revenue increased 16% year over year to $328.6 million, with adjusted EBITDA up 13% to $68 million [7][9] - The outpatient rehab division saw a revenue increase of 4% to $325.4 million, but adjusted EBITDA decreased over 14% to $24.2 million due to a reduction in Medicare reimbursement and unfavorable payer mix [8][9] - The critical illness recovery hospital division's revenue increased over 4% to $609.9 million, with adjusted EBITDA rising over 10% to $56.1 million [9] Regulatory Environment - The CMS's deferment of the expanded Medicare outlier reconciliation criteria is viewed positively, although further reforms are needed to support treatment for high acuity patients [2][4][19] - The fixed loss threshold for outlier payments has increased significantly over the past four years, impacting the ability to accommodate acutely ill patients [16][20] Capital Management - The company ended the quarter with $1.8 billion in debt and $60.1 million in cash, maintaining a net leverage of 3.4 times [10][11] - A cash dividend of $0.0625 per share was approved, reflecting the company's commitment to enhancing shareholder value [6]