Select Medical Down 5% Despite Q3 Earnings Beat on Patient Volumes

Core Insights - Select Medical Holdings Corporation (SEM) shares have decreased by 5.4% following the release of its third-quarter 2025 results, primarily due to high expense levels and a decline in patient days affecting profitability in certain segments [1][9] - Despite these challenges, revenue growth in the Rehabilitation Hospital segment and an increased EPS guidance for 2025 provide some positive outlook [1][14] Financial Performance - Adjusted earnings per share (EPS) for Q3 2025 were reported at 23 cents, exceeding the Zacks Consensus Estimate by 27.8%, although this represents an 11.5% decline year over year [2][9] - Net operating revenues increased by 7.2% year over year to $1.4 billion, surpassing the consensus estimate by 2.9% [2][9] - Total costs and expenses rose to $1.3 billion, a 6% increase year over year, exceeding estimates due to higher service costs [3][9] Segment Performance - Critical Illness Recovery Hospital: Revenues reached $609.9 million, a 4.6% year-over-year increase, driven by a 2.1% rise in admissions and a 6.6% increase in revenue per patient day, despite a 1.9% decline in patient days [4][5] - Rehabilitation Hospital: Revenues grew by 16.2% year over year to $328.6 million, supported by an 11.2% increase in admissions and an 11.1% rise in patient days [6][7] - Outpatient Rehabilitation: Revenues totaled $325.4 million, a 4.3% year-over-year increase, aided by a 5.5% rise in visits, although revenue per visit decreased by 1% [8][9] Adjusted EBITDA - Adjusted EBITDA improved by 7.5% year over year to $111.7 million, exceeding estimates despite cost pressures [3][9] - Adjusted EBITDA for the Critical Illness Recovery Hospital segment was $56.1 million, a 10.5% year-over-year increase, but fell short of consensus estimates [5] - Adjusted EBITDA for the Rehabilitation Hospital segment rose by 13% to $68 million, surpassing estimates, while the adjusted EBITDA margin decreased by 60 basis points [7] Financial Position - As of September 30, 2025, Select Medical had cash and cash equivalents of $60.1 million, a slight increase from the end of 2024 [11] - Total assets amounted to $5.7 billion, up 1.4% from the end of 2024, while long-term debt increased by 3.1% to $1.7 billion [11] Shareholder Returns - The company repurchased shares worth approximately $96.5 million in the first nine months of 2025 [13] - A cash dividend of 6.25 cents per share was approved, to be paid on November 25, 2025 [13] 2025 Outlook - Management maintains revenue guidance of $5.3-$5.5 billion for 2025, reflecting a 4.1% increase from 2024 [14] - Adjusted EBITDA is expected to be between $510 million and $530 million, with EPS guidance raised to $1.14-$1.24 [14]