Select Medical(US:SEM)2022-08-05 17:15Financial Data and Key Metrics Changes - The company experienced a revenue growth of 1.3% year-over-year, with total adjusted EBITDA of $181 million compared to $342 million in the prior year, resulting in an adjusted EBITDA margin of 11.4% versus 21.9% in the previous year [8][9] - CARES Act grant income recognized in Q2 was $15.1 million, down from $98 million in the prior year, leading to adjusted EBITDA of $165.9 million excluding grant income, compared to $244 million in the previous year [9][10] - Earnings per fully diluted share were $0.43 for Q2, down from $1.22 in the same quarter of the prior year [15] Business Line Data and Key Metrics Changes - Critical Illness Recovery Hospitals: Revenue and patient days slightly increased, but occupancy decreased to 67% from 69% year-over-year. Adjusted EBITDA margin fell to 4% from 13% due to increased labor costs [10][11] - Inpatient Rehabilitation Hospitals: Net revenues increased by 7.6% with patient volumes up 4%. Adjusted EBITDA margin decreased to 21.8% from 23.9% due to elevated agency costs [12][13] - Concentra: Revenue declined by $15 million compared to the prior year due to reduced demand for COVID-related testing. Adjusted EBITDA margin was 21%, down from 30% in the prior year [14] - Outpatient Rehabilitation: Net revenues increased by 2%, but adjusted EBITDA margin decreased to 11.7% from 16.3% due to rising labor costs [15] Market Data and Key Metrics Changes - The company expanded its footprint in Youngstown, Ohio, with a two-hospital acquisition and signed agreements for four new hospitals expected to open in 2023 [11][12] - The final CMS rules for fiscal 2023 included a 3.8% increase in the federal base rate for LTAC, which is higher than the proposed 2.8% [11][13] Company Strategy and Development Direction - The company is focused on recruiting and retaining clinical staff, particularly RNs, to reduce reliance on agency labor. There is an emphasis on training and retention programs to maintain quality care [5][27] - The company aims to return salary, wage, and benefit costs as a percentage of revenue to historical levels of 51%-52% from the current 64%-66% [19][41] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding improvements in labor costs and stability in clinical labor by the end of the year, despite ongoing challenges [5][9] - The company reaffirmed its revenue outlook for 2022, expecting revenue between $6.25 billion and $6.4 billion, with a compounded annual growth rate target of 4%-6% over the next three years [22] Other Important Information - The company repurchased 5,438,939 shares at an average price of $23.16, with a remaining capacity to repurchase an additional $407 million worth of shares [15][22] - Interest expense increased to $41.1 million from $33.9 million in the prior year, attributed to rising LIBOR rates and increased borrowings [21] Q&A Session Summary Question: What initiatives are being taken to improve hiring? - Management highlighted the importance of training and retention efforts, noting that new hires require significant training before engaging in patient care [27][28] Question: What are the dynamics in outpatient rehab? - Management indicated that while outpatient rehab is improving, challenges remain, particularly in specific geographical areas [28] Question: What is the current utilization rate for LTAC? - The utilization rate for June was reported at 26.9% [29] Question: What are the target margins for the LTAC business? - Management believes that 15%-16% margins are achievable in the critical illness recovery hospitals, with current costs being higher due to labor expenses [41] Question: What factors are influencing nurse retention? - Management emphasized that retention is influenced by various factors beyond economics, including job satisfaction and operational improvements [44][46]