Select Medical(SEM) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a combined revenue increase of 8% in Q4 2024, with adjusted EBITDA growing by 4% from $111.8 million to$ 116 million [14][15] - For the full year, revenue from continuing operations grew by 7%, and adjusted EBITDA increased by 14%, reaching $510.4 million with a 9.8% adjusted EBITDA margin compared to 9.2% in 2023 [15][24] - The diluted loss per common share from continuing operations was$ 0.19 for Q4, compared to earnings of $0.12 in the same quarter last year [23] Business Line Data and Key Metrics Changes - The critical illness recovery hospital division saw a 6% increase in revenue and a 10% increase in adjusted EBITDA, with an adjusted EBITDA margin of 10.5% for Q4 [15][16] - The inpatient rehab hospital division experienced a 13% revenue increase, but adjusted EBITDA declined by 6%, with a margin of 21.2% [18] - The outpatient rehab division reported a 7% revenue increase, 4% increase in patient volume, and 18% increase in adjusted EBITDA, with net revenue per visit rising from$ 100 to $102 [20][21] Market Data and Key Metrics Changes - The company added 94 inpatient rehabilitation beds in Q4 and plans to add 481 additional beds in 2025 and 2026 [8][12] - The occupancy rate for the critical illness recovery hospital division increased from 66% to 67% year-over-year [16] - The average daily census for the entire rehab division increased by 3%, while the occupancy rate was 81%, down from 85% the previous year [19] Company Strategy and Development Direction - The company completed the spin-off of Concentra, which is now reflected as discontinued operations [5] - The company plans to continue expanding its inpatient rehab division with multiple new facilities scheduled to open through 2026 [12] - The company is focusing on optimizing resources by closing or consolidating underperforming outpatient clinics [13] Management's Comments on Operating Environment and Future Outlook - Management noted that nursing agency rates have stabilized and utilization has returned to pre-COVID levels, with a 15% reduction in nursing sign-on incentive bonus dollars [17][27] - The company expects revenue for 2025 to be in the range of$ 5.4 billion to $5.6 billion, with adjusted EBITDA projected between$ 520 million and $540 million [36] - Management acknowledged confusion in the market regarding the impact of the Concentra spin-off on consensus estimates [41] Other Important Information - The company did not repurchase shares in the last quarter but continues to evaluate stock repurchases and debt reduction opportunities [25][35] - A cash dividend of$ 0.0625 per share has been declared, payable on March 13, 2025 [24] Q&A Session Summary Question: Clarification on 2025 metrics - Management confirmed that there is confusion in the market regarding consensus estimates and emphasized the importance of excluding Concentra's numbers [40][41] Question: Development activity and startup costs - Management indicated that the increase in inpatient rehab beds will dampen margins in 2025 but expects significant EBITDA growth in 2026 and 2027 [47] Question: Post-separation leverage targets - Management expects to maintain leverage around 3 to 3.1 times for 2025, with a reduction anticipated in 2026 and beyond [57] Question: Inpatient rehab margins - Management attributed lower margins to startup losses and a referral source impacted by Hurricane Helene, which has since returned to normal [59] Question: Outpatient rehab growth drivers - Management highlighted increased net revenue per visit and improved clinical productivity as key drivers for expected growth in outpatient rehab EBITDA [78]