Select Medical(SEM) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's consolidated revenue grew nearly 5% to $1.3 billion, and adjusted EBITDA increased to $125.4 million from $124.7 million in the prior year [9] - Earnings per common share from continuing operations rose 88% to $0.32 from $0.17 per share in the same quarter prior year [9] Business Line Data and Key Metrics Changes - Inpatient rehab hospital division revenue rose 17% year over year to $313.8 million, with adjusted EBITDA increasing nearly 15% to $71 million [10] - Outpatient rehabilitation division revenue increased 3.8%, driven by a corresponding 3.8% increase in patient volume [11] - Critical illness recovery hospital division revenue was $601.1 million, a decline of 1% from the same quarter last year [13] Market Data and Key Metrics Changes - The occupancy rate for inpatient rehab hospitals was lower than the prior year at 82%, while the same store occupancy rate remained stable at 86% [10] - The critical illness recovery hospital division's occupancy rate improved to 69% from 67% in the prior year [13] Company Strategy and Development Direction - The company plans to add 382 rehab beds by the end of 2027, with a focus on markets with strong volume and occupancy rates [6] - Upcoming openings include a 45-bed hospital in Temple, Texas, and a 30-bed critical illness recovery hospital in Memphis, Tennessee [6][7] - The company remains committed to delivering value to shareholders through stock repurchases and dividends [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the development pipeline and growing demand for inpatient rehab services [6] - The company is optimistic about the outpatient division's prospects, expecting improvements in EBITDA margins [29] - Management noted ongoing challenges with the LTACH reimbursement system but is hopeful for positive changes through dialogue with regulators [12][39] Other Important Information - The company repurchased over 5.7 million shares at an average price of $14.86, totaling $85.1 million [9] - A cash dividend of $0.0625 per share was declared, payable on August 28, 2025 [9] Q&A Session Summary Question: How did EBITDA per segment come in line versus internal expectations? - Management indicated that critical illness came in slightly lower than expectations, while inpatient rehab exceeded expectations, and they are comfortable with the reaffirmed guidance [22] Question: What is the strategy in states with favorable environments for inpatient rehab? - The company plans to engage with major systems in states like North Carolina to grow their post-acute network without immediate construction [24][26] Question: How is outpatient rehab expected to evolve throughout the year? - Management expects outpatient rehab to improve, with initiatives in scheduling expected to enhance EBITDA margins towards 10% [28][29] Question: What is the impact of the outlier threshold? - Management noted that the final rule for LTACHs included a slight improvement in the rate, but challenges remain with the reimbursement system [30][40] Question: What is the supply-demand picture in the critical illness recovery hospitals? - Management stated that demand for services remains strong, driven by demographics and medical technology, despite challenges with reimbursement [44] Question: What are the trends in labor costs across business lines? - Management reported improvements in employee rate increases, with a decrease in pressures from agency costs compared to previous years [48]