Select Medical(US:SEM)2023-08-04 15:56Financial Data and Key Metrics Changes - Overall revenue grew by 6% year-over-year, with adjusted EBITDA increasing by 21% compared to Q2 of the prior year [10][11] - Total company adjusted EBITDA was $219.5 million compared to $181 million in the prior year, with a consolidated adjusted EBITDA margin of 13.1% for Q2 compared to 11.4% in the prior year [11][27] - Earnings per fully diluted share were $0.61 for the second quarter compared to $0.43 per share in the same quarter of the prior year [27] Business Line Data and Key Metrics Changes - The critical illness recovery hospital division saw a 227% increase in adjusted EBITDA, with a salary, wages, and benefit to revenue ratio of 56.7% [12][19] - The inpatient rehab hospital division experienced a 5% increase in net revenue, with patient volumes increasing by 1% and an adjusted EBITDA margin of 23% [23] - Concentra reported a 6% increase in net revenue driven by a 2% increase in volume and a 6% increase in rate, with an adjusted EBITDA margin of 21.5% [25] - The outpatient rehabilitation division experienced a 6% increase in net revenue, with patient volumes increasing by 11% but a decline in rate from $103 to $100 per visit [26] Market Data and Key Metrics Changes - The critical illness recovery hospital division's occupancy rate increased to 68% from 67% in the prior year [19] - Nursing agency rates decreased by 31% and utilization decreased by 44% compared to the prior year [20] - The inpatient rehab hospital division's occupancy was 84% compared to 86% in the prior year [23] Company Strategy and Development Direction - The company plans to continue focusing on incremental growth in existing markets rather than pursuing larger transactions [44] - There is a strong pipeline of growth opportunities, including new hospital openings and joint ventures [14][15][18] - The company aims to reduce SW&B as a percentage of revenue back to historical rates of 52% through contract negotiations and revenue growth [61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of current volume trends in IRFs and outpatient rehab, indicating that the growth is not solely due to deferred care from the pandemic [70] - The company anticipates continued improvements in labor costs and operational efficiencies [31][62] - Adjusted earnings per share are expected to be in the range of $1.86 to $2.03, with revenue projected between $6.55 billion and $6.7 billion for 2023 [40] Other Important Information - The company completed a refinancing transaction on July 31, extending the maturity of its term loan and revolving credit facility [36] - Capital expenditures are expected to be in the range of $190 million to $210 million for 2023 [41] Q&A Session Summary Question: Clarification on LTAC and upcoming openings - Management confirmed that the next critical illness recovery hospital opening will be in 2024, with no additional announcements for this year [43] Question: Outpatient strategy and appetite for larger transactions - Management indicated no current appetite for larger transactions, focusing instead on incremental growth through joint ventures [44] Question: CapEx and deleveraging strategy - Management expects to reduce debt through free cash flow and anticipates eliminating borrowings on the revolver by the end of 2024 [48] Question: Financial impact of LTAC final rule - Management acknowledged headwinds from the high-cost outlier increase but emphasized strategies to mitigate the impact [51] Question: Rate increases and case mix impact - Management expects Medicare rates to increase by approximately 3.5%, with better increases anticipated on the commercial side [56] Question: Sustainability of volume trends - Management believes the current volume trends are sustainable and not merely a result of pent-up demand from the pandemic [70]