Select Medical’s Earnings Call: Growth Amid Challenges

Select Medical ((SEM)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Select Medical showcased a mixed sentiment, with notable achievements in the rehabilitation segment and financial performance, yet challenges in critical illness recovery hospitals due to reimbursement issues and regulatory changes. The company reported increased revenue and stock repurchases, but the Medicare rate reduction impacted revenues, indicating varied results across different divisions.

Recognition of Top Rehabilitation Hospitals

Select Medical celebrated the recognition of eight of its hospitals among the nation’s best by U.S. News & World Report. Notably, the Kessler Institute for Rehabilitation achieved a prestigious #4 ranking, highlighting the company’s commitment to excellence in patient care.

Expansion and Development Strategy

The company continues to execute its development strategy successfully, with plans to open new hospitals and expand existing ones. By the first half of 2027, Select Medical expects to add 382 rehab beds, underscoring its focus on growth and capacity enhancement.

Stock Repurchase Program

In a move to enhance shareholder value, Select Medical repurchased over 5.7 million shares at a total cost of $85.1 million. Additionally, the company declared a cash dividend of $0.0625 per share, reflecting its commitment to returning capital to shareholders.

Revenue Growth

Select Medical reported a nearly 5% increase in consolidated revenue, reaching $1.3 billion. The adjusted EBITDA also saw an improvement, rising to $125.4 million, indicating robust financial health and operational efficiency.

Inpatient Rehab Hospital Division Performance

The inpatient rehab hospital division experienced significant growth, with revenue climbing 17% year-over-year to $313.8 million. Adjusted EBITDA for this division increased nearly 15%, showcasing strong performance and demand in this segment.

Outpatient Rehabilitation Growth

Driven by increased patient volume, the outpatient rehabilitation segment saw a 3.8% rise in revenue, with adjusted EBITDA growing 6.1% year-over-year, highlighting the division’s steady expansion and success.

Critical Illness Recovery Hospitals Revenue Decline

The critical illness recovery hospitals faced a 1% decline in revenue compared to the same quarter last year, with adjusted EBITDA dropping 22% year-over-year. This decline is attributed to regulatory changes and reimbursement challenges.

LTAC Reimbursement System Challenges

Select Medical is navigating headwinds in the LTAC reimbursement system, impacted by high-cost outlier thresholds and regulatory changes, leading to a significant reduction in reimbursement.

Medicare Rate Reduction Impact

The company experienced a $3 million revenue decrease due to a 3.2% reduction in Medicare physician fee schedule rates, affecting the overall financial performance.

Increased Salary, Wage, and Benefits Ratio

The critical illness recovery hospitals division saw a slight increase in the salary, wage, and benefits to revenue ratio, now at 58%, reflecting rising costs in this segment.

Forward-Looking Guidance

Looking ahead, Select Medical anticipates revenue for 2025 to range between $5.3 billion and $5.5 billion, with adjusted EBITDA expected between $510 million and $530 million. The company plans to expand its inpatient rehab division, forecasting the addition of 382 rehab beds by 2027. Despite challenges, Select Medical remains focused on strategic growth and addressing reimbursement issues.

In summary, Select Medical’s earnings call presented a blend of positive achievements and challenges. While the rehabilitation segments showed strong growth and recognition, the critical illness recovery hospitals faced revenue declines due to regulatory and reimbursement issues. The company’s forward-looking guidance indicates a commitment to growth and overcoming industry challenges.