Consolidated Revenue: Increased over 2%. Adjusted EBITDA: Declined by 9% from $165.8 million to $151.4 million. Earnings Per Share: Increased by 33% to $0.44 from $0.33 in the prior year. Inpatient Rehab Division Revenue: Increased by 16%. Inpatient Rehab Division Adjusted EBITDA: Increased by 15%. Inpatient Rehab Division Average Daily Census: Increased by 6%. Outpatient Division Revenue: Increased by 1%. Outpatient Division Adjusted EBITDA: Declined by 3%. Outpatient Division Adjusted EBITDA Margin: Decreased from 8.2% to 7.9%. Critical Illness Recovery Hospitals Revenue: Decreased by 3%. Critical Illness Recovery Hospitals Adjusted EBITDA: Declined by 25%. Critical Illness Recovery Hospitals Adjusted EBITDA Margin: Decreased from 18% to 14%. Debt Outstanding: $1.8 billion at the end of the quarter. Cash on Balance Sheet: $53.2 million. Interest Expense: $29.1 million, down from $40.7 million in the prior year. Operating Cash Flow: Used $3.5 million in cash flows. Capital Expenditures: $52.3 million for property and equipment purchases. Stock Repurchase: 650,000 shares at an average price of $17.52, totaling $11.4 million. Dividend Declared: $0.0625 per share. 2025 Revenue Outlook: Expected to be in the range of $5.3 billion to $5.5 billion. 2025 Adjusted EBITDA Outlook: Expected to be in the range of $510 million to $530 million. 2025 Capital Expenditures Outlook: Expected to be in the range of $160 million to $200 million.

Warning! GuruFocus has detected 7 Warning Signs with SEM.

Release Date: May 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Select Medical Holdings Corp (NYSE:SEM) reported a 16% increase in revenue and a 15% increase in adjusted EBITDA for its Inpatient Rehab Hospital division, showcasing strong performance. The company plans to add 440 additional beds to its operations from Q2 2025 through the end of 2027, indicating a robust development pipeline. Earnings per common share from continuing operations increased by 33% to $0.44 for the first quarter, compared to $0.33 per share in the same quarter prior year. The outpatient division had a strong finish to the quarter, which has carried over into the second quarter, showing resilience despite earlier challenges. Select Medical Holdings Corp (NYSE:SEM) repurchased almost 650,000 shares of its stock, reflecting confidence in its financial position and future prospects.

Negative Points

The outpatient division was impacted by severe weather events and a 3% reduction in Medicare reimbursement, affecting its performance. The Critical Illness Recovery Hospital division faced challenges due to regulatory changes, including an increase in the high-cost outlier threshold and the 20% transmittal rule. Adjusted EBITDA declined by 9% from $165.8 million to $151.4 million, indicating a decrease in profitability. Revenue for the Critical Illness Recovery hospitals decreased by 3%, driven by a decline in rate per patient day and patient days. The adjusted EBITDA margin for the outpatient division decreased from 8.2% to 7.9%, reflecting margin pressure.

Story Continues

Q & A Highlights

Q: In the Inpatient Rehabilitation Facility (IRF) segment, you had strong results and an increase in occupancy. How should we think about occupancy for the rest of the year with new capacity coming online? A: Robert Ortenzio, Executive Chairman of the Board, Co-Founder: We expect occupancy to remain around 85% or higher, even with new business coming online. Our mature hospitals have consistently been in that range.

Q: Regarding the Long-Term Acute Care (LTAC) segment, you mentioned regulatory impacts. Can you quantify the magnitude of these impacts? A: Martin Jackson, Senior Executive Vice President of Strategic Finance and Operations: The high-cost outlier impact increased by about 100% from Q1 2024 to Q1 2025, which was higher than anticipated. The 20% transmittal rule also had a significant impact.

Q: Are there any strategies to mitigate the high-cost outlier and transmittal rule impacts in the LTAC segment? A: Robert Ortenzio: We are in ongoing discussions with regulatory bodies and legislators to address these issues. We aim to propose changes to policies that could mitigate the severe impacts we're experiencing.

Q: Can you provide an update on initiatives to improve margins in the Outpatient Rehab division? A: Martin Jackson: We have rolled out new technology in Q1, which is showing benefits. We expect continued improvements throughout the year. Additionally, we are seeing 4% to 6% increases in commercial contracting rates.

Q: With the strong performance in the IRF segment, are there plans to accelerate growth further to diversify away from LTAC? A: Robert Ortenzio: Yes, we are accelerating growth beyond the projects currently under construction. We have additional projects in the pipeline that will drive more robust growth in the rehab side.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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