Select Medical Holdings Corporation Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Deployment of Capital: Repurchased almost 650,000 shares at an average price of $17.52, total $11.4 million. Board declared a cash dividend of $0.6625 per share.
• Development Pipeline: Strong in inpatient rehab with multiple openings and upcoming projects, including a 45-bed Rehab Hospital in Temple, Texas, and others in various locations.
• Financials: Consolidated revenue up over 2%, adjusted EBITDA declined by 9% to $151.4 million. Earnings per common share from continuing operations increased 33% to $0.44.

Segment Performance

• Inpatient Rehab Division: Had a very good first quarter. Revenue increased 16%, adjusted EBITDA 15%, average daily census 6%. Adjusted EBITDA margin was 23%, in line with prior year. Rate per patient day increased by 7%. Occupancy was 82%, with same-store occupancy at 87%.
• Outpatient Division: Impacted by severe weather events and 3% reduction in Medicare reimbursement. Revenue increased 1% driven by net revenue per visit increase from $99 to $102. Adjusted EBITDA declined 3%.
• Critical Illness Recovery Hospital Division: Impacted by late flu season, increased high cost outlier threshold, and 20% transmittal rule. Revenue decreased 3%. Adjusted EBITDA declined 25%, with margin at 14% compared to 18% prior year.

Guidance

• 2025 revenue expected in the range of $5.3 to $5.5 billion.
• Adjusted EBITDA expected in the range of $510 million to $530 million.
• Adjusted earnings per common share expected in the range of $1.09 to $1.19.
• Capital expenditures expected in the range of $160 to $200 million.

Risks

• Outpatient division impacted by severe weather events and 3% reduction in Medicare reimbursement.
• Critical illness recovery hospital division impacted by late flu season, increased high cost outlier threshold, and 20% transmittal rule.

Q: In IRF, how should we be thinking about occupancy for the rest of the year with new capacity coming online?

A: Justin, I think it is just stay around in that 85% plus capacity even with the new business coming online. Because as a new business comes online, we still have some other businesses still maturing. But, again, on one of our mature hospitals involved in that 85 plus percent range.

Q: On LTACH, any update or changing thoughts on mitigation strategies with regards to high cost outlier and the transmittal rule?

A: Yes, Ben. To your and there are two questions there. To both questions. I think when you talk about high cost outliers, typically, our Q1 is higher than the balance of the year. Just because the acuity of the patient is pulmonary patients that we are dealing with. So it is typically higher during that period of time, so we should see that drop. So, you know, it is part and parcel the same answer to your two questions.

Q: What do start-up costs look like this year and versus last year?

A: Bill, this is Marty. Good morning. Starting losses are relatively the same from last year to this year.

Q: In IRF, any plans to accelerate growth to diversify away from LTAC given regulatory challenges?

A: Yeah. Thanks, Anne. On the development side, I think it's important to note that all the projects that we listed or that I talked about in my prepared remarks those are projects that are signed under construction, and will open. It doesn't include all the other projects that are in our pipeline that will be signed, will be committed to. And some of those could come in along those same time frames. So the short answer to your question is yes, there is more of an acceleration going on than even that you would see. To drive more robust growth on the rehab side.

Q: On CMS front, what type of advocacy do you have with CMS to offset outlier and transmittal rule pressures?

A: Well, you gotta remember that the new CMS team is just so recently installed. I mean, the new CMS administrator was just confirmed a couple of weeks ago. So it's very early for them to be in place. And to get their hands dirty on all the policies. And they have obviously a lot of things going on that we can assume are bigger issues than the LTACH space. Not even including what's being talked about by Medicaid and all the issues with Medicare Advantage and so it was presumptuous of me to think that we could be moved to the top of their list. But, you know, we have a policy of always engaging with CMS. We did with the last CMS administration not with a lot of great success on these policies. So I'm optimistic that maybe we can do better under the new administration.