Select Medical Holdings Corporation Q2 FY2025 earnings call

• U.S. News & World Report recognized 8 of Select Medical's hospitals as nation's best, with Kessler Institute for Rehabilitation ranked #4 for 33rd consecutive year.
• Continued success in executing development strategy: opened new hospitals, expanded units, and grew clinic count in outpatient rehab.
• Plan to add 382 rehab beds and 30 critical illness beds by end of first half of 2027, with specific openings planned in 2025-2027.
• Repurchased over 5.7 million shares at an average price of $14.86, total purchase price $85.1 million. Board declared cash dividend of $0.0625 per share payable August 28, 2025.
• Discussed challenges in LTAC reimbursement system, including 56% reduction in Medicare spend, 24% closure rate of LTAC hospitals, and engagement with regulators for policy reforms.

Inpatient Rehab Hospital Division

• Revenue: Rose 17% year-over-year to $313.8 million, adjusted EBITDA increased nearly 15% to $71 million, adjusted EBITDA margin declined slightly to 22.6% from 23.1% in the prior year. Occupancy rate 82%, same-store occupancy rate 86%.

Outpatient Rehabilitation Division

• Revenue increased 3.8%, driven by patient volume, net revenue per visit stable at $100. Adjusted EBITDA increased 6.1% year-over-year with division's adjusted EBITDA margin increasing to 9.3% from 9.1%.

Critical Illness Recovery Hospitals Division

• Revenue was $601.1 million this quarter, a decline of 1% from the same quarter last year. Adjusted EBITDA declined 22% year-over-year, primarily due to regulatory changes. Occupancy rate improved to 69% from 67% in the prior year. Adjusted EBITDA margin was 9.4% for the quarter compared to 11.9% in the prior year.

• Reaffirmed 2025 business outlook: revenue in range of $5.3 billion to $5.5 billion, adjusted EBITDA in range of $510 million to $530 million, adjusted earnings per common share in range of $1.09 to $1.19.
• Narrowed capital expenditures expectation to range of $180 million to $200 million.

• LTAC industry face 56% reduction in Medicare spend since 2013 LTAC criteria policy, with over 100 LTAC hospitals closed (24% closure rate).
• High-cost outlier threshold established over 20 years ago is outdated, leading to significant reimbursement reduction for higher acuity patients.
• Impact of 20% transmittal rule on LTAC reimbursement.

Q: Talk about how EBITDA per segment came in line versus internal expectations, specifically with critical illness and guidance.

A: Critical illness came slightly lower than internal expectations, but inpatient rehab exceeded expectations; overall comfortable with reaffirmed guidance.

Q: Strategy in states with more favorable CON environment for inpatient rehab.

A: Will spend more time in such states but continue joint venture strategy, engaging with major systems interested in growing post-acute network.

Q: Outlook on outpatient rehab evolution, EBITDA margins, and LTAC margin seasonality.

A: Outpatient rehab expected to improve, EBITDA margin to approach 10%; LTAC margin seasonality remains similar with Q1 strongest, Q3 most challenging, Q4 ramping up.

Q: Progress on 20% transmittal rule and CMS policy initiatives.

A: CMS is more open to dialogue, but 20% transmittal impact baked into guidance; hope for policy changes but success not guaranteed.

Q: Seasonality of LTAC margins and startup costs in IRF segment.

A: LTAC margin seasonality relatively same, with Q1 strongest; startup costs for IRF segment back of year around $10 million, consistent with prior years.