Select Medical Holdings Corporation Q4 FY2025 earnings call

• Take-private proposal: Received nonbinding indication of interest to acquire all outstanding shares, special committee of Board of Directors reviewing and evaluating, process ongoing.
• Inpatient rehabilitation business expansion: Added 150 beds in fourth quarter through various means, added 212 rehab beds in full year 2025, expect to add 399 beds across 2026 - 2027, opened several hospitals in early 2026 and has upcoming projects.
• Capital allocation: Board of Directors approved cash dividend of $0.0625 per share payable on 03/12/2026.
• Consolidated financial performance: All three divisions exceeded prior-year revenue in fourth quarter, total revenue grew more than 6% year over year, adjusted EBITDA declined 10%, earnings per common share from continuing operations was $0.16, adjusted earnings per common share from continuing operations was $0.16; full year revenue grew more than 5%, adjusted EBITDA was $493.2 million with 9% margin, earnings per common share from continuing operations was $1.16, adjusted earnings per share from continuing operations was $1.00

Inpatient rehab hospital division: Revenue increased over 15% year over year to $339.2 million, adjusted EBITDA rose 11% to $69.2 million. Revenue per patient day increased over 6%, average daily census grew nearly 10%, occupancy improved to 82% from 81% with same-store occupancy rising to 86% from 85%, adjusted EBITDA margin was 20.4% compared to 21.2% in prior year. Critical illness recovery hospital division: Revenue increased nearly 5% to $629.7 million while adjusted EBITDA grew 5% to $66.4 million from $63.1 million in prior year, adjusted EBITDA margin consistent with prior year at 10.5%, occupancy rate remained steady at 67%, admissions rising by 3%. Outpatient rehab division: Revenue increased to $324.6 million from $319.6 million in prior year, driven by nearly 5% growth in patient visits, net revenue per visit declined to $98 from $102, adjusted EBITDA was $11.2 million compared to $26.6 million last year, margin declining to 3.4% due to lower net revenue per visit and higher health insurance expense.

• Expect revenue for 2026 to be in the range of $5.6 billion to $5.8 billion.
• Adjusted EBITDA expected to be in the range of $520 million to $540 million.
• Fully diluted earnings per common share expected to fall in the range of $1.22 to $1.32.
• Capital expenditures expected to be in the range of $200 million to $220 million

• Higher health insurance expense year over year driven by elevated health-related costs, including higher-cost claimants, increased utilization of medical and pharmacy benefits, and cost escalation.
• Softness in some outpatient markets related to competitive issues and staffing challenges
• Impact of weather in first quarter on outpatient division
• Uncertainty around the take-private proposal process

Q: Ben Hendrix with RBC Capital Markets asked about higher health costs and impact on outpatient rehab business, parsing out variable discount, Medicare rate, mix pressure.

A: Michael Malatesta said health insurance expense impact for outpatient division was approximately $5 million, variable discount impact was approximately $6 million, remainder related to payer mix and softness in some markets Q: Justin D. Bowers with Deutsche Bank asked about special committee, strategic alternatives, timing, and weather impact.

A: Michael Malatesta said couldn't comment on special committee process, Justin D. Bowers asked about weather impact on segments, Michael Malatesta said little impact on inpatient divisions, some impact on outpatient Q: Ann Kathleen Hynes with Mizuho asked about why health insurance only impacted outpatient division, detail on $6 million variable discounts, softness in markets.

A: Michael Malatesta said health insurance impacted entire company but stuck out more in outpatient due to size, variable discount related to writing off older receivables, Thomas Mullen said looking at rate and staffing in soft markets Q: Joanna Gajuk with Bank of America asked about outpatient rehab segment commentary, Medicare rate increase impact, consolidated EBITDA shortfall, IRF segment margins.

A: Michael Malatesta said expected margins to improve in outpatient division, Thomas Mullen said Medicare rate increase in 2026 will help, Michael Malatesta talked about EBITDA shortfall components and IRF segment margin being related to startup loss Q: Albert Rice with UBS asked about high-cost outlier threshold, CMS TEAM demo impact, share repurchase, capital expenditures, AI applications.

A: Thomas Mullen said high-cost outlier threshold flat, minor impact from CMS TEAM demo on spinal cord patients, Michael Malatesta said share repurchase on hold due to take-private process, Thomas Mullen said business as usual on capital expenditures, Michael Malatesta and Thomas Mullen talked about evaluating AI for outpatient collections and clinical initiatives Q: William Sutherland with Benchmark Stonex asked about labor in critical illness, labor union activity, startup expense for IRF.

A: Michael Malatesta said labor agency rate settled, focused on labor allocation, Thomas Mullen said labor margin in line, no significant labor union activity threats, Michael Malatesta said startup expense for IRF relatively consistent in 2026