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SELECT MEDICAL HOLDINGS CORP (SEM)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue rose 2.4% to $1.35B while adjusted EBITDA fell 8.7% to $151.4M; EPS from continuing operations increased 33% to $0.44 as lower interest expense and reduced G&A offset segment mix .
  • Consensus comparison: revenue modest miss ($1.35B vs $1.40B*) and EPS slight miss ($0.44 vs $0.447*), driven largely by LTACH regulatory headwinds and outpatient storms/Medicare rate cut [GetEstimates]*.
  • Guidance cut: FY25 revenue lowered to $5.3–$5.5B (from $5.4–$5.6B) and adjusted EBITDA to $510–$530M (from $520–$540M); EPS maintained at $1.09–$1.19, signaling cost/interest relief but ongoing reimbursement pressures .
  • Catalysts: accelerating IRF capacity additions and stable mature occupancy (85%+), proposed FY26 CMS rate increases (IRF +2.4%; LTACH +2.7%), dividend ($0.0625) and active buybacks support sentiment amid LTACH regulatory debate .

What Went Well and What Went Wrong

What Went Well

  • IRF outperformed: revenue +15.7% to $307.4M, adjusted EBITDA +14.7% to $70.4M with 22.9% margin; management highlights strong pipeline and mature occupancy 85%+ .
  • Outpatient revenue per visit increased to $102 (+3% YoY) with commercial rate gains; storms aside, division ended March ahead and momentum carried into Q2 .
  • Balance sheet/returns: interest expense down to $29.1M (from $40.7M), dividend declared ($0.0625) and ~650k shares repurchased at $17.52, enhancing capital return profile .

What Went Wrong

  • LTACH (critical illness) pressured by reimbursement changes: revenue -2.9% to $637.0M; adjusted EBITDA -25% to $86.6M; margin compressed to 13.6% (17.7% prior) due to higher high‑cost outlier threshold and 20% transmittal rule .
  • Outpatient volume headwinds: severe winter storms ($4M impact) and 3.2% Medicare fee schedule cut ($2.6M impact) modestly reduced EBITDA margin to 7.9% (8.2% prior) .
  • Guidance trimmed: FY25 revenue and adjusted EBITDA ranges lowered on LTACH dynamics; management noted late flu season and heavier-than-anticipated outlier/transmittal impacts early in quarter .

Financial Results

Consolidated Trend vs Prior Quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,761.2 $1,312.6 $1,353.2
EPS from Continuing Operations ($)$0.43 $0.18 (Adjusted EPS) $0.44
Adjusted EBITDA ($USD Millions)$205.5 $116.0 $151.4

Actuals vs Wall Street Consensus

MetricQ4 2024 Estimate*Q4 2024 ActualQ1 2025 Estimate*Q1 2025 Actual
Revenue ($USD Millions)$1,502.6*$1,312.6 $1,395.4*$1,353.2
Primary EPS ($)$0.245*$0.18 (Adjusted EPS) $0.447*$0.44

*Values retrieved from S&P Global.

Segment Breakdown (Q1 2025 vs Q1 2024)

SegmentRevenue ($USD Millions)YoY %Adjusted EBITDA ($USD Millions)YoY %Adjusted EBITDA Margin
Critical Illness Recovery Hospital$637.0 -2.9% $86.6 -25.3% 13.6% (vs 17.7%)
Rehabilitation Hospital$307.4 +15.7% $70.4 +14.7% 22.9% (vs 23.1%)
Outpatient Rehabilitation$307.3 +1.4% $24.3 -2.6% 7.9% (vs 8.2%)

KPIs (Q1 2025 vs Q1 2024)

Segment KPIQ1 2024Q1 2025
Critical Illness – Patient Days294,622 291,324
Critical Illness – Admissions9,529 9,351
Critical Illness – Occupancy71% 73%
Critical Illness – Revenue per Patient Day ($)$2,219 $2,179
IRF – Patient Days116,844 122,822
IRF – Admissions8,275 8,848
IRF – Revenue per Patient Day ($)$2,096 $2,234
IRF – Occupancy87% 82%
Outpatient – Visits2,735,126 2,709,964
Outpatient – Revenue per Visit ($)$99 $102
Outpatient – Working Days64 63

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$5.4B–$5.6B $5.3B–$5.5B Lowered
Adjusted EBITDAFY 2025$520M–$540M $510M–$530M Lowered
Fully Diluted EPSFY 2025$1.09–$1.19 $1.09–$1.19 Maintained
Capital ExpendituresFY 2025N/A disclosed$160M–$200M New disclosure
DividendNear-term$0.0625 declared (Feb) $0.0625 declared (Apr) Maintained
Buybacks2025 programUp to $1.0B authorized, cumulative $600.3M through 12/31/24 649,804 shares in Q1 at $17.52; cumulative $611.7M through 3/31/25 Ongoing execution

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
LTACH regulatory headwindsNot highlighted 20% transmittal implemented in Q4; set stage for 1Q impact (referenced) High-cost outlier threshold up ~100% YoY and heavy transmittal impact; margin down to 14% Worsened in 1Q; expected easing post respiratory season
IRF performance & capacityIRF revenue +14.4% and EBITDA +12.1% IRF mixed margin but strong revenue growth IRF revenue +15.7%; pipeline adding 440 beds through 2027; mature occupancy ~85%+ Accelerating growth; stable occupancy
Outpatient operationsEBITDA +7.5%; rev/visit $101 EBITDA +18.2%; rev/visit $102 Storms ($4M) and Medicare -3.2% ($2.6M) headwinds; rev/visit $102; tech rollout aiding margins Near-term headwinds; improving run-rate
CMS reimbursement outlookNot discussedNot discussedProposed FY26 rate increases: IRF +2.4%; LTACH +2.7% (offset by outlier threshold increase) Potential tailwind (rates) vs continued outlier pressure
Technology initiatives (Outpatient)Not highlightedNot highlightedNew software rolled out in Q1; ongoing releases; commercial contracting +4%–6% Positive trajectory

Management Commentary

  • “Our inpatient rehab division had a very good first quarter and continues to exceed our expectations… We are very excited about the significant growth of this business line for the foreseeable future.”
  • “Our outpatient division was impacted by severe weather events… along with a 3% reduction in Medicare reimbursement… [but] had a strong finish to the quarter, which has carried over into the second quarter.”
  • “Approximately 2/3 of Critical Illness EBITDA miss to prior year was a result of the regulatory changes comprised of the increase to the outlier threshold and the 20% transmittal rule.”
  • “Between the specific projects… we plan to add 440 additional beds to our operations from Q2 2025 through the end of 2027.”
  • “Interest expense was $29.1 million in the first quarter… We are slightly adjusting our business outlook for 2025 and now expect revenue… $5.3–$5.5 billion… Adjusted EBITDA… $510–$530 million… adjusted EPS… $1.09–$1.19. Capex… $160–$200 million.”

Q&A Highlights

  • IRF occupancy expectations: management targets ~85%+ even with new capacity; mature facilities sustaining mid‑80s utilization .
  • LTACH quantification: high-cost outlier cost ~100% increase vs Q1 2024; 20% transmittal impact up ~480% vs Q4 2024; heavier than anticipated early in quarter .
  • Mitigation and outlook: LTACH outliers seasonally higher in Q1 due to pulmonary acuity; expect drop in lower-acuity quarters .
  • Policy engagement: ongoing advocacy with new CMS leadership and legislative stakeholders to address outlier/transmittal mechanics .
  • Outpatient margin initiatives: technology rollout already delivering benefits; commercial rate increases 4%–6% embedded in expectations .

Estimates Context

  • Q1 2025: Revenue modest miss ($1,353.2M vs $1,395.4M*), EPS slight miss ($0.44 vs $0.447*), reflecting LTACH rate pressure and storms/Medicare cut; IRF strength partially offset [GetEstimates]*.
  • Q4 2024: Revenue and EPS came in below consensus ($1,312.6M vs $1,502.6M*; $0.18 vs $0.245*), consistent with the transmittal rule introduction and one‑time items cited in the period [GetEstimates]*.
  • Implications: Street models likely to trim LTACH revenue/margins and lift IRF contribution; FY25 EBITDA revision already reflected by guidance.

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • IRF is the growth engine: double-digit revenue/EBITDA growth and a robust bed expansion pipeline should underpin mix shift and multi‑year earnings support .
  • LTACH reimbursement changes are the central risk: outlier/transmittal mechanics materially compress margins; expect seasonal moderation but policy remains the swing factor .
  • Outpatient margin recovery contingent on weather normalization, tech productivity, and commercial rate lifts; Medicare headwind partly offsets but rev/visit trend is positive .
  • FY25 guide cut frames near‑term expectations: revenue/EBITDA ranges lowered while EPS held, aided by lower interest/G&A; monitor 2H cadence for stabilization .
  • Capital returns provide floor: dividend ($0.0625) and ongoing buybacks (~$11.4M in Q1) complement deleveraging after 2024 refinancing .
  • Watch CMS final rules (late Jul/Aug): proposed rate increases are constructive, but the high‑cost outlier threshold trajectory is the key determinant for LTACH margins .
  • Near-term trading setup: prints that show LTACH margin stabilization and IRF occupancy scaling toward 85%+ likely to drive relief; further policy clarity is a material catalyst .