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SELECT MEDICAL HOLDINGS CORP (SEM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered stable topline with continued segment divergence: consolidated revenue rose 4.5% YoY to $1.34B and EPS from continuing operations increased 88% YoY to $0.32, while Adjusted EBITDA was roughly flat at $125.4M .
  • Results vs Wall Street: EPS beat consensus ($0.32 vs $0.24*) and revenue was a slight miss ($1,339.6M vs $1,348.5M*); outpatient EBITDA improved, IRF remained strong, and critical illness (LTACH) margins were pressured by regulatory changes .
  • Guidance reaffirmed: FY2025 revenue $5.3–$5.5B, Adjusted EBITDA $510–$530M, EPS $1.09–$1.19; management narrowed CapEx to $180–$200M .
  • Potential stock reaction catalysts: CMS finalized FY2026 LTACH rule with a smaller-than-proposed increase to the high-cost outlier threshold and a 2.9% rate increase; robust IRF bed expansion pipeline; active buybacks and dividend support .

What Went Well and What Went Wrong

What Went Well

  • IRF growth and execution: IRF revenue +17.2% YoY to $313.8M; Adjusted EBITDA +14.7% to $71.0M; margins solid at 22.6%; management highlighted multiple U.S. News top rankings and strong pipeline openings across TX, FL, OH and beyond .
  • Outpatient resilience: Outpatient revenue +3.8% YoY to $327.6M, visits +3.8%, EBITDA +6.1% with margin expansion to 9.3%; management sees systems upgrades and scheduling initiatives driving margin toward ~10% in late 2025/early 2026 .
  • Capital returns and liquidity: Repurchased ~5.7M shares for ~$85.1M and declared a $0.0625 dividend; $319.1M revolver availability, net leverage 3.57; reaffirmed full-year outlook .

What Went Wrong

  • LTACH (critical illness) margin pressure: Revenue down 0.6% YoY to $601.1M; Adjusted EBITDA -21.6% YoY to $56.3M; margin compressed to 9.4% amid high-cost outlier threshold increases and the 20% transmittal rule .
  • Medicare headwinds in outpatient: A 3.2% cut to the Medicare physician fee schedule reduced revenue by ~$3M in the quarter, partly offsetting commercial rate gains .
  • Longer DSO and sequential softness vs Q1: DSO at 62 days (vs 58 at 12/31/24) and revenue eased sequentially ($1,339.6M vs $1,353.2M); management cited LTACH seasonality and policy headwinds .

Financial Results

Consolidated KPIs and P&L

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,312.6 $1,353.2 $1,339.6
EPS (Continuing Ops, Diluted $)$(0.19) $0.44 $0.32
Adjusted EBITDA ($USD Millions)$116.0 $151.4 $125.4

Segment Performance

Segment MetricQ4 2024Q1 2025Q2 2025
Critical Illness Revenue ($mm)$600.4 $637.0 $601.1
Critical Illness Adj. EBITDA ($mm)$63.1 $86.6 $56.3
Critical Illness Adj. EBITDA Margin (%)10.5% 13.6% 9.4%
IRF Revenue ($mm)$294.4 $307.4 $313.8
IRF Adj. EBITDA ($mm)$62.3 $70.4 $71.0
IRF Adj. EBITDA Margin (%)21.2% 22.9% 22.6%
Outpatient Revenue ($mm)$319.6 $307.3 $327.6
Outpatient Adj. EBITDA ($mm)$26.6 $24.3 $30.5
Outpatient Adj. EBITDA Margin (%)8.3% 7.9% 9.3%

Operating KPIs

KPIQ4 2024Q1 2025Q2 2025
Critical Illness Occupancy (%)67% 73% 69%
Critical Illness Rev/Patient Day ($)$2,183 $2,179 $2,148
Critical Illness Admissions (000s)8.691 9.351 8.966
IRF Occupancy (%)81% 82% 82%
IRF Rev/Patient Day ($)$2,177 $2,234 $2,236
IRF Admissions (000s)8.626 8.848 9.102
Outpatient Working Days64 63 64
Outpatient Revenue/Visit ($)$102 $102 $100
Outpatient Visits (000s)2,812 2,710 2,934

Estimates vs Actuals (Wall Street Consensus – S&P Global)

MetricActual Q2 2025Consensus Q2 2025# of Estimates
EPS (Primary) ($)$0.32 $0.237*6*
Revenue ($USD Millions)$1,339.6 $1,348.5*5*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY2025$5.4–$5.6 $5.3–$5.5 Lowered
Adjusted EBITDA ($M)FY2025$520–$540 $510–$530 Lowered
EPS (Adjusted, $)FY2025$1.09–$1.19 $1.09–$1.19 Maintained
CapEx ($M)FY2025$160–$200 $180–$200 Narrowed higher midpoint
Dividend ($/sh)Quarterly$0.0625 (ongoing) $0.0625 declared for Q2 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
LTACH reimbursement (outlier threshold, 20% transmittal)Operators managed 2023→2024 ~$20k threshold increase; 2024→2025 similar magnitude; margins expected “relatively stable” in 2025 . Q1: Outlier impact higher than anticipated; 20% transmittal started in late 2024; regulatory headwinds drove LTACH EBITDA decline .Management cites continued headwinds; FY2026 final rule improved vs proposed (2.9% rate; smaller threshold increase to $78,936); ongoing dialogue with CMS; Q2 LTACH EBITDA down 22% YoY .Slightly improving outlook vs proposed, but still pressured
IRF growth and capacityRecord development pace; IRF margins constrained in 2025 due to start-up losses but expected double-digit EBITDA growth in 2026–2027 . Q1 IRF revenue +15.7%, EBITDA +14.7% .Q2 IRF revenue +17.2%, EBITDA +14.7%; occupancy lower due to new hospitals; strong pipeline openings in 2H25/2026 .Positive growth trajectory
Outpatient optimization and Medicare headwindsQ4 margin improved to 8.3% on commercial rates and productivity; technology rollout planned for Jan 2025 . Q1: storms and Medicare cut (-3.2%) impacted EBITDA; net revenue/visit up; margin 7.9% .Q2 EBITDA +6.1% YoY, margin 9.3%; management targeting ~10% margin with scheduling and system upgrades .Improving margins despite Medicare cuts
Labor costsAgency nurse utilization normalized; SWB % of revenue improved in late 2024 . Q1: wage growth moderating to ~3% .LTACH labor margin slightly deteriorated due to revenue pressure; overall employee rate trends improving .Stabilizing costs, selective pressure
Capital allocation / leverageRefinancing completed; leverage ~3.18x at YE 2024; targeted ~3.0–3.1x in 2025 .Net leverage 3.57; $319.1M revolver availability; repurchases and dividend ongoing; outlook reaffirmed .Balanced returns within leverage guardrails

Management Commentary

  • “Our inpatient rehab hospital division… delivered another exceptional quarter. Revenue rose 17% year-over-year to $313.8 million… adjusted EBITDA… $71 million… margin… 22.6%.” — Robert Ortenzio .
  • “Outpatient… net revenue per visit remains stable at $100… improvements in commercial managed care… offset by a 3.2% reduction in Medicare… caused a $3 million decrease… EBITDA increased 6.1% YoY… margin 9.3%.” — Robert Ortenzio .
  • “LTACH… decrease continues to reflect the impact of the increase in the high-cost outlier threshold and the 20% transmittal rule… adjusted EBITDA declined 22% YoY.” — Robert Ortenzio .
  • “CMS issued the final LTACH rules for fiscal year 2026… standard federal rate of 2.9%… high-cost outlier threshold increased… less than proposed.” — Robert Ortenzio .
  • “We repurchased over 5.7 million shares… $85.1 million. Our board… declared a cash dividend of $0.0625 per share.” — Robert Ortenzio .
  • “We are reaffirming our business outlook for 2025… revenue $5.3–$5.5B, adjusted EBITDA $510–$530M, EPS $1.09–$1.19… CapEx $180–$200M.” — Michael Malatesta .

Q&A Highlights

  • LTACH performance vs expectations: Critical Illness slightly below internal expectations; IRF exceeded; overall guidance reaffirmed .
  • Outpatient margin trajectory: Management expects continued improvement with scheduling/system upgrades; aiming to exceed/broach ~10% EBITDA margin into late 2025/early 2026 .
  • Policy environment: CMS openness to dialogue noted; FY2026 final rule less punitive than proposed; transmittal rule mitigation likely via regulatory engagement rather than congressional action .
  • Seasonality: LTACH margins seasonal—Q1 strongest; Q3 most challenging; expect similar seasonality under current rules .
  • Start-up costs: IRF start-up costs ~<$10M in 2H25; consistent ~$20M per annum historically .

Estimates Context

  • Q2 2025 EPS beat: $0.32 actual vs $0.24* consensus; revenue slight miss: $1,339.6M actual vs $1,348.5M* consensus .
  • Prior quarter context: Q1 2025 EPS roughly in line ($0.44 actual vs $0.447*); revenue below ($1,353.2M actual vs $1,395.4M*) .
  • Estimate participation: 6 EPS estimates and 5 revenue estimates for Q2 2025*.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • IRF strength offsets LTACH policy headwinds; expect IRF-driven growth to continue with robust bed openings through 2026–2027; margin drag in 2025 should moderate as new facilities mature .
  • LTACH reimbursement remains a headwind, but FY2026 final rule is less negative than proposed; still, high-cost outlier dynamics likely cap near-term margin expansion until policy adjustments or mix shifts occur .
  • Outpatient margins improving via rate gains and systems initiatives despite Medicare cuts; watch for margin crossing ~10% in late 2025/early 2026 as scheduling upgrades scale .
  • Capital returns intact: ongoing buybacks and dividend, with reaffirmed FY2025 outlook and narrowed CapEx; liquidity sufficient with revolver availability and manageable leverage at ~3.6x .
  • Near-term trading lens: EPS beat and policy moderation may support sentiment, but LTACH margin trajectory and sequential revenue softness could temper upside; catalysts include IRF openings and further outpatient efficiency gains .
  • Medium-term thesis: IRF expansion plus outpatient optimization underpin EBITDA growth from 2026 onward; policy engagement could unlock incremental LTACH improvement; capital allocation provides cushion .

The following sections draw on prior two quarters for trend analysis:

  • Q1 2025: Revenue $1,353.2M; EPS $0.44; Adjusted EBITDA $151.4M; IRF strong; LTACH pressured; guidance adjusted lower .
  • Q4 2024: Revenue $1,312.6M; adjusted EPS $0.18; Adjusted EBITDA $116.0M; refinancing completed; IRF margins temporarily impacted by start-up/integration; outpatient margin improved .