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SM

SELECT MEDICAL HOLDINGS CORP (SEM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue rose 7.8% year over year to $1.3126B; GAAP diluted EPS from continuing operations was a loss of $0.19 due to a one-time $45.9M stock comp acceleration and $17.9M loss on debt retirement; adjusted EPS from continuing operations increased 50% to $0.18 .
  • Adjusted EBITDA grew 3.8% to $116.0M; critical illness recovery hospital margins expanded, outpatient rehab improved, while rehab hospital margins compressed on start-up losses and hurricane-related referral disruptions .
  • 2025 outlook: revenue $5.4–$5.6B, Adjusted EBITDA $520–$540M, EPS $1.09–$1.19; capex $160–$200M; leverage expected around ~3.0–3.1x in 2025 before falling in 2026 as new beds mature .
  • Dividend declared at $0.0625 per share (payable Mar 13, 2025); the lower run-rate vs prior quarterly $0.125 reflects post-spin capital allocation and refinancing actions (new $1.05B term loan, $550M 6.25% notes) that reduced interest expense year-over-year .

What Went Well and What Went Wrong

  • What Went Well

    • Critical illness recovery hospitals delivered revenue growth (+5.9% YoY) and margin expansion to 10.5%, aided by stabilizing agency nurse utilization and improved rate per day (+7%) .
    • Outpatient rehab achieved revenue (+7.2% YoY) and Adjusted EBITDA growth (+18.2%), with net revenue per visit up to $102 amid better commercial rates despite Medicare pressure .
    • Labor cost control: SWB as % of revenue fell to 56.9% in Q4 and 55.9% for FY 2024 in critical illness; nursing bonus dollars down 15% YoY in Q4 and 20% for the year .

  • What Went Wrong

    • Rehab hospital margins declined to 21.2% in Q4 (vs 25.5% prior year) due to start-up losses, integration costs (OKC acquisition), and suppressed referrals from a partner impacted by Hurricane Helene (since recovered in Q1 2025) .
    • GAAP EPS swung to a loss on non-recurring items tied to the Concentra distribution and refinancing (stock comp acceleration $45.9M and loss on early debt retirement $17.9M) .
    • DSO increased to 58 days at year-end (improved vs Q3’s 60 and Q1’s 62) as Change Healthcare’s earlier cyber incident backlog continued to unwind, but remains an area to monitor .

Financial Results

  • Consolidated and continuing operations comparisons
MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$1,218.1 $1,281.7 (ex-Concentra, derived from $1,759.7 total minus $477.9 Concentra )$1,271.6 (ex-Concentra, derived from $1,761.2 total minus $489.6 Concentra )$1,312.6
Diluted EPS — Continuing Ops ($)$0.12 n/a (pre-spin reported includes Concentra)n/a (pre-spin reported includes Concentra)$(0.19)
Adjusted EPS — Continuing Ops ($)$0.12 n/a (pre-spin)n/a (pre-spin)$0.18
Adjusted EBITDA ($USD Millions)$111.8 $124.7 (ex-Concentra, derived from $226.3 total minus $101.6 Concentra )$103.9 (ex-Concentra, derived from $205.5 total minus $101.6 Concentra )$116.0
Adjusted EBITDA Margin (%)9.2 (derived from $111.8 / $1,218.1) 9.7 (derived from $124.7 / $1,281.7) 8.2 (derived from $103.9 / $1,271.6) 8.8 (derived from $116.0 / $1,312.6)

Notes: Q2/Q3 figures are adjusted to exclude Concentra to enable sequential comparison with Q4 continuing operations; see citations in each cell for components.

  • Segment performance (revenue and Adjusted EBITDA)
SegmentQ4 2023 Revenue ($MM)Q4 2024 Revenue ($MM)Q4 2023 Adj. EBITDA ($MM)Q4 2024 Adj. EBITDA ($MM)Q4 2023 MarginQ4 2024 Margin
Critical Illness Recovery Hospitals$567.1 $600.4 $57.4 $63.1 10.1% 10.5%
Rehabilitation Hospitals$260.2 $294.4 $66.3 $62.3 25.5% 21.2%
Outpatient Rehabilitation$298.2 $319.6 $22.5 $26.6 7.5% 8.3%
  • KPIs
KPIQ4 2023Q4 2024
Critical Illness — Patient Days277,470 274,134
Critical Illness — Admissions9,126 8,691
Critical Illness — Revenue per Patient Day ($)$2,037 $2,183
Critical Illness — Occupancy66% 67%
Rehab — Patient Days116,003 119,870
Rehab — Admissions8,264 8,626
Rehab — Revenue per Patient Day ($)$2,063 $2,177
Rehab — Occupancy85% 81%
Outpatient — Visits2,672,936 2,811,704
Outpatient — Revenue per Visit ($)$100 $102

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY 2025n/a (first issuance)$5.4–$5.6 New
Adjusted EBITDA ($M)FY 2025n/a$520–$540 New
Fully Diluted EPS ($)FY 2025n/a$1.09–$1.19 New
Capital Expenditure ($M)FY 2025n/a$160–$200 New
Dividend per Share ($)Q4 2024 declaration$0.125 (Q3 2024 declaration) $0.0625 Lowered
Leverage TargetFY 2025n/a~3.0–3.1x; below that in 2026 New commentary

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Concentra separationQ2: IPO completed in July; pro forma debt actions; reaffirmed FY24 outlook including Concentra . Q3: Updated FY24 outlook; noted transaction costs and plan to distribute shares .Spin-off completed Nov 25; Concentra results presented as discontinued ops; one-time stock comp acceleration .Completed; accounting transition effects in Q4.
Debt refinancingQ2/Q3: Significant term loan and notes activity at Concentra; deleveraging Select via proceeds .Dec 3: New $1.05B term loan; $550M 6.25% notes; revolver extended/increased; interest expense down vs prior year .Refinancing executed; lower interest burden.
Labor/agency nursesQ2/Q3: Ongoing cost pressure; improvements in margins .Agency utilization stabilized; SWB ratio improved; sign-on/incentive bonuses lower YoY .Improving cost profile.
Rehab expansion pipelineQ3: Growth across facilities; margin steady .Added 94 beds in Q4; multiple JV projects slated through 2026; near-term start-up losses depress margins .Accelerating capacity; margins near-term pressured, medium-term positive.
Outpatient productivity/technologyQ3: Outpatient margin down YTD; rates improving .Commercial rate gains; tech rollout in January to improve therapist productivity; margins up in Q4 .Improving execution and mix.
Medicare outlier threshold (LTAC)Not highlighted previously.Operators managing higher outlier thresholds; expect segment margins relatively stable .Stable despite policy headwinds.
Hurricanes (Helene/Milton)Not applicable earlier.Helene suppressed a referral source; outpatient EBITDA impact slightly >$1M; normalizing in Q1 2025 .Transitory storm impact, now recovered.

Management Commentary

  • Strategic actions: “On November 25, we completed the spin-off of Concentra… Also during the quarter, on December 3, we completed a refinancing of $1.6 billion… issued $1.05 billion in new 7-year term loans, and $550 million in 6.25% senior notes due 2032” .
  • Segment performance: “We are very pleased with the Q4 performance of our critical illness recovery hospital division… occupancy rate increased… rate per day increased by 7%… adjusted EBITDA margin was 10.5%” .
  • Rehab margin drivers: “Primary reason for the reduction of EBITDA… related to start-up losses… integration costs… and a drop in referrals… impacted by Hurricane Helene… referrals… are back to normal” .
  • Outpatient execution: “Net revenue per visit increased… with continued improvements in commercial rates despite declines in Medicare reimbursement… adjusted EBITDA margin increased from 7.5% to 8.3%” .
  • 2025 outlook and capital: “Expect revenue… $5.4B to $5.6B… Adjusted EBITDA… $520M to $540M… adjusted EPS… $1.09 to $1.19… CapEx… $160M to $200M” .
  • Leverage: “We expect to remain in that 3 to 3.1x for ’25… well below that to ’26 and beyond” .

Q&A Highlights

  • Consensus confusion: Management flagged that some sell-side consensus still includes Concentra post-spin, inflating consolidated revenue/EBITDA views; they noted Concentra pre-announced numbers and urged proper exclusion for SEM-only comparisons .
  • Growth algorithm: Over next 2–3 years, management envisions mid-single-digit top-line growth, high-single-digit EBITDA growth, and double-digit EPS/FCF per share potential, driven by rehab bed additions; double-digit EBITDA growth expected in rehab by ’26–’27 as start-ups mature .
  • Rehab margins: Near-term margin pressure tied to start-up/integration costs; hurricane impacts were transitory and have normalized in Q1 2025 .
  • LTAC reimbursement: Teams managing increased high-cost outlier thresholds; margins expected to remain relatively stable in 2025 .
  • Outpatient: Rate gains from commercial contract negotiations and technology rollout to enhance productivity; EBITDA to grow double digits in ’25–’26 .

Estimates Context

  • Wall Street consensus comparison unavailable: S&P Global consensus data for Q4 2024 could not be retrieved due to a daily request limit error; therefore, estimate comparisons are not included. Management highlighted market confusion where some consensus figures may still include Concentra, overstating SEM RemainCo expectations .
  • We attempted to fetch: EPS, revenue, and EBITDA consensus for Q4 2024, FY 2024, and Q1 2025; results were unavailable due to S&P Global rate limits.

Key Takeaways for Investors

  • Revenue and adjusted earnings power improved ex-Concentra: sequential adjusted EBITDA strengthened vs Q3 on a continuing-ops basis, with critical illness and outpatient leading; adjusted EPS rose year-over-year despite GAAP loss from non-recurring items .
  • Debt refinancing reduces interest burden and extends maturities, supporting FCF and flexibility for growth capex and select buybacks/dividends; interest expense down YoY in Q4 .
  • Rehab expansion is the primary medium-term growth driver; expect near-term margin drag from start-ups, followed by double-digit EBITDA growth as facilities mature in ’26–’27 .
  • Labor cost normalization continues in critical illness; margin tailwinds from stabilized agency utilization and lower incentive bonuses should persist barring policy shocks .
  • Outpatient improving on rates and productivity, with technology initiatives underpinning multi-year margin uplift despite Medicare headwinds .
  • 2025 guide implies steady top-line growth and stable consolidated margins given rehab start-ups; leverage expected ~3–3.1x in ’25, falling thereafter, providing optionality for shareholder returns and deleveraging .
  • Trading lens: Focus on normalization of GAAP vs adjusted metrics post-spin, sequential continuing-ops trajectory, and confirmation of rehab margin inflection as beds come online; any estimate re-basing that properly excludes Concentra could be a catalyst given consensus confusion .