Select Medical Holdings Corporation (SEM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed picture. Financial performance shows revenue growth, but adjusted EBITDA and EPS have declined. The Q&A indicates operational improvements and strategic exits, but also highlights challenges like increased Medicare Advantage denials. The company's strategic plans for expansion and lobbying efforts are promising, yet financial health concerns persist due to high debt and limited cash. Overall, the sentiment is neutral, reflecting balanced positive and negative factors. Given the market cap, the stock price is likely to remain stable in the short term.
Key Financial Performance
Total Revenue Increased by 5% year-over-year.
Adjusted EBITDA Declined 6.5% to $141.6 million compared to $151.4 million in the prior year period. The decline was not explicitly explained.
Earnings per Common Share $0.35 compared to $0.44 in the prior year. Adjusted for the take-private transaction costs, it was $0.36 for the quarter.
Inpatient Rehab Hospital Division Revenue Increased more than 14% year-over-year to approximately $351.9 million. Adjusted EBITDA increased 15% to $81.1 million. Revenue per patient day increased nearly 3%, and average daily census grew 12%. Occupancy increased to 83% from 82%, while same-store occupancy increased to 87% from 83%. Adjusted EBITDA margin increased slightly to 23% compared to 22.9% last year.
Critical Illness Recovery Hospital Division Revenue Increased to $638.8 million from $637 million in the prior year period. Adjusted EBITDA declined 15% to $73.4 million from $86.6 million in the prior year quarter, resulting in an adjusted EBITDA margin of 11.5% compared to 13.6% last year. Revenue per patient day increased by more than 2%, and admissions increased 1%.
Outpatient Rehabilitation Division Revenue Increased more than 4%, reaching $321.3 million compared to $307.3 million in the prior year quarter. This was driven by over 4% growth in patient visits. Net revenue per visit was consistent with the prior year at $102. Adjusted EBITDA was $22 million compared to $24.3 million last year, resulting in an adjusted EBITDA margin of 6.8% compared to 7.9%.
Total Debt Outstanding $1.9 billion at the end of the quarter.
Cash on Balance Sheet $25.7 million at the end of the quarter.
Interest Expense $28.3 million compared to $29.1 million in the same quarter last year.
Cash Flow from Operating Activities $37.9 million for the quarter.
Days Sales Outstanding (DSO) 60 days at March 31, 2026, compared to 60 days at March 31, 2025, and 57 days at December 31, 2025.
Investing Activities Used $56.7 million, primarily driven by $58.9 million of expenditures for purchases of property and equipment.
Financing Activities Provided $18 million, which included $25 million in net borrowings under the revolving credit facility. This was partially offset by $8.8 million in net distributions to noncontrolling interest, $7.8 million in dividend payments, and $2.6 million in term loan repayments.
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Operating Highlights
Inpatient Rehabilitation Expansion: Added 166 beds across 3 newly opened inpatient rehabilitation hospitals in Texas, Missouri, and Arizona. Plans to add 275 more beds by 2027 through new hospitals, acute rehab units, neuro transitional units, and expansions.
Future Development Plans: Opening a 60-bed hospital in Southern New Jersey, 2 acute rehab units in Florida, and 2 neuro transitional units in 2026. Expanding a rehabilitation hospital by 20 beds in early 2027 and opening a 76-bed hospital in Jersey City later in 2027.
Revenue Growth: Total revenue increased by 5% year-over-year. Inpatient rehab hospital division revenue grew by 14%, outpatient rehabilitation division revenue grew by 4%, and critical illness recovery hospital division revenue slightly increased.
Adjusted EBITDA: Adjusted EBITDA declined by 6.5% to $141.6 million. Inpatient rehab hospital division's adjusted EBITDA increased by 15%, while critical illness recovery hospital division's adjusted EBITDA declined by 15%.
Occupancy Rates: Inpatient rehab hospital division occupancy increased to 83% from 82%, with same-store occupancy rising to 87% from 83%.
Take-Private Transaction: Select Medical entered into an agreement to be acquired by a consortium for $16.50 per share in cash. The transaction is expected to close in mid-2026, subject to regulatory and shareholder approvals.
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Risk or Challenges
Take-private transaction: The transaction to take the company private involves significant financial commitments, including $1 billion in additional term loan borrowings at SOFR plus 3% interest. This could increase financial leverage and interest expenses, potentially impacting cash flow and financial stability.
Adjusted EBITDA decline: Adjusted EBITDA declined by 6.5% year-over-year, indicating potential challenges in maintaining profitability despite revenue growth.
Critical illness recovery hospital division performance: Adjusted EBITDA for this division declined by 15%, with a reduced margin of 11.5% compared to 13.6% last year, signaling operational challenges in this segment.
Outpatient rehabilitation division performance: Adjusted EBITDA margin decreased from 7.9% to 6.8%, reflecting reduced profitability in this division despite revenue growth.
Debt levels and leverage: The company has $1.9 billion in total debt, with a net leverage ratio of 3.75. High debt levels and associated interest expenses could constrain financial flexibility.
Regulatory risks: Proposed rules for inpatient rehabilitation and long-term acute care hospitals could impact reimbursement rates. While increases are expected, final rules are pending and could differ from proposals.
Capital expenditures: Planned capital expenditures of $200 million to $220 million could strain cash flow, especially given the company's current debt levels and declining EBITDA in some segments.
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Guidance & Outlook
Revenue Guidance: The company maintains its full-year 2026 revenue guidance, expecting revenue to range between $5.6 billion and $5.8 billion.
Adjusted EBITDA Guidance: Adjusted EBITDA is projected to range between $520 million and $540 million for the full year 2026.
Earnings Per Share (EPS) Guidance: Fully diluted earnings per common share is expected to be in the range of $1.22 to $1.32 for 2026.
Capital Expenditures: Capital expenditures for 2026 are expected to range between $200 million and $220 million.
Inpatient Rehabilitation Expansion: The company plans to add 275 beds across inpatient rehabilitation facilities (IRF) and critical illness recovery hospitals by the end of 2027. This includes new hospitals, acute rehab units, neuro transitional units, and expansions.
Specific Facility Openings: In 2026, the company plans to open a 60-bed hospital with AtlantiCare in Southern New Jersey, two acute rehab units in Florida, and two neuro transitional units. In 2027, expansions include a 76-bed inpatient rehabilitation hospital in Jersey City and an acute rehab unit in Richmond, Virginia.
Regulatory Updates: CMS proposed rules for fiscal year 2027 suggest a 2.6% increase in the standard federal payment rate for inpatient rehabilitation facilities and a 2.66% increase for long-term acute care hospitals. Final rules are expected in late July or early August 2026.
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Shareholder Return Plan
Cash Dividend: The Board of Directors approved a cash dividend of $0.0625 per share payable on May 28 to stockholders of record as of May 14.
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Key Q&A
Q:What operational improvements have been made in the outpatient rehabilitation segment, and how are margins expected to evolve?
A:The company has been focusing on scheduling and schedule optimization, leading to productivity increases. They are also assessing underperforming markets and exiting those without a clear path forward. For example, they exited the Oregon market, closing 4 clinics, which incurred approximately $1 million in costs in Q1. This assessment will continue through 2026, with plans to consolidate markets and increase productivity.
Q:What updates are there regarding high-cost outlier efforts and broader lobbying efforts in Washington?
A:The company is encouraged by CMS's consistency in the proposed rule for high-cost outliers, with preliminary data showing they are running at or below the 7.975% Medicare revenue threshold. They anticipate the fixed loss threshold to decrease in the future, reflecting CMS's intended effects. The company plans to focus lobbying efforts on expanding LTAC criteria to include more patients who could benefit.
Q:Are there increases in commercial or Medicare Advantage denials, and how is this impacting inpatient rehab and outpatient services?
A:There has been an increase in Medicare Advantage denials, particularly in long-term acute care hospitals and inpatient rehab, while outpatient services have remained relatively flat. Despite this, commercial and Medicare conversions have improved.
Q:Were there any surprises in the inpatient rehab rule?
A:No, the rule was consistent with previous years, with a modest increase. The company is prepared for the Review Choice Demonstration expansion and found the rule to be benign.
Q:What is the outlook for gross margins in the CIRH segment, and how has Medicare Advantage impacted performance?
A:Gross margins were impacted by a $13-$14 million year-over-year decline in Medicare Advantage conversion rates, affecting volume. Despite this, the company expects to meet performance expectations for the remainder of the year, acknowledging seasonality in the critical illness business.
Q:What is the early impact of the Medicare TEAM Model on inpatient rehab?
A:The Medicare TEAM Model has had a minimal impact on inpatient rehab census, as it affects only a small portion of the patient population.
Q:Review of Unclear Management Responses
A:None of the questions were avoided or lacked clarity. All responses were direct and provided sufficient detail.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Act condition
Anderson Stowe
Antitrust Improvements
Arizona remainder
AtlantiCare Southern
CMS rule
Directors
Jersey
Medical today
President Chief
Scott
Select Medical
Vice President
agreement
approval
bed
closing
comment period
division period
hospital division
illness
increase payment
neuro unit
patient day
payment rate
rehab unit
rehabilitation hospital
rule comment
transaction
update
visit
SEM Transcript
Select Medical Holdings Corporation (SEM) Q1 2026 Earnings Call Transcript
Unknown5-1
The earnings call summary presents a mixed picture. Financial performance shows revenue growth, but adjusted EBITDA and EPS have declined. The Q&A indicates operational improvements and strategic exits, but also highlights challenges like increased Medicare Advantage denials. The company's strategic plans for expansion and lobbying efforts are promising, yet financial health concerns persist due to high debt and limited cash. Overall, the sentiment is neutral, reflecting balanced positive and negative factors. Given the market cap, the stock price is likely to remain stable in the short term.
EcoSynthetix Inc. (ECO:CA) Q4 2025 Earnings Call Transcript
Positive2-20
The earnings call summary and Q&A section reveal a positive outlook. Financial performance is strong with increased EPS guidance and reaffirmed revenue expectations. Product development shows growth in new rehabilitation facilities and active pipeline opportunities. The market strategy is solid with strategic investments and partnerships. Expenses are manageable with positive EBITDA. Shareholder return plans include dividends and potential share repurchases. Despite some vague responses in the Q&A, the overall sentiment is optimistic, supported by strategic growth and financial strength. Given the company's market cap, a positive stock movement of 2% to 8% is likely.
Select Medical Holdings Corporation (SEM) Q4 2025 Earnings Call Transcript
Positive2-20
The earnings call reflects a positive sentiment with strong financial guidance, strategic partnerships, and a focus on growth in the inpatient rehab segment. Despite some challenges in the outpatient segment, management is optimistic about improvements, supported by a Medicare rate increase. The EPS guidance is raised, and the company is committed to enhancing shareholder value through dividends. The market strategy and capital allocation suggest a focus on sustainable growth, which is likely to lead to a positive stock price movement.
Select Medical Holdings Corporation (SEM) Q3 2025 Earnings Call Transcript
Unknown10-31
Despite strong financial metrics and expansion plans, the lack of raised guidance due to outpatient segment softness and unchanged EBITDA guidance offset positive impacts. The Q&A revealed pressures from Medicare rates and payer mix shifts, which may concern investors. The market cap suggests moderate stock price movement. Thus, a neutral rating is appropriate.
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