Select Medical Holdings Corp. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Concentra IPO: Successfully completed IPO on 7/26. Select Medical still owns 82.23% of Concentra. Plans to distribute remaining interest within 12 months of IPO.
• US News Recognition: Six Select Medical rehab hospitals ranked in top nation for 2024-2025.
• Hospital Expansions: Opened new critical illness recovery hospital in Chicago; on track to open Jacksonville rehab hospital. Plan to add 449 beds from remainder of 2024 through 2026 (423 rehab hospital beds).
• Financial Results: Consolidated adjusted EBITDA grew 3% to $226.3M, revenue up 5%. EPS $0.60, same as prior year Q2.
• Dividend: Board declared $0.125 cash dividend payable 8/30. No share repurchases this quarter.

Segment Performance

• Inpatient Rehabilitation Division: Returned double-digit growth in both revenue and adjusted EBITDA for the second straight quarter.
• Critical Illness Recovery Hospital Division: Revenue up 5%, adjusted EBITDA up 10%. Start-up losses decreased from $5.1M in prior year Q2 to $3.6M this quarter. Occupancy 67% (down slightly from prior year), average daily census up 1%, rate per day up 4%. Adjusted EBITDA margin 11.9% (vs 11.4% prior year Q2).
• Concentra: Net revenues up 2%, adjusted EBITDA up 1%. Driven by 4% rate increase and higher workers' comp visit mix.
• Outpatient Rehab Division: Revenue up 4%, but adjusted EBITDA down 12%. Added 15 clinics via de novos and acquisitions, closed 5 underperforming clinics. Pipeline strong with 16 executed leases for de novo clinics and one acquisition in North Jersey.

Guidance

• 2024 revenue expected $6.9B-$7.1B, adjusted EBITDA $845M-$885M, fully diluted EPS $1.95-$2.19, adjusted EPS $1.96-$2.20.
• Capital expenditures expected $225M-$275M for 2024.
• Interest rate impact: Borrowing costs to step up in Q4, with SOFR running in 5.3% range, affecting interest expense.

Risks

• Interest Rate Changes: Borrowing costs expected to increase in Q4, impacting interest expense and financial results.

Question and Answer

Q: About LTAC margin sequential phasing.

A: Martin Jackson noted Q1 was extraordinary volume with high ICU referrals, Q2 less due to pulmonary volumes. Robert Ortenzio added Q1 ICUs at acute care referral sources were exceptionally high.

Q: About outpatient rehab margin improvement.

A: Marty Jackson said focus on clinical efficiencies (therapists seeing more patients per day) and scheduling efficiency. Anticipate improvement in next quarters with scheduling modules.

Q: About interest rates in guidance.

A: Martin Jackson stated borrowing costs will step up in Q4, moving from 1% SOFR plus 300 basis points to 4%, impacting interest expense in Q4.