• Revenue Growth: 8% increase in Q4; 7% increase for the full year from continuing operations.
• Adjusted EBITDA: 4% growth in Q4 from $111.8 million to $116 million; 14% growth for the full year to $510.4 million with a 9.8% margin.
• Critical Illness Recovery Hospital Division: 6% revenue increase, 10% adjusted EBITDA increase, and 4% adjusted EBITDA margin increase in Q4.
• Inpatient Rehab Division: 13% revenue increase in Q4; adjusted EBITDA margin decreased to 21.2% from 25.5% due to start-up losses and integration costs.
• Outpatient Rehab Division: 7% revenue increase, 4% patient volume increase, 2% net revenue per visit increase, and 18% adjusted EBITDA increase in Q4.
• Net Revenue Per Visit: Increased from $100 to $102 in Q4.
• Occupancy Rates: Critical illness recovery hospitals increased from 66% to 67%; inpatient rehab division decreased from 85% to 81%.
• Debt Refinancing: $1.6 billion refinanced; $1.05 billion in new term loans and $550 million in senior notes issued.
• Cash Flow from Operating Activities: $125.4 million in Q4.
• Interest Expense: Decreased to $28.6 million in Q4 from $40.3 million prior year.
• Days Sales Outstanding (DSO): 58 days at December 31, 2024, compared to 55 days prior year.
• 2025 Outlook: Revenue expected between $5.4 billion to $5.6 billion; adjusted EBITDA between $520 million to $540 million; adjusted EPS between $1.09 to $1.19.

• Warning! GuruFocus has detected 5 Warning Signs with SEM.

Release Date: February 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Select Medical Holdings Corp (NYSE:SEM) completed the spin-off of Concentra, allowing the company to focus on its remaining three lines of business.
• The company successfully refinanced $1.6 billion of its outstanding debt, extending the maturity of its revolving credit facility to 2029 and increasing availability.
• SEM added 94 inpatient rehabilitation beds in the fourth quarter, including new facilities in Oklahoma City, Dallas, and Dublin, Ohio.
• Revenue from continuing operations grew by 7% for the full year, with adjusted EBITDA growth of 14%.
• The outpatient rehab division saw a 7% increase in revenue and an 18% increase in adjusted EBITDA from the prior year Q4.

Negative Points

• Adjusted EBITDA for the inpatient rehab hospital division declined by 6% due to start-up losses and integration costs.
• Occupancy rates for the rehab division decreased from 85% to 81%, primarily due to new hospitals.
• The company experienced a negative EBITDA impact of over $1 million due to hurricanes Helene and Milton affecting southern outpatient markets.
• Dilution loss per common share from continuing operations was $0.19 for the fourth quarter, compared to earnings per common share of $0.12 in the prior year.
• Margins for the inpatient rehab division are expected to be constrained in 2025 due to start-up losses and integration costs.

Q & A Highlights

Q: Can you clarify the confusion in the market regarding the inclusion of Concentra in the financials and the expected growth metrics for 2025? A: Martin Jackson, Senior Executive Vice President of Strategic Finance and Operations, explained that there is confusion because some have not removed Concentra from consensus. For 2025, the expected revenue growth is around 6%, EBITDA growth is 4%, and EPS growth is 6%, with a net leverage exit of 3.18 times.

Q: With the significant increase in inpatient rehabilitation facility (IRF) beds, how do these facilities mature, and what are the expected start-up costs? A: Martin Jackson noted that the IRF bed count will increase by over 30% in the next 18 months. These facilities mature quickly due to the joint venture model, leading to significant double-digit EBITDA growth expected in 2026 and 2027.

Q: What are the leverage targets post-Concentra separation, and how does this align with the company's optimal debt load? A: Martin Jackson stated that the company expects to maintain leverage between 3 to 3.1 times in 2025 due to high activity in the inpatient rehab side, with expectations to be well below that in 2026 and beyond.

Q: Can you explain the lower margins in the inpatient rehab segment this quarter and the outlook for 2025? A: Robert Ortenzio, Executive Chairman, attributed the lower margins to start-up losses, integration costs, and a temporary drop in referrals due to Hurricane Helene. For 2025, margins are expected to be constrained due to start-up losses, but the situation is improving.

Q: How is the outpatient rehab segment expected to perform, and what factors are driving growth? A: Martin Jackson highlighted that outpatient rehab EBITDA is expected to grow double digits. Growth is driven by increased net revenue per visit, improved commercial contract negotiations, and enhanced clinical productivity through technology upgrades.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.