Q4 2024 Select Medical Holdings Corp Earnings Call
Okay.
Operator: Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the fourth quarter and full year 2024 results and the company's Speaking today are the company's executive chairman and co-founder, Robert Ortenzio.
Good morning, and thank you for joining us today for select Medical Holdings Corporation's earnings conference call to discuss the fourth quarter and full year 2024 results and the company's business outlook.
Martin Jackson: Speaking today are the company's executive Chairman and co founder Robert Ortenzio, The company's senior Executive Vice President of strategic Finance and operations Martin Jackson.
Operator: and the company's Senior Executive Vice President of Strategic Finance and Operations, Martin Jackson.
Operator: and Executive Vice President and CFO Michael Malinowski.
Speaker Change: [noise] Executive Vice President and CFO, Michael Miller Tester.
Operator: Management will give you an overview of the quarter and then open the call for questions.
Management will give you an overview of the quarter and then open the call for questions.
Operator: Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance. including, without limitation, statements regarding operating results, growth opportunities, and other statements that refer to Select Medical's plans, expectations, strategies, intentions, and beliefs.
Speaker Change: Before we get started we would like to remind you that this conference call may contain forward looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating results growth opportunities and other statements that refer to select medical's plans expectations strategies intentions and beliefs. These forward looking statements.
Operator: These forward-looking statements are based on the information available to management today, and the company assumes no obligation to update these statements as circumstances change.
Speaker Change: On the information available to management of select medical today, and the company assumes no obligation to update these statements as circumstances change.
Robert Ortenzio: At this time, I will turn the conference call over to Mr. Robert Ortenzio.
Speaker Change: At this time I will turn the conference call over to Mr. Robert Ortenzio.
Robert Ortenzio: Thank you, operator.
Robert Ortenzio: Good morning, everyone. Welcome to Select Medical's earnings call for the fourth quarter of 2024. The fourth quarter concluded a very busy year at Select. On November 25th, we completed the spinoff of Concentra via special stock distribution to select medical shareholders. I'd like to thank all of our colleagues at Select and Concentra for their tremendous dedication and hard work to complete this transaction. The historical results of Concentra are now reflected as discontinued operation in Select's consolidated financial statement.
Robert Ortenzio: Thank you operator, good morning, everyone welcome to select Medical's earnings call for the fourth quarter of 2024.
Speaker Change: The fourth quarter included a very busy year at select.
Robert Ortenzio: On November 25th we completed the spin off of Concentrix.
Speaker Change: Yes special stock distributions, just like medical shareholders.
I'd like to thank all of our colleagues at select and Concentrix.
Speaker Change: They're tremendous dedication hard work to complete this transaction.
The historical results of Constancia are now reflected as discontinued operations in <unk> consolidated financial statements.
Robert Ortenzio: We will focus our results for the fourth quarter on the remaining three lines of business which exclude consent. Also, during the quarter, on December 3rd, we completed a refinancing of $1.6 billion of Select Medical's outstanding debt. We issued $1.05 billion in new seven-year term loans and $550 million in six-and-a-quarter senior notes due 2032. will use the proceeds, together with cash on hand, to repay our then existing $373 million in term loans and $1.225 billion in senior notes due August 2026. We also paid related fees and expenses associated with the financing. The interest rate on the new term loans is SOFR plus 2%.
Speaker Change: We will focus on our results for the fourth quarter on the remaining three lines of business, which exclude concentric.
Speaker Change: Also during the quarter on December 3rd we completed a refinancing of $1 6 billion of select medicals outstanding debt.
We issued 1.15 billion.
Speaker Change: New seven year term loans.
Speaker Change: 550 million and six and a quarter senior notes due 2032.
Speaker Change: We used the proceeds together with cash on hand to repay our then existing $373 million of term loans.
Speaker Change: And one point to two 5 billion in senior notes due August 2026.
Speaker Change: We also paid related fees and expenses associated with the financing.
Speaker Change: The interest rate on the new term loans, a chauffeur plus 2%.
Robert Ortenzio: In addition, we extended the maturity of our revolving credit facility to 2029 and increased the availability on the revolver from $550 million to $600 million.
Speaker Change: In addition, we extended the maturity of our revolving credit facility to 2029.
Speaker Change: Increase the availability on the revolver from $550 million to $600 million.
Robert Ortenzio: Our credit agreement leverage was 3.18 times at December 31st, 2024.
Speaker Change: Our credit agreement leverage.
Speaker Change: With 3.18 times at December 31, 2024.
Robert Ortenzio: On the development front, we added 94 inpatient rehabilitation beds in the fourth quarter. We acquired a 50-bed inpatient rehab hospital in Oklahoma City on December 10th with our joint venture partner, SSM. We also opened two neurotransitional units with 12 beds each, one in Dallas with our joint venture partner, Baylor Scott and White, and the other in Dublin, Ohio with our joint venture partner, Ohio Health. Concurrently with the opening of the Dublin Neurotransitional Center, we also added 20 rehab beds to the Dublin Rehab Hospital, which is also part of our joint venture with OhioHealth.
Speaker Change: On the development front, we added 94 inpatient rehabilitation beds in the fourth quarter.
Speaker Change: Wired a 50 bed in patient rehab hospital in Oklahoma City on December 10th with our joint venture partner at that time.
Speaker Change: We also opened two neuro transitional units with 12 beds each one in Dallas with our joint venture partner Baylor Scott White.
Speaker Change: And the other in Dublin, Ohio, with our joint venture partner, Ohio Health.
Speaker Change: And currently with the opening of the Dublin No Transitional Center. We also added 20 rehab beds to the Dublin Rehab Hospital, which is also part of our joint venture with.
Speaker Change: The Ohio Health.
Robert Ortenzio: As mentioned on our last call, we have additional development projects in various stages for the Inpatient Rehab Division, which I will summarize again. In January, we opened an acute rehab unit in Madison, Wisconsin, with 18 beds. In Q2, we plan on opening a 45-bed rehab hospital in Temple, Texas. as well as our second hospital with UPMC, 20 beds in Central Pennsylvania. In Q3, we'll open our fourth rehab hospital with the Cleveland Clinic in Fair Hill, Ohio with 32 beds. In Q1 of 2026, we plan to open our fourth rehab hospital as part of our joint venture with Banner in Tucson, Arizona, which will be 58 beds, and a new freestanding 63-bed rehab hospital in Ozark, Missouri, with Cox Health Systems. in Q4 2026.
Speaker Change: As mentioned on our last call we have additional development projects in various stages and patient rehab division, which I will summarize again.
Speaker Change: In January we opened our acute rehab unit in Madison, Wisconsin with 18 beds.
Speaker Change: Q2, we plan on opening a 45 bed rehab hospital in Temple, Texas as.
As well as our second hospital with U P. M C 20 beds in Central Pennsylvania.
Speaker Change: In Q3, well open our fourth rehab hospital with the Cleveland Clinic, and fair Hello, Ohio with 32 beds.
Speaker Change: In Q1 of 2026, we plan to open our fourth rehab hospital is part of our joint venture with banner in Tucson, Arizona should be 58 beds and a new freestanding 63 bed rehab hospital in Ozark, Missouri with Cox Health systems.
Speaker Change: In Q4 2026.
Robert Ortenzio: Our new 60-bed rehab hospital in southern New Jersey, the Bacharach Institute for Rehab, in partnership with AtlantaCare, is scheduled to open, as well as a new 68-bed facility in Jersey City, New Jersey, branded as Kessler.
Speaker Change: Our new 60 bed rehab hospital in Southern New Jersey, The Bacharach Institute for rehab and partnership with Atlantic Here is scheduled to open as well as a new 68 bed facility in Jersey City, New Jersey branded as Kathleen.
Robert Ortenzio: Between the specific projects just mentioned, as well as some other smaller expansions and new acute rehab units in existing hospitals, we plan to add 481 additional beds to our operations in 2025 and 2026. The additional beds will consist of 455 inpatient rehab beds, which includes 68 non-consolidating beds and 26 long-term acute care hospital beds.
Speaker Change: Between the specific projects just mentioned as well as some other smaller expansions and new acute rehab units at existing hospitals, we plan to add 481 additional beds to our operations in 2025 and 2026.
Speaker Change: Additional beds will consist of 455 inpatient rehab beds, which includes 68 non consolidating beds and 26 long term acute care hospital beds.
Robert Ortenzio: There are also a number of other opportunities under evaluation that would further increase our select specialty hospital footprint.
Speaker Change: There are also a number of other opportunities under evaluation that would further increase our select specialty hospital footprint.
Robert Ortenzio: This quarter, our outpatient rehab division added three de novo clinics and four clinics through acquisition. This was offset by the strategic closure or consolidation of 18 locations with limited growth potential.
Speaker Change: This quarter, our outpatient rehab division added three de Novo clinics and four clinics through acquisition.
Speaker Change: This was offset by the strategic closure or consolidation of 18 locations with limited growth potential.
Robert Ortenzio: We're continually evaluating and identifying areas of opportunity to optimize resources in serving our patient population and targeted demographics.
Speaker Change: We're continually evaluating identifying areas of opportunity to optimize resources on serving our paper patient population and targeted demographics.
Robert Ortenzio: Now I'll turn to our financial results. Overall, we had another strong quarter with all three lines, all three of our divisions exceeding prior year revenue in the fourth quarter with combined revenue increase of 8%. Adjusted EBITDA also grew by 4% from $111.8 million to $116 million. The three remaining divisions returned impressive growth year-over-year.
Speaker Change: Now I'll turn to our financial results.
Speaker Change: Overall, we had another strong quarter with all three lines all three of our divisions exceeding prior year revenue in the fourth quarter with combined revenue increase of 8%.
Speaker Change: Adjusted EBITDA also grew by 4% from $111 $8 million to $116 million.
Speaker Change: The three remaining divisions returned impressive growth year over year for the full year revenue grew from continuing operations was 7% and adjusted EBITDA growth was 14%.
Robert Ortenzio: For the full year, revenue grew from continuing operations with 7%, and adjusted EBITDA growth was 14%. Adjusted EBITDA from continuing operations was $510.4 million, with a 9.8% adjusted EBITDA margin compared to $446.1 million, and 9.2% margin in 2023. We are very pleased with Q4 performance of our Critical Illness Recovery Hospital Division with a 6% increase in revenue, a 10% increase in adjusted EBITDA, and a 4% increase in adjusted EBITDA margin compared to the same quarter prior year. Our occupancy rate increased from 66% to 67% compared to prior year Q4. rate per day increased by 7%.
Speaker Change: EBITDA from continuing operations was $510 four.
Speaker Change: $4 million with a nine 8% adjusted EBITDA margin compared to $446 1 million and nine 2% margin in 2023.
Speaker Change: We are very pleased with Q4 performance of our critical illness recovery Hospital Division with a 6% increase in revenue a 10% increase in adjusted EBITDA and a 4% increase in adjusted EBITDA margin compared to the same quarter prior year alright.
Speaker Change: Our occupancy rate increased from 66% to 67% compared to prior year Q4.
Speaker Change: Rate per day increased by 7% and our adjusted.
Robert Ortenzio: Our adjusted EBITDA margin was 10.5% for the quarter compared to 10.1% in prior year Q4. Critical illness salary wages and benefits to revenue ratio was 57%, an improvement of 1.2% compared to prior year Q4. As we have mentioned previously, we have seen nursing agency rates stabilize and utilization return to pre-COVID levels. Our utilization of agency nurses remain the same as prior year Q4 at 14%. Nursing sign-on and incentive bonus dollars are again lower than prior year, showing a 15% reduction for the fourth quarter and a 20% reduction year over year. We continue to expand our inpatient rehab hospital division with three additional facilities and a 13% increase in revenue when compared to prior year Q4.
Speaker Change: Adjusted EBITDA margin was 10, 5% for the quarter compared to 10, 1% at prior year Q4 critical illness salary wages and benefits to revenue ratio was 57% an improvement of one 2% compared to prior year Q4.
Speaker Change: As we have mentioned previously we have senior nursing agency rates stabilize and utilization return to pre COVID-19 levels.
Speaker Change: Our utilization of agency nurses remain the same as prior year Q4 at 14%.
Speaker Change: Sign on an incentive bonus dollars are again lower than prior year, showing a 15% reduction for the fourth quarter and a 20% reduction year over year.
Speaker Change: We continue to expand our inpatient rehab hospital division with three additional facilities and a 13% increase in revenue when compared to prior year Q4.
Robert Ortenzio: Adjusted EBITDA declined by 6% and adjusted EBITDA margin was 21.2%, which was lower than the prior period margin of 25.5%. The primary reason for the reduction of EBITDA compared to prior year is related to startup losses in our new facilities. Integration costs related to our acquisition in Oklahoma City and a drop in referrals from one of our key partners that was impacted by Hurricane Helene.
Speaker Change: Adjusted EBITDA declined by 6% and adjusted EBITDA margin was 21, 2%, which was lower than the prior period margin of 25, 5%.
Speaker Change: The primary reason for the reduction of EBITDA compared to prior year is related to startup losses at our new facilities integration costs related to our acquisition in Oklahoma City and a drop in referrals from one of our key partners that was impacted by Hurricane Alley.
Robert Ortenzio: Thus far in Q1 of 2025, referrals from this partner are back to normal. Average daily census for the entire rehab division increased 3% and our rate per patient day increased 6%. Our occupancy of 81% was 4% lower than prior year of 85%, which is primarily a result of our new hospitals.
Helane: Helane, thus far in Q1 of 2025 referrals from this partner are back to normal average daily census for the entire rehab division increased 3% and our rate per patient day increased 6%, our occupancy of 81% was 4% lower than prior year of 85% which is prime.
Helane: Barely a result of our new hospitals.
Robert Ortenzio: Our outpatient rehab division continues to improve from prior year with increases in all areas for the final quarter of 2024. The division saw an increase of 7% in revenue, 4% in patient volume, 2% in net revenue per visit, and 18% in adjusted EBITDA from prior year Q4. Net revenue per visit increased from $100 prior year Q4 to $102 in Q4 this year, with the continued improvements in commercial rates, despite declines in Medicare reimbursement. The outpatient division's adjusted EBITDA margin increased from 7.5% to 8.3% as the team continues to focus on improving patient access, productivity, and staffing.
Helane: Okay.
Helane: Our outpatient rehab division continues to improve from prior year with increases in all areas for the final quarter of 2024.
Helane: <unk> saw an increase of 7% in revenue 4%.
Helane: Inpatient volume, 2% and net revenue per visit and 18% and adjusted EBITDA from prior year Q4.
Helane: Net revenue per visit increased from $100. Prior year Q4 to 102 in Q4. This year with the continued improvements in commercial rates despite declines in Medicare reimbursement.
The outpatient divisions adjusted EBITDA margin increased from seven 5% to eight 3% as the team continues to focus on improving patient access productivity and staffing were able to see positive result, despite two hurricanes Elena Milton in the fourth quarter of this year impacting a number of our southern outpatient markets.
Robert Ortenzio: We're able to see positive results despite two hurricanes, Helene and Milton, in the fourth quarter of this year, impacting a number of our southern outpatient markets. We believe the negative EBITDA impact to be slightly over a million dollars with thankfully no material property damage or extended clinic closures. Our dilution loss per common share from continuing operations was $0.19 for the fourth quarter compared to earnings per common share from continuing operations of $0.12 in the same quarter prior year. Adjusted EPS from continuing operations was $0.18 compared to adjusted EPS of $0.12 for the same quarter prior year.
Helane: We believe the negative EBITDA impact to be slightly over $1 million with thankfully no material property damage or extended clinic closures.
Helane: Our dilution loss per common share from continuing operations was <unk> 19 for the fourth quarter compared to earnings per common share from continuing operations of 12 <unk> in the same quarter prior year.
Adjusted EBITDA adjusted EPS from continuing operations was 18% compared to adjusted EPS of <unk> 12 for the same quarter prior year adjusted EPS excludes the loss on early retirement of debt the onetime acceleration of stock comp expense and costs related to the <unk>.
Robert Ortenzio: Adjusted EPS excludes the loss on early retirement debt, the one-time acceleration of stock comp, expense, and costs related to the consensual transaction.
Robert Ortenzio: For the full year, earnings per share from continuing operations was $0.51 compared to $0.46 per share in the prior year. And adjusted earnings per share from continuing operations was $0.94 compared to adjusted EPS of $0.54 in the prior year.
Helane: Center transaction.
Helane: For the full year earnings per share from continuing operations was 51 compared to 46 cents per share in the prior year and adjusted earnings per share from continuing operations was 94%.
Helane: Compared to adjusted EPS of <unk> 54 in the prior year in regards to our allocation of deployment of capital. Our board has declared a cash dividend of six and a quarter cents per share payable on March 13, 2025 to stockholders of record as of the close of business on March three 2025.
Robert Ortenzio: In regards to our allocation of deployment of capital, our board has declared a cash dividend of $0.75 per share, payable on March 13th, 2025 to stockholders of record as of the close of business on March 3rd, 2025. This past quarter, we did not repurchase shares under our board authorized share repurchase program. And we'll continue to evaluate stock repurchases, reduction of debt and development of development opportunities.
Helane: This quarter, we did not repurchase shares under our board authorized share repurchase program and we'll continue to evaluate stock repurchases reduction of debt and development.
Speaker Change: Of development opportunities at this point I'll turn it over to Marty Jackson will continue to provide some details.
Martin Jackson: At this point, I'll turn it over to Marty Jackson. We'll continue to provide some details.
Martin Jackson: Thanks, Bob.
Martin Jackson: Good morning, everyone. I will begin by providing additional details on the progress we continue to make regarding labor costs with the Critical Illness Recovery Hospital. As mentioned above, we believe that the cost and utilization of agency nurses has normalized. Overall, our SW&B as a percentage of revenue was 56.9% this quarter, which is a decrease from 57.6% in Q4 of prior year. The improvement in the margin was driven by controlling internal labor costs and an increase in the net revenue per patient day. Nursing sign-on and incentive bonus dollars decreased by 15 percent from Q4 of prior year.
Martin Jackson: Thanks, Bob Good morning, everyone.
Marty Jackson: I will begin by providing additional details on the progress we continue to make regarding labor cost with the critical illness recovery Hospital.
Marty Jackson: As mentioned above we believe that the cost and utilization of agency nurses has normalized overall, our SWM as a percentage of revenue was 56, 9% this quarter, which has decreased from 57, 6% in Q4 prior year.
The improvement in the margin was driven by controlling internal labor costs and an increase in the net revenue per patient day nursing sign on an incentive bonus dollars decreased by 15% from Q4 of prior year.
Martin Jackson: from $7.4 million to $6.3 million. We are pleased with the continued progress we have made in regards to labor costs and critical illness. and finished the year with SW&B as a percentage of revenue at 55.9% compared to 57.2% in 23.
Marty Jackson: From $7 4 million to $6 $3 million. We are pleased with the continued progress we have made in regards to labor costs and critical illness.
Marty Jackson: And finished the year with SW would be as a percentage of revenue.
Marty Jackson: 55, 9% compared to 57, 2% and 23.
Martin Jackson: Moving on to our financials, at the end of the quarter, we had $1.7 billion of debt outstanding and $59.7 million of cash on the balance sheet. Our debt balance at the end of the quarter included $1.05 billion in term loans, $105 million in revolving loans. $550 million in six and a quarter senior notes, which are due 2032, and $26.3 million of other miscellaneous debt. As previously mentioned, we ended the quarter with net leverage for our senior secured credit agreement of 3.18 times. As of December 31st, we had $453.3 million of availability on a revolving loan.
Speaker Change: Moving on to our financials.
Speaker Change: Ended the quarter, we had $1 $7 billion of debt outstanding.
Speaker Change: $9 $7 million of cash on the balance sheet.
Speaker Change: Debt balance at the end of the quarter included $1 5 billion in term loans $105 million in revolving loans.
Speaker Change: $550 million six in the quarter senior notes, which are due 2032 and <unk>.
$6 $3 million of other miscellaneous debt.
Speaker Change: And as previously mentioned, we ended the quarter with net leverage for our senior secured credit agreement of $3 one eight times.
Speaker Change: As of December 31, we had $453 $3 million of availability on our revolving loans the interest rate on our term loan as silver plus 200 basis points.
Martin Jackson: The interest rate on our term loan is SOFR plus 200 basis points, and this matures December 3rd, 2031. Interest expense was $28.6 million in the fourth quarter. This compares to $40.3 million in the same quarter prior year. The decrease in interest expense was due to the reduction of Select's debt resulting from the concentra IPO and related debt transactions. In the third quarter of this year, using the proceeds of these transactions, we were able to prepay $1.6 billion on the existing term loan and pay down the revolver penalty.
Speaker Change: Matures December 3rd 2031.
Speaker Change: Interest expense was $28 6 million in the fourth quarter. This compares to $40 3 million in the same quarter. Prior year. The decrease in interest expense was due to the reduction of select debt, resulting from the consensual IPO and related debt transaction.
Speaker Change: In the third quarter of this year using the proceeds of these transactions, we were able to prepay one 6 billion on the existing term loan and pay down the revolver balance.
Martin Jackson: For the fourth quarter, operating activities provided $125.4 million in cash flow. Our day sales outstanding or DSO for continued operations, excluding concentric was 58 days. At December 31st, 2024, this compares to 55 days at December 31st of 2023, 60 days at September 30th of 2024, 62 days at March 31st, 2024. We continue to see improvement in our DSO every quarter as the claims processing backlog that resulted from the Change Healthcare cyber incident earlier in 2024 resolves itself.
Speaker Change: For the fourth quarter operating activities provided $125 $4 million in cash flow.
Speaker Change: Our days sales outstanding or DSO for continued operations, excluding concentric was 58 days.
Speaker Change: At December 31, 2024. This compares to 55 days at December 31, two.
Speaker Change: 2023, 60 days at September $32024 62 days at March 31, 2024, we continue to see improvement.
Speaker Change: In our DSO every quarter as the claims processing backlog that resulted from the change healthcare cyber incident.
Speaker Change: Earlier in 2024 resolves itself.
Martin Jackson: Investing activities use $74.2 million of cash in the fourth quarter. This includes $63.4 million in purchases of property and equipment and $10.8 million in acquisition and investment activity.
Speaker Change: [laughter].
Speaker Change: Investing activities used $74 $2 million of cash in the fourth quarter.
Speaker Change: This includes $63 4 million in purchases of property and equipment.
Speaker Change: And $10 $8 million in acquisition and investment activity.
Martin Jackson: Financing activities used $183 million of cash in the fourth quarter. The use of cash included in all of the net financing transactions described above, as well as cash transferred to Concentra at separation. Additional activity include $16 million in dividends of our common stock, $20 million in repurchases of common stock, $25 million in net repayments on other debt. and $18 million in net distributions and purchases of non-controlling interest. As stated previously, we did not repurchase any shares under our board-authorized repurchase program this quarter. board approved share repurchase program remains in effect until December 31st, 2025, unless further extended or earlier terminated by the board.
Speaker Change: Financing activities used $183 million of cash in the fourth quarter the use of cash included.
Speaker Change: The net financing transactions described above as.
Speaker Change: As well as cash transfer to Concentrix at separation.
Speaker Change: Sure.
Speaker Change: Additional activity included include $16 million and dividends of our common stock $20 million in repurchases of common stock $25 million of net repayments on other debt.
Speaker Change: $18 million of net distributions and purchases of Noncontrolling interests at.
Speaker Change: As stated previously we did not repurchase any shares under our board authorized repurchase program this quarter.
Speaker Change: Board approved share repurchase program remains in effect until December 31, 2025.
Speaker Change: Unless further extended or earlier terminated by the board.
Martin Jackson: We are issuing our business outlook for 2025.
Speaker Change: We are.
Viewing our business outlook for 2025.
Martin Jackson: Next slide. and expect revenue to be in the range of $5.4 billion to $5.6 billion. Adjusted EBITDA is expected to be in the range of $520 million to $540 million. And finally, Adjusted Earnings Per Common Share is expected to fall in the range of $1.09 to $1.19. Capital expenditures are expected to be in the range of $160 million to $200 million.
Speaker Change: And I expect.
Speaker Change: And expect revenue to be in the range of $5 4 billion to $5 6 billion.
Speaker Change: Adjusted EBITDA is expected to be in the range of $520 million.
Speaker Change: $540 million and finally adjusted earnings per common share is expected to fall in the range of.
Speaker Change: About $1.09 to $1 19 capital.
Speaker Change: Capital expenditures are expected to be in the range of $160 million to $200 million.
Operator: This concludes our prepared remarks and at this time we would like to turn it back to the operator to open up the call for questions.
Okay.
Speaker Change: This concludes our prepared remarks and at this time, we would like to turn it back to the operator to open up the call for questions.
Operator: If you'd like to ask a question at this time, please press star 1 1 on your touch tone. and wait for your name to be announced.
Speaker Change: If you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced.
Operator: To withdraw your question, please press star 1-1. Stand by while we compile the Q&A.
Speaker Change: Draw. Your question. Please press star one one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Justin Bowers: Your first question comes from Justin Bowers with Hey, good morning, everyone. So I think there's a little confusion out there in the market. Because of what's in and out of consensus and concentras, you know, partially still in the numbers. Just to level set for 2025, I'm arriving at the midpoint of revenue growth of, call it, 6%. EBIDA growth of 4% and then EPS growth of 6% and a 4Q exit at call it 3.18 turns net leverage. Is that, are those sort of the right? metrics here.
Speaker Change: Our first question comes from Justin Bowers with Deutsche Bank.
Speaker Change: Hey, good morning, everyone. So I think there's a little confusion out there in the market.
Speaker Change: Because of what's in and out of consensus.
Speaker Change: Concentrix, partially still in the numbers.
Speaker Change: Just to level set for 2025 I'm arriving at.
Speaker Change: The midpoint of revenue growth of call it 6%.
Speaker Change: EBITDA growth of 4% and then EPS growth of 6%.
Speaker Change: <unk>.
Speaker Change: <unk> exit at.
Speaker Change: Call It three point.
Speaker Change: One eight turns net leverage is that.
Speaker Change: Is that are those sort of the right.
Speaker Change: Metrics here.
Robert Ortenzio: Yeah, Justin, hold on just for a second. We'll go through the calculations to make sure. that your numbers are correct. But as we do that, let me address, I'm glad you brought it up. We do believe that there's some significant confusion in the marketplace at this time. And I think what the issue is, is... I think a number of people have added, have not removed Concentra from consensus. So, I mean, if you take a look at, as you know, As you know, Concentra had announced, pre-announced their numbers. If you take a look at those numbers on an annual basis...
Speaker Change: Yes, just another one just for a second.
Speaker Change: Yes.
Speaker Change: We will go through the calculations.
Speaker Change: Make sure.
Speaker Change: But your numbers are correct.
Speaker Change: As we do that let me.
Speaker Change: Let me address I am glad you brought it up we do believe that there is some.
Speaker Change: Significant confusion in the marketplace at this time.
Speaker Change: And I think what the issue is.
Speaker Change: As.
Speaker Change: I think a number of people will have added have not removed can sentra.
Speaker Change: Consensus.
Speaker Change: So I mean, if you take a look at as you know.
Okay.
Speaker Change: As you know consensus had announced pre announced their numbers.
Speaker Change: Take a look at those numbers on an annual basis.
Robert Ortenzio: Um... You would have 800 on a revenue basis north of $7 billion, $7,087,000,000. which exceeds consensus by 8%. On an EBITDA basis, you would have $887.4 million which exceeds consensus by 6%. And I'll also point out that it exceeds our, if you recall, we gave annual estimates, it exceeds those estimates on both revenue and EBITDA, the top of the revenue and the EBITDA line. So from that perspective, yes, there is some confusion.
Speaker Change:
Speaker Change: You would have.
Speaker Change: 800 on a revenue basis north of $7 billion.
Speaker Change: <unk> $7.087 billion.
Speaker Change: <unk> exceeds consensus by 8% on an EBITDA basis, you would have 887 $4 million, which exceeds consensus by 6% and I'll also point out that exceeds our.
Speaker Change: If you recall, we gave annual estimates it exceeds those estimates on both revenue and EBITDA the top of the revenue.
Speaker Change: On the EBITDA line.
Speaker Change: So from that perspective, yes, there is some confusion.
Robert Ortenzio: All right, so on a consolidated basis, go ahead. Yeah. The combined revenue increase that we have is about, oh. No, we're talking about 25. Yeah, we're talking about 25. So we're going to have to get this calculation. So go ahead with your question.
Speaker Change: Alright, so on a consolidated basis.
Speaker Change: Go ahead.
Speaker Change: Yeah.
Speaker Change: The combined revenue increase that we have is about.
Speaker Change: <unk>.
Speaker Change: Oh.
Speaker Change: No. We're talking about 25, we're talking about 25, so we're going to have to get those calculations. So go ahead with your question.
Justin Bowers: Okay, so just Going back to all the development, I mean, this is the most active that Select has been in company history, frankly, with all the development activity. You have, you're increasing your IRF bed count by, you know, north of 30% over the next two years. Can you remind us how those facilities?
Speaker Change: Okay. So.
Speaker Change: Just.
Speaker Change: Going back to all the development I mean this is the most active that select has been.
In company history, frankly, with all the development activity.
Speaker Change: You have youre, increasing your spec count by.
Speaker Change: North of 30% over the next two years.
Speaker Change: Can you remind us.
Speaker Change: How those facilities.
Robert Ortenzio: sort of mature and, and, you know, also ballpark for us sort of the the number of startup costs, maybe in the fourth quarter and 2025 as well. Yeah, that's a very good point. And you're right. I mean... We're north of 30% increase in beds over the next 18 months. And if I can, that's really having a dampening effect in particular on the inpatient rehab margins for 25. And what you'll see is that... they actually, because of the model that we have, the joint venture model, they mature pretty quickly. So you can expect to see those turn around and see some very significant double-digit EBITDA growth in 26 and 27.
Speaker Change: Sort of mature and and.
Speaker Change: No.
Speaker Change: Also ballpark for us sort of.
The number of startup costs, maybe in the fourth quarter.
Speaker Change: 2025 as well.
Speaker Change: Yes.
Speaker Change: Very good point and Youre right I mean.
Speaker Change: We're in north of 30% increase in beds over the next 18 months.
Speaker Change: But generally that's really having a.
Speaker Change: As dampening effect in particular on the on the inpatient rehab margins for 25, and what Youll see is that.
Speaker Change: They actually because of the model that we have the joint venture model. The immature pretty quickly. So you can expect to see those turn around and see some very significant double digit EBITDA growth in 2006 and 'twenty seven.
Speaker Change: Sure.
Justin Bowers: Okay, that's helpful. And then, you know, with Remainco, I'm just doing some math here on the development activity. I'm sort of arriving at like a new growth algo of, you know, top line growth, you know, mid single digit plus, you know, EBITDA growth probably up in the, you know, high singles. And then, you know, EPS and free cash flow growth well in per share, you know, well into the double digits before, you know, really deploying any of the excess free cash flow. Is that the right neighborhood? Yeah, I think that's a model over the next three years or so.
Speaker Change: Okay. That's helpful and then.
Speaker Change: With.
Speaker Change: Remain co.
Speaker Change: I'm just doing some math here on the development activity I am sort of arriving at like a new growth algo of topline growth you know.
Speaker Change: Mid single digit plus.
EBITDA growth probably up in that.
Speaker Change: High singles.
Speaker Change: And then EPS and free cash flow growth well in <unk> per share.
Speaker Change: Well into the double digits before.
Speaker Change: Really deploying any of the excess free cash flow was that is that the right neighborhood.
Speaker Change: Yes, I think.
Speaker Change: Model over the next three years or so.
Robert Ortenzio: I would... You know, the way I like to take a look at adjustment, I like to take a look at... you know, off of 25, I would expect to see you know, double-digit EBITDA growth. You know, I think in the teens range, because of all the new beds coming on board. Okay, and that's consolidated. And that's just for the inpatient rehab side. And you have segment, okay, all right, okay. Yeah. I would think on the LTACH side, you should expect some pretty slow growth there. I would expect low single-digit growth. And then on the outpatient side, I would also expect to see some double-digit growth on EBADAI.
Speaker Change: Okay.
Speaker Change: I would.
Speaker Change: Yeah.
Speaker Change: The way I would like to take a look at adjusted I'd like to take a look at.
Speaker Change: Off of 25, I would expect to see.
Speaker Change: Double digit EBITDA growth.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: I think in the teens range.
Speaker Change: Because of all the new beds coming on board.
Speaker Change: Okay.
Speaker Change: Okay and that's consolidated.
Speaker Change: Okay.
Speaker Change: For the inpatient rehab side, New York segment, Okay, Alright, okay.
Speaker Change: Yes.
Speaker Change: Got it and we also expect.
Speaker Change: I would think on the on the in page or on the <unk> side, you should expect some pretty slow growth. There I would expect low single digit growth and then on the outpatient side I would also expect.
Speaker Change: To see some double digit growth on EBITDA.
Robert Ortenzio: You know, 25 and 26.
Speaker Change: 25% and 26.
Justin Bowers: All right, that is helpful. I will jump back in queue. Thank you. Thanks, Justin.
Speaker Change: Alright that is helpful. I will jump back in queue. Thank you.
Joseph: Thanks Joseph.
Ben: Our next question will come from the line of Ben. with RBC Capital. Hey, thank you very much.
Speaker Change: Our next question will come from the line of Ben Hendrix with RBC capital markets.
Ben Hendrix: Hey, Thank you very much I appreciate the color on your refinancing and year end leverage and but.
Robert Ortenzio: I appreciate the color on your refinancing and year-end leverage and acknowledging that there's been some confusion kind of post-spend, but maybe you can give us an idea of your kind of go-forward post-separation leverage targets, how you're thinking about the gearing for this company and kind of where we are versus the kind of the optimal debt load. Thanks. Yeah Ben, thanks for the question. Our expectation is given the given the high activity in particular in the inpatient rehab site, I mean we expect to remain in that 3 to 3.1 time for 25 as far as leverage is concerned, but we would expect to be well below that come 26 and beyond.
Ben Hendrix: And acknowledging that there's been some confusion kind of post spin, but maybe you can get an idea you can give us an idea of your kind of go forward post separation leverage targets, how you're thinking about the gearing for this company and kind of where we are versus versus the kind of the optimum optimal debt load. Thanks.
Yeah.
Ben Hendrix: Yeah, Ben Thanks for the question.
Ben Hendrix: Our expectation is given the gift.
Ben Hendrix: Given the high activity in particular in the inpatient rehab side I mean, we expect to remain in that 3% to $3, one time or 'twenty five as far as Leverages concern, but we would expect to be well below that.
Ben Hendrix: <unk> 26 and beyond.
Ben: I appreciate that.
Robert Ortenzio: And just to follow up, a question on the inpatient, you know, it looks like margins were a little lower this quarter. It sounds like there, you know, there were some development costs in there. And maybe, were there any other kind of headwinds, transitory or otherwise, that may have kind of caused a little bit of a depression on the IRF side this quarter versus the last several?
Speaker Change: I appreciate that and just just to follow up.
Speaker Change: On the inpatient it looks like margins were a little lower this quarter it sounds like there.
Speaker Change: Where some development costs in there and maybe was there any other kind of headwinds transitory or otherwise that may have kind of caused a little bit of a depression on the <unk> side this quarter versus.
Robert Ortenzio: Thanks. Yes, at one of our hospitals, one of our referral sources was impacted by the Hurricane Helene and their census was suppressed, so, you know, correspondingly, our census was suppressed at that facility. What we've seen in 2025 is the census is back to normal, so we believe that was an anomaly, but that along with the startup losses and the integration costs for our acquisition, that's what contributed to the decrease in margin year-over-year for the inpatient rate.
Speaker Change: Last several thanks.
Speaker Change: Yes.
Speaker Change: Yes, one of our hospitals at one of our referral sources was impacted by the Hurricane Helane.
Speaker Change: And their census was suppressed.
Speaker Change: Correspondingly our census was suppressed at that facility what we've seen in 2025 US census is back to normal. So we believe that was an anomaly, but that along with the startup losses and the integration costs for our acquisition that's what contributed to the.
Speaker Change: Decrease in margin year over year for the inpatient rehab.
Robert Ortenzio: Great, thank you for that clarification. Thanks.
Speaker Change: Great. Thank you for that clarification.
Speaker Change: Okay.
Thanks Ben.
Joanne: Our next question comes from a line of Joanne. Bank of America. Hi, good morning. Thanks so much for taking the question. So just, I guess, a little bit of follow up to that last comment about the IRF margins. And as it relates to 2025, I'll put your guidance implies margins would decline about 20 basis points or so versus comparable, again, excluding consensual margin in 2024. So is that also what's driving that EBITDA margin outlook, you know, for this slight decline because the IRF margins, I guess, are going to be still, you know, kind of constrained because of the startup losses.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Joanna <unk> with Bank of America.
Hi, good morning, Thanks, so much for taking the questions. So just I guess, a little bit of a follow up to that last comment about the <unk> margins.
Speaker Change: As it relates to the 2025 outlook your guidance implies margins with decline.
20 basis points or so versus comparable again, excluding some central margin in 2020, or so is that also what's driving.
Speaker Change: That EBITDA consolidated EBITDA margin outlook.
Speaker Change: This slight decline because of.
Speaker Change: Margins, I guess going to be still constrained because of the startup losses is that the.
Robert Ortenzio: Is that the reason for the consolidated margin to be lower? Is there something else to be said about other segment margins for 2025? No, that's the primary driver Joanna, you're correct.
Speaker Change: The reason for.
Speaker Change: For the consolidated margin to be lower or is there something else to be set about the auto segment margins for 25.
Speaker Change: No Thats the primary driver Joanna Youre correct.
Robert Ortenzio: Okay, so it's pretty much the IRFs because startup losses. And then for for the LPACs, should we think about those margins relatively stable or how we should think about 25 versus 24? Yeah, I think relatively stable is really the way to think about it. Because I guess in that segment, can you talk about the reimbursement change, you know, the change to the thresholds for the, you know, in Medicare, how you, I guess, seeing this progress through the year, the impact of that change? Yeah, you're talking about the high cost outlier threshold? Yes, yeah, exactly. Yeah, yeah, I mean, our operators have done a tremendous job managing through the significant increases we've seen in that threshold.
Speaker Change: Okay. So it's pretty much there.
Speaker Change: Start up losses.
Speaker Change: And then for the Outbox should we think about those margins relatively stable or how we should think about 'twenty 'twenty four.
Speaker Change: Yes, I think relatively stable is really the way to think about it.
Speaker Change: Because I guess in that segment can you talk about the reimbursement change that changed the trust calls for the Medicare How you I guess see that.
Speaker Change: <unk> progressed through the year the impact of that change.
Speaker Change: Yes, youre talking about the high cost outlier threshold.
Speaker Change: Yes, yes exactly.
Speaker Change: Yeah, Yeah, I mean, our operators have done a tremendous job managing through the significant increases we've seen in that threshold.
Robert Ortenzio: And, you know, so if you take a look at what transpired between 2023 to 2024, there was about a $20,000 increase per patient. And they've really been able to manage through that. You know, as we take a look at it, I think it went into that the increase from 24 to 25 is also in that same magnitude, and that started October 1st. It looks like they're doing a very good job managing that too. Okay, that's great. But I guess with those changes, you think margins should be relatively flat for the sector. Yes.
Speaker Change: <unk>.
Speaker Change: So if you take a look at what transpired between 2023 to 24, there was about a $20000 increase per patient.
Speaker Change: They've really been able to manage through that.
Speaker Change: Sure.
Speaker Change: As we take a look at it.
I think it went into that the increasing from 24% to 25 was also in that same magnitude.
Speaker Change: And that started October one it looks like they are doing a very good job managing that to.
Speaker Change: Okay.
Speaker Change: That's great, but I guess with those changes.
Speaker Change: Margins should be relatively flat.
Speaker Change: For for that segment.
Robert Ortenzio: Okay.
Joanne: And then last segment, the outpatient rehab. So these margins show nice improvement in Q4. And sounds like, you know, when you were asked a question about kind of the long-term outlook, you know, you expect the outpatient rehab EBITDA to also grow double digits. So can you talk about, you know, your, I guess, activity there in terms of is it just, you know, kind of sounds like you're streamlining the portfolio, exiting some markets, maybe they don't make sense. Anything else to kind of plug in terms of like, you know, what's driving the expected growth in that segment, EBITDA, and also how to think about 25.
Speaker Change: Yes.
Speaker Change: Okay, and then last segment outpace you May have said this margins showed nice improvement in Q4 and it sounds like.
Speaker Change: When you were asked a question about kind of the long term outlook you expect a question. We have EBITDA also grew double digits.
Speaker Change: Can you talk about.
Speaker Change: I guess ex TBD there in terms of is it just.
Speaker Change: It sounds like you're streamlining the portfolio exiting some markets may be that all my update all makes sense.
Speaker Change: Anything else to kind of flag in terms of like whats.
Speaker Change: What's driving that.
Speaker Change: The expected growth in that segment EBITDA and also how to think about 25. Thank you.
Robert Ortenzio: Yeah, I think there's really two primary things that are driving that. Number one, we've mentioned there was an increase in the rate from $100 net revenue per visit up to 102. I think that's a function of some negotiated negotiations going on with the commercial contracts. So that's been very helpful, despite what we're seeing on Medicare cuts. So that's been very good. I think the other thing is that clinical productivity. We had mentioned, I think, in the last earnings call, we've been doing a lot of work on our technology. And we had a rollout in January that we think has been very good and would anticipate seeing.
Speaker Change: Yes, I think there's really two primary things that are driving that.
Speaker Change: One we've mentioned there was an increase in the rate from.
Speaker Change: $100 net revenue per visit up to one or two.
Speaker Change: I think thats a function of.
Speaker Change: Negotiate it negotiations going on with the commercial contracts. So that's been very helpful. Despite what we're seeing on Medicare cuts. So that's been very good I think the other thing is that clinical productivity. We had mentioned I think in the last earnings call. We've been doing a lot of work on our technology.
Speaker Change: And we had a rollout in January that we think has.
Speaker Change: Has been very good.
Speaker Change: Anticipate seeing.
Joanne: additional improvement in our therapist productivity. Great, thank you so much for taking the call. Thank you.
Speaker Change: Additional improvement in our.
Speaker Change: Our therapist productivity.
Speaker Change: Yeah.
Speaker Change: Great. Thank you so much for taking the questions.
Thank you.
Operator: That concludes today's question and answer session.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to management for closing remarks.
Robert Ortenzio: I'd like to turn the call back to management.
Robert Ortenzio: No closing remarks. Thanks, everybody, for your, you know, attention, focus on the quarter as we kind of unravel, unwind, and with Concentra so that we have a clearer picture on what's going on here at Select, and we appreciate your effort. Look forward to updating you next quarter.
Speaker Change: No closing remarks, thanks, everybody for your.
Speaker Change: Attention focus on.
Speaker Change: The quarter as we kind of.
Speaker Change: Unravel unwind and with Concentrix. So that we have a clearer picture on whats going on here at select and we appreciate your efforts.
Speaker Change: We look forward to updating you next quarter.
Operator: This concludes today's conference. Thank you for participating.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.