SEM — Select Medical Holdings Corporation

Select Medical Holdings Corporation (SEM) Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Total Revenue: Increased by 5% year-over-year.
• Adjusted EBITDA: Declined by 6.5% to $141.6 million, down from $151.4 million in the prior year.
• Earnings Per Share (EPS): Reported at $0.35, down from $0.44 year-over-year; adjusted EPS for transaction costs was $0.36.
• Inpatient Rehabilitation Division: Revenue rose over 14% to approximately $351.9 million; adjusted EBITDA increased 15% to $81.1 million.
• Critical Illness Recovery Hospitals: Revenue slightly increased to $638.8 million, but adjusted EBITDA fell 15% to $73.4 million.
• Outpatient Rehabilitation Division: Revenue grew over 4% to $321.3 million; adjusted EBITDA decreased to $22 million from $24.3 million.
• Debt: Total debt stood at $1.9 billion with a net leverage ratio of 3.75.
• Cash Flow: Operating cash flow was $37.9 million.

2. Strategic Updates and Business Highlights

• Take-Private Transaction: Announced acquisition by a consortium led by Executive Chairman Robert Ortenzio, with a cash offer of $16.50 per share expected to close mid-2026.
• Expansion Plans: Added 166 beds across three new inpatient rehabilitation hospitals in Q1 2026, with plans to add 275 more beds through various expansions and new facilities through 2027.
• Capital Allocation: A cash dividend of $0.0625 per share was approved, payable on May 28, 2026.

3. Forward Guidance and Outlook

• 2026 Revenue Guidance: Expected to range between $5.6 billion and $5.8 billion.
• Adjusted EBITDA Guidance: Projected between $520 million and $540 million.
• EPS Guidance: Anticipated in the range of $1.22 to $1.32.
• Capital Expenditures: Expected to be between $200 million and $220 million.

4. Bad News, Challenges, or Points of Concern

• Declining Adjusted EBITDA: Notable decline in adjusted EBITDA across segments, particularly in critical illness recovery hospitals.
• Increased Denials: Rise in Medicare Advantage denials noted, particularly affecting long-term acute care and inpatient rehab segments.
• Market Exits: Closure of underperforming clinics in Oregon resulted in approximately $1 million in costs.
• Regulatory Risks: Potential impacts from proposed CMS rules for inpatient rehabilitation and long-term acute care hospitals, although no immediate concerns were raised.

5. Notable Q&A Insights

• Outpatient Rehabilitation Margins: Management discussed operational improvements and scheduling optimizations to enhance margins, with plans to exit underperforming markets.
• Medicare Advantage Denials: An increase in denials was confirmed, particularly affecting inpatient rehab, but commercial and Medicare conversions were improving.
• TEAM Model Impact: Minimal impact observed from the Medicare TEAM Model on inpatient rehab census, indicating that the affected patient types are a small portion of their business.

This summary encapsulates the key points from the earnings call, highlighting both the positive developments and challenges faced by Select Medical Holdings Corporation in Q1 2026.