Release Date: November 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Select Medical Holdings Corp (SEM, Financial) successfully completed Concentra's initial public offering, owning 81.74% of Concentra stock.
- The company opened a new 48-bed inpatient rehab hospital in Jacksonville, Florida, in partnership with UF Health.
- All four divisions exceeded prior year Q3 results in both revenue and adjusted EBITDA, with consolidated adjusted EBITDA growing by 6%.
- The inpatient rehab division reported double-digit growth in both revenue and adjusted EBITDA for the third consecutive quarter.
- Select Medical Holdings Corp (SEM) reduced its consolidated leverage from 4.13x to 3.38x, showing strong financial management.
Negative Points
- The company incurred $3.7 million in start-up losses in the inpatient rehab division due to new hospital openings.
- Occupancy in the inpatient rehab division decreased by 2% compared to the prior year, attributed to new hospital start-up losses.
- Concentra experienced a 4% decrease in employer-based visits, which are reimbursed at lower rates.
- Interest expense increased to $55.4 million in the third quarter, up from $50.3 million in the same quarter prior year.
- The outpatient rehab division's adjusted EBITDA margin remains relatively low at 9.1%, indicating room for improvement.
Q & A Highlights
Q: Can you provide more details on LTAC occupancy trends and whether staffing issues are affecting them?
A: Martin Jackson, Senior Executive Vice President of Strategic Finance and Operations, explained that the occupancy rate for the past quarter was higher than the same quarter last year and was primarily due to seasonality, not staffing issues. The operators have managed high-cost outliers effectively, so there hasn't been much impact there.
Q: What are your thoughts on capital deployment given the company's substantial free cash flow and optimal leverage range?
A: Robert Ortenzio, Executive Chairman and Co-Founder, stated that the company aims to maintain a 3x leverage, which is beneficial for keeping options open. They plan to be opportunistic with capital deployment, focusing on development opportunities, deleveraging, or stock buybacks.
Q: Are there any plans for LTAC development, and how does it fit into your capital deployment strategy?
A: Robert Ortenzio mentioned that while there are opportunities for LTAC development, the focus is on less capital-intensive models like hospital within a hospital. The company prefers to allocate capital to inpatient rehab due to larger opportunities in that segment.
Q: Can you clarify the IRF rates, particularly the Medicare side, and how they compare to previous expectations?
A: Martin Jackson confirmed that the IRF rates are in the 3% range, aligning with the final rule's market basket net of productivity.
Q: What progress can be expected in outpatient rehab margins, and what are the key drivers?
A: Martin Jackson highlighted that clinical efficiency, particularly through technology, is a major focus. An internally developed system set to release at the end of the year is expected to significantly improve margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
