Select Medical (SEM) 4 Aug 232023 Q2 Earnings call transcript

Good morning, and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the Second Quarter 2023 Results and the business -- company business outlook.

Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter and then the call will open for questions.

Before we get started, we would like to remind you that this conference may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operational results, growth opportunities and other statements that refer to Select Medical's plans, expectations, strategies, intentions and beliefs.

These forward-looking statements are based on the information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change.

to conference like to now will turn over the Mr. I Ortenzio. Robert ahead, Please go sir.

Good to everyone. call you, morning, Thank Operator. Welcome second of for quarter Select XXXX. the earnings Medical's

division, and commentary. on our each Before to providing updates four detail operating some provide I'd of like

second we plans the July to the refinancing some on you're launch results aware, of company's financial in Jackson will in Marty details of completed and on our a XX, announced As July our debt. estimate XX, preliminary certain further for quarter with refinancing commentary. We connection of provide his

I August So highlight to wanted that X, U.S. on

Hospital partnered News in to Banner Cleveland rehab TriHealth for in among ranked California in XX, nation's its share & Institute hospitals Ohio XX, White annual & best and pleased Rehabilitation number that Institute the Number three, Rehabilitation Columbus; Institute; Phoenix. for you Rehabilitation; list. our Scott Hospital our for Rehab Kessler I'm Dallas; XX and released number Kessler inpatient number XX, number World with Baylor Hospital Institute for Cincinnati; Rehabilitation are Hospital; best Report Rehabilitation XX, XXXX/XXXX. in number Rehabilitation Rehabilitation hospitals Hospital number of six Health Clinic XX,

This for institutions. XXst row This each of is Baylor hospitals among a the Scott quality for the at Institute White year nation's recognition consecutive attention marks a teams has and & the and best year testament third rehabilitation Kessler that been these Health. Ohio in to named to and our Dallas the

divisions QX. EBITDA all X% exceeding overall with by strong revenue revenue adjusted compared operating year grew The front, prior in our year grant to for XX% sequestration growth million On we financial same income. Overall the reinstatement and amounts financial prior another of -- Medicare quarter headwinds grant $XX.X full had year and prior revenue. in to compared million year CARES performance and Act $X.X for QX were Medicare quarter when prior income received the of sequestration CARES four of

was EBITDA million million the For in the prior to $XXX $XXX.X compared adjusted total quarter, year. company

EBITDA to prior was adjusted year. consolidated margin for Our in XX.X% QX the XX.X% compared

Excluding impact million XX.X% year, EBITDA a sequestration margin. adjusted Medicare prior and grant of year prior $XXX.X with our was income the QX

along Our most reduction which X his hospital regarding our to detail XX.X%, ratio their XXX% prior commentary. Consistent performance division in experienced sustained with XX%, in was and $XX a recovery critical will Jackson of to labor increase point along increase The in improvements reduction to an illness benefit quarter illness with significant adjusted the same CIRH critical to revenue year EBITDA within quarter, salary, agency million SW&B was compared division expenses revenue with additional XX% in with ratio. to compared provide year. wages, target range Marty a last within prior

had million and acquired this venture front we in openings three recovery Tucson, illness in Alexandria, this bed losses activity Arizona, lot our in joint located We illness past May, partners $X.X startup a with Virginia. hospital June, more illness Virginia. hospitals Critical a with XX Richmond, In In in incurred also two critical new critical we hospitals quarter. of on opened the quarter. development

recovery for strong a joint venture hospital, previously Health our Rush critical with There have consideration. unit also to is we pipeline a part opportunities of growth additional System that XXXX. As agreement are of mentioned, in open rehabilitation Chicago QX an illness distinct under in partner for a University

exceeding quarter continued strong their division revenue EBITDA. inpatient and performance rehab hospital prior adjusted The year

Jersey. QX, Care pipeline approval, New slated expected growth in with XXXX be Southern Also, the XXXX. noted, partnered have close to in in Bacharach is performance As hospital The is Atlanta for mentioned a regulatory partner as in either the pipeline Fort upon called or Rehab venture for bed to open in joint anticipate new inpatient previously will Wayne, rehabilitation with hospital QX, year. with Indiana this and our strong strong, Institute CHS. Contingent we hospital XX development we a throughout remained strong to rehab build and

Concentra continued performance patient exceptional and prior year revenue, their EBITDA, volume. exceeding

into well Michigan two During footprint used location included mobile acquisition the extending market. our standalone episodic Grand quarter, Center Concentra a completed unit approximately of miles transactions. Holland from clinic for Medi The in events, Michigan nearby a Rapids Holland, as XX as

has for are located expected acquired Concentra folding Occupational One in novo the in to a Medicine, Tulsa, signed our that Source also a in de clinic leases open QX new transaction resulted Concentra into nearby four Oklahoma. of that practice locations XXXX.

that strong a are novos being acquisition currently of there's pipeline de in evaluated. Additionally,

half pipeline XX surpassed additional This The via entered and remains added and year rehabilitation clinics novos. South where Outpatient contributing executed that strong revenue acquisitions this partnership division Care are outpatient and de open second scheduled and patient XX leases which eight quarter, our with joint There XXXX. Division a venture managing majority the in in de novo development many with owner. for also clinics, market partner consideration. for novo quarter of opportunities are into de the clinics prior for acquisitions to Jersey volume. Atlanta growth are we are under additional our

illness for occupancy further X% some of EBITDA points At increases divisions. our on in revenue, division and net of a rates, Critical of extremely successful this experienced hospital XXX% quarter. X% point, recovery data I'll each provide in

XX% occupancy up XX%. was Our from

from X.XX prior case mix X.XX. decreased index to year Our of

decreased QX. consistent remained rates rates agency while utilization QX XX% X% agency nursing Nursing agency nursing to XXXX. prior year agency compared utilization decreased to decreased and XX% when Nursing compared

compared QX, add QX continue to full prior as XX% nurses. year XX% Orientation XXXX compared but we to to hours increased decreased time

XX% QX sequential quarter. Nursing sign-on dollars from XX% and incentive decreased the bonus from prior and year prior

adjusted margin compared prior XX.X% in Our the quarter QX. was X.X% EBITDA year the to for

in improvement our Our in reductions to positive contributed margin. labor the EBITDA

for federal than of The rule in this a lower includes the which rules the On base fiscal in increase LTAC higher increased X.X% this A $XX,XXX is week, proposed year outline -- which proposed rule October the outlier rate, of rule. effective front by threshold final $XX,XXX. be was XXXX, the final high year. increased regulatory will issued X than much the which cost $XX,XXX, CMS the

length weight the MS-LTAC-DRG were rule. The and also stays updated relative in of expected final

inpatient year. margin day to hospital prior was compared division adjusted increase XX% Our was revenue and XX% with XX% patient rehab experienced X%. a rate for inpatient X%, X% patient QX increasing Occupancy The rehab the prior XX.X% to in year. EBITDA for in volumes per compared net our by

decrease final increase amount, to for a including October proposed the higher which the in rule. than relative high rule. A than cost rule X.X% also $X,XXX, standard the threshold The includes CMG which issued rules the in stay was Final rule. Last slightly the fiscal and proposed the increased final is weight were were average updated effective also payment week, inpatient length rehab outlier CMS XXXX, less X. X.X%, which $X,XXX values of

net and X% X% Concentra in increase a rate. in revenue volume, driven by in experienced increase an in increase X%

to same net work XX.X% EBITDA quarter per our Our margin prior increased by in employer the Concentra's quarter revenue the increased comp visit was services compared XX% X%. by for and rate year. adjusted X%,

compared increase increasing prior revenue year. compared per a $XXX same Medicare this was year rate volume offset outpatient due fee markets quarter schedule, multiple declined attributed of year. an XX.X% $XXX by rehab by revenue improving versus decline compared initiatives increase quarter rate of margin from quarter in The to per prior decline to to visit XX.X% implementation spread outpatient in and by visit to Patient decrease clinical productivity slightly in variable net was organizational payer their X% The The to in XX% outpatient net division prior prior Our while on net discounts focusing amongst division's in experienced was prior $XXX,XXX via compared revenue. volumes to Medicare year. sequestration, patient partially year, and was to access. full EBITDA EBITDA mix same

per diluted to same share were the second Earnings year. $X.XX compared for in prior share $X.XX quarter per fully the quarter

of to August X, evaluate on shareholders We'll repurchase XXXX, program. development the authorized of as of repurchase our and dividend debt on deployment business record we capital, XXXX. shares under XX, to of to reduction our not payable quarter, of past repurchases September did close In declared allocation share a regards cash $X.XXX of Board of Directors of This stock opportunities. continue Board our

Marty concludes to remarks I'll over we Jackson additional This some financial open turn questions. details before for for it my and call up the

Good Bob. morning, you, Thank Great. everyone.

some make regarding agency consistent. with realized Consistent QX we RN from costs details agency from sequential past with had RN quarters, the critical hospital utilization we division. The in the while to labor the were in in we like the X% X% prior down to This with continue RN costs our remained reductions to QX illness hourly to I'd progress recovery costs $XX. quarter, reduction our of three provide RN a and agency total and rate $XX agency rates, agency additional

Our RN $X.X the in June. $X.X was with X% remained of million million in in quarters. rate and down Agency from XX% in utilization slight $XX and from three in in June. utilization progressed to agency May, XX% past of agency to fluctuations April $XX, fluctuation for dropped to May, XX% costs We quarter our agency experienced as this and and April million the $X.X costs June the at rates April,

bonuses. reductions in we sequential nursing saw of were and where Other areas the improvement sign-on incentive to compared quarters XX%

administrative our consistent hospital remain SW&B relatively While QX. with

of hours This XX%, month. quarter QX average increase consistent the an had hours at orientation of the XXXX hours an XX,XXX remain we sequentially per relatively and of quarter to compared during

QX Overall, the communicated. remaining our ratio that from from XX.X%, targeted slightly rate SW&B up net had is previously we to to XX.X%, revenue increased which within

$X.X In same Net were earnings million prior This in last $XX.X compared Moving was attributable subsidiaries on our to million to income non-controlling million. quarter unconsolidated and $XX.X in the financials. equity interests year. compares the year. of QX, $XX.X to to million quarter same

to prior quarter. was expense compares compared million to expense to in was in interest same the the This second the QX rates increase quarter in attributable $XX.X increase year. million of interest The primarily in $XX an XXXX. Interest

and the $X.X the At debt the end cash sheet. balance had of outstanding quarter, of of million on we $XXX.X billion

Our the our net $X.X $XX.X miscellaneous our the debt of billion million in term of and ended senior billion X.XX balance other notes of included loans, million agreement credit the $X.X leverage at senior X.XXx. in We quarter of $XXX with quarter secured debt. end in revolving loans,

XXX As of close of June we to revolver. our had availability million $XXX -- XX, on

amended completed with previously we noted, prior we credit billion days a been maturity to the B, the secured refinancing loan along and $XX X, million an mature two have $X.X July million extended XX. This at springing $XXX XXXX. up our senior to $XXX -- revolving term on $XXX increasing of and revolver with years As transaction May March senior than secured year, and XX, from extended facility million will XXXX, with our Both more Bob loan million. loan of XX notes early if senior notes outstanding the triggering maturity on remained term

basis note points SOFR to important ratio net loans loan leverage will the ratio our down net of The basis step XX XXX priced if SOFR plus bps of leverage falls refinancing cap XX at falls X% been below that XXX of revolver term place at in It's down SOFR of Xx. has remain interest points through $X on September with priced with XX a billion The rate plus our a the step if term is XXXX. Xx. below

XXXX. XX, billion August $X.X X.XX notes still of Our on senior mature

to Investing day days at XXXX in in includes For March the This quarter. XX of activity. or investment quarter, million as and our XX was the compared purchases XXXX property XX, XXXX. of equipment in XX DSO in to XX second second days of on $XX.X cash $X.X activities million and million close and provided used June of outstanding June XX and activities million cash acquisition operating $XX.X sales days $XXX flow,

$XXX.X million and net Financing million debt, our activities second $XX.X common the million had our payments line of other on cash on payments used in credit, dividends stock. in quarter. $XX.X on revolving million $XXX net of for We of

any repurchase December until XXXX, effect repurchase under quarter. earlier remains not by our in program Board Board. stated authorized The terminated the program shares further extended As did previously, we this or unless XX,

range a of expected with $X.XX are in earnings $X.XX. per XXXX in adjusted $XXX in to range to the the expected to to of billion, range EBITDA to and $X.X of million, diluted $XXX We adjusting million outlook be our be the share fully business for billion revenue $X.XX

related to Select effects. expects be excludes costs Medical of share $X.XX per Adjusted earnings tax loss and adjusted of and to has in range the earnings debt per $X.XX. early of retirement the share

in be XXXX. $XXX to range expenditures $XXX for Capital expected the are million of million to

to the this prepared like for it our to up concludes at over questions. the This remarks. back call we'd open operator to turn And time,

you. Thank [Operator Instructions].

question with Our from comes the Bank. of Bowers Justin first Deutsche line

Your line open. is now

just to anything LTAC, Bob, of next this left novo everyone. morning the is there one clarify or good wanted year de online -- that year? coming Hi, JV in or the the thing is rest the on in is XXXX

Just the that that's announced. one next RUSH be we've is based would deals on that

So announced we've anything not before would be that else that we that would yet. do

appetite it. Got you outpatient sort your, guys approach of the building any your landscape to do the JV with stay something or just greater the existings, is the plan or on of scale? around sort And with of last the course then year given to for there over sort so, is and

We to opportunities good anything of presence have are by value pretty is scale. that and there no feel where I creation a on onto in for our outpatient we many would really markets a this point say adding joint our also growing snapping agreements broader appetite venture about at do incrementally rapidly.

would the a I market to for we outpatient are in not transaction the you bigger in space. So probably say that

the to we and EBITDA flow free going pay T-bills rate guys a you that should cap there or way? deleveraging about in be versus in XXXX? growth is Marty, function of forward half through think first generation to September about the thinking just CapEx attract How how the spread of then And down more healthy in some the along Thanks. going Is half the cash are the especially given the Okay. just XQ. in second

cash, XXXX, on that be had Yes, Bob the completely Justin. flow. about revolver come down, cash the going dollars talked With should by our we a free anticipate on that that regards I use continue will of mean, borrowings to, see eliminated into be any XXXX, of and -- revolver. We end to any should that that the

So no, continue we'll to debt. pay down

see from but expect to So come of leverage also only down not you that. can reduction increased EBITDA,

One our you. for moment Thank question, next please.

Capital of question comes Markets. with line the from RBC Next Ben Hendrix

line is Your open. now

very much. you Thank

pretty you to Just a proposal, into like glad down comments. financial threshold that follow-up it about year? of rule come and seems that to outlier illness the question a Thank from on significant still XQ your but final definitely impact see your then hike. next from are We're thinking LTAC XQ the critical to segment How you.

that will cost to certainly right that number that's now. will on have have there doubt increase -- no there's there, high some And but we what certainly Yes. we're in and headwinds the outlier are ways focused mitigate that,

And just the specifically increase for think Select Medical or Okay. your of that X.X% case rate and how given thereabouts, does you do mix thanks. kind then overall translate

when that -- clarify it does you could question Ben, say you how

to just Select X.X% just be the for rate Yes, expect if different -- it any update, than how you the finalized.

in that us. we it No, anticipate be will neighborhood for

Medicare You can percent. for dollars to that our increase increases see expect by

your I to in think use number good that's a model.

Yes.

commercial side. on better see increases the think you'll I

we're rates. think -- improvements. with I been a X.X% I that that then negotiated in But -- efficiency think X.X% there's Medicare, think that about for of I and We've it's we've X-plus-percent range. I deduct been think in

has usual, you an Yes. of complicated high these Ben, outlier this, there's in takes rules, aftermath cost And, LTAC, of give There's threshold, it's the which final business. because as -- have in lot the final these a rules, the and a impact.

business. business, pulmonary, then the rate our the of of You our effect have have cases increase, case the these and an respiratory you percentage mix and have all index, of mix on and

to and sure that the rule at get adjust we'll of So some that, levers those all the taking we we segment. out year, all of be growth have make we're -- at that can our the to into going look disposal next post a

could you. you. do opportunity just Got outlier drive this, that any create industry finally, Thank And quickly, a to expect high cost consolidation you guys? for you the disruption

do I not.

of Fischbeck moment of question. question you. Kevin for line comes One with Thank next next Bank the our from The America.

line Your open. now is

guys Great. think net have do IRFs on Thanks. of be the comment rates, what will Maybe you the you Medicare to stay a similar on you IRFs All to kind rate on right. do rule? just

I I to LTAC rule. rehab with -- the there Yes, and final think that got the tailwind pretty a think we we're we've on were mean, rule next and/or the QX bit of as into little looking rule the I satisfied a And year, Kevin. forward

so that is think or there Okay. And to into XXXX? heading lot then, SW&B analogies, where right progress. love the to from baseball Wanted get inning like thought you the a way obviously go what improvement of there? were on to all Is progress still in a from are SW&B. you here, this about we much on sense guys you We

of Yes, the XX% year, Kevin, range. balance I to in that the think XX% throughout we'll be

Now SW&B component we're on being, remember, we here; of dropping see the that XXXX. as XXXX it. revenue and revenue the percentage to reason not And just in cost focused a has down mean I a

contracts our those basically are three So The on commercial terms years. years. three are

decent We're be done XXXX/XXXX of contracts we'll of about balance We as in negotiating get XXXX. to see increases is now, we'll percentage to down So rate that so really those. as a of of historical expect do contracts. revenue get SW&B third to anticipate it we increases the negotiating in the that, And to continue our would for back there. through come focus we a XX%. be We our

great. Okay. That's

and bill we improvement to saying match inflation? more utilization think se, in it's growth the further rates that or getting of kind about about the is when about you're improvement less though, that So per declines top-line

correct. That's

that case something still that be another modeling I -- last the into kind should rehab we there me, mentioned this the cut you rate unusual? You anything year? that then mix next at side, or guess outpatient question next that on is maybe being reason than to just rates And Great. of rates mentioned going down, there there's then year, Okay. next there, rates excuse is payer year? believe is will kind that -- in of proposed least better year is be to

rebound going next We that going range. into is. it's least in there to back anticipate be we Yes, $XXX $XXX, think at year, that to

that? driving What's

contracts Again, area. in the some -- CBO other, our in in improvements and

next One moment for our you. Thank question.

Our of Suisse with the from Credit line comes Financial. next A.J. Rice question

now is line Your open.

good Hi, for A.J. This MJ [ph] on morning. is

to we're wanted larger I that seeing. So about volume ask the trends

see or are you Thank more rehab IRFs a Your sustainable outpatient this flowing you see do this Do system, as strong. volumes more especially through in care deferred as and mostly you. very volume?

you question? Could Yes. repeat that

yes, not You're not very you're -- coming through clearly.

I about asking rehab more volume seeing pandemic, care on is after a flowing a whether Yes. the you're as that or deferred volume? it more, was as well sustainable system the through the IRFs outpatient is the

you I think understanding very mean, -- your in I business post -- and and volume on the those the market a issue. I think company characterize IRFs if like business the is mean your question, I'm outpatient local there's of negotiations. on competition demand and others, good. ours just the it rate your very necessarily, the I a business think businesses your outpatient if post-pandemic I of and very, in don't sustainable in or is systemic the no side on the mean question either the volume, this for navigating it's I it's is -- But IRF

like think we -- pandemic. we'll to pent-up this. a really see demand that We the of due don't it's to it's think think We really function increases Yes. continue

things a of or on if surgical affect continue staffing orthopedic large can surgical a answer nationally, There's some challenges business. overall, particularly we're that oftentimes a sometimes in volumes, volumes. see But see question? local on that And certainly it affect the markets, their have, for when strong Does look to negative market, systems to can pull in return impacted through Yes. we your lots to that pretty example, we are side local going that.

LTAC Yes. more Got it. on Thanks. Maybe one pricing.

the and mix of as out? shake down I does seems should the up and stepped and is day like acuity it up year pricing was a think how patient revenue the -- headwind, X.X% back well. half be sequestration why going How per

in as mix. I see tend we case pulmonary, to In of the I or the tell systemic our winter at will can acuity think acuity the when that one the up. look should you thing mix acuity we go months, patients. of you index Well, being any acuity signal commented reduction on the mix or kind on more don't reduction

see continue our in In fact, hospital. critical to we acuity illness increased

our that So I is I And remain business. know, in you as continue think will mean, to there strong. some seasonality

Yes.

I it the we're to you as positive think on the down, extent stay the paid did length rate. thing a during going DRG, a the goes is, to the that's other of on which quarter know, so that impact have

Ortenzio closing currently Thank showing like at over time. further for the no I'd you. questions Mr. this conference hand am I remarks. back to to Robert

remarks, and Closing you updating quarter. everybody forward thanks, us again look next to for joining

concludes your today's Thank conference call. for participation. This you

day. You may wonderful disconnect. now Everyone, have a