Select Medical Holdings Corporation (SEM Quick QuoteSEM – Free Report) shares have declined 6.6% since it reported third-quarter 2023 results on Nov 2. Although it reported strong third-quarter results on the back of the Rehabilitation Hospital and Concentra segments’ strength, the positives were partially offset by rising costs and expenses. Also, it revised its adjusted earnings outlook to exclude the actual tax-effected loss on early retirement of debt, marginally lowering the range.
It reported third-quarter 2023 adjusted earnings of 46 cents per share, which beat the Zacks Consensus Estimate by 21.1%. The bottom line jumped from 21 cents per share a year ago.
Net operating revenues improved 6.2% year over year to $1.7 billion in the quarter under review. The metric beat the consensus mark by 4.6%.
Select Medical Holdings Corporation Price, Consensus and EPS Surprise
Q3 Performance
Total costs and expenses of $1.54 billion increased 3.5% year over year in the third quarter and came higher than our estimate of $1.48 billion. The increase was due to the elevated cost of services, exclusive of depreciation and amortization, coupled with higher general and administrative expenses.
Adjusted EBITDA advanced 26.6% year over year to $193.8 million, higher than our estimate of $181.5 million.
Segmental Update
Critical Illness Recovery Hospital
The segment reported revenues of $563.6 million in the third quarter, which improved 7.4% year over year and outpaced our estimate of $538.6 million. The growth came on the back of an 11.6% rise in revenues per patient days in the segment.
Adjusted EBITDA increased more than three-fold year over year to $46.4 million but missed our estimate. Adjusted EBITDA margin of 8.2% improved 610 basis points (bps) year over year in the quarter under review.
Rehabilitation Hospital
The segment’s revenues of $247.1 million grew 7.7% year over year and surpassed our estimate of $233.6 million. The improvement can be attributed to 4.3% growth in admissions and 2.8% increase in patient days.
Adjusted EBITDA came in at $53.6 million, which advanced 7.7% year over year in the third quarter and beat our estimate of $51.2 million. Adjusted EBITDA margin remained flat at 21.7%.
Outpatient Rehabilitation
Revenues of the segment amounted to $291.8 million in the quarter under review, which rose 2.4% year over year but remained below our estimate of $297.5 million. The growth stemmed from a 9.3% rise in patient visits, partially offset by a 2.9% decline in revenue per visit.
Adjusted EBITDA increased 2.5% year over year to $26.3 million but came higher than our estimate of $25.9 million. Adjusted EBITDA margin of 9% remained flat compared with a year ago.
Concentra
The segment recorded revenues of $474 million in the third quarter, which improved 6.6% year over year and beat our estimate by 9.4%. A year-over-year increase of 0.2% in visits, along with a 6.3% rise in revenue per visit, drove the unit’s results.
Adjusted EBITDA rose 9.9% year over year to $98.9 million, higher than our estimate of $86.9 million. Adjusted EBITDA margin of 20.9% improved 70 bps year over year.
Financial Position (as of Sep 30, 2023)
Select Medical exited the third quarter with cash and cash equivalents of $77.4 million, which increased from $97.9 million at 2022 end. Total assets of $7.7 billion inched up 0.2% from the 2022-end level.
Select Medical had $374.2 million left under its revolving facility as of Sep 30, 2023.
Long-term debt, net of current portion, amounted to $3.7 billion, which decreased from the $3.8 billion figure as of Dec 31, 2022.
Total equity of $1.5 billion grew from the $1.4 billion figure at 2022 end.
Select Medical generated cash flow from operations of $116.3 million in the reported quarter, which climbed from $94.3 million a year ago.
Share Repurchase & Dividend Update
In the third quarter, the company did not buy back shares pursuant to the new $1 billion authorized share repurchase program, which is set to expire on Dec 31, 2025.
On Nov 2, 2023, management approved a cash dividend of 12.5 cents per share, which will be paid out on Nov 28, 2023, to its shareholders of record as of Nov 15.
2023 Outlook
Management reaffirms the revenue guidance of $6.55-$6.7 billion. The midpoint of the revised outlook indicates an improvement of 4.7% from the 2022 figure.
Adjusted EBITDA is estimated between $795 million and $825 million in 2023. The midpoint of the updated guidance implies 25.2% growth from the 2022 figure. The company now forecasts adjusted earnings per share within $1.85-$2.02 for this year.