Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Select Medical Holdings Corp reported a strong start to 2024 with a 22% growth in adjusted EBITDA and a 7% increase in revenue compared to Q1 of the previous year.
- The critical illness recovery hospital division exceeded expectations with a 51% increase in adjusted EBITDA and a 10% increase in revenue.
- Significant reductions in salary, wages, and benefits to revenue ratio by 6%, with nurse agency utilization decreasing by 20% and agency rates decreasing by 7%.
- Announced several new hospital openings and expansions, including partnerships with Rush University System, UF Health Jacksonville, Cleveland Clinic, and UPMC, enhancing future growth prospects.
- Successful management of labor costs, particularly in the critical illness recovery hospital division, where SW&B as a percentage of revenue ratio improved significantly from 56.2% in Q1 of the prior year to 52.9%.
Negative Points
- Despite overall growth, the outpatient rehab division experienced a 17% decrease in adjusted EBITDA and a reduction in adjusted EBITDA margin from 10.2% to 8.2%.
- Reported a decline in employer demand for drug screens and physicals in the Concentra division, leading to a 2% overall visit decline.
- An increase in day sales outstanding (DSO) from 54 days to 58 days, primarily due to the changed health cyber incident, indicating potential issues in cash flow management.
- Interest expenses increased to $50.8 million in Q1 from $48.6 million in the same quarter of the previous year, reflecting higher borrowing costs.
- The company faces ongoing challenges with Medicare reimbursement pressures and regulatory changes, which could impact future profitability.
Q & A Highlights
Q: Hi. Good morning, everyone. Bob, thank you for the comprehensive update on development activities. I missed Rush. Can you just give us an update on the new hospital with that system?
A: Sure. We built a new hospital in partnership with Roche, which is a new building on their campus, which is composed of both a rehab hospital and LTAC hospital. The way the regulations work, it's a technically an LTAC hospital with a distinct part of rehab unit. But it opened I think this past month, and we're going through the six-month qualification period for LTAC. But the rehab hospital is filling up nicely.
Q: Hey. Thanks, guys, and congratulations on the quarter. I just wanted to ask about the $3.8 billion in debt ahead of the spin. We get a lot of questions about balance sheet allocation between SpinCo and RemainCo. I just wanted to get your latest thoughts there, considerations and how you're thinking about the balance. Thank you.
A: Yeah. Ben, what we've indicated publicly is that you can think about this in terms of both entities will ultimately have about four times of leverage on the balance sheet. We're on a gross basis, a little bit less on the net side.
Q: Hi. This is Mia Muñoz on for Kevin Fischbeck with Bank of America. My first question was just regarding how our Q1 EBITDA was $40 million above consensus, but you raised the midpoint of the EBITDA guidance by $10 million. So is it fair to say that Q1 results are just closer to your internal expectations compared to where consensus was? And what are the sources of the beat? And so, why are you not also raising revenue guidance?
A: Yeah. I mean, our expectations -- well, first of all, the thought process for us was really, the spread was rather large. What we did was we increased the lower limit by $15 million and we're taking a look at the remaining three quarters and to the extent that we continue to exceed like this. We'll make adjustments as those quarters -- as we see what those quarters are -- how we're performing.
Q: Hi, everybody. Just a fine point on the comments around the supplemental payment program. Is this the first quarter you recognize that? And is that $4 million an annualized number for that program or are you going to have $4 million incremental every quarter this year?
A: Okay. We have recognized before, A.J., but as they become more mature, we're able to recognize on a month-to-month basis, and that's what you're seeing.
Q: Thanks. Good morning, everybody. I wanted to see if there is any more color you could provide about the trend in the employer demand for Concentra, the lower levels of screens and physicals?
A: Yeah. Bill, the demand there really has to do with employment. And as you know, I mean, during 2022 and '23, there was much higher demand just because there was a lot more hiring going on. As hiring goes back to normal, you're going to see those drop. And that's something that we expected to see. I think the other point that I'll make there is that those types of activities that Concentric does for employment hiring are really at the lower end of the range. Things like drug testing, which are in the $40 range or physicals, which are much lower than what the unit pricing is on workers' comp.
Q: Okay. And then, in the prepared remarks, you said agency costs were down 23%. So that was roughly about $18 million then during the quarter? Is that the right ballpark? $18 million or $19 million?
A: Staffing costs were -- yes, that's right. They dropped from about $24 million down to $18 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
