Earnings call transcript Q1 2023

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Operator

Good morning, and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the First Quarter 2023 Results and the company's 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 open the call for questions.

Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating 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.

will the I to call time, Mr. this now conference turn over At Ortenzio. Robert

Robert Ortenzio

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

some then provide detail in I'll past divisions. As four of some on it I'll I've and first then on done turn provide quarter the overall our calls, operating each commentary over and provide labor also progress we recovery on our costs to metrics. the the hospital some Marty have discuss on division Jackson other financial further detail and illness for he'll critical made

a years encouraged quality a XXXX, almost of heading of First, all signs great a experience like of quarter. good noted call, be within to into our the Last this divisions encountered to while say, level I'd many three prior I'd care colleagues our to our like any with continuing we by continue standard, patient And to year overcame all facilities. high we EBITDA exceeding had past over encouraging and very quarter. provide commend who operating four thank and and challenges we first past and

the $X.X The to adjusted revenue prior sequestration QX. Overall XX% restatement same quarter. impact year Medicare prior million a of compared of and by was headwind year when the QX to grew EBITDA X% comparing

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

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

their revenue recovery and our prior $XX with range the in to illness same recovery to along salary, along hospital of target was XX.X%, an the adjusted quarter agency illness which was significant hospital to increase in to ratio. ratio The year with XX% benefit critical Our XXX% compared compared year. prior experienced division's in XX% wage XX% reduction SW&B reduction revenue expense a million in to a critical within most increase division with performance EBITDA,

lot part a labor And we openings our of had improvements, Ohio Springfield, quarter. opened front hospital. our critical opened activity on in illness past to development a XX-bed distinct with three unit has Toledo, hospital. February, the current a we satellite in this addition the in Missouri In January, In

busy part in are of to Alexandria, the also our There illness Virginia. opening partner Pensacola, critical month unit located a hospital joint in with hospitals as recovery partners well rehab in in expected distinct with Tennessee. a and venture Florida another JV with QX was Jackson, March new XX-bed Arizona; that are two a as open Tucson, hospital

agreement which We to have to acquire signed Richmond, in hospital an XX-bed a Virginia, close in also June. is expected

excited mentioned, improvement with very about As a the critical remainder agreement the joint We're an unit for venture in partner, Health a illness with the and System in in hospital to of recovery XXXX. previously illness the critical Chicago open our University part distinct year. we Rush tremendous division have about optimistic

our private strong March, inpatient turn now joint I'll Reunion EBITDA. has Rehabilitation has with venture Dublin, in we The been their occupancy to rooms Hospital revenue, acquired Hospital. adjusted OhioHealth. rehab and Rehabilitation hospital hospital exceeding continued performance, prior division and renamed In Ohio partner, This OhioHealth inpatient XX year rehab.

transaction the in and close partnership CHS, is second currently under year. a Select into purchase after venture this with entered majority Wayne, a inpatient quarter Fort a Indiana. CHS by which also owned to will We joint expected hospital interest rehab XX-bed This

performance development open the or we upon either AtlantiCare strong division regulatory our inpatient build and The approval, in strong, New XXXX. partnered As slated previously hospital Jersey. pipeline Contingent this hospital called new remains anticipate noted, rehab and inpatient year. we the XXXX Bacharach in is for be will have Southern Institute continued to for rehab Rehab with a to throughout

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

Concentra Lehigh into acquisition of five occupational future Bethlehem, solidifies The in Health and transactions quarter, opened Allentown two novo health acquisition Network's de two Concentra's to This which recently in projects. of their fold-in continued market. Valley location of pipeline and practices this and its our business Pennsylvania, build completed position was a new

and Concentra also a strong opportunities, has occupational of are statewide Connecticut acquired opportunities business under novo and the for health fold-in including de PhysicianOne, locations of from de Concentra's footprint. leases Connecticut locations that Concentra additional development signed business their XX several four the consideration. a of into acquisitions novo pipeline

I'll outpatient. now to turn

has novo patient consideration. outpatient As throughout and executed also our which performance revenue, There that de The XXXX. leases scheduled division's division XX for opportunities under rehabilitation open are are surpassing many volume. clinics, improved, adjusted are EBITDA expected, additional prior year's to

this each I'll data provide further points At operating on our divisions. of point, some

Our than net primarily critical division in a experienced X% recovery to year, of compared less X% decrease revenue volume prior decreases hospital illness in due and rate. to both

XX%. see to Even XX% an increase in occupancy though we from did experienced our we in decrease slight a volume,

Our year, from case decreased index was increase sequential X.XX, did to mix but prior X.XX, which down quarter. from prior

QX, XX% agency agency prior decreased consistent compared to XX% decreased remained increased agency while XXXX. utilization and utilization compared Nursing XX% XX% year XXXX. when decreased QX. compared Orientation nursing to rates hours XX%, Nursing compared QX to prior decreased but nursing agency to rates year QX

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

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

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

high-cost adopted, increase the proposed XXXX an in acute see was and rate CMS. rule outlier posted for of April, If increase fiscal the threshold. in federal base by long-term care we an would in Finally, X.X%

rule the August expect comment required to period. after the We in finalized be

in hospital increase X%. and by X% volumes rate experienced patient a per Our day revenue increasing X% our inpatient net with rehabilitation division patient

Our occupancy compared was XX% prior year. XX% to

XX.X% X.X% inpatient also for federal April in was for proposed year. in of increase margin their EBITDA base adjusted fiscal to adopted, rate. The in the the If rehab would prior we see the XX.X% an CMS XXXX. QX posted rule compared for inpatient

the period. We also required August expect comment finalized this in rule to after be

X% visit, the in a to attributable increase an driven net was with revenue, increase a along of rate. lower in has X% prior employer and compared X% a experienced in increase comp. volume is comp net EBITDA in a reimbursement margin X% and quarter rate for revenue by quarter the work The our Concentra workers' services XX.X% our level of increase in in decrease mix, to Concentra. a adjusted per same Concentra's year. in which increase XX.X%

The from increase Turning of division to prior visit amongst with and year in primarily volume offset patient quarter to increasing compared net improved net our was $XXX to access a rate multiple experienced patient net increase in markets rehab and compared revenue by revenue by division. an spread same productivity. outpatient per in volumes X% slight $XXX decrease per year. was visit revenue, to to XX%, clinical prior This attributable

to with The reimbursement, margin while prior of versus prior compared decline was to in was outpatient by XX.X% quarter sequestration this full year. rate division's primarily along when the decline improved to their EBITDA EBITDA in compared year. implementation The quarter million due year, Medicare X.X% prior a $X.X same

our prior under This stockholders the a per XXst repurchase XXth, not share our compared and record in payable past to Earnings $X.XXX repurchase to per $X.XX share diluted was as we shares declared Board-authorized for of close the on In program. business allocation Board year. our did regards capital, quarter deployment on the $X.XX of of same quarter, quarter Directors of to of May cash share of XXXX. dividend May fully

We repurchases, will continue stock development evaluate to opportunities. debt and of reduction

some over you Marty financial additional concludes my we turn Jackson before to I'll give call questions. it This remarks. to point, open the At for this details up

Martin Jackson

everyone. morning, good Thanks, Bob, and

prior hospital The our utilization were RN with to we quarter, XX% agency QX. would regarding in our $XX.X agency realized reduction had total and cost of division. $XX.X Consistent agency with This $XX rate, critical reductions past made the progress we $XX to QX same. QX two in a moving our like to agency And the QX sequential while in recovery some labor in additional provide costs QX we quarters, agency RN million I from from illness QX. to remained in moving in from the XX% within in significant million the rate, have our costs details

as a $XX rate January from Our March. XX%, from in We our March in utilization progressed moving of January experienced in to agency $XX remains agency at to reduction quarter the XX%.

numbers. we within the fluctuated slightly utilization in While quarter our both agency costs and RN

another we had 'XX of compared This in orientation decline sequentially QX quarter, to XX%. hours of

in to benefits to nursing dollars range that Other quarter salaries, at XX% This improved net areas compared down we had revenue XX.X%. we salaries, Overall, incentive and compared communicated. improvement ratio XX.X%. previously quarter, Fourth the administration to of down wages we bonus the hospital reductions the And where fourth quarter. and within sequential saw and target is were X% to sign-on wages quarter our were this and in ran as you know, we X% benefits.

financials. and joint prior The few equity earnings In earnings same Moving were unconsolidated our in million on increase QX, quarter to of to million. ventures. earnings of compares increased a the in $X.X the This year. in $X.X result was of our unconsolidated subsidiaries

$XX.X compares performance is year. to the to The prior same primarily attributable income Net increase quarter due $X.X million. noncontrolling of interest ventures. consolidated improved joint This our was to in million

which of of is XXX QX in of the primarily through our 'XX, X% and revolving rate million was increase million of as 'XX on credit with last to environment. $X rate protection made attributable increase in well a interest provides the quarter September borrowings compares the predictability LIBOR compared This rate term first level $XX.X facility. capped year. The LIBOR loans basis Interest moving X-month current our an us in under to was forward expense points expense at The the interest in in same quarter. plus $XX.X as XXth interest to billion

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

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

loans. we of of our As XX, million on revolving had March $XXX availability

in For the provided $XX.X million activities flow. cash first operating quarter,

This Our activity. of end end to the 'XX quarter. DSO, days $XX.X million of outstanding, and the XX March acquisition 'XX. days at purchases of December cash sales investment the Investing days XX $XX.X compares at used or in activities includes property and in and of days million XXXX. first million and XX was equipment $XX.X March This

million provided net in fourth $XX quarter. net our borrowings Financing for credit of payments stock, of in and million by offset on our the We million on These million borrowing XX.X $X.X activities and other debt. had noncontrolling interests. on distributions common in net were $XX.X borrowings dividends $X.X cash line and revolving to

this Board. program or worth repurchase previously, As capacity terminated This but 'XX, unless did additional quarter, any shares XXst we under Board-authorized program $XXX stated until purchase December earlier of an by effect extended in the further million purchase have not shares. the our of to remains

We $XXX to $XXX million per of be business and for in for our billion, revenues range with issued $X.X share million to to range expected of of in be the EBITDA of to the outlook range $X.XX. in $XXX in $X.X billion $XXX to the XXXX Capital $X.XX be expenditures to expected expected earnings million range XXXX. the to million are

concludes call for open prepared time, the this our Operator, remarks. at up this And please questions.

Operator

the Bowers Bank. come Our will Deutsche line first question from from Instructions] of Justin [Operator

line open. Your is

Justin Bowers

maybe in through the still everyone. the in guide. segment. us Hi, like we broadly, of the more rest on costs some and quarter the back labor, year? LTAC any out the reinstating good think with and plays and And in made it the there's just sounds talk training that us place. the the Congratulations should can through labor And Marty, progress how of you morning, help you you take account into can through seasonality sort then guide

Martin Jackson

Justin. Sure,

that I -- really range. bit a We out beginning the XX% while at the point the it percentage provided be the little guidance XX% would year. think look thing a of SW&B the here we to to of is think I we anticipate in of at as a that took revenue,

anticipate, year, entire to the Obviously, midrange in in be we came range. there. in for We right the that it same

seasonality. we'll may then a it know there X, some back just because in quarter of between be the to we maybe be fluctuations different in in see that that range, QX same I should Now, quarters. bit range. we'd higher little And QX, would anticipate

Justin Bowers

and Got maybe terms it. Bob. And in pipeline then development for the of one this

the of going You landscape And have look on, outpatient organic guys still activity the of building up inorganic? these what's well. and a Is do outpatient pipeline sort and sounds it lot to days? in is like the like plan as the in

Robert Ortenzio

looks they're from really some the activity. and look I our small, look why pretty outpatient seems struggled. usually in little markets novo us wouldn't already you outside have I novo you pretty doing if unless sense M&A of I The it's mean, good de one-off now the compelling really I de have some efficiency terms outpatient small come Well, at think see of some really in choppy, companies is stable, the right lot business as the we where a is because the us could the see for us or think, presence. for back. to make a we M&A staffing margins the a which of some projects. competitors, in pushing

a of in the pressure that And is us, headwind think the And of for white We reduction Medicare that's think opportunity, a the outpatient. for provides as Medicare well lot sequestration outpatient. fee in and schedule I there's on think lot industry. runway and an I Justin. it as putting some a The the space of bit a throughout --

feel fits capital. the And de do point history, -- that that of we favor -- we about growth certainly this pretty on company's lower I the capital opportunities outpatient criteria. Marty have those we the good. and and are been allocation novo So side outpatient careful in at

Justin Bowers

in it. Appreciate back hop I'll queue.

Operator

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

open. Your line is

Nabil Gutierrez

question. for is this for the Kevin. Hi, on Gutierrez Thanks taking Nabil

SWB expect you're for I year. appreciate costs for you to you in assuming segment? color the that some in us be XX% the give saying range to XX% you on So each Can what labor

Martin Jackson

haven't illness critical provided We the What done that for because it we've hospital the of significant is recovery before. done we've variations.

as one saw quarter, the a recall, and SW&B we mean, that as I -- the that I think pandemic, as were we significantly increased XX% we've and XX%. probably been high as of historically, revenue in in So you range, percentage up in during growing

an variation we've why what any that's that that All in understanding other as Consequently, all provided -- business seen information sure relatively are significant had same. haven't investors segments those we make in to There that to looked like. the the that entities.

in point time, providing not So that at this we're information.

Robert Ortenzio

wouldn't and volatility I near-term. in those Yes. haven't other to segments, the expect business we see in

Nabil Gutierrez

the is, follow-up of low- the high-end are EBITDA factors your what And swing then and to guidance? my

Robert Ortenzio

the -- the occupancies I we've this at it's think, I quarter, to stability be probably -- really, and on can think going and -- volume. to least pretty side, thing volumes usual going going on it's we is all Well, have It's be drivers. really we to labor -- we rate. when the visibility It's be get the approached then as kind good of

Nabil Gutierrez

Awesome. Thank you.

Operator

question. One you. Thank for moment next our

Ben will Capital line question of from Markets. from next Our come the Hendrix RBC

Your line open. is

Benjamin Hendrix

Hi. Thanks guys.

dynamics the could about fourth and the segment. there the With if in productivity can talk outpatient the I wondering levers in that productivity high just you was pull in that you keep of you kind quarter to headwinds just that saw unwinding. the

Martin Jackson

it's I say business. Yes, volume. that of really the fair variable strong And and was on were to tell as talked, pleased with very, clinical we you, I'll improvements. other think the we very improvement Ben, saw a efficiency growth the was Bob And it that outpatient very function there in I

And the do side. that and continue. we've better efficiency still get what that a is little there's on just bit hopefully So and we upside think expect clinical -- to got some to we

So year. see through of to we the balance that expect the

Benjamin Hendrix

wanted impact economic kind we to some that Against the your Concentra's of for I noting get Concentra. from persistency backdrop, current economic the of heard a any membership the year. on on versus commercial Just could there just through patient the balance of comments year. just base follow-up on be economic the Cigna concerns

Robert Ortenzio

Sure.

and it's headwind they earnings call I a industries. and say mean, for bad States, than repeat year has is the a I I bit from think platform little what the such be to didn't Concentra, But have across I where, such United have that at now more that we we a of nuanced some volume a mix a haven't an that. different economic had would entire found point, last environment big Concentra that. that in really

And did saw they this strong when was never that pandemic lot during pandemic. those well the during business still than of apparent more industries a from the

a So UPSs FedEx, you the yet downturn. really the those all busy, talk about and that Amazons the were that and others were but it's

hospitality and +So the hanging in on. then real and today, economy, in the in you and look transportation strength is estate at that the it. construction drives sector And

economic not can depends reductions in softness So headwind job for strong that's downturn of would hospitality these the all construction, your I the looks of of that for Concentra for on the the good. that is, see and I home coming is as stay example, are extremes, segments if, guess, as it you out what tech sector, in if I what you economy now most say tell long a transportation, and economy other like. the

been strong. it's So

So we first that strength in don't in see the the Concentra any saw quarter. cracks

we And remain optimistic. so

So but we activity coming good Concentra's throughout staffing what economy our would the are a division, where think, driving business. down costs still I is have, consider the we economic situation yet in hospital pretty

pretty about right feel that now. good we So

Benjamin Hendrix

you. Thank

Operator

the And our moment One Suisse. for our next A.J. Credit from next line Rice will from question. question of come

Your line is open.

A.J. Rice

of A couple here. questions Hi, quick everybody.

number you about said on the is I and think $XX.X agency down you million. sequentially, costs roughly XX% were I think

of sort guidance. going is the that you of anticipate? improvement year Or for $XX.X sort guidance to back EBITDA in run million, You you're rate assuming baked further something the as neighborhood, now that progresses? that the year your out Are with

Martin Jackson

mean, typically the historically, a run a of at is -- of Yes, neighborhood a the we the if we-- a low of million, that north look that run somewhere business we in $XX rate maybe million. we've $XXX of the little in take A.J., bit anticipate. high I it to range at

A.J. Rice

Okay.

Martin Jackson

So of really million, fits it that kind $XX.X range. kind of right in fits that

A.J. Rice

Okay. depressed, But return at I look all for is is for not a asking a each speaking, the trends the targeting was segment. target to specific the your margin I'm margin I to or segment, particularly think is state that to ballpark any still And it there Or If the it obviously, -- where to now that get welcome likely particularly you're think pretty Is here of quarter year? the rest there for the offering full we has outlook. on EBITDA elevated general from move about year? then, to margin steady good first by segment? generally by segment

Martin Jackson

Yes, quarter. as seasonality see since business. us what in same the you'll time, I the is first A.J., And there is long you you'll is is as know, been second covering think relatively see a there -- you've for the probably quarter

Third in see margin. see outpatient the guess in I little third typically in little you'll dip bit in is a quarter, in margin. bit critical in And illness a -- little the particular, quarter see to we'll a we the a the a dip recovery expect hospitals. of quarter, Concentra And in fourth see dip you typically the also bit of probably a then

A.J. Rice

that what with that sorry, the I'm was critical last quarter illness? one, for

Martin Jackson

quarter. be the would third That

A.J. Rice

thanks Third right, recognizing it, okay. out. for aspects that going third But which to the -- are -- seasonality quarter, obviously pointing of

that a way And But year, that division seasonality, meaningful trend normal your a the a year change. showed while. the takeaway? way in seasonal one. business outperforming in particularly rest the think would had that, is a in there's you And that a would not underperforming a margin the of but that's saying is you either about across sort that perspective, haven't of right the meaningful in you or factor you're normalized as We from

Martin Jackson

Yes, we think so.

A.J. Rice

All right.

Thanks much. so Okay.

Martin Jackson

All right, A.J.

Operator

One question. moment for our next

from comes Bill question Benchmark Company. from next The Our Sutherland

line is Your open.

Bill Sutherland

that change Hi, on critical helpful any good morning. the color illness? Bob, is there at would be CMI

Martin Jackson

about drop is in the Bill, what CMI? talking you're

Bill Sutherland

Yes.

Martin Jackson

receiving. that, think function a Yes, were really patients just that's types of of we I the

Robert Ortenzio

a index think get. don't mean, high a acuity of I that the industry, that. bit meaningful based still I Yes. any case the and little on mix it of in on takeaway some it's will patients the vary there's we'll that --

-- And it to and so report no, anything meaningful I wouldn't it from change I high but to because take strong continues We on anything is that industry, for the about would point be that. not away that.

Bill Sutherland

which was growth, of forward? admissions we the kind that about going think how on And flat, should Okay.

Martin Jackson

growth on anticipate on the to regards X% expect Bill. range is can just can additional some good there, I that development, you because of With to all a you the to X% bit, in range. probably see of rise having think a numbers we're Probably activity

Bill Sutherland

in then coming or top of point bits suppose. Okay. on a of that, course, And at beds of X, I the additional

Martin Jackson

I that's think right. Yes,

Bill Sutherland

you you are that when tech, any are plans, -- be road? curious, notable groups I'm in It's down particularly the could four like any focused Okay. look CapEx are guys your of that at impactful -- on initiatives there the

Martin Jackson

when Well, you say --

Bill Sutherland

I'm of sorry, I'm things everything EHR the from forth. and stuff some thinking maybe to new so more in just typical kinds of about AI frontier the

Martin Jackson

focused really activity the a our automation our we've where on. is some what root The adding bots think I of really areas past typically year processes. or two on is some in it's of -- of of going more use really the to in Well, number in

increase utilization that's AI, very, don't of. significant very been I and in seen see a really a to lot think of those bots With we've So we regards helpful.

Robert Ortenzio

on We stuff. the our be is for on we our say, that. focus in I that will that -- one won't return. more each But the won't AI can to do AI, with of more technology we of of focus be that mean, that and that efficiencies efficient the in front area of the immediate and we that, And that recognize hospitals XXX example, is I stuff of benefit of we'll most over the things out that use that make hospitals. can that for will lead think

Bill Sutherland

said guess course, which is priority would be outpatient. I just top -- is you in that just an impact, for aspect to the but you. the past, I'm that didn't And wondering. -- for it, really be I you of a It's that guys expect a hasn't had meaningful virtualization, another

Martin Jackson

So are you talking about telemedicine?

Bill Sutherland

Yes.

conjunction -- in-clinic done with as program For in yes, instance virtually the well. PT for rehab

Martin Jackson

I think during our type infectious patients the when found, to what I clinicians a pandemic that activities there of and usefulness also, you on. Bill, significant going have was is our that think had

reduction we've PT, what on a seen think and is, physical it -- substantial lot in utilization of physical outpatient that makes the I of especially it manipulation. you need for sense a as is

So --

Robert Ortenzio

Yes. as of don't have the some be I the provider largest -- PT there. we of are country, watching could idea And employer our virtually. are also in largest that Bill, and PT, very this would we in We're say, there promoted fact, sure been I out provided of on I'm believe in are that the we that, therapists it perhaps physical the heads sand that have there closely. issue that's companies this out quite

the point this tell won't lots Maybe position it, that's And don't our by give limited why surprised we that of reasons see just can I what's very it. we a our But limited, on the from there our I except you with in of but this viability on out we you have I closely. and track time, opinion time, very it could that that, focus strong to circumstance. vantage say industry. we be And as point in at don't -- in really see of clinically, at going

Bill Sutherland

to Sword the but more had surprised -- getting, that guys it I'm be It's Hinge, I than recently. they're contracts and -- -- fairly No, that's someone -- not. hands-on these be should just PT it Yes. like seems

my for guys. it Thanks questions. That's right. You're

Operator

Thank for closing over Ortenzio the back Mr. you. And questions the turn no comments. call I'll with any further to queue, in

Robert Ortenzio

and questions, questions, us, closing look Marty. we to there's for And updating No reach comments. and other joining if forward to to you. out your free for Thanks thanks feel

Operator

concludes you conference for call. participating. today's Thank This

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

Select Medical (SEM) 5 May 232023 Q1 Earnings call transcript