Select Medical's Q4 2024: Contradictions Unveiled on IRF Trends, LTAC Margins, and Hurricane Impacts

These are the key contradictions discussed in Select Medical's latest 2024Q4 earnings call, specifically including: IRF occupancy trends, LTAC margins, outpatient rehab growth expectations, impact of Hurricane Helene on IRF, and labor cost management:



Financial Performance and Development:
- Select Medical reported an 8% combined revenue increase for the fourth quarter, with adjusted EBITDA growing by 4%, compared to the prior year.
- The company added 94 inpatient rehabilitation beds during the quarter, as part of their ongoing expansion plans.
- The strong financial performance was driven by growth in all three divisions and the completion of development projects, although start-up costs and hurricane-related impacts affected inpatient rehab margins.

Labor Cost and Utilization Improvements:
- The cost of agency nurses normalized, with SWB as a percentage of revenue decreasing from 57.6% in Q4 prior year to 56.9%, driven by controlling internal labor costs and increased net revenue per patient day.
- Nursing sign-on and incentive bonus dollars decreased by 15%, contributing to a 55.9% SWB as a percentage of revenue for the full year, a reduction from 57.2% in 2023.

Outpatient Rehab Segment Growth:
- The outpatient rehab division saw an 7% increase in revenue, a 4% rise in patient volume, and an 18% improvement in adjusted EBITDA compared to the prior year.
- Growth was attributed to rate improvements in commercial contracts and increased clinical productivity, offsetting declines in Medicare reimbursement.

Debt Refinancing and Leverage:
- The company completed a refinancing of $1.6 billion in debt, with proceeds used to pay down existing debt and reduce interest expenses.
- Select Medical's net leverage was 3.18x at December 31, 2024, as they strive to maintain leverage between 3 to 3.1x for 2025 and lower in subsequent years.