Select Medical (NYSE:SEM) executives highlighted ongoing inpatient rehabilitation expansion, elevated health insurance expense, and renewed 2026 financial guidance during the company’s fourth-quarter and full-year 2025 earnings call. Management also addressed a recently received take-private proposal and provided updates on capital allocation and near-term development plans.
Board reviewing take-private proposal
Chief Executive Officer Thomas Mullin opened the call by addressing a “non-binding indication of interest” received on Nov. 24 from the company’s executive chairman to acquire all outstanding shares. Mullin said a special committee of the board is “carefully reviewing and evaluating the proposal,” adding that the process is ongoing and that the committee will determine next steps based on what it believes is in the best interests of the company and stockholders.
Development pipeline centered on inpatient rehab growth
Mullin said Select Medical continues to focus on expanding its inpatient rehabilitation business. In the fourth quarter, the company added 150 beds through hospital openings and acquisitions, including:
- A new 32-bed hospital with Cleveland Clinic
- A 32-bed acute rehab unit in Orlando, Florida
- A 10-bed expansion at a rehabilitation hospital with Riverside Health in Virginia
- An acquired 76-bed rehabilitation hospital in partnership with Vibra Healthcare in Southern Kentucky
For full-year 2025, Select Medical added 212 rehabilitation beds, including 202 beds from three new hospitals, three acute rehab units, and one neuro transitional unit, plus an additional 10 beds from an expansion at an existing facility.
Mullin also noted the company added 10 beds in Savannah, Georgia, in its Critical Illness Recovery Hospital division via an acquisition.
Looking ahead, management said it expects to add 399 beds across 2026 and 2027, including 166 beds already added so far in 2026. The company cited several recent and planned openings, including a 45-bed rehabilitation hospital with Baylor Scott & White Health in Temple, Texas, a 63-bed hospital with CoxHealth in Ozark, Missouri, and a 58-bed hospital with Banner Health in Tucson, Arizona. Planned projects include a 60-bed hospital with AtlantiCare in Southern New Jersey expected to open in the fourth quarter of 2026, two acute rehab units in Florida, and two neuro transitional units scheduled for the second and third quarters of 2026. In the first quarter of 2027, Select Medical expects to open a 76-bed rehabilitation hospital in Jersey City and expand one of its Banner rehabilitation hospitals by 20 beds.
Fourth-quarter results: revenue up, adjusted EBITDA down on higher health costs
Mullin said all three divisions exceeded prior-year revenue in the fourth quarter, with total revenue up more than 6% year over year. However, adjusted EBITDA declined 10% to $104.7 million from $116 million, which management attributed in part to higher health insurance expense driven by “elevated health-related costs,” including higher-cost claimants, greater utilization of medical and pharmacy benefits, and cost escalation.
Earnings per common share from continuing operations were $0.16, compared with a diluted loss per share of $0.19 in the prior-year period. Adjusted EPS from continuing operations was $0.16 versus $0.18 a year earlier. Mullin noted that the prior-year adjusted EPS excluded costs tied to the separation of Concentra, including accelerated stock-based compensation and a loss on early retirement of debt.
Full-year 2025 results and segment performance
For the full year, revenue grew more than 5%. Adjusted EBITDA was $493.2 million (9% margin), down from $510.4 million (9.8% margin) in 2024. Earnings per share from continuing operations were $1.16, up from $0.51 last year. Adjusted EPS from continuing operations was also $1.16, compared with $0.94 in the prior year.
Management reviewed fourth-quarter performance by division:
- Inpatient Rehabilitation Hospitals: Revenue rose more than 15% year over year to $339.2 million, and adjusted EBITDA increased 11% to $69.2 million. Revenue per patient day grew over 6%, and average daily census increased nearly 10%. Occupancy improved to 82% from 81% (same-store occupancy 86% vs. 85%). Adjusted EBITDA margin was 20.4% versus 21.2%, with management attributing margin pressure to startup losses at newer facilities; Malatesta later said same-store margins remained above 23%.
- Critical Illness Recovery Hospitals: Revenue increased nearly 5% to $629.7 million. Adjusted EBITDA rose 5% to $66.4 million, and margin held steady at 10.5%. Occupancy was unchanged at 67%, while admissions increased 3%.
- Outpatient Rehabilitation: Revenue increased to $324.6 million from $319.6 million, driven by nearly 5% growth in patient visits. Net revenue per visit declined to $98 from $102, which management said reflected reduced Medicare reimbursement, an unfavorable payer mix shift, and increased variable discounts. Adjusted EBITDA fell to $11.2 million from $26.6 million, with margin declining to 3.4%.
During Q&A, Malatesta quantified outpatient headwinds, saying health insurance expense impacted the outpatient division by approximately $5 million in the quarter and variable discount by approximately $6 million. He later said the health insurance expense impacted the entire company by about $15 million in the fourth quarter versus what the company had anticipated. Malatesta also described variable discount as tied to writing off older receivables after collection efforts were exhausted, generally over a period of more than two years.
Management said outpatient softness also reflected payer mix changes, including an uptick in managed Medicare and a year-over-year decline in workers’ compensation. Mullin added that some markets faced staffing challenges, and the company is focusing on therapist recruitment. Looking into 2026, Mullin pointed to a regulatory change that he said will result in a 2% Medicare increase “for the first time in many years” for Medicare and Medicare Advantage.
Balance sheet, cash flows, and 2026 outlook
Malatesta said Select Medical ended the quarter with $1.8 billion of debt and $26.5 million of cash. Debt included $1.4 billion in term loans, $100 million in revolving loans, $550 million of 6.25% senior notes due 2032, and $155 million of other debt. The company finished the quarter with net leverage of 3.67 under its senior secured credit agreement and $469.1 million of revolver availability. Interest expense was $28.9 million, compared with $28.6 million a year earlier.
Operating cash flow in the quarter was $64.3 million. Investing activities used $66.9 million, including $59.1 million for property and equipment and $9.1 million in acquisition and investment activity. Financing activities used $31 million, including $50 million in net revolver repayments, $38.1 million in distributions to non-controlling interests, $7.8 million in dividends, and $2.6 million in term loan repayments; the company also received $51.3 million of net proceeds from other debt issuances.
The board approved a cash dividend of $0.0625 per share, payable March 12, 2026, to stockholders of record as of March 2, 2026.
For 2026, management guided to revenue of $5.6 billion to $5.8 billion, adjusted EBITDA of $520 million to $540 million, and fully diluted EPS of $1.22 to $1.32. Capital expenditures are expected to range from $200 million to $220 million.
About Select Medical (NYSE:SEM)
Select Medical is a leading provider of specialized healthcare services in the United States, operating through two primary business segments: Hospital Division and Outpatient Rehabilitation Division. The Hospital Division offers long-term acute care (LTAC) hospitals and inpatient rehabilitation facilities (IRFs) that serve patients recovering from complex illnesses, trauma or surgery. The Outpatient Rehabilitation Division delivers physical, occupational and speech therapy services through a network of clinic locations and home-based care programs.
Headquartered in Mechanicsburg, Pennsylvania, Select Medical was founded in 1996 and has grown through strategic partnerships, joint ventures and acquisitions.
