- Q4 Revenue Growth: 6% YoY increase to $1.8 billion, driven by inpatient rehabilitation expansion.
- Inpatient Rehab Expansion: 212 beds added in 2025, revenue grew 15% to $339.2M with 11% EBITDA rise.
- Adjusted EBITDA Decline: Q4 adjusted EBITDA fell 10% to $104.7M due to $15M health insurance costs and operational challenges.
- 2026 Outlook: Revenue guidance $5.6–5.8B, adjusted EBITDA $520–540M, with outpatient rehab margin improvement expected.
- Liquidity Position: $1.8B debt and $26.5M cash, with share repurchases paused pending acquisition review and capital allocation focus on inpatient growth.
Inpatient Rehabilitation Division Performance
The inpatient rehabilitation division added 150 beds in the fourth quarter and 212 beds for the full year, driving revenue growth of over 15% year-over-year to $339.2 million. Adjusted EBITDA rose 11% to $69.2 million, indicating a strong performance from this segment. The company expects startup losses in this division to be relatively consistent year-over-year, around $15 million in losses for 2026.
Outpatient Rehabilitation Segment Challenges
The outpatient rehabilitation segment experienced a decline in adjusted EBITDA to $11.2 million, primarily due to lower net revenue per visit and higher health insurance expenses. However, the company expects outpatient rehab to improve and grow year-over-year in 2026, driven by a Medicare rate increase.
Valuation and Outlook
With a P/E Ratio of 12.68 and an EV/EBITDA of 6.07, the company's valuation appears reasonable. The market is expecting a revenue growth of around 4.3% next year. The company's guidance for 2026 expects revenue between $5.6 billion and $5.8 billion, with adjusted EBITDA ranging from $520 million to $540 million. The pending review of a non-binding indication of interest to acquire all outstanding shares of Select Medical puts share repurchases on hold, and the focus remains on growing the inpatient rehab division.
Operational Highlights and Future Plans
The company is investing in new rehab units and neuro-transitional centers, and exploring the use of AI in back-end processes, outpatient collections, and clinical initiatives. Labor costs have stabilized, with agency rates settling into a more normalized range. The critical illness segment is performing well, with labor margins running above 56%. The long-term care acute hospital (LTACH) business is not expected to face significant headwinds from high-cost outlier thresholds, with a 1% increase to $1,888.