Select Medical’s first quarter results reflected continued revenue growth across all three operating divisions, but profit margins compressed due to operational challenges. Management attributed the slower earnings growth to increased costs in the outpatient rehabilitation segment—partly from exiting underperforming markets like Oregon—and lower conversion rates for Medicare Advantage in the critical illness recovery hospital division. CEO Thomas Mullen explained, “There was one market in particular in the first quarter that suppressed our earnings to a degree as we exited that market, and that was approximately $1 million of costs that flowed through in the first quarter for us, and that was Oregon, where we closed four clinics.”
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Select Medical (SEM) Q1 CY2026 Highlights:
- Revenue: $1.42 billion vs analyst estimates of $1.41 billion (5% year-on-year growth, 0.9% beat)
- EPS (GAAP): $0.36 vs analyst expectations of $0.46 (20.6% miss)
- Adjusted EBITDA: $141.6 million vs analyst estimates of $154.9 million (10% margin, 8.6% miss)
- The company reconfirmed its revenue guidance for the full year of $5.7 billion at the midpoint
- EPS (GAAP) guidance for the full year is $1.27 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $530 million at the midpoint, in line with analyst expectations
- Operating Margin: 6.9%, down from 8.3% in the same quarter last year
- Sales Volumes rose 1% year on year (-1.9% in the same quarter last year)
- Market Capitalization: $2.04 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Select Medical’s Q1 Earnings Call
- Ben Hendrix (RBC Capital Markets) asked about operational improvements and margin outlook in outpatient rehabilitation. CEO Thomas Mullen explained ongoing scheduling optimization and market consolidation efforts, including the Oregon clinic closures, and stated, “There will be more of that as we get through 2026.”
- Ben Hendrix (RBC Capital Markets) inquired about the regulatory status of the high-cost outlier threshold. Mullen responded that current CMS rules suggest stability and that “we are projecting that in the out years we will actually see the fixed-loss threshold start to come back down.”
- Ann Kathleen Hynes (Mizuho) questioned trends in denial rates for Medicare Advantage. Mullen confirmed increased denials in both inpatient rehab and critical illness, but noted improvements in commercial and Medicare conversion rates.
- Ann Kathleen Hynes (Mizuho) sought insight on the inpatient rehab rule. Mullen described it as “benign and nothing out of the ordinary,” with no surprises for the business.
- Joaquin (Bank of America, for Joanna Gajuk) asked about margin pressures in the critical illness segment. CFO Michael Malatesta cited lower Medicare Advantage conversion rates as the main driver, estimating a $13–$14 million year-over-year impact.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be watching (1) progress on hospital openings and capacity expansions in both inpatient rehabilitation and critical illness divisions, (2) the impact of ongoing outpatient rehabilitation market consolidations on segment margins, and (3) developments in Medicare Advantage and CMS reimbursement policy, which could influence overall patient mix and profitability. The pending take-private transaction and capital structure changes also remain key milestones.
Select Medical currently trades at $16.43, in line with $16.41 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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