10-Q: Select Medical Q1 2026 Results & Merger Update

Select Medical reports Q1 2026 financial results while progressing toward a $16.50 per share cash acquisition by a consortium led by company leadership.

Summary

• Revenue for Q1 2026 reached $1.42 billion, a 5% increase compared to $1.35 billion in Q1 2025.
• Net income attributable to Select Medical Holdings Corporation was $44.0 million, down from $56.7 million in the prior year period.
• Adjusted EBITDA decreased 6.5% to $141.6 million, with an Adjusted EBITDA margin of 10.0%.
• Earnings per share (basic and diluted) were $0.35, compared to $0.44 in Q1 2025.
• The company entered into a definitive merger agreement on March 2, 2026, to be acquired for $16.50 per share in cash.
• The merger is expected to close in the middle of 2026, subject to regulatory and stockholder approvals.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral report; while revenue grew, the decline in profitability and the pending merger create a 'wait-and-see' environment for investors.

Positives

• Revenue growth of 5% year-over-year driven by strong performance in the Rehabilitation Hospital segment.
• Rehabilitation Hospital segment revenue increased 14.5% and Adjusted EBITDA grew 15.1%.
• Successful navigation of regulatory hurdles, including the expiration of the HSR Act waiting period on April 27, 2026.
• Maintained a solid liquidity position with $443.5 million of availability under the revolving credit facility.

Negatives

• Net income declined by approximately 22% compared to the same quarter in 2025.
• Critical Illness Recovery Hospital segment Adjusted EBITDA fell 15.3% due to rising personnel costs.
• Outpatient Rehabilitation segment Adjusted EBITDA declined 9.4% year-over-year.
• Operating expenses as a percentage of revenue increased to 93.1% from 91.7% in the prior year.

Risks

• Potential failure to consummate the merger due to regulatory or stockholder approval delays.
• Ongoing government investigations, including False Claims Act inquiries related to physical therapy billing.
• Rising labor costs and shortages of qualified healthcare professionals impacting operating margins.
• Uncertainty regarding the impact of the 'One Big Beautiful Bill Act' (OBBBA) on future Medicaid funding and reimbursement.
• Exposure to interest rate volatility on variable-rate debt, despite existing interest rate caps.

Future Outlook

The company expects to complete the merger in the middle of 2026, though no assurance is provided. Future financial performance remains subject to regulatory changes, labor market conditions, and the outcome of ongoing government investigations.

Management Comments

• Management emphasizes that the merger agreement is a significant strategic development.
• Management notes that labor costs and inflationary pressures continue to impact operating margins across segments.

Industry Context

StockSavvy.ai notes that Select Medical is navigating a challenging environment characterized by rising labor costs and increased regulatory scrutiny, while simultaneously transitioning toward a private ownership structure. The company's performance reflects broader industry trends of margin compression in outpatient and critical illness segments despite top-line growth.

Comparison to Industry Standards

• The company's focus on specialized rehabilitation and critical illness recovery aligns with peers like Encompass Health and Kindred Healthcare (historical context).
• The 10% Adjusted EBITDA margin is consistent with large-scale post-acute care providers facing similar labor-intensive cost structures.

Corporate Governance

Legal Proceedings

• Ongoing investigation by the U.S. Department of Justice regarding physical therapy billing practices.
• Qui tam lawsuit related to physical therapy billing in the Tampa, Florida area remains active.

Related Party Transactions

• The merger consortium is led by Robert A. Ortenzio (Executive Chairman) and Martin F. Jackson (Senior EVP).

Stakeholder Impact

• Shareholders are set to receive $16.50 per share in cash upon merger completion.
• Employees face uncertainty regarding future strategy and potential restructuring post-merger.

Next Steps

• Seek stockholder approval for the merger.
• Obtain remaining regulatory approvals for the merger.
• Continue operations under the constraints of the merger agreement.

Key Dates

Recommendation

Given the definitive merger agreement at a fixed price of $16.50, the stock is likely to trade near this value, making it a hold for investors awaiting the deal's closure.

Keywords

Select Medical, SEM, Merger, Healthcare, Rehabilitation, 10-Q, Earnings