Good morning, and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the Fourth Quarter 2022 Results and the Company's Business Outlook. Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Select Medical today and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference over to Mr. Robert Ortenzio.

Thank you, operator. Good morning everyone, welcome to Select Medical's earnings call for the fourth quarter 2022. As I have done in previous calls, I'll first give some overall commentary on the quarter before providing some details on each of our four operating divisions. After that, I will turn it over to Martin Jackson, who will provide further detail on our progress throughout Q4 and an outlook on labor costs for Q1 for the Critical Illness Recovery Hospital division. As most of you are aware and we've discussed in detail throughout 2022, our most significant headwind has been staffing challenges in our critical illness recovery hospital division. This past quarter, we've seen some encouraging signs and results as we head into 2023. Our critical illness recovery hospital division's salary raises and benefits to revenue ratio improved each month throughout the quarter. I'm extremely pleased that our combined focus on recruitment, training and retention of personnel has begun to yield positive results. This would not have been possible without all the efforts of our company colleagues during an extremely challenging macro labor environment. The progress achieved reducing labor costs has resulted in an 80% improvement in our Q4 critical illness recovery hospital division's adjusted EBITDA compared to the same quarter prior year. Our focus on labor continues to yield positive results in 2023. As previously highlighted, we believe one of our company's greatest strengths is our diversification. Even as the critical illness recovery hospital division struggled with labor headwinds, both our inpatient rehab and Concentra divisions continued to exceed expectations this past quarter. Inpatient rehab division exceeded prior year Q4 revenue occupancy adjusted EBITDA. We recently announced a definitive agreement with our joint-venture partner OhioHealth to acquire reunion rehabilitation hospital in Dublin, Ohio, which will feature 40 private rooms and will be renamed OhioHealth Rehabilitation Hospital. We've also reached an agreement to enter into a joint-venture with Atlantic Care, a leading multiservice healthcare system in South Jersey, to build a new inpatient rehabilitation hospital. Contingent upon regulatory approval, the hospital will be called Back Institute for Rehabilitation and is slated to be there in late 2024 or 2025. As previously noted on our last call, we are expanding our partnership with UPMC to open a second inpatient rehab hospital in Central Pennsylvania. The development pipeline for the inpatient rehab division remains strong and the division is poised for a successful 2023. Concentra had another successful quarter and has done a tremendous job offsetting the decline in COVID related testing and evaluation services from prior year with increased workers' comp volume in their existing centers. Concentra's workers' comp volume continues to be strong in 2023. This past quarter Concentra opened three de novo clinics, two in Pennsylvania and one in Green Bay, Wisconsin, with the new joint-venture partner. Concentra also acquired a center in Tulsa, Oklahoma, along with transitioning 18 outpatient worknet centers and three outpatient physical therapy centers from our outpatient rehabilitation division into 17 full-service Concentra centers in Pennsylvania and New Jersey. Concentra has a strong pipeline of development opportunities as we signed purchase agreements for three fold-in acquisitions in Pennsylvania and Connecticut, expected to close in Q1 along with signed leases for three new medical centers in Ohio, Virginia, and Florida that we expect to open in the latter half of 2023. In addition, there are several more acquisitions and de novo opportunities in advanced stages that should provide further growth throughout the rest of 2023. Our outpatient rehabilitation division surpassed prior year revenue for the quarter, but did experience elevated cost margins in labor and other operating expenses compared to Q4 prior year. Thus far in 2023, we have seen improvement and positive results in both our outpatient volume and cost margins when compared to the same period prior year. The division has 43 executed leases for de novo clinics, which are scheduled to open throughout 2023. There are also many additional opportunities that are under consideration. Overall, when compared to prior year Q4, we experienced revenue growth of 1.4% and a 7.6% increase in adjusted EBITDA. The impact of the restatement of the Medicare reinstatement of Medicare sequestration was a $9 million headwind when comparing Q4 to the prior year's same period. For the quarter, total company adjusted EBITDA was $148.9 million compared to $138.4 million in the prior year. Our consolidated adjusted EBITDA margin was 9.4% for Q4 compared to 8.9% the prior year. CARES grant income was recognized in Q4 of this year as well as Q4 prior year. This quarter, we recognized only $630,000 grant income compared to $8 million prior year Q4. At this point, I will provide some further data points as commentary on each of our operating divisions. Our critical illness recovery hospital division's adjusted EBITDA margin was 8% for the quarter compared to 4% in prior year Q4 and 2% in Q3 of 2022. Our salary, wages, and benefits to revenue ratio improved 10% compared to the prior year and 8% compared to the prior sequential quarter. Nursing agency rates decreased 33%, and nursing agency utilization decreased 52% when compared to prior year Q4. Nursing agency rates increased 7% while nursing agency utilization decreased 17% compared to Q3 2022. Orientation hours increased 28% compared to prior year Q4 but decreased 22% compared to Q3 2022. Nursing sign-on and incentive bonuses dollars decreased 35% from prior year Q4 and 24% from prior quarter. Revenue decreased 3% compared to the prior year quarter, primarily related to volume, occupancy decreased from 71% to 70%, while our revenue per patient day remained consistent compared to the prior year. Thus far in 2023, we have seen an increase in occupancy compared to the same period prior year, as ICU volumes within our referral short-term acute-care hospitals have increased. On the development front in January, we opened a rehab distinct part unit in our Springfield, Missouri critical illness recovery hospital and in February, we opened a 31-bed satellite of our current fleet hospital critical illness hospital. We'll be opening three hospitals with JV partners in the first half of this year in Jackson, Tennessee; Tucson, Arizona; and Alexandria, Virginia. We also have an agreement to open a critical illness recovery hospital with a rehab distinct part unit in Chicago with our joint venture partner Rush University System for Health in 2024. As previously noted, our inpatient rehabilitation hospital division continues to perform very well compared to prior year Q4. Revenue increased 10% with patient volumes increasing by 4%. Occupancy was 85% compared to prior year, which was 83%. Revenue per patient day increased $123 from $1,888 to $2,011. The adjusted EBITDA margin for inpatient rehab was 23.6% for Q4 compared to 18.2% in the prior year. Concentra continued their strong performance with revenue increasing over prior year by 1% in spite of the decline in demand for COVID related testing and evaluation services. The prior year Q4. These services generated $10.4 million in revenue and $4 million in adjusted EBITDA compared to $1.6 million in revenue and $600,000 in adjusted EBITDA in Q4 of this year. The revenue decline from COVID testing services was offset by positive performance in our centers. Center volume increased over prior year in both work comp and consumer health that was offset by a reduction in employer service visits resulting in a visit decrease of less than 1%. Concentra's adjusted EBITDA margin was 15% compared to 17% in previous year Q4. Our outpatient rehabilitation division experienced an increase of 1% in net revenue, with patient volumes increasing by 3% compared to the same quarter prior year. Net revenue per visit remained flat at $102, in spite of a 3% decline in Medicare reimbursement rates. Adjusted EBITDA margin decreased compared to prior year with the decrease in margin to 6% from 10%. The decrease in adjusted EBITDA margin is primarily related to an increase in both labor and other operating costs. The increase in labor is primarily attributed to a decrease in clinical productivity in Q4 compared to prior year. The increase in other operating expenses is primarily comprised of an investment in our outpatient electronic medical record systems along with travel expenses returning to pre-pandemic levels. Thus far in Q1 of this year, we have seen improvements in volume, revenue, and expense margins compared to the same period prior year. Earnings per fully-diluted share were $0.22 in the fourth quarter compared to $0.37 per share in the same quarter prior year, prior year Q4 had a tax benefit related to our purchase of centers remaining membership interest along with lower interest expense on our debt, which had a positive impact on Q4 prior year EPS. For the full year, earnings per fully-diluted share, were $1.23 compared to $2.98 per share in the prior year. In regards to our allocation and deployment of capital already, our Board of Directors declared a cash dividend of $0.125 cents payable on March 15, 2023, to shareholders of record as of the close of business on March 3, 2023. This past quarter, we did not repurchase shares under our board-authorized share repurchase program. We will continue to evaluate stock repurchases, reduction of debt, and development opportunities. That concludes my prepared remarks and with that, I'll turn it over to Martin Jackson for some additional financial details and then we'll open the call up for questions.

Thanks Bob. Good morning, everyone. Consistent with the prior two quarters, I'd like to provide some additional details with the progress we've made regarding our labor costs within the critical illness recovery hospital division. This past quarter, we had a sequential reduction from Q3 to Q4 in our total RN agency costs and our utilization of agency. We did have a modest increase in our RN agency rate from Q3 to Q4. The reductions we realized rate percent in agency costs represented a reduction of $2.5 million on a quarter-over-quarter basis and a 17% drop in utilization of agency from 21.9% down to 18.1%. Agency hourly rates increased sequentially by 7% from $86 to $92. Consistent with prior quarters, we did experience a reduction in our agency utilization as the quarter progressed from October to December of 13%. Ending the last month of the year at 16.8%. We fluctuated within the quarter in both RN agency costs of $9.3 million in October, $9.5 million in November, and this decreased to $8.4 million in December. And our agency rates, which were $88 in October, $99 in November, and this decreased to $91 in December. This quarter we saw a 21% decline in orientation hours compared to Q3 of '22. We experienced a 39% decline in orientation hours as the quarter progressed from October to December. Other areas, we saw improvements compared to the sequential quarter, with a declining nursing sign-on and incentive bonus offers of 24%. An area of opportunity we mentioned last quarter was hospital administration costs, and we did experience a modest benefit from the third-quarter. We expect a continued decline in this area over the next several quarters. Overall, our salaries, wages, and benefits to net revenue ratio improved over 8% compared to the third quarter from 64.7% to 59.8%. We experienced an 11% reduction in our salaries, wages, and benefits to revenue ratio from October to December, dropping from 62.7% down to 55.8%. With the strides we've made in the past quarter and the progress we have seen thus far this quarter, we are confident in our ability to achieve our previously stated target for critical illness recovery hospital salaries, wages, and benefits to revenue ratio of 55% to 57% for the first-quarter of this year. Moving on to our financials. In Q4, equity in earnings from unconsolidated subsidiaries was $6.8 million, compared to $11.2 million in the same quarter prior year. The decline in earnings was the result of decreased earnings from a few of our unconsolidated joint ventures. Net income attributable to noncontrolling interest was $10.2 million, compared to $60.5 million in the same quarter prior year. The decrease is primarily due to our purchase of the membership interest in Concentra in Q4 of 2021 between 100% of the voting interest. Interest expense was $47.3 million in the fourth-quarter, compared to $33.3 million in the same quarter prior year. The increase in interest expense was primarily attributable to an increase in the one-month LIBOR rate compared to Q4 of 2021, as well as borrowings made on our revolving credit facility. The interest rate on $2 billion of our term loans is capped at 1% LIBOR plus a 250 basis-point spread through September 30 of 2024, which provides us with a level of protection and predictability moving forward in the current interest-rate environment. At the end of the quarter, we had $3.9 billion of debt outstanding and $97.9 million of cash on the balance sheet. Our debt balance at the end of the quarter included $2.1 billion of term loans, $445 million in revolving loans, $1.2 billion in the 6.5% senior notes, and $104.7 million in other miscellaneous debt. We ended the quarter with net leverage for our senior secured credit agreement of 5.96 times. As of December 31st, we had $148 million of availability on our revolving loans. For the fourth-quarter, operating activities provided $12.5 million in cash flow, which included $1 million recouped in the quarter related to repayment of Medicare advances. As of the end of 2022, all Medicare advances have been repaid. Our operating cash flow in the quarter was also reduced by $53 million for repayment of deferred tax liabilities, all of which have been repaid. Our days sales outstanding, or DSO, was 55 days at December 31st, 2022, compared to 52 days at December 31st, 2021, and 53 days at September 30th, 2022. Investing activities used $57.2 million of cash in the fourth-quarter, which includes $55.3 million for the purchase of property and equipment, $5 million in net acquisition and investment activities, less $3 million of proceeds from the sale of assets for the fourth quarter. Financing activities provided $34.4 million of cash from the fourth-quarter. This was primarily due to $65 million net borrowing on our revolving lines of credit, offset in part by dividends on our common stock of $15.9 million. As stated previously, we did not repurchase any shares under our board-authorized repurchase program this quarter, but we have the capacity to buy close to $400 million in shares. This program remains in effect until December 31st, 2023, unless further extended or earlier terminated by. We are issuing our revenue outlook for 2023 and expect revenue to be in the range of $6.5 billion to $6.7 billion. Capital expenditures are expected to be in the range of $190 million to $210 million for 2023. We will address our business outlook for adjusted EBITDA and earnings per share later in the year as the labor market further stabilizes and is more predictable. This concludes our prepared remarks. At this time, if you'd like to turn it back over to the operator for the call for questions.

Our first question or comment comes from Justin Bowers from Deutsche Bank. Mr. Bowers, your line is open.

Hi good morning everyone. So just starting with LTAC, it sounds like there's a lot of development activity going into 2023 and into 2024. Can you just give us a sense of how many additional beds are planned for 2023? And then I just wanted to clarify what the salaries, wages, and benefits ratio was in Q4 and then the exit rate in December, I think you said 55.8%. Is that sort of where you're trending now in the segment during the first couple of months?

Thanks, Justin, it's Bob. Let me address the first part of your question, which is development on the critical illness. Yes, I think that over the last year, we have seen an increase in development opportunities and deals that we're signing. Interestingly, many of those, you'll notice are also joint ventures, which is a bit of a departure of what we've seen in the past. To your specific question, I don't have exactly the number of beds that will come on, but around probably, you have to think about 110 to 120 new beds that will be coming on with current signed deals. Our expectation, just based on what we're seeing out there is that we may see more development opportunities on the critical illness side. Normally, they will be a hospital within a hospital, but there may be an occasional freestanding. If we do a freestanding, it will typically be in conjunction with a rehabilitation hospital distinct part unit. So if you look at the model for that, not necessarily of this size, but if you look at our project in Chicago with Rush, that is what we're characterizing as a post-acute care building that has both rehab and critical illness beds. We have a few more of those that are in progress in the development pipeline throughout the country. So I do think that, that's a testimony to an appreciation of the role that LTAC or, in our case, critical illness plays in the continuum of care in a post-pandemic world where you have a greater recognition of the importance to decompress the intensive care units of large acute care hospitals, and they are more interested in having those in their market and in their continuum of care on a go-forward basis. So on the salary, wage, I'll turn it over to Marty and let him address the second part of your question.

Yes, Justin, on the salaries, wages, and benefits as a percentage of revenue, we are experiencing what we saw in January and for the most part of February, we are in that 55% to 57% range.

Got it. And then maybe just a follow-up on outpatient rehab. It sounds like volumes and margins are improving year-over-year. The question would be, do we expect that trajectory to persist in 2023? And sort of what changes have you made in the segment there to ensure that happens?

Yes, on the outpatient side, what we've seen is we had some difficulty actually throughout the entire year of '22 with a lot of COVID call-offs. What we've seen is that's really trending downward now. So with that trending downward, we'll be able to see, we believe, a lot more patients. I think the other thing is just the clinical efficiency, which we've really focused a lot on. When we talk about that, we're really talking about visits per therapist per day. We're seeing that increase.

Yes, I think it's proper your characterization of us feeling confident about the trajectory and what we see in the early part of the year gives us some good confidence that we have some good momentum on the outpatient side.

Appreciate it. I'll jump back in queue.

Thanks. Operator, could you please let the next question through? It seems the call is still connected. Please bear with us as we resolve the issue with the operator. We're experiencing some difficulties in admitting participants for questions. Let's wait for a minute or two to see if we can allow more questions. In the meantime, while we wait, Marty and I can provide some additional commentary and address some anticipated questions, including those we've received in the past about the seasonality of the Concentra segment. Marty, would you like to discuss that?

Sure. One of the things we've noted with some of the analyst reports that they're talking about the drop-off from Q3 to Q4. If you take a look at Concentra pre-pandemic, historically, what we've seen is about a 390 basis point drop. So, and when I say that, I take a look at years 2016 to 2019. That's really just a reflection of seasonality. We thought that was important.

The other question that we typically get - and just as an update, we do have some people on the call line that are working on restoring the ability to let questions in. But while we continue - we think - Marty, I do get questions from time-to-time about allocation of capital. Certainly, as we progress through 2023 with the increased EBITDA generation over last year, we do expect that leverage will continue to come down. We do have a target over the next year or two to bring leverage down considerably from where we are right now. At the same time, we do have - we are allocating capital to development activities. I think what you can expect to see through 2023 is not any big transactions that could be perceived as transformational, but we're seeing great opportunities for one-off transactions in each of our divisions. You noticed I commented on the individual transactions and deals that Concentra is doing with fold-ins. We certainly would like to sign a couple of the big rehab joint ventures with large systems. On the LTAC side, we'll continue to see opportunities to do a hospital within a hospital and outpatient can continue to grow through de novo, signed leases, as well as small acquisitions. So I think we're ready to let in the next question. So if someone's in the queue, I think we've restored the question line.

Thank you. Our next question comes from Ben Hendrix from RBC Capital Markets. Your line is open.

Hey thanks guys. Given the staffing progress in critical illness and the roll-off of training hours, how do we think about the timeline from here to pre-pandemic margins? And what are those key levers that you can pull to affect that timing then related? What do we need to see before you get enough comfort to provide full year guidance? Thanks.

Yes, Ben, this is Marty. We anticipate for '23 that we will probably remain in that higher range, 55% to 57% in '23. Remember, it's not just the expenses that we see, but it's also the increases that we're getting on our contracts. We would anticipate that that would go into '24 and possibly even '25 to see us get back to historical range, which is in that 52%. With regards to comfort, I think that we're continuing to gain comfort with where we are on the labor side. I think we're going to evaluate this first quarter, see where we are, and then make a determination as to whether we provide guidance on EBITDA and EPS moving forward. Whether it’s next quarter or the quarter after that, we'll have to wait and see.

As we feel comfortable, even if it is before the next quarter's earnings release, I mean, we would certainly consider putting guidance out after the first quarter, but even before we filed the Q. So we - that's a topic of discussion internally at the company because we do appreciate the analyst community would like to see us give some more guidance on EBITDA and EPS. When we feel comfortable, we just don't want to go out prematurely and then have to constantly revise it and update it. I do think that you will see it at some point during the first half of this year.

Thank you. Our next question comes from William Sutherland from Benchmark Company. Your line is open.

Hey good morning guys. I was curious, Bob, as you look across the four groups, is hiring been an issue as far as being able to kind of run those groups at the productivity levels that you'd typically achieve?

Well, it's a great question. And I think the answer is that it varies in each of the divisions. I mean, it's kind of very evident how difficult it has been in the critical illness recovery hospital division because we're competing with short-term acute care hospitals for highly trained near ICU-level nursing staff. It's well known that has just been a really big challenge in the past year. Now on the rehab side, you'd think, well, specialty hospitals, especially hospital, but the rehab employment tends to be a bit more sticky because of the nature of the work and the longer tenured employees that are there being a little bit more therapy-driven as well as some nursing. So the rehab hospital division hasn't been near the challenge, anywhere near the challenge that the critical illness has been. Outpatient has been a little bit of a surprise, and for a different reason, it is impacted by the macro labor environment, particularly on our front desk people, but it's also because of the smaller nature of outpatient clinics that a call-off for illness or suspected illness or pre-COVID test really disrupts the efficiency of that business model. You’ve seen that to a lesser extent in the outpatient, but it still exists. As we commented earlier, we seem to be coming out of that now. Then that leaves Concentra. Concentra, because of the nature of that business, has had their staffing challenges. Of course, they have as every employer has. The nature of the Concentra Medical Center puts stress on the existing staff when they're short-staffed, but the volume does not fall off because it's a walk-in business. What we see there is potentially increased wait times and those kinds of difficulties, but you haven't seen it show up in the revenue or the margin line. Each of these businesses have a little bit of a different dynamic.

That's helpful color. What - how should we think about the high and low end of the revenue range kind of, I mean, I know a lot of things get thrown in as you put together your model, but what would be some of the key factors for being at one end or the other?

Yes. It's really the senses, Bill. When we take a look at sense, especially the hospital side, certainly and the volume on the outpatient rehab side Concentra is probably pretty predictable. But I mean, that's the reason we put a range in there is because of uncertainty.

I appreciate your hesitancy to guide on EBITDA before you have a real handle. But it feels like with all the information you provided that there's a range there that I think you guys have a sense of. I'm just kind of curious what else you kind of need to see at this point.

Yes, Bill, we just need to see consistency. If you take a look at what transpired at the end of '21 and all through '22, there were a lot of fluctuations. We just need to see a period of time where we can kind of predict what's going to happen in the next couple of quarters.

Yes, Bill, as I mentioned earlier, this has been the subject of a fair amount of discussion internally with the management and with the Audit Committee of our Board. Where we stand here, we could give guidance with a fairly wide range, and we feel pretty confident about that. It's just more of a philosophical thing internally that if we’re going to come out with guidance, we’ll try to make it in a little tighter range as we've done in the past. We just don't want to come out with guidance and then have to revise it. But I think that’s just a style thing for us relative to other companies that may be providing guidance now rather than a view that we have that much uncertainty about the business.

Right so it doesn't really have any - it's not an issue, it sounds like in terms of your overall view of the business. So that's appreciated. All right, that's it for me.

Thank you. And our next question will come from Miles Highsmith from Deutsche Bank. Your line is open.

Hey good morning guys. Thanks for taking my questions. I had just a few clarifications and then a couple of questions after that. I think you gave it, so I apologize if I'm re-asking but I was hoping for numbers for the full quarter of Q4, if you'd be able to give me the agency rates on a dollar basis, the full-quarter utilization rates percentage-wise? And then the Q4 on a dollar basis, the total agency cost in the Q4 investment nurse costs on a dollar basis? And then I have a couple of follow-ups?

Sure, Miles, let's see.

You got a lot there. Come on Miles.

Okay, Miles. Get your pen and paper ready. Q4 RN expenses were $27.1 million. The Q4 RN hourly agency staffing rate was $92 and the utilization rate in Q4 was 18.1%.

Okay great. And did you quantify the Q4 dollars related to investments in nursing?

No, we did not.

Okay, thanks. And then just a couple of others I guess, is there any way you'd be able to just characterize the proportion of your more recent hires that are in that kind of seven to eight-week period where they're training and you have some duplication still maybe Q4 versus Q3 or however you might be willing to characterize it? And then just lastly on the potential for EBITDA guidance I definitely heard what you said in the last call or response. I'm just wondering, seeing that stability. Is that largely LTAC still or critical illness still? Or is it now a function of needing to see kind of where productivity is also on the outpatient rehab side or other variables?

While Marty is looking for that earlier stuff, let me - I'll comment on the second part of your question. I would say, yes, it's probably critical illness and outpatient. Those are the areas that we would see the greatest improvement. If you look at the business and even over the last couple of quarters, the rehab hospital business and Concentra has been pretty stable. Critical illness obviously is the one that would have the most improvement over 22 because of the labor environment, which is, as you see, and as Marty pointed out, we're giving you monthly splits on how that has increased. You can see that the improvement in the staffing and critical illness is fairly dramatic. If that continues, that's obviously going to be the biggest mover - outpatient to a lesser extent, but the same thing, you're going to see more improvement in the outpatient and in critical illness than you will see in inpatient rehab and Concentra, which has been pretty stable.

Miles, on a sequential Q3 - Q4 over Q3, we saw a 21% decline in the number of orientation hours. So obviously, it's coming down. Within the quarter, from October to December, we saw a 39% decline. A lot of that is running off. Now there's still going to be orientation out because we're going to continue to have hiring, but we're getting back much more towards normal processes as opposed to what we saw over the past five quarters.

Got it okay, that's super helpful. Thank you so much guys. Appreciate the detail.

Sure.

Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to management for any closing remarks.

Okay. Thank you, everybody, for joining us and we apologize for the white space there in the middle of the Q&A. Thanks for your questions, and look forward to updating you again next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.