Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the first quarter 2025 results and the company's business outlook. Presenting today are the company's Executive Chairman and Co-founder, Robert Ortenzio, the company's Senior Executive Vice President of Strategic Finance and Operations, Martin Jackson. Also on the conference line are the company's Executive Vice President and Chief Financial Officer, Michael Malatesta, and the company's Senior Vice President Controller and Chief Accounting Officer, Christopher Wigle. 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. Forward-looking statements are based on 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 now turn the call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone. Welcome to Select Medical's earnings call for the first quarter of 2025. This was our first full quarter since our spin-off of Concentra this past November. As most of you know, we now have three remaining lines of business. Our inpatient rehab division had a very good first quarter and continues to exceed our expectations. We are very excited about the significant growth of this business line for the foreseeable future. This past quarter presented challenges for both our outpatient and critical illness recovery hospital lines of business. Our outpatient division was impacted by severe weather events in the South and Central regions, along with a 3% reduction in Medicare reimbursement. The outpatient division, however, had a strong finish to the quarter which has carried over into the second quarter. The outpatient division would have exceeded prior year adjusted EBITDA performance for the quarter if not for the impact of the severe weather events. We are confident in the outlook for outpatient as the division continues to focus on improving patient access, productivity, and investing in technology. The critical illness recovery hospital division was impacted by a late start to the flu season and another increase in the high-cost outlier threshold, which has almost doubled over the last two years, and the 20% transmittal rule. Approximately two-thirds of Critical Role's EBITDA miss to prior year was a result of the regulatory changes comprised of the increase to the outlier threshold and the 20% transmittal rule. In spite of these challenges, the division also had a strong finish to the quarter which has carried into the second quarter. I'm very proud of how our operators were able to finish the quarter which resulted in each division exceeding prior year adjusted EBITDA performance for the month of March. Our development pipeline remains strong primarily in our inpatient rehab division. In January, we opened a rehab unit in Madison, Wisconsin with 18 beds. In April, we opened a 12-bed unit in Tallahassee, Florida, and our second rehab hospital with UPMC for Central Pennsylvania comprised of 20 beds. We have additional development projects in various stages for the inpatient rehab division, which I will summarize. Later in Q2, we plan on opening a 45-bed Rehab Hospital in Temple, Texas. In the last half of this year, we will open our fourth rehab hospital with the Cleveland Clinic in Fair Hill, Ohio with 32 beds, and a rehab unit in Orlando, Florida also with 32 beds. In Q1 of 2026, we plan to open our fourth rehabilitation hospital as part of our joint venture with Banner in Tucson, Arizona, and a new freestanding 63-bed rehab hospital in Ozark, Missouri with Cox Health Systems. In Q4 2026, our 60-bed rehab hospital in Southern New Jersey, branded as Atlantica Rehabilitation Hospital, is scheduled to open along with a 76-bed facility in Jersey City, New Jersey branded as Kessler. Between the specific projects just mentioned as well as some other smaller expansions and new rehabilitation units in existing hospitals, we plan to add 440 additional beds to our operations from Q2 2025 through the end of 2027. The additional beds primarily consist of rehab hospital beds, which include 68 non-consolidating beds. There are also a number of opportunities under evaluation that would further increase our Select Specialty Hospital footprint. This quarter, our outpatient divisions added 10 de novo clinics. This was offset by a strategic closure or consolidation of 13 locations, further optimizing our existing resources and clinical capacity. This activity aligns with our strategic vision to identify areas of opportunity, serving our patient population and targeted demographics. Now turning to our first quarter financial results and highlights. On a consolidated basis, our revenue increased over 2%, while adjusted EBITDA declined by 9% from $165.8 million to $151.4 million. Earnings per common share from continuing operations increased by 33% to $0.44 for the first quarter compared to $0.33 per share in the same quarter last year. We are extremely pleased with the first quarter performance of our inpatient rehab hospital division with increases of 16% in revenue, 15% in adjusted EBITDA, and 6% in average daily census when compared to the first quarter of last year. The adjusted EBITDA margin was 23%, which was in line with the prior year for the same quarter. Our rate per patient day increased by 7%. Our occupancy was 82%, which was 5% lower than the prior year of 87%, which was primarily the result of new hospitals. Same-store occupancy was 87%. In April, CMS issued their proposed rule for fiscal year 2026, and if adopted, we would see an increase of 2.4% in the standard federal payment rate. The final rule is expected in late July, early August after the required comment period. As previously mentioned, our outpatient rehab division had a challenging quarter due to winter storms in the South and Central regions. The estimated impact of these events is approximately $4 million. Notwithstanding the weather events and one less workday for the first quarter compared to the prior year, revenue increased 1% driven by an increase in our net revenue per visit compared to the first quarter of the prior year. Net revenue per visit increased from $99 prior Q1 up to $102 in Q1 of this year. With continued improvements in managed care, commercial rates, which was offset by the decline in our Medicare rate. The decrease in the Medicare fee schedule was 3.2%, to our outpatient division or approximately $2.6 million in the first quarter. Total visits declined by 1% from the prior year same quarter due to the one less workday. However, there was an increase of 1% in visits per day. Adjusted EBITDA declined 3% from 18.2% to 17.9%. Our critical illness recovery hospitals, as previously noted, had a challenging quarter primarily related to the large increase in the high-cost outlier threshold for the second year in a row and the 20% transmittal rule, as previously noted. The impact of the regulatory changes in the first quarter was especially challenging during the time we treat our highest acuity patient population during respiratory season. Revenue decreased from the first quarter of the prior year by 3% driven by a 2% decline in rate per patient day, coupled with a 1% decline in patient days. While our occupancy rate increased from 71% to 73% and our average daily census was consistent with the prior year Q1, the volume decline was primarily a function of one less calendar day compared to the prior year. The decrease in net revenue per patient day was driven by a decrease in our Medicare rate, which was primarily a function of the increase in the high-cost outlier threshold. Critical illness salary wage and benefit to revenue ratio was 54% compared to 53% in the prior year Q1. Adjusted EBITDA declined by 25% from the prior year and our adjusted EBITDA margin was 14% for the quarter compared to 18% in the prior year Q1. In April, CMS issued their LTACH proposed rule for fiscal year 2026 and if adopted would see an increase of 2.7% in the standard federal payment rate along with an increase in the high-cost outlier threshold. The final rule is expected in late July or early August, after the required comment period. During the quarter, we repurchased almost 650,000 shares of our stock at an average price per share of $17.52 under our board-authorized stock repurchase program for a total of $11.4 million. In regards to our deployment of capital, the Board of Directors declared a cash dividend of $0.6625 per share payable on 05/29/2025 to stockholders of record as of the close of business on 05/15/2025. Going forward, we will continue to evaluate stock repurchases, reduction of debt, and development opportunities. This concludes my formal remarks. I'll turn the call over to Marty Jackson for additional financial detail before we open the call up for questions.

Thank you, Bob, and good morning, everyone. At the end of the quarter, we had $1.8 billion of debt outstanding, and $53.2 million of cash on the balance sheet. Our debt balance at the end of the quarter included $1.05 billion in term loans due 02/19/2031, $180 million in revolving loans, $550 million of six and a quarter senior notes due 02/19/2032, and $37 million of other miscellaneous debt. We ended the quarter with net leverage for our senior secured credit agreement of 3.4 times. As of March 31, we had $377.5 million of availability on our revolving loans. The interest rate on our term loan is SOFR plus 200 basis points. Interest expense was $29.1 million in the first quarter. This compares to $40.7 million in the same quarter last year. The decrease in interest expense was due to the reduction of select debt resulting from the Concentra IPO and related debt transactions last year. For the quarter, operating activities used $3.5 million in cash flows. Our days sales outstanding on DSO for continued operations was sixty days at 03/31/2025. This compares to sixty-two days as of 03/31/2024 and fifty-eight days as of 12/31/2024. Investing activities used $52.3 million of cash in the first quarter for the purchase of property and equipment. Financing activities provided $49.3 million of cash in the first quarter. This includes $75 million in net borrowings on our revolving line of credit and $3.2 million in net borrowings on the other debt. This activity was offset by $11.4 million in common stock repurchases, $8.1 million in dividends of our common stock, $6.8 million in net distributions, and purchases of non-controlling interests, and a $2.6 million payment on our term loan. We are slightly adjusting our business outlook for 2025 and now expect revenue to be in the range of $5.3 to $5.5 billion. Adjusted EBITDA is expected to be in the range of $510 million to $530 million. And finally, adjusted earnings per common share is still expected to fall in the range of $1.09 to $1.19. Capital expenditures are expected to be in the range of $160 to $200 million. This concludes our prepared remarks. And at this time, we would like to turn it back to the operator to open up the call for questions.

Thank you. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Justin Bowers from Deutsche Bank. Your line is open.

Hi. Good morning, everyone. So in IRF, you had very strong results and a nice sequential increase in occupancy. How should we be thinking about occupancy for the rest of the year with the new capacity coming online?

Justin, I think it is just stay around in that 85% plus capacity even with the new business coming online. Because as a new business comes online, we still have some other businesses still maturing. But, again, on one of our mature hospitals involved in that 85 plus percent range.

Okay. Thanks. And then on LTACH, you mentioned that two-thirds of the miss was related to regulatory and some of the outlier stuff. Was that versus your internal expectations, or consensus? Just trying to get a sense of what the magnitude there was, and maybe you can quantify for us.

Yeah, Justin. It was higher than what we had anticipated. So for example, if you take a look at the high-cost outlier impact from Q1 2025 versus Q1 of 2024, there was about a 20% increase in the cost, the high-cost outlier. We thought it was going to be a little bit less than that. And the 20% impact was 480% from Q4 of 2024. That 20% impact did not go that was not around Q1 of 2024. The first quarter we had, it was actually in Q4 of last year.

Understood. Thank you, Elton. Oh, go ahead.

Yeah. So, Justin, from a quantification standpoint, we have basically quantified that in the revised guidance.

Okay. Understood. Appreciate it.

One moment for our next question. Our next question will come from the line of Ben Hendrix from RBC Capital Markets. Your line is open.

Hey. Thank you very much, and congrats on the IRF performance. But just going back to LTACH, just wondering if you could provide any update or if you are having any changing thoughts on mitigation strategies with regards to high cost outlier and the transmittal rule. Kind of anything you can do to kind of head off those headwinds operationally? And then second, just based on your flu commentary and guidance, is there a reason to expect maybe an easing of that year-over-year headwind as we kind of get into some of the lower acuity quarters?

Yes, Ben. To your and there are two questions there. To both questions. I think when you talk about high cost outliers, typically, our Q1 is higher than the balance of the year. Just because the acuity of the patient is pulmonary patients that we are dealing with. So it is typically higher during that period of time, so we should see that drop. So, you know, it is part and parcel the same answer to your two questions.

Okay. And then anything that you can do just strategically, or is it something you have to ride out, or is there anything maybe from a legislation perspective, any conversations in Washington that could help kind of cure this or get traction with revised regulations? Thanks.

Yeah. Ben, this is Bob. Yeah. We are constantly having conversations both on the regulatory side with the new CMS administration and on the legislative side. So that is always ongoing, but I think that that has been stepped up and a little bit narrowed to this high cost outlier impact because from a policy standpoint, with the criteria for LTACs that encourages taking the higher acuity patients and not taking what they call the site neutral or the patients that are excluded by the criteria that was put in place some years ago, it is going to logically have more patients that reach high cost outlier status. So we are trying to have the kind of conversations that explain that and look for ways that we might be able to propose some ideas and some changes on some of the policies that would help mitigate some of the severe impacts that we are seeing.

Appreciate the color. Thank you.

One moment for our next question. Our next question will come from the line of William Sutherland from The Benchmark Company. Your line is open.

Thanks, operator. Hey, everybody. What do start-up costs look like this year and, you know, and then versus last year? That would be helpful. Thank you.

Bill, this is Marty. Good morning. Starting losses are relatively the same from last year to this year.

Okay. And nothing special in the quarter then? Okay. Yep. And then on I'm a little confused on the impact high-cost outlier and transmittal rule. In the sense that in terms of how it is impacting guidance, so you have this big impact particularly in the first two months of the quarter. Then I think, Bob, you said that March was you were finishing up the year and March was I mean, the quarter with March even a little ahead of plan. So is the guidance change just reflect really the first two months of the year, particularly for LTACH?

Yeah, Bill. The first two was actually, like, the first six weeks. We saw a slow first six weeks versus what we typically see as far as the flu is concerned. We saw that pick up the balance of the quarter. That is basically what we were talking about. As far as the high cost outlier, high cost outlier is as I mentioned earlier, on a year-over-year basis, there was about a 20% increase in the high-cost outlier.

So that's, again, not If you if you take a look, what we've seen, right, we've seen an increase of almost a 20% from '23. We saw an increase from $38,000 to $57,000, I believe. Is it? $59,000? Then we saw an increase from the $59,000 up to $77,000. We did a pretty good job with this last year, and you know, we're going through that right now on our operators again, doing a very good job, the best job that they can. But those increases are very, very significant. Right. No. I get it. Okay. And then lastly, in outpatient rehab, update us if you can on some of the initiatives you've got in place to improve the margins of the business?

The initiatives I mean, a couple of those. We've talked, I think, over the last two or three quarters about the change that we're making in our technology and we have rolled that out in the first quarter. We are seeing some benefits from that. We continue to have additional releases on that software that think we'll continue to see those benefits expand throughout the year. And from a contracting perspective, we continue to see some nice increases in the range of four to 6% on the commercial side.

Okay. So you've got these progressive you know, these steady improvements kind of baked into your expectations then? In the guide.

Yes. We do.

Okay. That's I'll jump off. Thanks, guys.

Thanks.

One moment for our next question. Our next question will come from the line of Anne Hines from Mizuho. Your line is open.

Hi. Thank you. Maybe we can shift to IRF. Obviously, that was a shining star in the quarter. Is there any plans to actually I know you're telling accelerating growth a lot. Is there any plans to even accelerate it more to further diversify your business away from LTAC given the regulatory challenges? And, I guess, like, internally, how much capacity can the organization support for that growth? Thanks.

Yeah. Thanks, Anne. On the development side, I think it's important to note that all the projects that we listed or that I talked about in my prepared remarks those are projects that are signed under construction, and will open. It doesn't include all the other projects that are in our pipeline that will be signed, will be committed to. And some of those could come in along those same time frames. So the short answer to your question is yes, there is more of an acceleration going on than even that you would see. To drive more robust growth on the rehab side.

Okay. Great. Thanks. And my second question would just be just on the CMS front, obviously, for the industry, the outlier and the transmittal rule is a pressure point. What's in the what type of advocacy do you have with CMS? Just the industry try to offset some of these pressures.

Well, you gotta remember that the new CMS team is just so recently installed. I mean, the new CMS administrator was just confirmed a couple of weeks ago. So it's very early for them to be in place. And to get their hands dirty on all the policies. And they have obviously a lot of things going on that we can assume are bigger issues than the LTACH space. Not even including what's being talked about by Medicaid and all the issues with Medicare Advantage and so it was presumptuous of me to think that we could be moved to the top of their list. But, you know, we have a policy of always engaging with CMS. We did with the last CMS administration not with a lot of great success on these policies. So I'm optimistic that maybe we can do better under the new administration.

Great. Thank you.

Thank you. I'm not showing any further questions in the queue. I would now like to turn the call back over to Mr. Ortenzio for closing remarks.

Yeah. No closing comments. Thanks, everybody, for being with us and working through our quarter. Look forward to updating you next quarter.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.