Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the second quarter 2024 results and the Company's business outlook. Speaking today are the Company's Executive Chairman and Co-Founder, Robert Ortenzio, and the Company's Senior Executive Vice President of Strategic Finance and Operations, 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 second quarter 2024. Before I address our second quarter results, I wanted to highlight a few items. First, we successfully completed Concentra's initial public offering on July 26. The extraordinary efforts of many of our Concentra and Select colleagues throughout the process are greatly appreciated. Concentra issued 22,500,000 shares at an IPO share price of $23.50 and now trades under the symbol CON on the New York Stock Exchange. The underwriters of the IPO transaction have a 30-day option to purchase an additional 3,375,000 shares of Concentra common stock. Select Medical still owns 82.23% of Concentra's stock, or 80.09% if the underwriters exercised their full allotment. Select expects to distribute its remaining interest in Concentra to its shareholders within 12 months of the IPO as required by the private letter ruling from the IRS. In connection with the planned separation, Concentra entered into financing arrangements, which included a new senior credit facility, consisting of $850 million seven-year term loan, a $400 million five-year revolving facility, which was undrawn at closing, and $650 million of 6.875% senior notes due 2032. The majority of the net proceeds from the Concentra IPO-related debt transactions were used by Select to pay down debt. Concentra will be holding -- hosting their first conference call later this morning at 10:30 Eastern Time, where they will provide more detailed information regarding their performance and insight into their business. On another positive note, US News & World Report recently issued its annual best hospitals list. I'm pleased to share with you that six Select Medical rehabilitation hospitals at 12 locations have been placed among the top in the nation for 2024-2025. They are at Number 4, Kessler Institute for Rehabilitation; Number 14, Banner Rehabilitation Hospital;…

Thanks, Bob, and good morning, everyone. I'll begin by providing additional detail on the progress we continue to make regarding labor costs within the critical illness recovery hospital division. Overall, our SW&B as a percentage of revenue ratio was in line with our expectations at 56.1% this quarter, which is a decrease from 56.7% in Q2 of prior year. In the second quarter of this year, we again saw a decrease in agency costs and utilization from prior year Q2. Compared to Q2 '23, RN agency costs decreased by 16% and utilization decreased from 18% down to 16%. The agency rate for RNs also decreased by 4% from $77 to $74. Nursing sign-on incentive bonuses decreased, as Bob had mentioned, by 18% from Q2 of prior year and 16% from the first quarter of this year. Finally, we also saw a decrease of 12% in our orientation hours for new hires. We are very pleased with the continued [Technical Issues] in regards to our labor costs. Moving on to our financials, in Q2, equity in earnings of unconsolidated subsidiaries were $6.3 million. This compares to $10.5 million in the same quarter prior year. The decline in earnings was largely a result of the write-off of an impaired business we had a minority interest in. Net income attributable to non-controlling interest was $17.2 million. This compares to $13.6 million in the same quarter prior year. This increase is due to improved performance in our consolidated joint ventures. Interest expense was $37.1 million in the second quarter. This compares to $49 million in the same quarter of prior year. The reduction in interest expense was principally due to the accelerated recognition of the gain of our interest rate hedge due to the prepayment of our term loan, which occurred in July as…

[Operator Instructions] And our first question comes from the line of Ben Hendrix with RBC Capital Markets.

Thank you very much. I just wanted to get a little more information on the LTAC margin. I appreciate the comments about the start-up costs in the quarter. So just is there's any other one-timers that would create -- that would explain that sequential phasing from 1Q to 2Q, whether they're seasonal aspects or anything onetime in that sequential decline? Thank you.

Yeah, Ben, there was just -- I think we're only talking about a 1% drop of occupancy on a year-over-year basis. So it's relatively the same for us. The seasonality -- we didn't really see too much seasonality in there. If you're saying compared to Q1 versus Q2, we think it's really -- that's what we've been seeing during normal times. Q1 is always our highest quarter. Q2, we see a drop in census.

And the other thing I would add is, Q1 of this year was an extraordinary year in terms of volume. We just saw ICUs at our acute care hospital referral sources to be really just exceptionally high in Q1. So, that explains the sequential -- your question on the sequential differences. We expect the second quarter to be less just in terms of the pulmonary volumes.

Great. Thanks, guys. Appreciate it.

Thanks, Ben.

Thank you. One moment please for our next question. Our next question comes from the line of A.J. Rice with UBS.

Hi, everybody. Maybe just a couple of questions. On the outpatient rehab business, obviously, the revenue -- the visits seem pretty standard normal trend. I just wonder, on the margin side of that, it sounds like you're looking at some efficiencies, looking at things there. Is it really unique rate -- a little bit of rate lift to get back on the track where it's stable to improving margins? Or are there opportunities within the business to make adjustments that will drive that margin -- potential for margins to build an improvement over time?

Yeah, A.J., this is Marty. Certainly, rate would have a positive impact on margin, but that's not really the only thing. We've got to -- we've really kind of focused on a couple of areas. One is clinical efficiencies, meaning seeing -- therapists see -- the number of patients a therapist sees in a day. And then also, we are really focused on scheduling, making sure the scheduling is appropriate -- is efficient.

Any thought about -- go ahead, I'm sorry.

We think that, that will probably take us -- we've been working on this. We think that over the next two quarters, in particular, starting off into the new year, we anticipate that some things that we're doing will help such as some -- we're looking at scheduling modules that should help us improve our scheduling efficiency. And I think really, when you take a look at the new year, we expect to see some real benefit.

Okay. I appreciate all the comments about contract labor and bonus payments and everything. I guess, when you peel all that back, maybe you said this, but I didn't hear it, the underlying wage rates you're seeing with your permanent or labor cost, however you want to describe it, with your permanent staff in the critical illness hospitals, I guess, is the main focus. What is that trending at now?

Yeah. Right now, A.J., we're seeing that in the 3% to 3.5% range.

Okay. So, that's sort of back to pre-pandemic levels. Is that right?

It really is.

Yeah. Just the last question, trying to think through what's embedded in the guidance down to the EPS line. You mentioned that you've got a sort of reset on some of the protections you had on interest rates starting -- going into the fourth quarter. Are you assuming in that guidance a step-up in borrowing costs? I guess, what are you assuming for borrowing costs or interest expense in Q3 and Q4 in that guidance that you are sharing today?

Yes, we are. We have included -- in particular, in the fourth quarter, in essence, borrowing costs will go from the 300 basis point spread plus 1% SOFR to 4%. Today, SOFR is running in that 5.3% range. So, that will certainly have a negative impact in the fourth quarter.

Okay. All right. So, that's roughly the order of magnitude of the impact on that particular tranche of debt. That makes sense. All right. Thanks a lot.

Thank you, A.J.

Thank you. I am showing no further questions. So, with that, I hand the call back over to management for any closing remarks.

Thanks, operator. And just to remind that there is a Concentra call that will be at 10:30 Eastern today, so you'll get a lot more granularity on our Concentra division. With that, I'll end the call. Thank you.

Ladies and gentlemen, thank you for participating. This does conclude today's program and you may now disconnect.