Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the fourth quarter and full year 2024 results and the company's business outlook. Speaking 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, and Executive Vice President and CFO, Michael Malatesta. 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 call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone. Welcome to Select Medical's earnings call for the fourth quarter 2024. The fourth quarter concluded a very busy year at Select. On November 25th, we completed the spin-off of Concentra via special stock distribution to Select Medical shareholders. I would like to thank all of our colleagues at Select and Concentra for their tremendous dedication and hard work to complete this transaction. The historical results of Concentra are now reflected as discontinued operations in Select's consolidated financial statements. We will focus our results for the fourth quarter on the remaining three lines of business, which exclude Concentra. Also, during the quarter on December 3rd, we completed a refinancing of $1.6 billion of Select Medical's outstanding debt. We issued $1.05 billion in new seven-year term loans and $550 million in six and a quarter senior notes due 2032. We used the proceeds together with cash on hand to repay our then-existing $373 million in term loans and $1.225 billion in senior notes due August 2026. We also paid related fees and expenses associated with the financing. The interest rate on the new term loans is SOFR plus 2%. In addition, we extended the maturity of our revolving credit facility to 2029 and increased the availability on the revolver from $550 million to $600 million. A credit agreement leverage was 3.18 times at December 31st, 2024. On the development front, we added 94 inpatient rehabilitation beds in the fourth quarter. We acquired a 50-bed inpatient rehab hospital in Oklahoma City on December 10th with our joint venture partner SSM. We also opened two neuro transitional units with 12 beds each, one in Dallas with our joint venture partner, Baylor Scott and White, and the other in Dublin, Ohio with our joint venture partner, OhioHealth. Currently, with…

Thanks, Bob. Good morning, everyone. I will begin by providing additional details on the progress we continue to make regarding labor costs with the critical illness recovery hospital. As mentioned above, we believe that the cost and utilization of agency nurses has normalized. Overall, our SW and B as a percentage of revenue was 56.9% this quarter, which has decreased from 57.6% in Q4 of the prior year. The improvement in the margin was driven by controlling internal labor costs and an increase in the net revenue per patient day. Nursing sign-on and incentive bonus dollars decreased by 15% from Q4 of the prior year, from $7.4 million to $6.3 million. We are pleased with the continued progress we have made in regards to labor costs, and critical illness finished the year with SW and B as a percentage of revenue at 55.9% compared to 57.2% in 2023. Moving on to our financials, at the end of the quarter, we had $1.7 billion of debt outstanding and $59.7 million of cash on the balance sheet. Our debt balance at the end of the quarter included $1.05 billion in term loans, $105 million in revolving loans, $550 million in six and a quarter senior notes, which are due 2032, and $26.3 million of other miscellaneous debt. As previously mentioned, we ended the quarter with net leverage for our senior secured credit agreement at 3.18 times. As of December 31st, we had $453.3 million of availability on a revolving loan. The interest rate on our term loan is SOFR plus 200 basis points, and this matures December 3rd, 2031. Interest expense was $28.6 million in the fourth quarter. This compares to $40.3 million in the same quarter prior year. The decrease in interest expense was due to the reduction of Select's debt…

And wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Justin Bowers with Deutsche Bank.

Hey. Good morning, everyone. So I think there's a little confusion out there in the market because of what's in and out of consensus and Concentra's, you know, partially still in the numbers. Just to level set for 2025, I'm arriving at the midpoint of revenue growth of, call it, 6%, EBITDA growth of 4%, and then EPS growth of 6%, and a Q4 exit at, call it, 3.18 turns net leverage. Is that, are those sort of the right metrics here?

Yeah. Justin, hold on just for a second. We'll go through the calculations to make sure that your numbers are correct. But as we do that, let me address you. I'm glad you brought it up. We do believe that there's some significant confusion in the marketplace at this time. And I think what the issue is, I think a number of people have not removed Concentra from consensus. So, I mean, if you take a look at, as you know, Concentra had announced pre-announced their numbers. If you take a look at those numbers on an annual basis, you would have, on a revenue basis, north of $7 billion, $7 billion and $87 million, which exceeds consensus by 8%. On an EBITDA basis, you would have $887.4 million, which exceeds consensus by 6%. And I'll also point out that it exceeds our, if you recall, we gave annual estimates. It exceeds those estimates on both revenue and EBITDA, the top of the revenue and the EBITDA line. So from that perspective, yes, there is some confusion.

Alright. So on a consolidated basis, go ahead.

Yeah. The combined revenue increase that we have is about, oh no, we're talking about 2025. Yeah. We're talking about 2025, so we're gonna have to get this calculation. So go ahead with your question.

Okay. So it's just going back to all the development. I mean, this is the most active that Select has been, and company history, frankly, with all the development activity. You're increasing your IRF bed count by, you know, north of 30% over the next two years. Can you remind us how those facilities sort of mature? And, you know, also ballpark for us, sort of the number of startup costs maybe in the fourth quarter and 2025 as well?

Yeah. That's a very good point. And you're right. I mean, we're north of 30% increase in beds over the next 18 months. And by January, that's really having a dampening effect in particular on the inpatient rehab margins for 2025. In which you'll see is that they actually, because of the model that we have, the joint venture model, they mature pretty quickly. So you can expect to see those turnaround and see some very significant double-digit EBITDA growth in 2026 and 2027.

Okay. That's helpful. And then, you know, with Romainco, I'm just doing some math here on the development activity. I'm sort of arriving at, like, a new growth algo of, you know, top-line growth, you know, mid-single digit plus, you know, EBITDA growth probably up in that, you know, high singles. And then, you know, EPS and free cash flow growth well into per share, you know, well into the double digits before, you know, really deploying any of the excess free cash flow. Is that the right neighborhood?

Yeah. I think that sounds good. Model over the next three years or so? I was, you know, the way I like to take a look at adjustment, I'd like to take a look at, you know, off of 2025, I would expect to see, you know, double-digit EBITDA growth, you know, in, you know, I think in the teens range because of all the new beds coming on board.

Okay. And that's consolidated?

That's just for the inpatient rehab side. And your segment.

Okay. Alright. Okay. Yep. Yep. Got it. You know, we also expect, you know, I would think on the in pay or on the LTACH side, you should expect some pretty slow growth there. I mean, I wouldn't expect low single-digit growth. And then on the outpatient side, I would also expect to see some double-digit growth on EBITDA in 2025 and 2026. Alright. That is helpful. I will jump back in queue. Thank you.

Thanks, Justin.

Our next question will come from the line of Ben Hendrix with RBC Capital Markets.

Hey. Thank you very much. I appreciate the color on your refinancing and year-end leverage. But acknowledging that there's been some confusion and kind of post-spin, but maybe you can give us an idea of your kind of go-forward post-separation leverage targets, how you're thinking about the gearing for this, kind of where we are versus the kind of the optimal debt load. Thanks.

Yeah, Ben. Thanks for the question. Our expectation is, given the high activity in particular in the inpatient rehab side, I mean, we expect to remain in that 3 to 3.1 times for 2025 as far as leverage is concerned. But we would expect to be well below that come 2026 and beyond.

Appreciate that. And just a follow-up, a question on the inpatient. You know, it looks like margins were a little lower this quarter. It sounds like there, you know, there were some development costs in there. And maybe, were there any other kind of headwinds transitory or otherwise, that may have kind of caused a little bit of a depression on the IRF side this quarter versus the last several? Thanks.

Yes. At one of our hospitals, one of our referral sources was impacted by Hurricane Helene. And their census was suppressed. So, well, you know, correspondingly, our census was suppressed at that facility. What we've seen in 2025 is census is back to normal, so we believe that was an anomaly. But that along with the startup losses and the integration cost for our acquisition, that's what contributed to the decrease in margin year over year for the inpatient rehab.

Great. Thank you for that clarification.

Thanks, Ben.

Our next question comes from the line of Joanna Gashnik with Bank of America.

Good morning. Thanks so much for taking the question. So just, I guess, a little bit of follow-up to that last comment about the IRF margins. And as it relates to the 2025 outlook, your guidance implies margins would decline about 20 basis points or so versus comparable, again, excluding conventional margin in 2024. So is that also what's driving EBITDA, consolidated EBITDA margin outlook, you know, for the slight decline because the IRF margins, I guess, are gonna be still, you know, kind of constrained because of the startup losses. Is that the reason now for the consolidated margin to be lower, or is there something else to be said about other segment margins for 2025?

No. That's the primary driver, Joanna. You're correct.

Okay. So it's pretty much the IRFs because of startup losses. And then for the LTACHs, should we think about those margins relatively stable or how we should think about 2025 versus 2024?

Yeah. I think relatively stable is really the way to think about it.

Because I guess in that segment, can you talk about the reimbursement change? You know, the change that Fresco's for the, you know, in Medicare, how you, I guess, seeing this progress through the year, the impact of that change?

Yeah. You're talking about the high-cost outlier threshold?

Yes. Yeah. Exactly. Yep.

Yeah. I mean, our operators have done a tremendous job on managing through the significant increases we've seen in that threshold. And, you know, so if you take a look at transpired between 2023 to 2024, there was about a $20,000 increase per patient, and they've really been able to manage through that. And, you know, as we take a look at it, I think it went into that the increase from 2024 to 2025 was also in that same magnitude. And that started October 1st. Looks like they're doing a very good job managing that too.

Okay. So that's great. But I guess with those changes, you think margins should be relatively flat for the segment.

Yes.

Okay. And then last segment, the outpatient rehab. So these margins showed nice improvement in Q4. And it sounds like, you know, to your, when you were asked your question about kind of the long-term outlook, you know, you expect the outpatient rehab EBITDA to also grow double digits. So can you talk about, you know, your, I guess, activity there in terms of, is it just, you know, kind of sounds like you're streamlining the portfolio, exiting some markets, maybe they don't make sense. Anything else to kind of flag in terms of, like, you know, what's driving the expected growth in that segment EBITDA and also how to think about 2025?

Yeah. I think there's really two primary things that are driving that. Number one, we've mentioned there was an increase in the rate from $100 net revenue per visit up to $102. I think that's a function of some negotiations going on with the commercial contracts. So that's been very helpful despite what we're seeing on Medicare cuts. So that's been very good. I think the other thing is that clinical productivity. We had mentioned, I think, in the last earnings call, we've been doing a lot of work on our technology. And we had a rollout in January that we think has been very good. And would anticipate seeing additional improvement in our therapist productivity.

Alright. Thank you so much for taking the questions.

Thank you.

That concludes today's question and answer session. I'd like to turn the call back to management for closing remarks.

No closing remarks. Thanks, everybody, for your attention and focus on the quarter as we kind of unravel, unwind, and with Concentra so that we have a clearer picture on what's going on here at Select, and we appreciate your efforts. Look forward to updating you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.