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Good morning and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the first quarter 2024 results and the company's business outlook. Speaking today are the company's Chief 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 call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone. Welcome to Select Medical's earnings call for the first quarter of 2024. I'll first provide some updates on the progress we have made regarding our previously announced plan to pursue the separation of Select Medical's wholly owned occupational health services business, Concentra. On February 27, we announced that we had received as expected a favorable private letter ruling opinion from the Internal Revenue Service, confirming the tax-free status of the potential transaction. On March 18, we announced that Concentra had confidentially submitted a draft registration statement on Form S-1 with the SEC relating to the proposed initial public offering of its stock. The IPO is expected to occur after the SEC completes its review process and subject to market and other conditions. We're pleased so far with the progress and expect the separation to be completed by the end of 2024. Overall, we had a very strong first quarter start of 2024, led by both our hospital divisions generating very impressive results. Adjusted EBITDA grew 22% and revenue grew 7% compared to Q1 of the prior year, with all 4 operating divisions exceeding prior year revenue. For the quarter, total company adjusted EBITDA was $261.9 million compared to $214.1 million in the prior year. Our consolidated adjusted EBITDA margin was 14.6% for Q1 compared to 12.9% in the prior year. The first quarter results of our critical illness recovery hospital division far exceeded our expectations. Adjusted EBITDA of $115.9 million was 51% higher than Q1 of the prior year with increases in revenue and census along with a 6% reduction in salary wages and benefits to revenue ratio. Marty Jackson will provide some additional detail regarding CRH's continued progress with labor within his commentary. On April 9, we opened a critical illness recovery hospital for distinct part rehabilitation unit in Chicago with RUSH University System, adding 44 critical illness and 56 rehab beds. There is also a strong pipeline for additional growth opportunities under consideration. On the inpatient rehab development front, we are on target to open a 48-bed hospital in Jacksonville, Florida in Q3 2024 with our partner, UF Health Jacksonville. In the first half of 2025, we're opening our fourth rehab hospital with Cleveland Clinic, consisting of 32 beds and we are slated to open our third hospital in Central Pennsylvania in partnership with UPMC. This will be a 20-bed rehabilitation hospital and will serve the expanding needs of the region. In February, it was announced that Select Medical and Banner Health are breaking ground on a fourth rehabilitation hospital as part of our joint venture. This will be a 56-bed hospital in Tucson, Arizona, with a planned opening in the latter part of 2025. Also in the latter part of 2025, we are expanding our Riverside Hospital in Virginia by 10 beds. Moving on to 2026. We're opening a new 60-bed rehab hospital in Southern New Jersey, the Bacharach Institute for Rehab in partnership with AtlantiCare and are scheduled to open a new freestanding 63-bed rehab hospital in Ozark, Missouri with CoxHealth system. Overall, we are very pleased with the development results in the pipeline for our specialty hospital divisions. Between specific projects just mentioned, as well as some other smaller expansions in distinct part units, we plan to add 537 additional beds to our operations from Q2 2024 through 2026. The additional beds consist of 467 rehab beds, which includes 54 nonconsolidating beds and 70 LTAC beds. We also have a lot of activity in regards to development in our Concentra and outpatient divisions. Concentra acquired a 4-center occupational medicine practice in Hampton Roads, Virginia market on February 24. And a second de novo clinic in Fort Myers, Florida opened in March. We currently have 6 signed leases for de novos slated to open throughout the remainder of 2024 and Q1 of 2025. Concentra continues to maintain a strong pipeline of potential acquisition opportunities and various de novo sites under evaluation. This quarter, our outpatient rehab division added 5 clinics via 4 de novos and 1 acquisition. This offset the closure of 14 underperforming clinics and the folding of 2 clinics into existing operations upon lease expiration. The pipeline for future growth remains strong with 20 executed leases for de novo clinics scheduled to open later this year. Many other acquisitions and de novo opportunities are currently under consideration. Now I'll provide some further data points on the results of each of our operating divisions. As I mentioned, our critical illness recovery hospital division had a very strong quarter. Revenue increased 10% with a 51% increase in adjusted EBITDA compared to the same quarter prior year. Critical illness incurred $2.2 million of start-up losses related to new hospitals this quarter compared to $1.9 million in the same quarter prior year. While our occupancy was slightly down from same quarter last year, average daily census increased 2%. Our rate per patient day increased 8%. The increase in rate was primarily driven by an increase in our case mix index, Medicaid supplement payments that were partially offset by an increase in taxes and favorable payer contract negotiations. Our adjusted EBITDA margin was 17.7% for the quarter compared to 12.9% in prior year Q1. Critical illness experienced a 6% reduction in their salary wages -- salary wages and benefit to revenue ratio compared to prior year Q1 with nurse agency utilization decreasing 20% and agency rates decreasing by 7% compared to same quarter prior year. Orientation hours decreased 9% compared to prior year Q1. Nursing sign on incentive bonus decreased 26% from prior year Q1. In April, CMS issued their LTAC proposed rule for 2025. And if adopted, would see an increase of 2.4% in standard federal payment rate and an increase in the high-cost outlier threshold. The final rule is expected in late July, early August after the required comment period. Our inpatient rehabilitation hospital division also had a very strong quarter with a 15% increase in revenue and a 30% increase in adjusted EBITDA compared to Q1 prior year. Average daily census increased 7% and our rate per patient day increased 7%. Our occupancy of 87% was higher than prior year of 86%. Adjusted EBITDA margin for inpatient rehab was 23.1% for Q1, which was higher than prior year margin of 20.4%. In March, CMS issued the rehab proposal for fiscal year 2025. And if adopted, would see an increase of 1.8% in the standard federal payment rate. Final rule is expected in late July, early August after the required comment period. Concentra experienced an increase in 2% in net revenues and 3% in adjusted EBITDA over prior year same quarter. The increase in revenue was driven primarily by a 4% increase in rate. Our workers' comp volume remained strong with an increase of 3% but was offset by a 6% decrease in employer-based visits which are reimbursed at lower rates. This led to an overall visit decline of 2% as the employer demands for drug screens and physicals trended downward. Our on-site revenue grew by 9% as Concentra added 11 new on-site clinic locations since Q1 of last year and we are seeing higher revenue per site. Concentra's adjusted EBITDA margin was in line with prior year at 20.6%. Our outpatient rehab division experienced an increase of 2% in revenue with patient volumes increasing by 4%. Offsetting the volume increase was a decrease in net revenue per visit from $101 per visit to $99. Our volume continues to maintain an upward trend, while the rate decreases are primarily due to a decline in the outpatient Medicare fee schedule and payer mix shifts. The outpatient division's adjusted EBITDA decreased by 17% compared to prior year and the adjusted EBITDA margin went from 10.2% to 8.2%. In March, the President signed an appropriation bill that mitigated a 3.4% reduction in Medicare physician fee schedule that went into effect in January. The newly signed law includes a 1.68% increase in the fee schedule base conversion factor for the remainder of the year. The net result of this change is a 2% reduction in Medicare fee schedule for the year as opposed to the original 3.4% cut. Earnings per fully diluted share were $0.75 for the first quarter compared to $0.56 per share in the same quarter prior year. Adjusted earnings per fully diluted share were $0.77 for the first quarter, which excludes Concentra separation transaction costs, net of tax. In regards to our allocation of deployment of capital, the Board of Directors declared a cash dividend, $0.125, payable on May 30, 2024 to stockholders of record as of the close of business on May 16, 2024. 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. This concludes my remarks. I'll turn it over to Marty Jackson for additional financial details before we open the call up for questions.

Thanks, Bob. Good morning, everyone. I will begin by providing some additional details 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 exceeded our expectations at 52.9% this quarter, which is a decrease from 56.2% in Q1 of prior year. In the first quarter of this year, we saw a decrease in the agency costs and utilization from prior year Q1. Compared to Q1 of '23, RN agency costs decreased by 23% and utilization decreased to 14% from 18%. The hourly agency rate for RNs also decreased by 7% from $83 to $77. Nursing sign on and incentive bonuses dollars decreased by 26% from Q1 of prior year, down from -- down to $7.6 million from $10.3 million in the prior year same quarter. Finally, we saw a decrease of 9% in our new hire orientation hours. Moving on to our financials. In Q1, equity and earnings of unconsolidated subsidiaries were $10.4 million. This compares to $8.6 million in the same quarter prior year. Net income attributable to noncontrolling interest was $20.3 million compared to $14.5 million in the same quarter prior year. Interest expense was $50.8 million in the first quarter. This compares to $48.6 million in the same quarter prior year. The increase in the interest expense was principally due to the increase in the borrowing spread on our term loan resulting from the amendment to our senior secured credit agreement. At the end of the quarter, we had $3.8 billion of debt outstanding and $93 million of cash on the balance sheet. Our debt balance at the end of the quarter included $2 billion in term loans, $510 million in revolving loans, $1.2 billion in our 6.25% senior notes and $77.6 million of other miscellaneous debt. During the first quarter, we prepaid $79 million on our term loans under the terms of our credit agreement. We ended the quarter with net leverage for our senior secured credit agreement of 4.4x. We estimate approximately $95 million of our incremental borrowings in the quarter were related to the Change Health cyber incident. Our estimated net leverage would have been 4.3x without the incremental borrowings related to the cyber incident. As of March 31, we had $202.4 million of availability on our revolving loans. The interest rate bill in $2 billion of our term loans is capped at 1% SOFR plus 300 basis points through September 30 of 2024. For the first quarter, operating activities used $66.7 million in cash flow. Our days sales outstanding was 58 days as of March 31, '24. This compares to 54 days at March 31, '23 and 52 days at the end of fiscal year 2023. The increase in DSO was principally attributable to the Change Health cyber incident. Investing activities used $57.7 million of cash in the first quarter. This includes $52.5 million in purchases of property, equipment and other assets and $5.2 million in acquisition and investment activities. Financing activities provided $133 million of cash in the first quarter. This was primarily due to $230 million in net borrowings on our revolving line of credit and $8.7 million in net borrowings and other debt, less the $79 million in term loan repayments, $16 million in dividends of our common stock and $8.8 million in net payments and distributions to noncontrolling interests. As stated previously, we did not repurchase any shares under our Board authorized repurchase program this quarter. Last year, the Board approved a 2-year extension of the share repurchase program which remains in effect until December 31, 2025, unless further extended or earlier terminated by the Board. We updated our business outlook for 2024. We expect revenue to be in the range of $6.9 billion to $7.1 billion, adjusted EBITDA to be in the range of $845 million to $885 million, fully diluted earnings per share to be in the range of $1.95 to $2.19 and adjusted earnings per share to be in the range of $1.96 to $2.20. Capital expenditures are expected to be in the range of $225 million to $275 million for '24 -- for year '24 and $123 million of that is allocated towards maintenance, which is consistent with prior years. The balance of that would be in development. 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.

[Operator Instructions] Our first question comes from Justin Bowers with DB.

Bob, thank you for the comprehensive update on development activities. I missed RUSH. Can you just give us an update on the new hospital with that system?

Sure. We built a new hospital with -- in partnership with RUSH, which is a new building on their campus, which is composed of both rehab hospital -- a rehab hospital and LTAC hospital. The way the regulations work, it's technically an LTAC hospital with a distinct part rehab unit. But it opened, I think, this past month and we're going through the 6-month qualification period for LTAC but the rehab hospital is filling up nicely.

Okay. Great. And then, Marty, just pivoting to critical illness. Can you just talk about the efforts you guys have done with labor? You had some really nice improvement there on the SWB ratio.

Yes. Justin, the -- our operators have done a terrific job reducing the reliance on the agency nurses. Most of the nurses that we would like to have full time, we have hired, so orientation hours have gone down. So all in all, it's just been terrific. We've talked about potentially getting back to that 52%, 53% range but we thought it would take us another year to get there. And again, the operators have done a terrific job on their staffing.

Okay. And then in the prepared remarks, you said the agency costs were down 23%. So that's -- that was roughly about $18 million then during the quarter. Is that the right ballpark $18 million or $19 million?

Staffing costs were -- yes, that's right. They dropped from about $24 million down to $18 million.

Okay. And then just one last one. You mentioned some Medicaid payments. Is there -- can you size that for us? And is there any -- yes.

It is about $4 million to $5 million net after taxes.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Congratulations on the quarter. I just wanted to ask about the $3.8 billion in debt ahead of the spin. We get a lot of questions about balance sheet allocation between SpinCo and RemainCo. I just want to get your latest thoughts there, considerations and how you're thinking about the balance.

Yes, Ben, what we've indicated publicly is that you can think about this in terms of both entities will ultimately have about 4x of leverage on the balance sheet or on a gross basis, a little bit less on the net side.

And then also just, we've heard one of your peers on the inpatient rehab side talk about strategies around the preclaim or the review choice demonstration and how their relationships are with fiscal intermediaries in the IRF business. Just wanted to get your thoughts on positioning around that. If your footprint is impacted, how your relationships are with fiscal intermediaries and if you've given any thought to kind of how to approach the review choice?

I mean obviously, I think our relationships are good but good/bad relationships, it's all about how you fare through the audits. It does impact our platform and we've had a extremely good result with all the review choice demonstration audits. So it's not been an issue.

Our next question comes from Kevin Fischbeck with Bank of America.

This is [indiscernible] on for Kevin Fischbeck with Bank of America. My first question was just regarding how Q1 EBITDA was $40 million above consensus but you raised the midpoint of the EBITDA guidance by $10 million. So is it fair to say that Q1 results are just closer to your internal expectations compared to where consensus was? And what are the sources of the beat? And so why are you not also raising revenue guidance?

Yes. The -- I mean our expectations -- well, first of all, the thought process for us was really -- the spread was rather large. What we did was, we increased the lower limit by $15 million. And we're taking a look at the remaining 3 quarters and to the extent that we continue to exceed like this, we'll make adjustments as those quarters -- as we see what those quarters are -- how we're performing.

All right. And just a follow-up or I guess, not really a follow-up but really a different question. On critical illness margins improving 480 bps year-over-year despite the Medicare reimbursement pressure, so what would you say would be the main drivers for that? And is there more room for improvement?

Well, there's a couple of different drivers to that. It was really -- we had some nice increases in volume. We had nice increases in case mix index, which increased the rate. And then I'd say, by far, the largest impact came from controlling costs on the salaries, wages and benefit side. You saw a nice drop in our SW&B as a percentage of revenue and that was a big driver of that improvement in margins.

Our next question comes from A.J. Rice with UBS.

Hi, everybody. Just a fine point on the comments around the supplemental payment program. Is this the first quarter you've recognized that? And is that $4 million an annualized number for that program? Or are you going to have $4 million incremental every quarter this year?

Okay. We have recognized before A.J. but as they become more mature, we're able to recognize on a month-to-month basis and that's what you're seeing there.

And so the second, third and fourth quarter will all have roughly about a $4 million benefit from this program?

Yes. That number right there was a onetime number.

Okay. All right. And then on the -- I had a couple of business questions. But on the Concentra spin, I know you said reaffirmed target is by the end of the year. Any sense of when those -- that silent filings going to flip to public and any plans on having that management team out on a road show and when might that occur?

Yes. As you know, A.J., it's really -- it's fully dependent on SEC and the comments that we get and the length of time that, that takes. So as we get further clarity, we'll be able to give you a much better time frame.

Okay. Obviously, a big win for the company in the quarter was on the labor front, as you said. I'm wondering just, if you look -- I know the year-to-year comps are still really good on the contract labor. If you look sequentially, are you still from quarter-to-quarter seeing that come down? Or are you sort of now at a normalized level and you just -- it plays out at that level of contract utilization, et cetera? And then, is there any comment on where your wage rates are trending for your permanent workforce in the critical illness division?

Yes, A.J., with regards to the RN rates, we think that we're probably at the low end of the range right now. We do believe that there will probably be seasonality in those rates. But all in all, I think it's within a couple of bucks of each other. I think on the -- our full-time employee rates are in that 3% to 4% range on an annual basis.

Okay. And then maybe last question. On the -- I think you previously said one of the issues or challenges in the proposed rule or the rule last year was the LTAC outlier threshold increase. You obviously had a very good quarter in the LTAC business this quarter. Are you seeing any impact on margins or volumes from that? And any early comment on the proposal for next year and how that might impact you?

Well, the -- A.J., we normally don't say much about the proposed rule, when it's in a comment period. We'll be submitting comments. I will say that the continued increase in the fixed loss threshold amount is tougher on the providers that have the higher acuity, longer-stay patients. And we just continue to navigate that and continue to tweak our operations and in order to accommodate for the changes that are -- and the directions that the policymakers are trying to push us. So as you saw in Q1 with the LTACs that volume and expenses, not salary wages and benefit and rate through acuity can really carry the day. So we obviously feel good about their performance and continue to do that. And our business on that side of the business on the critical illness is better as the acute care hospitals have higher occupancies in their ICUs. So that's what really is the main thing that drives that business.

Our next question comes from Bill Sutherland with The Benchmark Company.

I wanted to see if there is any more color you could provide about the trend in the employer demand for Concentra, because of the lower levels of screenings and physicals?

Yes, Bill, the demand there really has to do with employment. And as you know, I mean, during 2022 and '23, there was much higher demand just because there was a lot more hiring going on. And as hiring goes back to normal, you're going to see those drop. And that's something that we expected to see. I think the other point that I'll make there is that those, the types of activities that Concentra does for employment hiring are really the lower end of the range, things like drug testing, which are in the $40 range or physicals which are much lower than what the unit pricing is on workers' comp.

Yes. I guess the positive mix is good. So I guess what you're saying, Marty, is that sequentially, this is going to probably just flatten out. It's just a year-over-year thing right now?

I think that's -- I think you could think about it that way. I mean I don't think that it's -- it's not really a concerning issue at this point.

Okay. Back to LTAC for a second. The CMI increase was impressive. Is that part of the seasonality of 1Q? Or is that something that feels sustainable?

Yes. Q1 typically has a higher CMI than normal but the increase that we saw was based on a year-over-year same-quarter basis. So we felt pretty -- we felt very good about that.

Yes. And I guess that goes back to your comment, Bob, about ICU capacity and so forth.

Well, yes. And as you see in the first quarter, you're just going to have more of those respiratory cases. The winter months bring those and you're going to see more volume in the ICUs. And consequently, you're going to see more volume to the LTACs.

I'm showing no further questions at this time. I would now like to turn it back to Robert Ortenzio for closing remarks.

Thank you, everybody, for joining us and for your questions.