Financial Data and Key Metrics Changes - The company's consolidated revenue increased by over 2% while adjusted EBITDA declined by 9% from $165.8 million to $151.4 million [9] - Earnings per common share from continuing operations increased by 33% to $0.44 compared to $0.33 in the same quarter of the prior year [9] - The company ended the quarter with $1.8 billion of debt outstanding and $53.2 million of cash on the balance sheet [16] Business Line Data and Key Metrics Changes - The inpatient rehab division saw a 16% increase in revenue, 15% in adjusted EBITDA, and a 6% increase in average daily census compared to the first quarter of last year [9] - The outpatient division's revenue increased by 1% despite challenges, with net revenue per visit rising from $99 to $102 [11] - The critical illness recovery hospitals experienced a 3% decline in revenue, driven by a 2% decrease in rate per patient day and a 1% decline in patient days [12] Market Data and Key Metrics Changes - The outpatient division was impacted by severe weather events, estimated to have a $4 million effect on revenue [11] - The critical illness recovery hospital division faced challenges due to regulatory changes, including a significant increase in the high-cost outlier threshold [5][12] Company Strategy and Development Direction - The company plans to open several new rehab hospitals and units, including a 45-bed rehab hospital in Temple, Texas, and a 63-bed rehab hospital in Ozark, Missouri, among others [7][8] - The outpatient division added 10 de novo clinics while strategically closing or consolidating 13 locations to optimize resources [8] - The company is focused on improving patient access, productivity, and investing in technology within the outpatient division [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outpatient division's outlook despite recent challenges, citing a strong finish to the quarter [5] - The company is adjusting its 2025 revenue outlook to a range of $5.3 billion to $5.5 billion, with adjusted EBITDA expected between $510 million and $530 million [19] - Management is actively engaging with regulatory bodies to address challenges related to high-cost outlier impacts and transmittal rules [33][50] Other Important Information - The company repurchased almost 650,000 shares at an average price of $17.52, totaling $11.4 million [14] - A cash dividend of $6.625 per share was declared, payable on May 29, 2025 [15] Q&A Session Summary Question: Outlook for inpatient rehab occupancy - Management expects occupancy to remain around 85% even with new business coming online [21] Question: Impact of regulatory changes on LTACH - The impact of high-cost outlier changes was greater than anticipated, with a 100% increase compared to the previous year [22][24] Question: Mitigation strategies for high-cost outlier and transmittal rule - Management is in ongoing discussions with regulatory bodies to address these challenges [33] Question: Start-up costs comparison - Start-up losses are relatively the same compared to last year [37] Question: Initiatives to improve outpatient rehab margins - The company is implementing technology changes and seeing improvements in commercial contracting rates [41][42] Question: Plans for accelerating growth in rehab - Management confirmed plans to accelerate growth in the rehab division beyond current projects [48]

Financial Data and Key Metrics Changes - The company's consolidated revenue increased by over 2% while adjusted EBITDA declined by 9% from $165.8 million to $151.4 million [9] - Earnings per common share from continuing operations increased by 33% to $0.44 compared to $0.33 in the same quarter of the prior year [9] - The company ended the quarter with $1.8 billion of debt outstanding and $53.2 million of cash on the balance sheet [16] Business Line Data and Key Metrics Changes - The inpatient rehab division saw a 16% increase in revenue, 15% in adjusted EBITDA, and a 6% increase in average daily census compared to the first quarter of last year [9] - The outpatient division's revenue increased by 1% despite challenges, with net revenue per visit rising from $99 to $102 [11] - The critical illness recovery hospitals experienced a 3% decline in revenue, driven by a 2% decrease in rate per patient day and a 1% decline in patient days [12] Market Data and Key Metrics Changes - The outpatient division was impacted by severe weather events, estimated to have a $4 million effect on revenue [11] - The critical illness recovery hospital division faced challenges due to regulatory changes, including a significant increase in the high-cost outlier threshold [5][12] Company Strategy and Development Direction - The company plans to open several new rehab hospitals and units, including a 45-bed rehab hospital in Temple, Texas, and a 63-bed rehab hospital in Ozark, Missouri, among others [7][8] - The outpatient division added 10 de novo clinics while strategically closing or consolidating 13 locations to optimize resources [8] - The company is focused on improving patient access, productivity, and investing in technology within the outpatient division [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outpatient division's outlook despite recent challenges, citing a strong finish to the quarter [5] - The company is adjusting its business outlook for 2025, expecting revenue in the range of $5.3 billion to $5.5 billion and adjusted EBITDA between $510 million and $530 million [19] - Management is actively engaging with regulatory bodies to address challenges related to high-cost outlier impacts and transmittal rules [33][50] Other Important Information - The company repurchased almost 650,000 shares at an average price of $17.52, totaling $11.4 million [14] - A cash dividend of $6.625 per share was declared, payable on May 29, 2025 [15] Q&A Session Summary Question: How should occupancy be thought of for the rest of the year with new capacity coming online? - Management expects occupancy to remain around 85% plus, even with new business coming online [21] Question: Was the miss in LTACH related to internal expectations or consensus? - The impact from high-cost outlier was higher than anticipated, with a 100% increase compared to the previous year [22][24] Question: Any updates on mitigation strategies regarding high-cost outlier and transmittal rule? - Management indicated that Q1 typically has higher acuity patients, and they expect a drop in high-cost outlier impacts as the year progresses [30][31] Question: What do startup costs look like this year versus last year? - Startup losses are relatively the same from last year to this year [38] Question: Any initiatives in outpatient rehab to improve margins? - The company is implementing technology changes and seeing benefits, with expected increases in commercial rates [42][44] Question: Plans to accelerate growth in rehab to diversify away from LTACH? - Management confirmed that there are plans to accelerate growth in rehab, with several projects already signed and under construction [48]

Financial Data and Key Metrics Changes - The company's consolidated revenue increased by over 2% while adjusted EBITDA declined by 9% from $165.8 million to $151.4 million [9] - Earnings per common share from continuing operations increased by 33% to $0.44 compared to $0.33 in the same quarter of the prior year [9] - The company ended the quarter with $1.8 billion of debt outstanding and $53.2 million of cash on the balance sheet [15] Business Line Data and Key Metrics Changes - The inpatient rehab division saw a revenue increase of 16%, adjusted EBITDA increase of 15%, and a 6% increase in average daily census compared to the first quarter of last year [9] - The outpatient division faced challenges due to severe weather events and a 3% reduction in Medicare reimbursement, but had a strong finish to the quarter [4][11] - The critical illness recovery hospital division experienced a revenue decrease of 3% driven by a 2% decline in rate per patient day and a 1% decline in patient days [12] Market Data and Key Metrics Changes - The outpatient division's net revenue per visit increased from $99 to $102, while total visits declined by 1% due to one less workday [11] - The critical illness recovery hospitals' occupancy rate increased from 71% to 73%, but adjusted EBITDA declined by 25% from the prior year [13] Company Strategy and Development Direction - The company plans to open several new rehab hospitals and units, including a 45-bed rehab hospital in Temple, Texas, and a 63-bed rehab hospital in Ozark, Missouri, among others [7][8] - The outpatient division added 10 de novo clinics while strategically closing or consolidating 13 locations to optimize resources [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outpatient division's outlook despite recent challenges, focusing on improving patient access and investing in technology [4] - The company is adjusting its business outlook for 2025, expecting revenue in the range of $5.3 billion to $5.5 billion and adjusted EBITDA between $510 million and $530 million [19] Other Important Information - The company repurchased almost 650,000 shares at an average price of $17.52, totaling $11.4 million [14] - A cash dividend of $6.625 per share was declared, payable on May 29, 2025 [14] Q&A Session Summary Question: How should occupancy be thought about for the rest of the year with new capacity coming online? - Management expects occupancy to stay around 85% plus even with new business coming online [21] Question: Was the miss in LTACH related to internal expectations or consensus? - The impact from high cost outlier was higher than anticipated, with a 100% increase compared to the previous year [22][23] Question: Any updates on mitigation strategies regarding high cost outlier and transmittal rule? - Management is in ongoing conversations with regulatory bodies to address these issues and mitigate impacts [34] Question: What do startup costs look like this year versus last year? - Startup losses are relatively the same from last year to this year [38] Question: Any initiatives in outpatient rehab to improve margins? - The company is implementing technology changes and seeing benefits, with expected increases in commercial rates [42][44] Question: Plans to accelerate growth in rehab to diversify away from LTACH? - There are plans to accelerate growth in rehab, with several projects already signed and under construction [49]

Company Performance - Select Medical reported quarterly earnings of $0.44 per share, missing the Zacks Consensus Estimate of $0.45 per share, and down from $0.77 per share a year ago, representing an earnings surprise of -2.22% [1] - The company posted revenues of $1.35 billion for the quarter ended March 2025, missing the Zacks Consensus Estimate by 0.83%, and down from $1.79 billion year-over-year [2] - Over the last four quarters, Select Medical has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Performance - Select Medical shares have lost about 3.2% since the beginning of the year, compared to the S&P 500's decline of -5.3% [3] - The current consensus EPS estimate for the coming quarter is $0.25 on revenues of $1.33 billion, and for the current fiscal year, it is $1.14 on revenues of $5.39 billion [7] Industry Outlook - The Medical - HMOs industry, to which Select Medical belongs, is currently in the top 15% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Select Medical's stock performance [5][6]

[Company Announcement and First Quarter 2025 Highlights](index=1&type=section&id=Company%20Announcement%20and%20First%20Quarter%202025%20Highlights) Select Medical reported Q1 2025 revenue growth and increased income from continuing operations, despite a decline in Adjusted EBITDA, following the Concentra spin-off [First Quarter 2025 Financial Performance](index=1&type=section&id=First%20Quarter%202025%20Financial%20Performance) Q1 2025 saw **2.4% revenue growth** and a **21.5% rise in income from continuing operations**, with an **8.7% Adjusted EBITDA decrease** Q1 2025 vs Q1 2024 Key Financial Performance (Continuing Operations, Millions) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | % Change | | :--------------------------------- | :----------------- | :----------------- | :------- | | Revenue | $1,353.2 | $1,321.2 | 2.4% | | Income from continuing operations before other income and expense | $112.7 | $118.5 | (4.8)% | | Income from continuing operations, net of tax | $74.7 | $61.5 | 21.5% | | Adjusted EBITDA | $151.4 | $165.8 | (8.7)% | | Earnings per common share from continuing operations | $0.44 | $0.33 | 33.3% | [Company Overview](index=1&type=section&id=Company%20Overview) Select Medical is a leading operator of critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation clinics in the United States, with a significant presence across 40 states and the District of Columbia - As of March 31, 2025, Select Medical operated **104 critical illness recovery hospitals** in 29 states, **35 rehabilitation hospitals** in 14 states, and **1,911 outpatient rehabilitation clinics** in 39 states and the District of Columbia[5](index=5&type=chunk) [Concentra Spin-off Impact](index=1&type=section&id=Concentra%20Spin-off%20Impact) On November 25, 2024, Select Medical completed a tax-free distribution of Concentra Group Holdings Parent, Inc. shares to its stockholders, leading to Concentra's results being reclassified and presented as discontinued operations - Select Medical completed a tax-free distribution of **104,093,503 shares** of common stock of Concentra Group Holdings Parent, Inc. to its stockholders on November 25, 2024[4](index=4&type=chunk) - The results of Concentra are presented as discontinued operations and have been excluded from both continuing operations and segment results for the three months ended March 31, 2024[4](index=4&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Performance) An overview of Q1 2025 performance across Critical Illness Recovery, Rehabilitation, and Outpatient Rehabilitation segments, highlighting varied revenue and Adjusted EBITDA trends [Critical Illness Recovery Hospital Segment](index=2&type=section&id=Critical%20Illness%20Recovery%20Hospital%20Segment) The Critical Illness Recovery Hospital segment experienced a decline in Q1 2025, with revenue decreasing by 2.9% and Adjusted EBITDA falling by 25.3%, resulting in a lower Adjusted EBITDA margin Critical Illness Recovery Hospital Segment Performance (Q1 2025 vs Q1 2024, Millions) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | % Change | | :-------------------- | :----------------- | :----------------- | :------- | | Revenue | $637.0 | $655.9 | (2.9)% | | Adjusted EBITDA | $86.6 | $115.9 | (25.3)% | | Adjusted EBITDA margin | 13.6% | 17.7% | | [Rehabilitation Hospital Segment](index=2&type=section&id=Rehabilitation%20Hospital%20Segment) The Rehabilitation Hospital segment showed strong growth in Q1 2025, with revenue increasing by 15.7% and Adjusted EBITDA rising by 14.7%, while maintaining a stable Adjusted EBITDA margin Rehabilitation Hospital Segment Performance (Q1 2025 vs Q1 2024, Millions) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | % Change | | :-------------------- | :----------------- | :----------------- | :------- | | Revenue | $307.4 | $265.7 | 15.7% | | Adjusted EBITDA | $70.4 | $61.4 | 14.7% | | Adjusted EBITDA margin | 22.9% | 23.1% | | [Outpatient Rehabilitation Segment](index=2&type=section&id=Outpatient%20Rehabilitation%20Segment) The Outpatient Rehabilitation segment reported modest revenue growth of 1.4% in Q1 2025, but experienced a slight decrease in Adjusted EBITDA and its corresponding margin Outpatient Rehabilitation Segment Performance (Q1 2025 vs Q1 2024, Millions) | Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | % Change | | :-------------------- | :----------------- | :----------------- | :------- | | Revenue | $307.3 | $303.2 | 1.4% | | Adjusted EBITDA | $24.3 | $24.9 | (2.6)% | | Adjusted EBITDA margin | 7.9% | 8.2% | | [Shareholder Actions](index=2&type=section&id=Shareholder%20Actions) Details the company's Q1 2025 cash dividend declaration and ongoing common stock repurchase program, reflecting capital allocation strategies [Cash Dividend Declaration](index=2&type=section&id=Cash%20Dividend%20Declaration) Select Medical's Board of Directors declared a cash dividend of $0.0625 per share, payable in May 2025, with future declarations subject to various financial and operational factors - On April 30, 2025, Select Medical's Board of Directors declared a cash dividend of **$0.0625 per share**, payable on or about May 29, 2025, to stockholders of record as of May 15, 2025[9](index=9&type=chunk) - The declaration and payment of future dividends are at the discretion of the Board, considering factors such as financial condition, operating results, available cash, and indebtedness[10](index=10&type=chunk) [Stock Repurchase Program](index=3&type=section&id=Stock%20Repurchase%20Program) The company has an authorized common stock repurchase program of up to $1.0 billion, which remains in effect until December 31, 2025. In Q1 2025, Select Medical repurchased 649,804 shares for approximately $11.4 million - The Board of Directors authorized a common stock repurchase program to repurchase up to **$1.0 billion** worth of shares, remaining in effect until December 31, 2025[11](index=11&type=chunk) Stock Repurchase Activity (Q1 2025 and Inception-to-date, Millions) | Period | Shares Repurchased | Cost (Millions) | Average Price Per Share | | :-------------------------- | :----------------- | :---------------- | :---------------------- | | Q1 2025 | 649,804 | $11.4 | $17.52 | | Inception through March 31, 2025 | 48,884,627 | $611.7 | $12.51 | [Business Outlook](index=3&type=section&id=Business%20Outlook) Select Medical's updated fiscal year 2025 projections for revenue and Adjusted EBITDA, alongside reaffirmed earnings per share guidance [Fiscal Year 2025 Outlook](index=3&type=section&id=Fiscal%20Year%202025%20Outlook) Select Medical adjusted its 2025 business outlook for revenue and Adjusted EBITDA, while reaffirming its guidance for fully diluted earnings per share Fiscal Year 2025 Business Outlook (Billions/Millions) | Metric | Range (Billions/Millions) | | :-------------------------- | :------------------------ | | Revenue | $5.3 to $5.5 billion | | Adjusted EBITDA | $510.0 to $530.0 million | | Fully diluted earnings per share | $1.09 to $1.19 | [Additional Information](index=3&type=section&id=Additional%20Information) Provides details for the upcoming Q1 earnings conference call and outlines significant forward-looking statements and associated risk factors [Conference Call Details](index=3&type=section&id=Conference%20Call%20Details) Select Medical will host a conference call on May 2, 2025, to discuss its first quarter results and business outlook, accessible via live webcast or telephone dial-in - A conference call regarding Q1 results and business outlook will be held on **Friday, May 2, 2025, at 9:00 am ET**[14](index=14&type=chunk) - The conference call will be a live webcast accessible at www.selectmedicalholdings.com, with a replay available shortly after[14](index=14&type=chunk) - Listeners can pre-register for the call to obtain dial-in numbers and unique passcodes for telephone participation and Q&A[15](index=15&type=chunk) [Forward-Looking Statements and Risk Factors](index=4&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) The report contains forward-looking statements that are subject to various risks and uncertainties, which could cause actual results to differ materially from expectations. Key risks include changes in government reimbursement, adverse economic conditions, and shortages in qualified healthcare professionals - Statements not describing historical facts are 'forward-looking' and actual results may differ materially due to various risks and uncertainties[17](index=17&type=chunk)[19](index=19&type=chunk) - Key risk factors include changes in government reimbursement, adverse economic conditions (including inflation), shortages in qualified healthcare professionals, and the failure to maintain Medicare certifications[18](index=18&type=chunk) - Other risks involve potential negative impacts from public threats like pandemics, government investigations, difficulties with acquisitions or joint ventures, and the loss of key management team members[18](index=18&type=chunk)[20](index=20&type=chunk) [Financial Tables](index=6&type=section&id=Financial%20Tables) Comprehensive financial statements and key operational statistics for Q1 2025, including income, balance sheet, cash flow, and segment-specific performance data [I. Condensed Consolidated Statements of Operations](index=6&type=section&id=I.%20Condensed%20Consolidated%20Statements%20of%20Operations) This table presents the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2025, detailing revenue, costs, income from continuing operations, and net income, highlighting a 2.4% revenue increase and a 21.5% rise in income from continuing operations, net of tax Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2024 and 2025, Thousands) | | | 2024 | 2025 | % Change | |:---|:---|:---|:---|:---|\ | Revenue | $ | 1,321,211 | $ 1,353,172 | 2.4% | | Costs and expenses: | | | | | | Cost of services, exclusive of depreciation and amortization | | 1,120,711 | 1,172,611 | 4.6 | | General and administrative | | 48,447 | 33,008 | (31.9) | | Depreciation and amortization | | 35,584 | 34,808 | (2.2) | | Total costs and expenses | | 1,204,742 | 1,240,427 | 3.0 | | Other operating income | | 2,000 | — | N/M | | Income from continuing operations before other income and expense | | 118,469 | 112,745 | (4.8) | | Other income and expense: | | | | | | Equity in earnings of unconsolidated subsidiaries | | 10,421 | 12,512 | 20.1 | | Interest expense | | (40,681) | (29,072) | (28.5) | | Income from continuing operations before income taxes | | 88,209 | 96,185 | 9.0 | | Income tax expense from continuing operations | | 26,680 | 21,453 | (19.6) | | Income from continuing operations, net of tax | | 61,529 | 74,732 | 21.5 | | Discontinued operations: | | | | | | Income from discontinued business | | 65,416 | — | N/M | | Income tax expense from discontinued business | | 9,778 | — | N/M | | Income from discontinued operations, net of tax | | 55,638 | — | N/M | | Net income | | 117,167 | 74,732 | (36.2) | | Less: Net income attributable to non-controlling interests | | 20,270 | 18,051 | (10.9) | | Net income attributable to Select Medical | $ | 96,897 | $ 56,681 | (41.5)% | | Net income attributable to Select Medical's common stockholders: | | | | | | Income from continuing operations, net of tax | $ | 42,582 | $ 56,681 | | | Income from discontinued operations, net of tax | | 54,315 | — | | | Net income attributable to Select Medical's common stockholders | $ | 96,897 | $ 56,681 | | | Earnings per common share: | | | | | | Continuing operations - basic and diluted | $ | 0.33 | $ 0.44 | | | Discontinued operations - basic and diluted | | 0.42 | — | | | Total earnings per common share - basic and diluted | $ | 0.75 | $ 0.44 | | [II. Earnings per Share](index=7&type=section&id=II.%20Earnings%20per%20Share) This section details the computation of basic and diluted earnings per share for the three months ended March 31, 2024 and 2025, applying the two-class method due to participating unvested restricted stock awards Income from Continuing Operations, Net of Tax, Attributable to Select Medical and Participating Securities (Thousands) | | Three Months Ended March 31, | | |:---|:---|:---|\ | | 2024 | 2025 | | Income from continuing operations, net of tax | $ 61,529 | $ 74,732 | | Less: net income attributable to non-controlling interests | 18,947 | 18,051 | | Income from continuing operations, net of tax, attributable to Select Medical's common stockholders | 42,582 | 56,681 | | Less: distributed and undistributed net income attributable to participating securities | 1,493 | 1,145 | | Distributed and undistributed income from continuing operations, net of tax, attributable to common shares | $ 41,089 | $ 55,536 | Computation of EPS Under Two-Class Method (Three Months Ended March 31, 2024 and 2025, Thousands) | | 2024 | | | | 2025 | | | | |:---|:---|:---|:---|:---|:---|:---|:---|:---|\ | | Income from Continuing Operations, Net of Tax, Allocation | Shares | Basic and Diluted EPS | Income from Continuing Operations, Net of Tax, Allocation | Shares | Basic and Diluted EPS | | Common shares | $ 41,089 | 123,859 | $ 0.33 | $ 55,536 | 126,205 | $ 0.44 | | Participating securities | 1,493 | 4,501 | $ 0.33 | 1,145 | 2,602 | $ 0.44 | | Total | $ 42,582 | | | $ 56,681 | | | [III. Condensed Consolidated Balance Sheets](index=8&type=section&id=III.%20Condensed%20Consolidated%20Balance%20Sheets) This table provides the condensed consolidated balance sheets as of December 31, 2024, and March 31, 2025, outlining current and non-current assets, liabilities, and total equity, showing an increase in total assets and total equity Condensed Consolidated Balance Sheets (December 31, 2024 and March 31, 2025, Thousands) | | December 31, 2024 | March 31, 2025 | |:---|:---|:---|\ | Assets | | | | Current Assets: | | | | Cash and cash equivalents | $ 59,694 | $ 53,213 | | Accounts receivable | 821,385 | 908,185 | | Other current assets | 138,698 | 130,894 | | Total Current Assets | 1,019,777 | 1,092,292 | | Operating lease right-of-use assets | 908,095 | 909,180 | | Property and equipment, net | 872,185 | 894,920 | | Goodwill | 2,331,898 | 2,331,898 | | Identifiable intangible assets, net | 103,183 | 102,544 | | Other assets | 372,813 | 365,169 | | Total Assets | $ 5,607,951 | $ 5,696,003 | | Liabilities and Equity | | | | Current Liabilities: | | | | Payables and accruals | $ 777,781 | $ 734,841 | | Current operating lease liabilities | 179,601 | 181,605 | | Current portion of long-term debt and notes payable | 20,269 | 28,353 | | Total Current Liabilities | 977,651 | 944,799 | | Non-current operating lease liabilities | 787,124 | 787,861 | | Long-term debt, net of current portion | 1,691,546 | 1,767,409 | | Non-current deferred tax liability | 81,497 | 75,245 | | Other non-current liabilities | 73,038 | 74,652 | | Total Liabilities | 3,610,856 | 3,649,966 | | Redeemable non-controlling interests | 10,167 | 9,021 | | Total equity | 1,986,928 | 2,037,016 | | Total Liabilities and Equity | $ 5,607,951 | $ 5,696,003 | [IV. Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=IV.%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table presents the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2025, showing a significant reduction in net cash used in operating activities and a decrease in net cash provided by financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2024 and 2025, Thousands) | | 2024 | 2025 | |:---|:---|:---|\ | Operating activities | | | | Net income | $ 117,167 | $ 74,732 | | Adjustments to reconcile net income to net cash used in operating activities: | | | | Distributions from unconsolidated subsidiaries | 12,374 | 20,145 | | Depreciation and amortization | 54,069 | 34,808 | | Provision for expected credit losses | 854 | 2,283 | | Equity in earnings of unconsolidated subsidiaries | (10,421) | (12,512) | | (Gain) loss on sale or disposal of assets | 44 | (23) | | Stock compensation expense | 11,610 | 3,892 | | Amortization of debt discount, premium, and issuance costs | 750 | 783 | | Deferred income taxes | (6,891) | (5,655) | | Changes in operating assets and liabilities, net of effects of business combinations: | | | | Accounts receivable | (195,308) | (89,083) | | Other current assets | (9,611) | (12,230) | | Other assets | 2,363 | 2,127 | | Accounts payable and accrued expenses | (43,689) | (22,724) | | Net cash used in operating activities | (66,689) | (3,457) | | Investing activities | | | | Business combinations, net of cash acquired | (5,405) | — | | Purchases of property and equipment | (52,517) | (52,339) | | Proceeds from sale of assets | 265 | 24 | | Net cash used in investing activities | (57,657) | (52,315) | | Financing activities | | | | Borrowings on revolving facilities | 495,000 | 405,000 | | Payments on revolving facilities | (265,000) | (330,000) | | Payments on term loans | (79,085) | (2,625) | | Borrowings of other debt | 17,728 | 16,015 | | Principal payments on other debt | (9,061) | (7,729) | | Dividends paid to common stockholders | (16,045) | (8,060) | | Repurchases of common stock | — | (11,389) | | Decrease in overdrafts | (1,740) | (5,120) | | Proceeds from issuance of non-controlling interests | 4,002 | 7,944 | | Distributions to and purchases of non-controlling interests | (12,839) | (14,745) | | Net cash provided by financing activities | 132,960 | 49,291 | | Net increase (decrease) in cash and cash equivalents | 8,614 | (6,481) | | Cash and cash equivalents at beginning of period | 84,006 | 59,694 | | Cash and cash equivalents at end of period | $ 92,620 | $ 53,213 | | Supplemental information | | | | Cash paid for interest, excluding amounts received of $22,515 under the interest rate cap contract during the three months ended March 31, 2024 | $ 88,834 | $ 23,772 | | Cash paid for taxes | 604 | 1,472 | [V. Key Statistics](index=10&type=section&id=V.%20Key%20Statistics) This table provides detailed operational and financial key statistics for the Critical Illness Recovery Hospital, Rehabilitation Hospital, and Outpatient Rehabilitation segments for the three months ended March 31, 2024 and 2025, including revenue, patient days/visits, and Adjusted EBITDA Key Statistics by Segment (Three Months Ended March 31, 2024 and 2025, Thousands) | | | 2024 | | 2025 | % Change | |:---|:---|:---|:---|:---|:---|\ | Critical Illness Recovery Hospital | | | | | | | | Number of hospitals operated – end of period | | 107 | | 104 | | | | Revenue (,000) | $ | 655,880 | $ | 637,030 | (2.9)% | | Number of patient days | | 294,622 | | 291,324 | (1.1)% | | Number of admissions | | 9,529 | | 9,351 | (1.9)% | | Revenue per patient day | $ | 2,219 | $ | 2,179 | (1.8)% | | Occupancy rate | | 71% | | 73% | 2.8% | | Adjusted EBITDA (,000) | $ | 115,940 | $ | 86,649 | (25.3)% | | Adjusted EBITDA margin | | 17.7% | | 13.6% | | | | Rehabilitation Hospital | | | | | | | | Number of hospitals operated – end of period | | 33 | | 35 | | | | Revenue (,000) | $ | 265,700 | $ | 307,388 | 15.7% | | Number of patient days | | 116,844 | | 122,822 | 5.1% | | Number of admissions | | 8,275 | | 8,848 | 6.9% | | Revenue per patient day | $ | 2,096 | $ | 2,234 | 6.6% | | Occupancy rate | | 87% | | 82% | (5.7)% | | Adjusted EBITDA (,000) | $ | 61,400 | $ | 70,424 | 14.7% | | Adjusted EBITDA margin | | 23.1% | | 22.9% | | | | Outpatient Rehabilitation | | | | | | | | Number of clinics operated – end of period | | 1,922 | | 1,911 | | | | Working days | | 64 | | 63 | | | | Revenue (,000) | $ | 303,158 | $ | 307,342 | 1.4% | | Number of visits | | 2,735,126 | | 2,709,964 | (0.9)% | | Revenue per visit | $ | 99 | $ | 102 | 3.0% | | Adjusted EBITDA (,000) | $ | 24,928 | $ | 24,273 | (2.6)% | | Adjusted EBITDA margin | | 8.2% | | 7.9% | | | [VI. Income from Continuing Operations, Net of Tax, to Adjusted EBITDA Reconciliation (Q1 2025)](index=11&type=section&id=VI.%20Income%20from%20Continuing%20Operations%2C%20Net%20of%20Tax%2C%20to%20Adjusted%20EBITDA%20Reconciliation%20%28Q1%202025%29) This section provides a reconciliation of income from continuing operations, net of tax, to Adjusted EBITDA for Select Medical for the three months ended March 31, 2024 and 2025, defining Adjusted EBITDA as a non-GAAP measure used for performance evaluation and resource allocation - Adjusted EBITDA is a non-GAAP measure commonly used as an analytical indicator of performance in the healthcare industry and by management to evaluate financial performance and determine resource allocation for each segment[28](index=28&type=chunk) - Adjusted EBITDA is defined as earnings from continuing operations excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, transaction costs associated with the Concentra separation, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries[29](index=29&type=chunk) Adjusted EBITDA Reconciliation (Three Months Ended March 31, 2024 and 2025, Thousands) | | Three Months Ended March 31, | | |:---|:---|:---|\ | | 2024 | 2025 | | Income from continuing operations, net of tax | $ 61,529 | $ 74,732 | | Income tax expense | 26,680 | 21,453 | | Interest expense | 40,681 | 29,072 | | Equity in earnings of unconsolidated subsidiaries | (10,421) | (12,512) | | Income from continuing operations, before other income and expense | 118,469 | 112,745 | | Stock compensation expense: | | | | Included in general and administrative | 9,682 | 3,108 | | Included in cost of services | 1,762 | 784 | | Depreciation and amortization | 35,584 | 34,808 | | Concentra separation transaction costs | 278 | — | | Adjusted EBITDA | $ 165,775 | $ 151,445 | | Critical illness recovery hospital | $ 115,940 | $ 86,649 | | Rehabilitation hospital | 61,400 | 70,424 | | Outpatient rehabilitation | 24,928 | 24,273 | | Other | (36,493) | (29,901) | | Adjusted EBITDA | $ 165,775 | $ 151,445 | [VII. Income from Continuing Operations, Net of Tax, to Adjusted EBITDA Reconciliation (2025 Business Outlook)](index=12&type=section&id=VII.%20Income%20from%20Continuing%20Operations%2C%20Net%20of%20Tax%2C%20to%20Adjusted%20EBITDA%20Reconciliation%20%282025%20Business%20Outlook%29) This table provides a reconciliation of the full year 2025 Adjusted EBITDA expectations to income from continuing operations, net of tax, presenting both low and high points of the projected range Adjusted EBITDA Reconciliation for Fiscal Year 2025 Business Outlook (Millions) | Non-GAAP Measure Reconciliation | Low (Millions) | High (Millions) | |:---|:---|:---|\ | Income from continuing operations, net of tax, attributable to Select Medical | $ 141 | $ 154 | | Net income attributable to non-controlling interests | 73 | 76 | | Income from continuing operations, net of tax | 214 | 230 | | Income tax expense | 64 | 70 | | Interest expense | 116 | 116 | | Equity in earnings of unconsolidated subsidiaries | (49) | (51) | | Income from continuing operations before other income and expense | 345 | 365 | | Stock compensation expense | 19 | 19 | | Depreciation and amortization | 146 | 146 | | Adjusted EBITDA | $ 510 | $ 530 |

Financial Performance - For the three months ended March 31, 2025, the company reported total revenue of $1,353.2 million, a 2.4% increase compared to $1,321.2 million for the same period in 2024[78]. - Income from continuing operations, net of tax, was $74.7 million for the three months ended March 31, 2025, compared to $61.5 million for the same period in 2024, representing a 21% increase[78]. - Adjusted EBITDA for the three months ended March 31, 2025, was $151.4 million, down 8.6% from $165.8 million in the same period in 2024[78]. - Revenue for the three months ended March 31, 2025, was $1,353.2 million, a 2.4% increase from $1,321.2 million in the same period of 2024[108]. - Income from continuing operations before other income and expense decreased to $112.7 million in Q1 2025, down from $118.5 million in Q1 2024[108]. - Adjusted EBITDA for Q1 2025 was $151.4 million, with an Adjusted EBITDA margin of 11.2%, compared to $165.8 million and 12.5% in Q1 2024[108]. - Total operating expenses for Q1 2025 were $1,205.6 million, or 89.1% of revenue, compared to $1,169.2 million, or 88.5% of revenue in Q1 2024[112]. - Cost of services for Q1 2025 was $1,172.6 million, representing 86.7% of revenue, up from 84.8% in Q1 2024[112]. - General and administrative expenses decreased to $33.0 million, or 2.4% of revenue, from $48.4 million, or 3.7% of revenue in Q1 2024[112]. - Net income attributable to Select Medical Holdings Corporation was 4.2% in Q1 2025, down from 7.3% in Q1 2024[103]. Segment Performance - The critical illness recovery hospital segment generated revenue of $637.0 million, accounting for approximately 47% of total revenue, while the rehabilitation hospital and outpatient rehabilitation segments each contributed approximately 23%[73]. - The company experienced a 29.1% decrease in income from continuing operations before other income and expense in the critical illness recovery hospital segment compared to the previous year[79]. - The rehabilitation hospital segment saw a 15.7% increase in revenue, while the outpatient rehabilitation segment experienced a 1.4% increase[79]. - Critical illness recovery hospital revenue decreased by 2.9% to $637.0 million in Q1 2025, primarily due to a decrease in revenue per patient day from $2,219 to $2,179[109]. - Rehabilitation hospital revenue increased by 15.7% to $307.4 million in Q1 2025, with revenue per patient day rising 6.6% to $2,234[110]. - Outpatient rehabilitation revenue increased by 1.4% to $307.3 million in Q1 2025, driven by a 3.0% increase in revenue per visit to $102[111]. - Adjusted EBITDA for the Critical Illness Recovery Hospital Segment decreased to $86.6 million for the three months ended March 31, 2025, down from $115.9 million for the same period in 2024, resulting in a margin drop from 17.7% to 13.6%[114]. - Adjusted EBITDA for the Rehabilitation Hospital Segment increased by 14.7% to $70.4 million for the three months ended March 31, 2025, with a margin of 22.9%, slightly down from 23.1% in 2024[115]. - Adjusted EBITDA for the Outpatient Rehabilitation Segment was $24.3 million for the three months ended March 31, 2025, compared to $24.9 million in 2024, with a margin decrease from 8.2% to 7.9%[116]. Cash Flow and Capital Management - Net cash used in operating activities significantly improved to $(3.5) million for the three months ended March 31, 2025, compared to $(66.7) million in 2024, driven by a normalization of accounts receivable[125]. - Net working capital increased to $147.5 million at March 31, 2025, compared to $42.1 million at December 31, 2024, mainly due to higher accounts receivable[130]. - The company authorized a common stock repurchase program of up to $1.0 billion, with 649,804 shares repurchased at a cost of approximately $11.4 million during the three months ended March 31, 2025[132]. - As of March 31, 2025, the company had cash and cash equivalents of $53.2 million and $377.5 million of availability under its revolving facilities[134]. Market and Regulatory Environment - The company faces various risks, including changes in government reimbursement policies and shortages of qualified healthcare professionals, which could negatively impact revenue and profitability[68]. - Revenue from the Medicare program accounted for approximately 29% of the company's total revenue for both Q1 2025 and the year 2024[81]. - The standard federal rate for LTCH-PPS for fiscal year 2024 increased to $48,117 from $46,433 in fiscal year 2023, reflecting a market basket increase of 3.5%[86]. - The fixed-loss amount for high cost outlier cases under LTCH-PPS for fiscal year 2024 rose to $59,873, up from $38,518 in fiscal year 2023[86]. - The standard payment conversion factor for IRF-PPS for fiscal year 2024 was set at $18,541, an increase from $17,878 in fiscal year 2023[94]. - The outlier threshold amount for IRF-PPS decreased to $10,423 for fiscal year 2024 from $12,526 in fiscal year 2023[94]. - The proposed standard federal rate for LTCH-PPS for fiscal year 2026 is $50,729, an increase from $49,383 in fiscal year 2025[88]. - The proposed fixed-loss amount for high cost outlier cases under LTCH-PPS for fiscal year 2026 is $91,247, up from $77,048 in fiscal year 2025[88]. - The standard payment conversion factor for IRF-PPS for fiscal year 2026 is proposed to be $19,364, an increase from $18,907 in fiscal year 2025[96]. - CMS expects a 3% decrease in Medicare payments for physical and occupational therapy services in 2025[98]. - The criteria for outlier payment reconciliation were modified to a change in the LTCH's CCR of 20% or more, effective for cost reporting periods beginning on or after October 1, 2024[91]. Future Growth Strategies - The company plans to pursue new joint venture relationships and open new outpatient rehabilitation clinics to drive incremental growth[133].

Core Viewpoint - Select Medical Holdings Corporation reported a 2.4% increase in revenue for Q1 2025, alongside a significant rise in net income from continuing operations, indicating a positive financial trajectory despite challenges in certain segments [2][12]. Financial Performance - Revenue for Q1 2025 reached $1,353.2 million, up from $1,321.2 million in Q1 2024 [2]. - Income from continuing operations before other income and expense was $112.7 million, a decrease from $118.5 million year-over-year [2]. - Net income from continuing operations increased by 21.5% to $74.7 million compared to $61.5 million in the prior year [2]. - Adjusted EBITDA for Q1 2025 was $151.4 million, down from $165.8 million in Q1 2024 [2]. - Earnings per share from continuing operations rose by 33.3% to $0.44, compared to $0.33 in the same quarter last year [2]. Segment Performance - **Critical Illness Recovery Hospital Segment**: Revenue decreased by 2.9% to $637.0 million, with Adjusted EBITDA down 25.3% to $86.6 million [5][23]. - **Rehabilitation Hospital Segment**: Revenue increased by 15.7% to $307.4 million, with Adjusted EBITDA rising by 14.7% to $70.4 million [6][23]. - **Outpatient Rehabilitation Segment**: Revenue increased by 1.4% to $307.3 million, while Adjusted EBITDA slightly decreased to $24.3 million [7][24]. Company Overview - Select Medical operates 104 critical illness recovery hospitals, 35 rehabilitation hospitals, and 1,911 outpatient rehabilitation clinics across 40 states and the District of Columbia as of March 31, 2025 [4]. Dividend and Stock Repurchase - The Board of Directors declared a cash dividend of $0.0625 per share, payable on or about May 29, 2025 [8]. - A stock repurchase program was authorized for up to $1.0 billion, with 649,804 shares repurchased at a cost of approximately $11.4 million during Q1 2025 [10][11]. Business Outlook - For fiscal year 2025, Select Medical expects revenue between $5.3 billion and $5.5 billion, Adjusted EBITDA between $510 million and $530 million, and fully diluted earnings per share between $1.09 and $1.19 [12].

Company Overview - Select Medical Holdings Corporation is one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation clinics in the United States based on the number of facilities [4] - As of March 31, 2025, Select Medical operated 104 critical illness recovery hospitals in 29 states, 35 rehabilitation hospitals in 14 states, and 1,911 outpatient rehabilitation clinics in 39 states and the District of Columbia [4] - The company has operations in 41 states and the District of Columbia [4] Financial Results Announcement - Select Medical will release its financial results for the first quarter ended March 31, 2025, on Thursday, May 1, 2025, after the market closes [1] - A conference call regarding the first quarter results and business outlook will be hosted on Friday, May 2, 2025, at 9:00 am ET [2] - The conference call will be available as a live webcast and can be accessed through the company's website [2]

Core Insights - Select Medical Holdings Corporation (SEM) experienced a 7.2% decline in stock price following the release of its fourth-quarter 2024 results, primarily due to reduced occupancy rates and lower admissions in key segments, alongside increased costs [1] Financial Performance - SEM reported adjusted earnings per share (EPS) of 18 cents, missing the Zacks Consensus Estimate by 5.3%, but showing a 50% increase year over year [2] - Net operating revenues reached $1.31 billion, reflecting a 7.8% year-over-year growth and surpassing the consensus estimate by 1.2% [2] - Total costs and expenses rose 12% year over year to $1.29 billion, lower than the estimated $1.62 billion, driven by increased service costs and administrative expenses [3] - Adjusted EBITDA was $116 million, a 3.8% increase year over year, but fell short of the estimate of $187 million [3] Segment Performance - **Critical Illness Recovery Hospital**: Revenues were $600.4 million, up 5.9% year over year, but below the consensus estimate of $612.5 million. Revenue per patient day increased by 7.2%, while patient days and admissions declined by 1.2% and 4.8%, respectively [4] - Adjusted EBITDA for this segment was $63.1 million, a 10% year-over-year increase, but missed the consensus estimate of $64.7 million [5] - **Rehabilitation Hospital**: Revenues grew 13.1% year over year to $294.4 million, exceeding the consensus mark of $286 million. Admissions and patient days increased by 4.4% and 3.3%, respectively [6] - Adjusted EBITDA declined 6.1% year over year to $62.3 million, although it surpassed the Zacks Consensus Estimate of $51.8 million [6] - **Outpatient Rehabilitation**: Revenues reached $319.6 million, a 7.2% year-over-year increase, beating the consensus estimate of $308.4 million. Patient visits rose by 5.2% [7] - Adjusted EBITDA improved 18.2% year over year to $26.6 million, exceeding estimates [7] Financial Position - As of December 31, 2024, SEM had cash and cash equivalents of $59.7 million, up from $52.6 million at the end of 2023. Total assets decreased to $5.6 billion from $7.7 billion [9] - Long-term debt was $1.7 billion, down from the previous year, while total equity increased to $2 billion from $1.5 billion [9] Cash Flow and Full-Year Highlights - Cash flow from operations was $125.4 million, a decline of 30.1% year over year [10] - For the full year 2024, EPS was 94 cents compared to 54 cents in 2023, with total revenue rising to $5.2 billion from $4.8 billion [11] Future Outlook - Management projects revenues for 2025 to be between $5.4 billion and $5.6 billion, indicating a potential growth of 5.8% from 2024 [13] - Expected adjusted EBITDA for 2025 is between $520 million and $540 million, suggesting a 3.8% increase from 2024 [13] - EPS is anticipated to range from $1.09 to $1.19 [13]

Financial Data and Key Metrics Changes - The company reported a combined revenue increase of 8% in Q4 2024, with adjusted EBITDA growing by 4% from $111.8 million to $116 million [14][15] - For the full year, revenue from continuing operations grew by 7%, and adjusted EBITDA increased by 14%, reaching $510.4 million with a 9.8% adjusted EBITDA margin compared to 9.2% in 2023 [15][24] - The diluted loss per common share from continuing operations was $0.19 for Q4, compared to earnings of $0.12 in the same quarter last year [23] Business Line Data and Key Metrics Changes - The critical illness recovery hospital division saw a 6% increase in revenue and a 10% increase in adjusted EBITDA, with an adjusted EBITDA margin of 10.5% for Q4 [15][16] - The inpatient rehab hospital division experienced a 13% revenue increase, but adjusted EBITDA declined by 6%, with a margin of 21.2% [18] - The outpatient rehab division reported a 7% revenue increase, 4% increase in patient volume, and 18% increase in adjusted EBITDA, with net revenue per visit rising from $100 to $102 [20][21] Market Data and Key Metrics Changes - The company added 94 inpatient rehabilitation beds in Q4 and plans to add 481 additional beds in 2025 and 2026 [8][12] - The occupancy rate for the critical illness recovery hospital division increased from 66% to 67% year-over-year [16] - The average daily census for the entire rehab division increased by 3%, while the occupancy rate was 81%, down from 85% the previous year [19] Company Strategy and Development Direction - The company completed the spin-off of Concentra, which is now reflected as discontinued operations [5] - The company plans to continue expanding its inpatient rehab division with multiple new facilities scheduled to open through 2026 [12] - The company is focusing on optimizing resources by closing or consolidating underperforming outpatient clinics [13] Management's Comments on Operating Environment and Future Outlook - Management noted that nursing agency rates have stabilized and utilization has returned to pre-COVID levels, with a 15% reduction in nursing sign-on incentive bonus dollars [17][27] - The company expects revenue for 2025 to be in the range of $5.4 billion to $5.6 billion, with adjusted EBITDA projected between $520 million and $540 million [36] - Management acknowledged confusion in the market regarding the impact of the Concentra spin-off on consensus estimates [41] Other Important Information - The company did not repurchase shares in the last quarter but continues to evaluate stock repurchases and debt reduction opportunities [25][35] - A cash dividend of $0.0625 per share has been declared, payable on March 13, 2025 [24] Q&A Session Summary Question: Clarification on 2025 metrics - Management confirmed that there is confusion in the market regarding consensus estimates and emphasized the importance of excluding Concentra's numbers [40][41] Question: Development activity and startup costs - Management indicated that the increase in inpatient rehab beds will dampen margins in 2025 but expects significant EBITDA growth in 2026 and 2027 [47] Question: Post-separation leverage targets - Management expects to maintain leverage around 3 to 3.1 times for 2025, with a reduction anticipated in 2026 and beyond [57] Question: Inpatient rehab margins - Management attributed lower margins to startup losses and a referral source impacted by Hurricane Helene, which has since returned to normal [59] Question: Outpatient rehab growth drivers - Management highlighted increased net revenue per visit and improved clinical productivity as key drivers for expected growth in outpatient rehab EBITDA [78]