Financial Data and Key Metrics Changes - Revenue grew over 7% to $1.36 billion, compared to $1.27 billion in the prior year [7] - Adjusted EBITDA increased over 7% to $111.7 million, up from $103.9 million [7] - Earnings per common share from continuing operations rose over 21% to $0.23, compared to $0.19 per share in the same quarter last year [7] - Cash flow from operating activities was $175.3 million [10] Business Line Data and Key Metrics Changes - Inpatient rehabilitation hospital division revenue increased 16% year-over-year to $328.6 million, with adjusted EBITDA up 13% to $68 million [7] - Outpatient rehabilitation division revenue increased 4% to $325.4 million, driven by over 5% growth in patient visits, but net revenue per visit decreased to $100 from $101 [8] - Critical illness recovery hospital division revenue increased over 4% to $609.9 million, with adjusted EBITDA rising over 10% to $56.1 million [8] Market Data and Key Metrics Changes - Average daily census rose 11% in the inpatient rehabilitation segment, with occupancy improving to 83% from 82% [8] - Same-store occupancy in inpatient rehabilitation rose to 86% from 85% [8] - Occupancy in the critical illness recovery hospital division remained steady at 65%, with admissions up 2.1% [9] Company Strategy and Development Direction - The company plans to add 395 inpatient rehabilitation beds by 2027 through new openings and strategic bed additions [5] - Future development efforts will focus on the inpatient rehabilitation segment, with several new hospitals planned [6] - The company is committed to enhancing shareholder value through cash dividends and share repurchase [6] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with the delay of the 20% transmittal rule, expecting it to have less impact due to stabilized labor costs [4] - The company reaffirmed its business outlook for 2025, expecting revenue between $5.3 billion and $5.5 billion and adjusted EBITDA between $510 million and $530 million [11] - Management noted ongoing challenges with high-cost outlier thresholds affecting admissions and occupancy in the LTAC business [16][20] Other Important Information - The company acquired a 30-bed critical illness recovery hospital in Memphis and opened three new outpatient clinics during the quarter [4] - A cash dividend of $0.0625 per share was approved, payable on November 25, 2025 [6] Q&A Session Summary Question: Impact of the high-cost outlier on admission volume and occupancy - Management noted that the increasing fixed loss threshold negatively impacts the LTAC business, affecting the ability to accommodate acutely ill patients [16][17] Question: Discussions with CMS regarding payment increases - Management indicated that there are many levers in the reimbursement system, and they are advocating for various options to help the industry [24][25] Question: Revenue benefit from the delay of the 20% transmittal rule - The net impact was estimated to be in the $12 million to $15 million range for the quarter [31] Question: Softness in the outpatient segment - Management attributed the softness to a reduction in Medicare reimbursement and a shift in payer mix [37][48] Question: Future headwinds and tailwinds for 2026 - Management expects a modest increase in Medicare rates, which could serve as a tailwind, while the return of the 20% transmittal rule will be a headwind [39] Question: Development pipeline and startup costs - Management projected approximately $15 to $20 million of startup losses per annum, consistent with previous years [59] Question: Labor cost trends - The labor environment is more stable, with agency rates returning to pre-COVID levels and full-time equivalent costs increasing slightly [61] Question: Leverage and capital allocation - Management indicated that a net leverage of 3.4 times is comfortable, with capital allocation focused on development, dividends, and opportunistic debt reduction [63]