Financial Data and Key Metrics Changes - Revenue in Q3 increased by 9.4%, and adjusted EBITDA grew by 11.4%, contributing to year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5% [7][11] - Q3 adjusted free cash flow decreased by 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital [15] - Free cash flow increased by 16.5% to $582.5 million, with an increased full-year adjusted free cash flow estimate of $730 to $810 million [15][16] Business Line Data and Key Metrics Changes - Q3 community discharge rate was 84.6%, discharge to acute rate was 8.6%, and discharge to SNF rate was 6%, all exceeding industry averages [7] - Total discharges increased by 5%, with a 3.3% increase in net revenue per discharge [11] - Q3 2025 adjusted EBITDA included $10.8 million of net provider tax revenue, an increase of $7.7 million from Q3 2024 [13] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services remains significantly underserved, with the Medicare beneficiary population being the fastest-growing segment in the U.S. [9] - The population aged 65 or older is expected to grow to more than 70 million by 2030, with a CAGR of approximately 3% [9] - The average age of Medicare beneficiary patients is 77 years old, with the 75+ population growing at approximately 4% [9] Company Strategy and Development Direction - The company continues to open new hospitals and add beds to existing hospitals, with an expected addition of approximately 127 beds in 2025 and 150 to 200 in both 2026 and 2027 [9][10] - The company has a pipeline of 14 announced new hospitals with 690 beds and more than 40 active projects [10] - The company aims to maintain a balance between de novo programs and increased bed expansions for future growth [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market opportunity for inpatient rehabilitation services, citing a steady rise in occupancy rates [22] - The company has not seen any negative impact on referral patterns despite external challenges, maintaining proactive communication with partners [112] - Management noted that there were no surprises in the quarter, with performance aligning with expectations [38] Other Important Information - The company successfully converted its ERP system to Oracle Fusion without significant operational disruptions [10][100] - The company repurchased approximately 221,000 shares for about $25 million during Q3, totaling approximately $82 million year-to-date [15] Q&A Session Summary Question: How should we think about the accelerated bed addition plan impacting volume growth going forward? - Management indicated that the increase in bed expansions validates their business model and strategy, reflecting the unmet need for IRF services across the country [20] Question: What level of capex as a percent of revenue should we model to maintain discharge growth in the 6% to 8% range? - Management stated that growth capex this year is about $580 million, with an average cost of approximately $800,000 per bed addition [27] Question: What is the target occupancy before expanding a facility? - Management noted that hospitals typically consider bed expansion after reaching 80% sustained occupancy, with private room hospitals able to operate efficiently at mid-90% occupancy [30] Question: Did anything surprise you in the quarter versus initial expectations? - Management reported no surprises, aside from retro payments and property assessments, with overall performance in line with expectations [38] Question: How did payer mix evolve in Q3 compared to the first half? - Management indicated that growth rates for Medicare and Medicare Advantage were comparable, with managed care seeing a 9.2% increase [48] Question: What are the potential impacts from negative headlines that came out earlier in Q3? - Management confirmed no impact on referral patterns, maintaining strong communication with partners [112]

Financial Data and Key Metrics Changes - Revenue in Q3 increased by 9.4%, and adjusted EBITDA grew by 11.4%, contributing to year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5% [7][13] - Q3 adjusted free cash flow decreased by 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital [15] - Free cash flow increased by 16.5% to $582.5 million, with an increased full-year adjusted free cash flow estimate of $730 million to $810 million [15] Business Line Data and Key Metrics Changes - Q3 community discharge rate was 84.6%, discharge to acute rate was 8.6%, and discharge to SNF rate was 6%, all exceeding industry averages [7] - Q3 total discharges increased by 5%, with a 3.3% increase in net revenue per discharge [11] - Annualized RN turnover was 20.2%, and annualized therapist turnover was 7.8%, consistent with favorable trends from the previous year [7] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services remains underserved, with the Medicare beneficiary population being the fastest-growing segment in the U.S. [9] - The population aged 65 or older is projected to grow at a CAGR of approximately 3%, with the average age of Medicare beneficiary patients being 77 years old [9] - The company expects to add approximately 127 beds to existing hospitals in 2025 and 150-200 beds in both 2026 and 2027 [9][13] Company Strategy and Development Direction - The company continues to invest in clinical staff and has opened three new hospitals in Q3, with plans for additional openings in Q4 [8][9] - The company has increased its expected bed addition growth, responding to the unmet need for inpatient rehabilitation services [9][13] - The company has a pipeline of 14 announced new hospitals with 690 beds and more than 40 active projects [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market for inpatient rehabilitation services, citing a steady rise in occupancy rates and the need for additional capacity [21] - Management noted no surprises in Q3 results, with strong labor management and low bad debt levels [40] - The company remains active in Washington despite regulatory challenges and anticipates no significant concerns in the near term [42] Other Important Information - The company completed an ERP system conversion to Oracle Fusion without significant operational disruptions [10][101] - The company repurchased approximately 221,000 shares for about $25 million in Q3, bringing the year-to-date total to approximately $82 million [15] Q&A Session Summary Question: How should we think about the accelerated bed addition plan impacting volume growth going forward? - Management indicated that the increase in bed expansions validates the business model and reflects the unmet need for IRF services [20] Question: What level of capex as a percent of revenue should be modeled to maintain discharge growth? - Management stated that growth CapEx this year is about $580 million, with an average cost of $800,000 per bed addition [29] Question: What is the target occupancy before expanding a facility? - Management noted that hospitals typically consider bed expansion after reaching 80% sustained occupancy [33] Question: Did anything surprise you in the quarter versus initial expectations? - Management reported no surprises, aside from retroactive payments and property assessments, with overall performance in line with expectations [40] Question: How has the payer mix evolved in Q3 compared to the first half? - Management reported balanced growth across payers, with Medicare and Medicare Advantage both showing increases [50] Question: What are the implications of changes in the Medicare landscape? - Management indicated that a slowdown in Medicare Advantage growth could present opportunities within fee-for-service Medicare, which pays at a higher rate [75]

Financial Data and Key Metrics Changes - Revenue for Q2 increased by 12% to $1.46 billion, while adjusted EBITDA rose by 17.2% to $318.6 million [12][17] - Total discharges for Q2 increased by 7.2%, with same-store discharges growing by 4.7% [5][12] - Net revenue per discharge increased by 4.2%, benefiting from a decrease in bad debt expense to 2% [12][14] Business Line Data and Key Metrics Changes - Discharges for neurological conditions and stroke grew by 126.7% in Q2 [6] - The discharge community rate was 84.8%, with discharge to acute and SNF rates at 8.5% and 5.8% respectively, outperforming industry averages [6][10] Market Data and Key Metrics Changes - The demand for inpatient rehabilitation services is significantly underserved, particularly as the U.S. population ages, with the Medicare beneficiary population projected to grow substantially [8][9] - The 65+ population is growing at a CAGR of approximately 3%, while the supply of licensed IRF beds has increased only nominally [9] Company Strategy and Development Direction - The company plans to open five additional hospitals and expand existing facilities, increasing total bed capacity significantly [7][17] - The focus remains on treating complex medical conditions, leveraging clinical expertise to develop best-in-class protocols [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the inpatient rehabilitation market, citing a favorable regulatory environment and increasing demand [8][11] - The company is raising its 2025 guidance for net operating revenue and adjusted EBITDA based on strong Q2 performance [17] Other Important Information - The company repurchased approximately 232,000 shares for $24.7 million and increased its quarterly dividend to $0.19 per share [15] - Adjusted free cash flow increased by 30.5% to approximately $186 million, with year-to-date adjusted free cash flow up 31.7% [14][15] Q&A Session Summary Question: What are the occupancy rates and comfort levels for single bedroom facilities? - Occupancy in Q2 was 76.6%, up 210 basis points year-over-year, with plans to expand when occupancy stabilizes above 80% [20][22] Question: What are the company's thoughts on quality ratings and initiatives? - Management supports quality measurements and believes they would perform well if included in future regulations [24][25] Question: How does the company share quality results with stakeholders? - The company shares metrics like discharge community rates and patient satisfaction scores with referral sources and joint venture partners [30][31] Question: What is the story behind the increase in managed care pricing assumptions? - Growth in the VA Community Care Network has contributed to an increase in managed care pricing, now comprising almost 18% of the overall managed care business [34][36] Question: What are the expectations for EBITDA in the second half of the year? - The company anticipates incurring most preopening and ramp-up costs in the second half, with a slight increase in bad debt expected [40][41] Question: How is the company managing benefits expenses? - Benefits expenses increased by 18%, driven by high dollar medical claims, with a focus on managing these costs going forward [94][96] Question: What is the company's strategy regarding acquisitions? - Currently, there are no identified service lines for acquisition outside of inpatient rehab, with a focus on de novo expansions instead [68][69]

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]