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]

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]