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Operator: Good morning, and thank you for joining us today for Select Medical Holdings Corporation’s earnings conference call to discuss the first quarter 2026 results and the company’s business outlook. Presenting today are the company’s Chief Executive Officer, Thomas Mullin; and the company’s Executive Vice President and Chief Financial Officer, Michael Malatesta. Also on the conference line is the company’s Senior Vice President, Controller and Chief Accounting Officer, Christopher Weigl. 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 conference over to Mr. Thomas Mullin. Please go ahead.

Thomas Mullin: Thank you, operator, and good morning, everyone. Welcome to Select Medical’s earnings call for the first quarter of 2026. I’d like to begin today’s call with a brief update on our previously announced take-private transaction. On March 2, we announced that Select Medical entered into an agreement to be acquired by a consortium led by our Executive Chairman, Robert Ortenzio, together with Martin Jackson and Welsh, Carson, Anderson & Stowe. Under the terms of the agreement, unaffiliated shareholders will receive $16.50 per share in cash. The transaction was unanimously approved by the disinterested members of the Board of Directors, and we expect it to close in mid-2026, subject to regulatory approvals, shareholder approval and other customary closing conditions.

As part of the regulatory review process, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on April 27, satisfying one of these conditions. Upon closing, Select Medical will become a privately held company. In connection with and contingent upon the completion of the transaction, our senior secured credit facilities will provide for an additional $1 billion of term loan borrowings, bearing interest at a rate equal to SOFR plus 3%. With that update, I’ll now turn to our development activity, where we continue to focus on expanding our inpatient rehabilitation business. So far this year, we’ve added 166 beds across 3 newly opened inpatient rehabilitation hospitals, including our fifth hospital with Baylor Scott & White Medical Center in Temple, Texas; a new hospital with CoxHealth in Ozark, Missouri and the fourth hospital in our Banner Health joint venture in Tucson, Arizona.

Across the remainder of 2026 and into 2027, we expect to add 275 more beds, 209 will be in IRF and 66 in critical illness through a combination of new hospitals, acute rehab units, neuro transitional units and expansions. Later this year, we plan to open a 60-bed hospital with AtlantiCare in Southern New Jersey during the third quarter, along with 2 acute rehab units in Florida and 2 neuro transitional units scheduled for the second and third quarters of this year. Early in 2027, we are expanding one of our banner rehabilitation hospitals by another 20 beds. Later in the year, during the third quarter, we plan to open a 76-bed inpatient rehabilitation hospital in Jersey City and an acute rehab unit in Richmond, Virginia. Importantly, these projects represent only a portion of what’s ahead of us.

As we continue to advance a broader development pipeline to support our long-term growth strategy. Before turning to our financial results, I’ll briefly touch on capital allocation. Our Board of Directors approved a cash dividend of $0.0625 per share payable on May 28 to stockholders of record as of May 14. Turning now to our consolidated financial results. All 3 of our operating divisions delivered revenue growth versus the prior year period, with total revenue increasing by 5% overall. Adjusted EBITDA declined 6.5% to $141.6 million compared to $151.4 million in the prior year period. Earnings per common share was $0.35 compared to $0.44 in the prior year. When adjusted for the take-private transaction costs, earnings per common share was $0.36 for the quarter.

Now turning to our segment performance, beginning with the inpatient rehab hospital division. Revenue increased more than 14% year-over-year to approximately $351.9 million, while adjusted EBITDA increased 15% to $81.1 million. Revenue per patient day increased nearly 3% and average daily census grew 12%. Occupancy increased to 83% from 82% in the prior year period, while same-store occupancy increased to 87% from 83%. Adjusted EBITDA margin increased slightly to 23% compared to 22.9% last year. On the regulatory front, in April, CMS issued the proposed rule for inpatient rehabilitation facilities for fiscal year 2027. If finalized as proposed, we would expect an increase of approximately 2.6% in the standard federal payment rate. The final rule is expected in late July or early August of this year following the public comment period.

In the critical illness recovery hospital division, revenue increased to $638.8 million from $637 million in the prior year period. Adjusted EBITDA declined 15% to $73.4 million from $86.6 million in the prior year quarter, resulting in an adjusted EBITDA margin of 11.5% compared to 13.6% last year. Revenue per patient day increased by more than 2% and admissions increased 1%. CMS also issued the proposed rule for long-term acute care hospitals for fiscal year 2027. If finalized as proposed, we would expect an increase of 2.66% in the standard federal payment rate and the high-cost outlier threshold will remain steady at $78,936. As with the inpatient rehab proposed rule, the final rule is expected in late July or early August following the public comment period.

Finally, our outpatient rehabilitation division delivered revenue growth of more than 4%, reaching $321.3 million compared to $307.3 million in the prior year quarter. This was driven by over 4% growth in patient visits. Net revenue per visit was consistent with the prior year at $102. Adjusted EBITDA was $22 million compared to $24.3 million last year, resulting in an adjusted EBITDA margin of 6.8% compared to 7.9%. That concludes my remarks. I will now turn the call over to Mike Malatesta to provide additional financial details before we open up the call for questions.

Michael Malatesta: Thank you, Tom, and hello, everyone. At the end of the quarter, we had $1.9 billion of total debt outstanding and $25.7 million of cash on the balance sheet. Our debt at quarter end included $1.04 billion in term loans, $125 million in revolving loans, $550 million of 6.25% senior notes due 2032 and $165 million of other miscellaneous debt. We ended the quarter with net leverage of 3.75 under our senior secured credit agreement and $443.5 million of availability on our revolving loans. Our term loan carries an interest rate of SOFR plus 200 basis points and matures on December 3, 2031. Interest expense for the quarter was $28.3 million compared to $29.1 million in the same quarter last year. For the quarter, cash flow from operating activities was $37.9 million.

Our days sales outstanding, or DSO, was 60 days at March 31, 2026, compared to 60 days at March 31, 2025, and 57 days at December 31, 2025. Investing activities used $56.7 million, primarily driven by $58.9 million of expenditures for purchases of property and equipment. Financing activities provided $18 million, which included $25 million in net borrowings under our revolving credit facility. This was partially offset by $8.8 million in net distributions to noncontrolling interest, $7.8 million in dividend payments and $2.6 million in term loan repayments. We are maintaining our full year 2026 guidance. We continue to expect revenue to range between $5.6 billion and $5.8 billion and adjusted EBITDA between $520 million and $540 million. Fully diluted earnings per common share is expected to be in the range of $1.22 to $1.32.

Lastly, capital expenditures are expected to range between $200 million and $220 million. This concludes our prepared remarks. We will now turn the call back to the operator to open the line for questions.

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Operator: [Operator Instructions] Our first question will be coming from the line of Ben Hendrix of RBC Capital Markets.

Benjamin Hendrix: Just was hoping we could touch a little bit on the outpatient rehabilitation margin. It looks like we saw a nice sequential bounce back from kind of a recent low in 4Q. Just wanted to talk about some of the operational improvements you guys have been working on in that segment, scheduling and whatnot and kind of how you’re thinking about margin for that segment going forward?

Thomas Mullin: Yes, happy to answer. This is Tom. We’ve been doing a lot around scheduling and schedule optimization. So you’ll see some productivity increases as we go through the year. We’re also looking at some of our markets that have been underperforming. And if we do not see a path out, we’re going to be exiting those markets. So there was one market in particular in the first quarter that suppressed our earnings to a degree as we exited that market, and that was approximately $1 million of cost that flowed through in the first quarter for us. And that was Oregon, where we closed 4 clinics. And there will be more of that as we get through 2026, and we’re going through an exercise where we’re looking at each of those markets, and we will consolidate certain markets where we see a path forward and where we can go from a 1 PT clinic to potentially 2 or 3 PT clinics and get more productivity. So there’s an ongoing assessment happening at Select right now.

Benjamin Hendrix: Appreciate that. And then just kind of appreciate also the comments around the high-cost outlier and the progression in the proposal to 2027. But any broader commentary on efforts in Washington to kind of address the issue more broadly? I know that that’s been active dialogue. Just wanted to see if there’s any update there.

Thomas Mullin: What I can say is we’ve been looking closely at high-cost outlier, and we were in the proposed rule to see that it remains — is going to remain consistent with the prior year. We are encouraged by that because it shows that CMS is getting the effect that they expected with the 20% transmittal that they put through. It’s — and what we’re seeing with our preliminary data for the first 6 months of this year is that we are running at or below that threshold that’s set by CMS of 7.975% of Medicare revenue being in the outlier bucket. And we know that some of our competitors out there also run at or below. So we are projecting that in the out years to actually see the fixed loss threshold start to come back down, which would show that everything that CMS has done in the space has taken the effect that they were looking to see.

And then we can pivot to more of the patients that were unable to take in the LTAC industry right now as a result of the criteria that was set about a decade ago. And we think that there’s an opportunity to potentially expand to some patients that could really benefit from LTAC and include them in the appropriate bucket for the hospitals moving forward. And I think that’s what you’ll see as our focus moving into the lobbying efforts and the conversations with CMS and those at the House Ways and Means Committee.

Operator: And our next question will come from the line of Ann Hynes of Mizuho.

Ann Hynes: There’s been some data that there’s an increase in commercial or just denials in general. Are you seeing anything in at least inpatient rehab or outpatient that you’ve seen this kind of increase in denials from Medicare Advantage?

Thomas Mullin: Yes, this is Tom. We did see an increase for the first quarter in Medicare, a decrease in conversion for Medicare Advantage. And it was more so in our long-term acute care hospitals as well as our inpatient rehab also saw a decline. We’re seeing more denials in the Medicare Advantage space for our hospitals. In outpatient, it’s been relatively flat. Whenever we look at our hospitals, though, we’ve seen an increase in both commercial conversion as well as Medicare conversion. So although we’re seeing an increase in the denials in Medicare Advantage, commercial and Medicare are both improving.

Ann Hynes: Okay. And then maybe we’ll shift to the inpatient rehab rule. Was there anything within that rule that surprised you either positively or negatively?

Thomas Mullin: No, there were no concerns with the rule. It was pretty consistent with the past couple of years. It was a modest increase, and we expect to continue to see Review Choice Demonstration Expand, and we’re prepared for that. And we have many states that were already working under that program. So we were — it was pretty benign and nothing out of the ordinary.

Operator: And our next question will come from the line of Joanna Gajuk of Bank of America.

Joaquin Eduardo Martinez: This is Joaquin on for Joanna. I was just wondering, could you just talk about the gross margins in the CIRH segment? And do you expect a recovery throughout the rest of the year?

Michael Malatesta: This is Mike. As Tom just previously alluded to, Medicare Advantage, we did see our conversion rates go down for Medicare Advantage, which impacted our volume. That impact year-over-year was approximately $13 million to $14 million. So that did have an impact on performance and our margin. Again, critical illness is always the most difficult business unit to project throughout the year, even though we always are within a certain range for each quarter due to seasonality. But we do expect to still be within our expectations for the remainder of the year.

Joaquin Eduardo Martinez: Got it. And then lastly, what — is there any early read on the impact of the Medicare TEAM Model? Could you talk a little bit more about that?

Michael Malatesta: I’ll first address it and if Tom wants to add some color. The Medicare team model thus far, we haven’t really seen an impact to our census in the inpatient rehab space. It’s a very low portion of our census for the types of patients we take that could potentially be impacted by the TEAM rule. And Tom, I don’t know if you have any additional color.

Thomas Mullin: No, I agree. Everything that we’ve seen so far is a very minor issue in our rehab hospitals.

Operator: And I would now like to turn the call back to management for closing remarks.

Thomas Mullin: Thank you, operator. No further remarks. We appreciate your time this morning.

Operator: And this concludes today’s call. Thank you for participating. You may now disconnect.

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