Select Medical Holdings Corporation (SEM) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Select Medical Holdings Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Robert Ortenzio; the company's Executive Chairman and Co-Founder; Mr. Ortenzio, the floor is yours.

Thank you, operator. Welcome, everyone. Today's virtual-only meeting is a live webcast. We're pleased that you could join us today. Your interest in the company is appreciated. I will serve as Chairman of this meeting. Before we proceed with the meeting itself, however, I'd like to introduce you to David Chernow, who is Chief Executive Officer of Select Medical Holdings Corporation; and Michael Tarvin, Senior Vice President, General Counsel and Secretary of the company. Mr. Tarvin will act as the Secretary of this meeting. I would now like to introduce you to the directors of the company who, in addition to me, are participating today. Russell Carson, Katherine Davisson, James Ely, Senator William Frist. Dr. Khanuja, Rocco Ortenzio; Thomas Scully, Marilyn Tavenner and Dan Thomas. I would also like to introduce you the senior managers of the company, who in addition to David Chernow, Michael Tarvin and me are participating today. Rocco Ortenzio Vice Chairman and Co-Founder; Marty Jackson, Senior Vice President, Strategic Finance and Operations; Tom Mullin, Co-President; Mike Malatesta, Executive Vice President and Chief Financial Officer; Chris Weigl, Senior Vice President, Controller and Chief Accounting Officer; Brian Rusignuolo, Executive Vice President and Chief Information Officer; John Saich, Co-President; and John Duggan, General Counsel. Will the meeting please come to order? I would now like to introduce you to again, Mr. Michael Tarvin.

Good morning. I would like to introduce you to Jeffrey Adeli of PricewaterhouseCoopers LLP, the company's independent public accountants. In addition, with us today is Andrew Waford of Computershare, Inc., who will serve as the Inspector of Election for this meeting. I'd like to start by discussing our agenda for today's meeting. First, our Chief Executive Officer, David Chernow, will make a few brief remarks. We will then vote on 6 proposals today, which will be followed by a question-and-answer session in which stockholders may ask questions. Stockholders who entered the 16-digit control number from their proxy cards and the designated field on the web portal may submit their questions online at any time prior to the question-and-answer session by clicking on the dialogue icon in the upper right corner of the meeting center screen. The polls are open. If you have not voted or wish to change your vote, you may do so now by clicking on the link provided online. Any stockholder who has sent in proxies or who has already voted via the Internet or telephone and does not want to change his/her vote, need not take any further action. The polls will close once the question-and-answer session is finished. I'd now like to introduce you again to Mr. David Chernow.

Thanks, Mike. In 2023, Select Medical saw growth opportunities across all divisions as well as challenges from the clinical labor shortages to industry regulatory changes. Our ability to strategically navigate and successfully execute against this dichotomy is attributable to the deep bench strength of the company's senior operational and clinical leadership teams enterprise-wide. In September, the company appointed veteran Select Medical executives, John Saich and Tom Mullin as Co-President; and Mike Malatesta as Executive Vice President and Chief Financial Officer. Several new C-suite officers and senior executives were also named across the human resources, compliance, legal, communications, strategy and growth and operational functions. Combined, these appointments represent a highly adept team of young leaders who will help steer the company towards future success. In 2023, Select Medical welcomed nearly 14,500 new employees, including more than 1,350 returning staff members across the enterprise. Under the Go Anywhere with Us retention program, we also facilitated 5,000 intra organizational job changes. In addition, the company expanded its focus on the delivery of new educational and career advancement initiatives. The Outpatient Division introduced a National Leadership Development Program and nearly 5,000 clinicians completed over 16,000 accredited, internally developed online learning modules across a myriad of discipline. Across the specialty hospital divisions, more than 2,200 clinical staff actively participated in our various clinical advancement programs. Concentra supported more than 3,800 medical, therapy and on-site clinicians and completing over 34,000 continuing education hours through ConcentraYou, and saw strong employee participation in its Aspiring Leaders Program, Occupational Health University advanced clinical training courses, among others. A steady focus on talent management was instrumental in our ability to grow our lines of business in 2023. The company signed new critical illness recovery hospital joint ventures with West Tennessee Health and Inova Health in Northern Virginia as well as the inpatient rehabilitation joint venture with AtlantiCare in South New Jersey, and an expanded partnership with OhioHealth in Columbus, Ohio. Additionally, a joint venture was formed with Lutheran Health Network to build an inpatient rehabilitation hospital in Fort Wayne, Indiana. Two new acute rehabilitation units were also open in Select Specialty Hospitals in Springfield, Missouri and Pensacola, Florida. In addition, the company announced plans to grow its neuro transitional unit footprint, adding a new facility in Dallas, Texas and Columbus, Ohio in 2024. The Outpatient Division saw growth across its national network as part of the AtlantiCare joint venture, along with 48 startups and 13 acquisitions. Concentra continue to expand as well with the opening of 8 new clinics. Concentra's additional 2023 growth included 20 new onsites, doubled first-year revenue of its relaunched episodic business and 55,000 Concentra Telemed visits. Seven of the company's inpatient rehabilitation hospitals at 12 locations were recognized among the country's Best Rehabilitation Hospitals according to U.S. News & World Report's rankings for 2023-2024. Those that made the list included Kessler Institute for Rehabilitation, Baylor Scott & White Institute for Rehabilitation, OhioHealth Rehabilitation Hospital, California Rehabilitation Institute, Cleveland Clinic Rehabilitation Hospital, TriHealth Rehabilitation Hospital and Banner Rehabilitation Hospital. Newsweek also named 10 of our inpatient rehabilitation hospitals to its 2023 list of America's Best Physical Rehab Centers. In addition to these prestigious national recognitions judged on outcomes, quality and safety, Select Medical's research team manage more than 150 ongoing studies and quality improvement projects nationwide, focusing on a multitude of specialties, including: critical care medicine, physical medicine and rehabilitation, neuropsychology, cancer rehab and the list continues to grow. As we embark on 2024, we will build on this progress by remaining focused on our 4 key results: Keeping our patients and each other safe, delivering an exceptional patient experience, delivering an exceptional employee experience and then meeting our annual business plan. Select Medical will also successfully manage the separation of Concentra announced in January 2024, with the aim to increase stockholder value and focus each company's strategic priorities on its respective marketplace. In closing, it was our privilege to care for more than 1 million patients in 2023, helping them achieve outcomes that improve their quality of life.

This meeting has been called pursuant to the notice dated March 15, 2024, that was made available to all stockholders of record as of the close of business on February 29, 2024. Proxies were solicited on behalf of the Board of Directors of the company for this meeting. Andrew Waford of Computershare, Inc. has been appointed as Inspector of Election of this meeting and any adjournment or postponement thereof to conduct the vote with respect to the proposal set forth in the company's proxy statement. And the other questions that will be voted upon by ballot, if any. Mr. Waford has already delivered to me his oath of office. The bylaws of the company provide that each stockholder of record is entitled to 1 vote for each share of common stock held as of the record date. The Board of Directors set February 29, 2024, as the record date. Computershare, Inc., the transfer agent for the company, reports that there were shares of 128,362,832 Select Medical Holdings Corporation common stock outstanding as of the close of business on the record date. The record of this meeting will reflect that the notice of annual meeting, the proxy statement, the proxy card and the company's annual report on Form 10-K were made available through all stockholders entitled to vote at this meeting beginning on March 15, 2024, as evidenced by an affidavit of mailing provided by Computershare, Inc. A copy of these materials will be made a permanent part of the company's corporate records. More than half of the shares outstanding as of the record date must be represented at this meeting, either by stockholders participating online or by proxy to have a quorum as determined under the bylaws.

A total of 123,492,311 shares of Select Medical Holdings Corporation common stock are represented at today's meeting, which constitutes 96.21% of the total shares outstanding on the record date. Therefore, I certify that a quorum has been achieved.

Thank you. Will the Secretary present the notice of meeting and proxy statement.

By clicking a tab entitled Meeting Materials, you can access and review copies of the notice of annual meeting, proxy statement, proxy card and the company's annual report on Form 10-K. The copies of the notice of meeting, proxy statement, proxy card and the company's annual report on Form 10-K, together with the original affidavit of mailing of Computershare, Inc., and the certificate with respect to the stockholder list, will be filed with the minutes of the meeting.

I now declare this meeting duly convened, properly organized and confident to transact business.

The first order of business on our agenda for a stockholder vote is the election of three Class III directors to hold office, subject to the provisions of the bylaws, each for a 3-year term and until their successors have been duly elected and qualified. Each stockholder of record as of February 29, 2024, is entitled to 1 vote for each share of common stock held. As of February 29, 2024, there were 128,362,832 shares of Select Medical Holdings Corporation common stock outstanding. The three nominees for Class III Director are: James S. Ely III, Rocco A Ortenzio and Thomas A. Scully. The second order of business on our agenda for a stockholder vote is to hold a non-binding advisory vote on the compensation of the company's named executive officers. The third order of business on our agenda is to vote to amend the company's 2020 Equity Incentive Compensation Plan. The fourth order of business on our agenda for a stockholder vote is the proposal to ratify the appointment of PricewaterhouseCoopers LLP certified public accountants as the company's independent registered public accounting firm for the year ending December 31, 2024. The fifth order of business on our agenda is to vote to amend the company's Amended and Restated Certificate of Incorporation to permit exculpation of officers. The sixth and final order of business on our agenda for a stockholder vote is a stockholder's proposal to amend the company's charter and bylaws to provide for a simple majority vote. We will now allow Mr. John Chevedden to present his stockholder proposal to amend the company's charter and bylaws to provide for a simple majority vote.

Hello. This is John Chevedden. Proposal 6 simple majority vote. Shareholders request that the Board of Directors take the steps necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote like Select Medical's 67% vote requirement, be replaced by a requirement for a majority of the votes cast for and against such proposals. This means the closest standard to a majority of the votes cast for and against such proposals. This includes making the necessary changes in plain English. Shareholders are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority vote requirements like Select Medical's 67% vote requirements have been found to be 1 of 6 entrenching mechanisms that are negatively related to company performance according to what matters in corporate governance by Lucien Bebchuk of the Harvard Law School. Supermajority requirements can be used to block initiatives supported by most shareholders but opposed by a status quo management. This proposal topic won from 74% to 88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy's. These votes would have been still higher than 74% to 88% support, if more shareholders had access to independent proxy voting advice. This proposal topic also received overwhelming 98% support at the 2023 Annual Meeting of American Airlines and The Carlyle Group. This simple majority of our proposal would facilitate the adoption of long overdue improvements in the corporate governance of let Medical Holdings such as annual election of each director. Please vote, yes, simple majority vote, proposal 6.

Thank you, Mr. Chevedden.

Thank you. We will now attempt to answer questions posted through the virtual meeting web portal by our stockholders. As mentioned earlier, stockholders who have entered a 16-digit control number from their proxy card in a designated field on the web portal may submit their questions through the portal by clicking on the dialogue icon in the upper right corner of the meeting center screen. Brian Rusignuolo, the executive -- company's Executive Vice President and Chief Information Officer, will now provide the questions, if any, submitted by stockholders during the meeting.

Bob, there are no questions submitted. I'll turn it back over to you.

Thanks, Brian, the online voting will now be closed. Based on the review of the votes cast, will the Inspector of Election please submit his report on the results of the balloting.

Having conducted the election and vote at the Annual Meeting of Stockholders of Select Medical Holdings Corporation held on April 25, 2024, I hereby certify that each of the three nominees for Class III director received a majority of the votes of the common stock cast for election as a director. The stockholders have approved the compensation of the company's named executive officers. The stockholders have approved the amendment of the company's 2020 Equity Incentive Compensation Plan. The stockholders have ratified the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ending December 31, 2024. The stockholders have approved the amendment to the company's Amended and Restated Certificate of Incorporation to permit the exculpation of officers, and the stockholders have approved the stockholders' proposal to amend the company's charter and bylaws to provide for simple majority vote. The report of election prepared by Computershare, Inc. evidences that all nominees for Class III director were elected by an affirmative vote of 85.7% or more of the shares voted. The compensation of the company's named executive officers was approved by an affirmative vote of the holders of 106,777,980 shares or 88.28% of the shares voted, 14,125,946 shares were voted against approval and 42,832 shares abstained. The amendment to the company's 2020 Equity Incentive Compensation Plan is approved by an affirmative vote of the holders of 119,196,980 shares or 98.55% of the shares voted. 1,718,471 shares voted against approval and 31,307 shares abstained. The appointment of PricewaterhouseCoopers LLP was ratified by an affirmative vote of the holders of 122,477,547 shares or 99.8% of the shares voted. 987,844 shares were voted against ratification and 26,920 shares abstained. The amendment to the company's Amended and Restated Certificate of Incorporation to permit exculpation of officers was approved by an affirmative vote of the holders of 119,020,957 shares or 96.38% of the shares voted. 4,352,165 shares were voted against approval and 119,189 shares sustained. The stockholders' proposal to amend the company's charter and bylaws to provide for simple majority of vote was approved. The proposal received the affirmative vote of the holders of 74,680,241 shares or 61.75% of the shares voted. 42,242,865 shares are voted against approval and 23,652 shares abstained.

Thank you. Based on the report of the Inspector of Election, I therefore declare that, one, the nominees have been duly elected as Class III directors of the company; two, the stockholders have approved the compensation of the company's named executive officers; three, the stockholders have approved the amendment of the company's 2020 Equity Incentive Compensation Plan; four, the stockholders have ratified the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ended December 31, 2024. Five, the stockholders have approved the amendment to the company's Amended and Restated Certificate of Incorporation that permit exculpation of officers, and six, the stockholders have approved stockholders proposal to amend the company's charter and bylaws to provide for a simple majority. The Inspector of Election will execute a certificate as to the results of the balloting and the certificate will be filed in the minute book of the company along with the minutes of the meeting. There being no further business to come before the meeting, I hereby adjourn the meeting. Thank you, everyone, for participating.

This concludes the meeting. You may now disconnect.