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, and welcome, everyone. Today's virtual meeting is a live webcast. We're pleased that you could join us today, and 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's Chief Executive Officer of Select Medical Holdings Corporation; and to Michael Tarvin, Senior Vice President, General Counsel and Secretary of the company. Mr. Tarvin will act as 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. They are: Russell L. Carson, David S. Chernow, Katherine R. Davisson, James S. Ely, Senator William Frist, Dr. S. Khanuja, Thomas A. Scully, Marilyn B. Tavenner, and Daniel J. Thomas. I would also like to introduce you to the senior managers of the company who, in addition to David Chernow, Mike Tarvin and me, are participating today: Martin Jackson, Senior Executive Vice President, Strategic Finance and Operations; John Saich, Co-President; Mike Malatesta, Executive Vice President and Chief Financial Officer; Chris Weigl, Senior Vice President, Controller and Chief Accounting Officer; and Brian Rusignuolo, Executive Vice President and Chief Information Officer. At this time, will the meeting please come to order? I'd now like to introduce you again to Mr. Mike 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 during which stockholders may ask questions. Stockholders who have entered the 15-digit control number from their proxy cards in 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've 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 by the Internet or telephone and does not want to change his -- her, his vote need not take any further action. The polls will close once the question-and-answer session is finalized. I'd now like to reintroduce you to Mr. Chernow.

Good morning. This has been a year of change, balancing growth within our joint venture partnerships with industry regulatory changes that impact our lines of business. Additionally, we faced the heartbreaking loss of our beloved Co-Founder and Chairman Emeritus, Rocco A. Ortenzio. In July, the company completed the initial public offering of wholly owned subsidiary, Concentra Group Holdings Parent, Inc. followed by the pro rata common stock distribution to each Select Medical stockholder in November. These successful transactions help Select Medical reduce its debt and maximize shareholder value. On the growth front, new and expanded joint venture partnerships increased Select Medical's footprint across specialty hospitals with AtlantiCare, Banner Health, Cleveland Clinic, CoxHealth, Lutheran Health Network, OhioHealth, Riverside Health, Rush Health, SSM Health, UF or University of Florida Health and UPMC Pinnacle. We also opened 2 neuro transitional centers with joint venture partners, Baylor Scott & White and OhioHealth. Additionally, 3 acute rehab units opened as part of expansions within our critical illness recovery hospitals in Chicago, Illinois; Pensacola, Florida; Springfield, Missouri, with planned more in 2025. Our inpatient rehabilitation hospitals experienced another standout year related to clinical excellence. 6 hospitals in 12 locations were recognized among the country's best rehabilitation hospitals according to U.S. News & World Report's annual rankings for 2024-2025. Additionally, the Newsweek named 11 of our inpatient rehab hospitals in 20 locations to the 2024 list of America's Best Physical Rehab Centers. With more than 6,750 critical illness recovery and inpatient rehab beds across the country, Select Medical was able to care for more than 82,670 patients in our specialty hospitals throughout 2024. The Outpatient Rehab Division completed 8 acquisitions and launched 23 startups reinforcing the company's strong market position across the United States. Additionally, the division continued to expand its industry differentiating Programs of Excellence focusing on pelvic health, degenerative joint disease, cancer rehab and sports medicine. Under our family of 38 outpatient rehabilitation brands, we proudly treated over 1.2 million patients in our 1,914 centers across the country in 2024. We remained committed to recruiting, retaining and developing our workforce, investing in programs that foster long-term engagement and satisfaction such as clinical ladders, continuing education, student loan repayment, scholarships and other programs. The company was also recognized in 2024 by Newsweek as one of America's Greatest Workplaces for Women and Greatest Workplaces for Diversity. We continued to address the ongoing national nursing shortage, launching partnerships with higher education nursing schools as part of a new initiative called uPLIFT. The program's charter is to cultivate and recruit critical nursing talent for the future. To date, more than 3,300 nursing students have entered our hospitals for clinical rotations. On the culture front, the company hosted its biennial Select Medical Way Conference in Dallas, bringing together more than 500 leaders of all organizational levels for an immersive 2-day event. It focused on the company's 5 core values, 6 cultural behaviors and 4 key results, the culture framework that guides how we operate and engage with each other and our partners. It is a privilege to employ more than 45,000 health care professionals who are committed to providing compassionate, world-class post-acute care that helped more than the 1.2 million patients regain independence and quality of life. Thank you for your support. We look forward to continuing to deliver on our mission in 2025.

This meeting has been called pursuant to the notice dated March 5, 2025, that was made available to all stockholders of record as of the close of business on February 28, 2025. 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 28, 2025, as the record date. Computershare Inc., the transfer agent for the company, reports that there were 128,963,837 shares of 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 to all stockholders entitled to vote at this meeting beginning on March 5, 2025, 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 123,155,991 shares of Select Medical Holdings Corporation common stock are represented at today's meeting, which constitutes 95.5% of the total shares outstanding on the record date. Therefore, I certify that a quorum has been achieved.

Thank you, Mr. Waford. 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.

Thank you, Mr. Tarvin. I will 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 4 Class I 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 28, 2025, is entitled to 1 vote for each share of common stock held. As of February 28, 2025, there were 128,963,837 shares of Select Medical Holdings Corporation common stock outstanding. The 4 nominees for Class I director are: Russell L. Carson, Katherine R. Davisson, William H. Frist and Marilyn B. Tavenner. The second order of business on our agenda is an amendment to the company's Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements. The third order of business on our agenda is a vote to approve the company's Non-Employee Director Compensation Policy. The fourth order of business on our agenda is a vote on a stockholder proposal to amend the company's Amended and Restated Certificate of Incorporation to elect each director annually. The fifth order of business on our agenda is to hold a nonbinding advisory vote on the compensation of the company's named executive officers. The sixth and final order of business on our agenda 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, 2025. We will now allow Mr. John Chevedden or his representative to present his stockholder proposal to amend the company's Amended and Restated Certificate of Incorporation to elect each director annually. Operator, please unmute Mr. Chevedden's line.

Hello, this is John Chevedden. Proposal 4 elect each director annually. Shareholders asked that Select Medical take all the steps necessary to organize the Board of Directors in order that each director stands for election at each annual meeting. Although Select Medical can adopt this proposal topic in 1 year and 1 year implementation is a best practice, this proposal allows the option to phase it in. Classified boards like the Select Medical Board 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 Lucian Bebchuk of the Harvard Law School. Arthur Levitt, former Chairman of the Securities and Exchange Commission said, in my view, it's best for the investor if the entire Board is elected once a year. Without annual election of each director, shareholders have far less control over who represents them. A total of 79 Standard & Poor's 500 and Fortune 500 companies worth more than $1 trillion have adopted this important proposal topic since 2012. Annual election of each director could make directors more accountable and thereby contribute to improved performance and increased company value at no extra cost to shareholders. Annual election of each director gives shareholders more leverage if the Board of Directors performs poorly. For instance, if the Board of Directors approves an excessive executive pay package, shareholders can soon vote against the Board's executive pay committee instead of potentially waiting 3 long years under the current setup. The fact that this proposal topic typically wins more than 90% support of a wide range of companies, the Select Medical Board of Directors should have taken this opportunity to have a shareholder vote on a Board of Directors' proposal on the same topic at today's meeting. Please vote yes, elect each director annually, Proposal 4.

Thank you, Mr. Chevedden. Operator, please remute Mr. Chevedden's line.

We will now attempt to answer questions posted to the virtual meeting web portal by our stockholders. As mentioned earlier, stockholders who have entered a 15-digit control number from the 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 company's Executive Vice President, Chief Information Officer, will now provide the questions, if any, submitted by stockholders during the meeting.

There are no questions from stockholders. Back to you, Bob.

Thank you. 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 24, 2025, I hereby certify that each of the 4 nominees for Class I director received a majority of the votes of the common stock cast for election as a director. The stockholders have approved the amendment to the company's Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements. The stockholders have approved the company's Non-Employee Director Compensation Policy. The stockholders have approved the stockholder proposal to amend the company's Amended and Restated Certificate of Incorporation to elect each director annually. The stockholders have approved the compensation of the company's named executive officers. And the stockholders have ratified the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ending December 31, 2025. The report of election prepared by Computershare evidences that all nominees for Class I director were elected by an affirmative vote of 92.78% or more of the shares voted. The amendment of the company's Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements was approved by an affirmative vote of the holders of 119,673,679 shares or 99.84% of the shares voted. 135,711 shares were voted against approval and 65,344 shares abstained. The company's Non-Employee Director Compensation Policy was approved by an affirmative vote of the holders of 117,642,815 shares or 98.14% of the shares voted. 2,137,833 shares were voted against approval and 91,086 shares abstained. The stockholder proposal to amend the company's Amended and Restated Certificate of Incorporation to elect each director annually was approved by an affirmative vote of the holders of 98,003,444 shares or 81.93% of the shares voted. 21,343,662 shares were voted against approval and 279,110 shares abstained. The compensation of the company's named executive officers was approved by an affirmative vote of the holders of 107,962,871 shares or 90.06% shares of the voted -- of the shares voted. 11,314,550 shares were voted against approval and 594,313 shares abstained. The appointment of PricewaterhouseCoopers LLP was ratified by an affirmative vote of the holders of 121,269,214 shares or 98.47% of the shares voted. 1,846,305 shares were voted against ratification and 40,472 abstained.

Thank you, Mr. Waford. Based on the report of the Inspector of Elections, I therefore declare that: one, the nominees have been duly elected as Class I directors of the company; two, stockholders approve the amendment to the company's Amended and Restated Certificate of Incorporation to eliminate supermajority voting requirements; number three, the stockholders have approved the company's Non-Employee Director Compensation Policy; number four, the stockholders have approved the amendment of the company's Amended and Restated Certificate of Incorporation to elect each director annually; number five, the stockholders have approved the compensation of the company's named executive officers; and six, the stockholders have ratified the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ended December 31, 2025. 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 this meeting. There being no further business to come before the meeting, I hereby adjourn the meeting. I want to thank everybody for your participation.

This concludes the meeting. You may now disconnect.